In 2012, Summitbridge Credit Investments III, LLC (herein “Lender”) purchased from the original lender a loan obtained by Carlyle Beach, LLC (herein “Borrower”). Lender requested that Borrower produce the financial reporting documentation as provided in Section 7 of the loan agreement (“Loan Agreement”). Section 7 requires Borrower to comply with certain covenants “so long as credit is available under this agreement and until the Bank is repaid in full.” Borrower failed to provide the requested documentation. Lender subsequently filed suit to foreclose the property due to Borrower’s breach of the Loan Agreement.

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At trial, Lender argued that Borrower was required to comply with the covenants in Section 7, including production of the requested financial reporting documentation, until the loan was paid in full, and that failure to comply was a material breach of the Loan Agreement. To the contrary, Borrower argued that it was required to comply with the covenants in Section 7 only “so long as credit is available.” At the time the documentation was requested by Lender, there was no credit available to Borrower. Lender argued that the lower court should interpret the word “credit” in Section 7 to mean essentially a loan.  By reading the Lender’s Section 7 interpretation into the Loan Agreement, the Lender convinced the court that the requirements were satisfied and therefore Borrower was in breach by failing to comply. The court ruled in favor of Lender, finding the Borrower in default of the Loan Agreement.

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Borrower appealed. The Fourth District reversed and remanded the lower court’s determination for one reason, the presence of the word “and”. The Fourth District’s opinion cites McDonald v Browne-McDonald, stating “when the word ‘and’ is placed between two conditions in a contract, it ‘shows that the conditions are linked, and both must occur.’” McDonald, 125 So.3d 833,835 (Fla. 1st DCA 2013)(emphasis added). Giving effect to the word “and”, the Fourth District read Section 7 as having two unique requirements that must be met in order for the Section to be enforced. The Fourth District was unwilling to read ambiguity into the plain language of the first requirement of available credit and assign the word a new meaning. The unpaid balance of the loan was insufficient to require Borrower’s compliance with the financial reporting requirements of the loan. 

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By: Ashley Duncan Segal, October 18, 2017

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http://caselaw.findlaw.com/fl-district-court-of-appeal/1859223.html

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