Court Resolved Contractual Ambiguity and Awarded Damages to Give Plaintiff Benefit of the Bargain

In a Decision and Order, dated August 22, 2022, in 57^th & 60^th St. Lender LLC v. State Bank of Tex., Index No. 654007/2018, Justice Jennifer Schecter of the New York County Commercial Division found the phrase “repaid in full” in a mortgage loan sale agreement to be ambiguous and, after holding a bench trial, resolved that ambiguity in favor of plaintiff and awarded damages in the amount plaintiff would have recovered on the loans had the agreement not been breached plus interest and attorneys’ fees. The Court explained:

The evidence established that the Loans were not repaid in full prior to closing. The assignments did not result in repayment of the Loans (Dkt. 217 at 4), and, after they were assigned, the Loans were merely amended and restated but the borrower still owed the debt (Dkt. 224). Significantly, "repaid in full" modifies the word "Loans" in § 6.7 and not "Seller" (Dkt. 188 at 13). Thus, even if SBT considered itself repaid (regardless of whether it was otherwise entitled to recover additional default interest and fees), that does not mean the Loans were actually repaid in full. They were not. Instead, what matters is whether the borrower actually fully repaid its debt rather than whether the original lender subjectively considered itself repaid, which would allow it to escape its obligations under the LSA whenever it wanted so long as it deemed itself sufficiently satisfied by the borrower. So even if there was some circumstance where an assignment could satisfy the "repaid in full" requirement, that would at least require the debt to be extinguished by virtue of the assignment. Here it was not. The borrower still had to repay the Loans to the new buyer and the Loans were subject to the same mortgages. So while the "repaid in full" caveat is merely a logical extension of the earlier portions of § 6.7, which permit SBT to keep all payments made by the borrower prior to closing, the court is not persuaded that the parties intended that payments made by an assignee to compensate SBT for the assignment, rather than payments by the borrower to actually extinguish his debt, constitute "Payments of principal and/or interest payable pursuant to the Loan" or results in the Loans being "repaid in full" within the meaning of § 6.7.

To be sure, the court does not doubt that the assignment was structured to ensure that the purchaser maintained lien priority and avoided paying transfer taxes. That the purchaser was driven by these considerations, however, has no bearing on whether SBT had the right under the LSA to assign the Loans if they were not paid in full prior to closing. It did not. The court does not find it credible that the parties intended to permit another purchaser to swoop in and buy the Loans for more than the price agreed in the LSA under the guise of the sale proceeds really being used to "repay" the loans. After all, if what SBT did was permitted, a seller could always find a higher bidder prior to closing and simply structure the transaction this way, rendering plaintiffs rights illusory. Under SBT's commercially implausible interpretation, a seller would always have the option to continue shopping the Loans for a higher price until closing. That cannot be what these contracting parties intended and certainly that intent is not evidenced by the expression "repaid in full."

The attorneys at Schlam Stone & Dolan draft loan agreements and litigate breach of contract claims. Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client have questions regarding these issues.