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Home » Legal Articles » Effectiveness Of A Release In An Indiana Forbearance Agreement

Effectiveness Of A Release In An Indiana Forbearance Agreement

The September 20, 2007 decision by Judge Barker of the United States District Court for the Southern District of Indiana in Midwest Lumber v. Branch Banking, 2007 U.S. Dist. LEXIS 69924 (S.D. Ind. 2007) involves the dismissal of borrowers' lender liability claims, but it also specifically addresses a release provision in a forbearance agreement. Even though lender liability is not my primary focus, certainly forbearance agreements are pertinent. And the workout industry should be aware of Judge Barker's holding.

Parties. The plaintiff was borrower Midwest Lumber, a lumber supplier. Mr. and Mrs. Davis, the principals of Midwest Lumber and guarantors in the subject transactions, also were plaintiffs. The loans in question involved working capital for the business secured by accounts receivable, inventory and real estate. The named defendant was Branch Banking and Trust Company, the lender, which refinanced Midwest Lumber's working capital loan facility.

Defaults/forbearance agreements. Midwest Lumber couldn't make its payments, so it and the Davises entered into a series of loan modifications and, ultimately, forbearance agreements with Branch Banking. As an inducement for Branch Banking to agree to the terms set out in the forbearance agreements, Midwest Lumber and the Davises gave comprehensive written releases to Branch Banking in each forbearance agreement that stated in pertinent part:

[Midwest Lumber and the Davises] hereby release and forever discharge [Branch Banking], its officers, directors, attorneys, employees, predecessors and successors (the "Released Parties") of and from any claims, demands, obligations, actions, causes of action, damages, costs (including without limitation court costs and attorneys' and paralegals' fees and expenses), expenses and compensation of any nature whatsoever (collectively, "Claims"), known or unknown, whether based in tort, contract or any other theory of recovery, or which may exist or might be claimed to exist at or prior to the date of this Letter Agreement on account of or in any way arising out of the Banking relationship between [Midwest Lumber], [Branch Banking] and its successors . . ..

Id. at 15.

Midwest Lumber/Davises Lawsuit. The suit giving rise to the opinion originated with the filing of a complaint by Midwest Lumber/the Davises against Branch Banking in which the plaintiffs alleged that Branch Banking should be liable for misrepresentation, breach of the covenant of good faith and fair dealing, interference with business relationships, breach of fiduciary duty, undue control, economic duress and business coercion and negligent misrepresentation. Significantly, Midwest Lumber/the Davises initiated the lawsuit after they had executed the forbearance agreements containing the release.

Midwest Lumber filed a motion to dismiss the claims based in part upon the releases in the forbearance agreements. Branch Banking argued that the forbearance agreements released it of any liability toward Midwest Lumber and the Davises. Judge Barker agreed. Midwest Lumber and the Davises made a variety of arguments against the enforceability and effectiveness of the releases, but Judge Barker concluded on page 18:

having determined that the releases clearly and unambiguously released [Branch Banking] from any claim by [Midwest Lumber and the Davises] arising out of their banking relationship and having further found that [Midwest Lumber and the Davises] were not under economic duress when they signed the releases and that [Midwest Lumber and the Davises] have not returned the consideration they received from [Branch Banking] in exchange for signing the releases, all of [Midwest Lumber and the Davises] claims in the Second Amended Complaint must be DISMISSED.

Message. The Midwest Lumber case begs the question of whether lenders should demand general releases in all of their forbearance agreements. Most workout scenarios will not involve questionable conduct on the part of the lender or allegations of lender liability. So, such a release might not directly apply in many situations. But there is no downside from the aspect of the lender to include such general releases in the forbearance agreements. Indeed, there is only upside: protection. The time the parties forbear is the time to get a release – even if you don't think you'll ever need it. Midwest Lumber generally supports the proposition that such a release should be effective to bar future lender liability claims brought by the borrowers or guarantors, so releases of liability probably should be negotiated into most if not all forbearance agreements, if possible.

And here is another random article you might be interested in...

Car Insurance, Save On Premiums!

Everyone has to agree to an excess of some kind when getting a car insurance policy â€" it's the way the system works. Basically it means that if you have an accident and your car needs to be repaired, you will have to pay a set amount towards the bill. If the accident is your fault, you lose the money. If the accident is not your fault, the third party insurer reimburses you for the excess payment. If your car is written off, then your insurance company will deduct your excess from the settlement payment.

Things aren't always that simple however, unfortunately there are a number of drivers on British roads that don't have any insurance, so the question is, what happens with your claim if you have an accident with an uninsured driver?

The 1988 Road Traffic Act, section 143 clearly states that all drivers on the UK roads must have insurance for the vehicle that they are driving. The point of the insurance is that if you have an accident and it is your fault, you have the means to cover the cost of the damage incurred by way of your insurance policy. It's a sad fact that a significant minority of drivers choose not to bother with insurance, disregarding UK law and saving themselves hundreds of pounds a year as a consequence. Someone has to pay for these drivers though, and it's the people that do have insurance that foot the bill!

The Department of Transport estimates that as many as 5% of drivers are not insured on the vehicle which they are driving. Statistics also show that uninsured drivers are more likely to be involved in an accident. It's a growing trend and is proving very difficult to eradicate.

If you have an accident, you are not at fault, and the third party is not insured, then you will be reimbursed by the Motor Insurers' Bureau. Who funds them? The car insurance industry! That's where some of your inflated premiums end up. You will also find that you'll have to pay the agreed excess yourself, there will be no-one able to refund that for you.

Here's the low-down on the basics about 'excess':

Compulsory Excess â€" this is the amount that the insurance company regards as the minimum amount that you must pay towards the cost of damages . This is agreed at the outset and depends on a few details you're your age and your driving record. For example, if you are older and have a clean driving record, you could only have to pay a minimum of £50. Those with a more chequered driving history, or those that have not been driving for very long, could feasibly have to agree to pay £500. The average for most drivers is £100 .

Voluntary Excess â€" this is the amount over and above the minimum 'compulsory' amount set by the insurer that you are prepared to pay. This is an opportunity to lower your premiums, because if you can agree to a high excess, then the insurance company knows it won't have to pay out as much if you need to make a claim. It's one of the few sure fire ways of saving a few pounds on a car insurance policy, but you may not be offered the choice, it depends on individual insurers.

The garage won't give my repaired car back until I give them a cheque for the excess â€" is this what usually happens?

This is completely normal, and you will have to pay and then get the money back from the third party insurer. Always give the car a good once over to ensure that the repairs have been satisfactorily completed. You also need to keep the receipt to get the excess back from the insurer, and just in case they dispute the charges, get a copy of the repair schedule so the insurer can see exactly what work was completed on your vehicle.