Note: Collateral Plus, LLC and Collateral Guaranty Fund, L.P. (Financiers), businesses that provide credit enhancements to companies that have difficulty in obtaining traditional bank financing, entered a loan management agreement with MAX Well Medical, Inc. (Borrower), which was experiencing financial difficulties, to assist in obtaining a line of credit. Financiers provided standby LCs in favor of SunTrust Bank (Beneficiary) enabling Borrower to obtain a line of credit up to US$4,500,000 and agreed to act as paying agent. The agreement provided that Borrower would pay Financiers certain fees including a placement fee of US$900,000 "payable upon a change of control of [Borrower], sale of [Borrower], or the acquisition of [Borrower's] assets." The agreement expressly stated that it terminated when the loan was paid in full.

When Fresenius Medical Care North America (Buyer) acquired 31% of Borrower's outstanding stock and guaranteed US$4,000,000 of new debt taken on by Borrower, Borrower used this newly borrowed money to pay off the balance of its outstanding loan from SunTrust Bank. One year later, Buyer purchased the remaining 69% of Borrower's stock. Financiers demanded their US$900,000 placement fee, but Borrower declined to pay the fee. Financiers then sued Borrower to recover the placement fee.

The Chancery Court for Davidson County, McCoy, Chancellor, granted Financiers's motion for summary judgment. On appeal, the Court of Appeals of Tennessee, Cottrell, P.J., Bennett, J., reversed and granted summary judgment in favor of Borrower concluding that the agreement was terminated when the underlying loan was satisfied. Dinkins, J., dissented and agreed with the ruling of the trial court.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.