Pub. 10 2015-2016 Issue 2

www.nebankers.org 26 Extraordinary Service for Extraordinary Members. statutes base the enforceability of credit agreements—includ- ing amendments and modifications thereto—as well as other financial accommodations, on whether the agreements exist in written form. Many of these state statutes require the lender to include certain language informing the borrower of the writing re- quirement. In Nebraska, failure to include the statutorily required provision in writing opens the door for the borrower to argue the credit relationship has been orally modified. 10 But what happens when a credit agreement or commitment is completely oral? The Nebraska Supreme Court recently clarified its position on oral commitments in Synergy4 En- terprises Inc. v. Pinnacle Bank. 11 In Synergy4 , a corporate borrower and borrower's share- holders sued a lender after the lender declined to make fur- ther advances on the borrower's credit line. 12 The borrower asserted claims for promissory estoppel, negligent misrepre- sentation, and fraud based on oral promises or commitments by the president of the lender's branch office that the lender would lend or extend credit of $1 million. 13 The district court granted the lender’s motion for summary judgment; the cor- porate borrower and shareholders appealed. 14 The facts of the case illustrate a common banking rela- tionship and a situation in which many lenders could easily find themselves. The sole shareholders of Synergy4 Enter- prises Inc. and the bank branch president had developed a “longstanding banking relationship.” 15 Synergy4 alleged that during a meeting, the branch president orally approved a line of credit of “at least $1 million.” 16 After the meeting and notwithstanding his oral statement, the branch president provided the shareholders a commitment letter for a line of credit of $400,000. Within two months following the meet- ing and the oral assurance regarding the availability of a $1 million line of credit, the shareholders had “committed Syn- ergy4 to approximately $1.6million in inventory purchases.” 17 After these purchase commitments were made, the branch president informed the shareholders that the bank “would not be lending more than $400,000 as provided for in the commitment letter.” 18 On appeal, the plaintiffs argued that “the Nebraska credit- agreement statute of frauds is coextensive with Nebraska’s general statute of frauds . . . [and] that because promissory estoppel applies to the state’s general statute of frauds, it also applies to unwritten credit agreements.” 19 In other words, the plaintiffs argued that since promissory estoppel is, in certain circumstances, a recognized exception to Nebraska’s general statute of frauds, it should be recognized as an exception to the credit-agreement statute of frauds. TheNebraska Supreme Court rejected this argument and held promissory estoppel was not an exception to the credit-agreement statute of frauds. The Nebraska Supreme Court supported its holding by de- termining that the language of the statute was not ambiguous and did not require interpretation. It then looked to the broad definition of “credit agreement” provided by the statute that included not only a contract to lend money but also promises to lend or commitments to lend money. 20 Accordingly, the Court stated the broad unambiguous definition “precludes recovery for a credit agreement based on the promissory estoppel doctrine, which is wholly dependent on reliance on a promise or assurance.” 21 The Court also supported its conclusion by looking to the decisions from the Eighth Circuit Court of Appeals 22 and Nebraska law. 23 Regarding the claim for negligent misrepresentation, the Nebraska Supreme Court held that the claim was similarly barred by the credit-agreement statute of frauds because the claim was “based on a credit agreement that was not in writing.” 24 So what should a lender take away fromSynergy4? Beyond simply refraining from making oral assurances, Synergy4 serves as a reminder to keep three practical measures inmind. First, always use the statutory notice language in your credit agreement document, including any commitment letter. If a credit agreement does not contain language informing the borrower of the written requirement for enforceability of any inclusion or modification of terms, 25 the protection afforded by the credit-agreement statue of frauds does not apply. 26 Second, notwithstanding early discussions with a borrower about the scope or nature of any extension of credit, it is  Court Update — continued from page 25 In Nebraska, failure to include the statutorily required provision in writing opens the door for the borrower to argue the credit relationship has been orally modified. 10 But what happens when a credit agreement or commitment is completely oral? The Nebraska Supreme Court recently clarified its position on oral commitments in Synergy4 Enterprises Inc. v. Pinnacle Bank.