Construction Company Loses Breach of Contract Bid Against Lenders
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January 04, 2023, US Bankruptcy Court for Connecticut – The Connecticut Bankruptcy Court denied Dennis Group’s summary judgment motion on the allegations of breach of contract and fraud against People’s United Bank, N.A., and B.M.O. Harris Bank, N.A.
Dennis Group was engaged by Old CP, Inc. and Suri Realty, LLC (“Debtors”) for engineering and construction management services on Debtors’ properties in Connecticut. People’s United and B.M. Harris financed these construction projects in exchange for a mortgage on Debtors’ properties. Dennis Group and Debtor Suri Realty entered into a consent agreement whereby Dennis Group consented to subordinate its mechanic’s line to the lenders’ mortgage on Debtors’ properties. The dispute revolves around Dennis Group’s contention that the consent agreement also required lenders to provide notice to Dennis Group of the Debtors’ events of default under the loan agreement. Dennis Group alleged that lenders failed to provide such notice and were, therefore, in breach of the consent and loan agreements. Dennis Group further claimed that, due to the alleged breach, the consent agreement could not be enforced to subordinate its mechanic’s lien.
The Court found that the lenders did not sign the consent agreement and that the signature blocks in the consent agreement were solely reserved for Dennis Group and Suri Realty. However, Dennis Group argued that lenders’ signatures on the loan agreement arguably made the lenders a party to the consent agreement since the loan agreement required execution of the consent agreement. Though the Court agreed that the loan agreement incorporated the consent agreement as one of the loan documents, it held that these agreements could not be considered as a “single contract” between the Dennis Group and the lenders since the Dennis Group was not a party to the loan agreement.
The Court also rejected Dennis Group’s argument that the lenders were bound by the consent agreement because they drafted and approved its language and enjoyed the benefit of Dennis Group’s consent under the agreement to subordinate its mechanic’s lien. The Court held that the Dennis Group failed to show that the lenders intended to be bound by the consent agreement. The Court further noted that the consent agreement was commercial in nature and made by and between sophisticated and experienced commercial parties. The Court found that the plain language of the agreement did not obligate the lenders to give notice to Dennis Group of Debtor’s defaults under the loan agreement. The Court observed that the parties could make such a mandatory notice provision for the lenders in the consent agreement to mitigate the risk for Dennis Group; however, the parties failed to do so. Therefore, the Court denied any breach of contract on the part of the lenders. Consequently, the Court also rejected Dennis Group’s allegations that the lenders defrauded Dennis Group by promising to give notice of default without any intent to perform such a promise.
The Bankruptcy Court denied Dennis Group summary judgment on the allegations of breach of contract and fraud against the lenders of the construction project.
Dennis Eng’g Grp., LLC v. People’s United Bank, N.A. (In re Old CP, Inc.), 2023 Bankr. LEXIS 4, 2023 WL 108132