Bankruptcy Filing, Which Was Later Dismissed, Did Not Excuse Buyer Under Loan Sale Agreement From "Time of the Essence" Requirement to Close

On April 12, 2024, Justice Margaret Chan of the New York County Commercial Division issued a decision in Wilmington Trust, N.A. v. 39-05 29th St Hotel, LLC, et al., Index No. 654401/2023, denying a motion to dismiss brought by the defendant-buyer under a Loan Sale Agreement for breach of this agreement and rejecting the defendant-buyer's argument that its bankruptcy filing, which was later dismissed, waived the plaintiff-seller's right to demand a time-of-the-essence closing, explaining:

[M]ovant·defendant is essentially arguing-with no legal support-that movant·defendant's choice to declare bankruptcy effectively waived plaintiff's right to timely performance under the "time is of the essence" clause. Parties may waive their own rights to timely performance (Stefanelli, 223 AD2d at 362), or waive by mutual agreement (Greto, 161 AD2d at 110). Movant·defendant has cited no authority stating that one party may waive the other's right to timely performance, nor any authority that the operation of bankruptcy law itself waives that right after the bankruptcy case has been dismissed. Given that plaintiff immediately sent movant·defendant a default letter when the bankruptcy case was dismissed, plaintiff did not waive its rights (NYSCEF # 6). Thus, there is no evidence or allegation that plaintiff waived its right to timely performance, and plaintiff had no duty to extend movant·defendant's time to comply.

While a bankruptcy filing may afford a party significant benefits in avoiding the enforcement of default remedies under a pre-petition contract, as this case shows, those remedies may still exist after the bankruptcy case is dismissed. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning commercial-lending disputes or "time-of-the-essence" clauses.