Court Holds That Bank’s Threats To Withhold Funding And Commence Foreclosure Cannot Support Economic Duress To Invalidate Forbearance Agreement

Posted: July 6, 2026 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Categories Motion to Dismiss, Breach of Contract, Fraud/Misrepresentation, Fiduciary Duties

Court Holds That Bank’s Threats To Withhold Funding And Commence Foreclosure Cannot Support Economic Duress To Invalidate Forbearance Agreement

On May 21, 2026, in New Tent, LLC, et al, v. Shanghai Commercial Bank Ltd., et al., Index No. 659251/2024, Justice Andrea Masley granted banks’ motions to dismiss claims that their threats to withhold funding and commence foreclosure created economic duress that should invalidate a forbearance agreement.

Plaintiffs alleged that defendant banks fraudulently induced them to enter into loan agreements to finance a luxury mixed-use redevelopment project in Manhattan, and that the banks and a co-defendant construction firm conspired to strip the plaintiffs of the project. The court dismissed several claims, while sustaining others. Notably, it held that plaintiffs’ claim that the banks’ threats to withhold funding and foreclose could not constitute economic duress. The court rejected this claim because the Building Loan Agreement expressly authorized the banks to take those very actions upon a default, and plaintiffs conceded they were in default. The Court explained:

The Building Loan Agreement provides that, in the event of a default, the Banks ha[ve] the option to “(i) terminate all further obligations to disburse funds to the Borrower under this Agreement, . . . [and] (iv) exercise all rights and remedies available to it under any or all of the Loan Documents, including, without limitation, foreclosing the Mortgage, the Project Loan Mortgage and/or the Land Loan Mortgage.” . . . Because the Banks’[s] rights to withhold funding and pursue foreclosure were enumerated in the Building Loan Agreement and triggered upon plaintiffs’ default, the Banks’ “threats” cannot constitute economic duress.

The court also dismissed the fraud claim, finding that most of the alleged misrepresentations were either contractually precluded, nonactionable opinions or future promises, duplicative of the breach of contract claim, or unsupported by allegations of injury or reliance. A breach of fiduciary duty claim also failed because the ordinary debtor-creditor relationship does not give rise to a fiduciary duty, and plaintiffs’ own allegations acknowledged that their relationship with the banks was adversarial rather than one of confidence and trust.

The attorneys at Schlam Stone & Dolan LLP frequently counsel clients regarding breach of contract, unjust enrichment, and breach of fiduciary duty. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.