No-Oral-Modification Clause Precluded Defense That Bank Said it Would Refinance

On April 27, 2017, Justice Scarpulla of the New York County Commercial Division issued a decision in Medallion Bank v. Butwin Transit Inc., 2017 NY Slip Op. 30877(U), holding that alleged oral promises to refinance loans did not preclude summary judgment in lieu of complaint against the borrowers and guarantors when the loans eventually were not refinanced and went into default.

In Medallion Bank, the plaintiff bank moved for summary judgment in lieu of complaint, seeking judgment on its claim for payment on certain loans. The defendants opposed, arguing, among other things, that a bank employee repeatedly assured them that the loans would be refinanced, and for that reason, "they did not search for an alternative lender and did not consider any
restructuring or sale options." The court rejected this defense and granted the plaintiff summary judgment, explaining:

The security agreements and guaranty agreements clearly prohibit oral modifications to the terms of the loans. When parties have expressed an intention not to enter into a modification or amendment of their contract unless such is in writing, they will not be bound until that writing has occurred.

Medallion's alleged oral promises to refinance cannot serve as a basis to modify the terms of the loan documents, specifically, the maturity date or the amounts owed. Defendants' fraud allegations are without merit because the express language in the loan documents declaring no modification or waiver of their terms without a writing negates the element of justifiable reliance on the alleged oral promise. Further, the covenant of good faith and fair dealing cannot serve to negate express provisions of an agreement.

(Internal citations omitted).