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Note: Huntington National Bank [Lender/ Issuer] extended credit to various entities controlled by the Daniel J. Aronoff Living Trust, the Arnold Aronoff Revocable Trust, and their business entities [Borrowers] in excess of USD 27 million through a series of transactions including a standby letter of credit in favor of the City of Novi Michigan. Several of Borrower's business entities, including some Borrowers that were also Guarantors, guaranteed approximately USD 15 million of these loans.

After the standby was honored, Borrowers defaulted on the loans and Lender/Issuer sued them and Guarantors to enforce all outstanding promissory notes, debts, and guarantees and moved for summary disposition. The Circuit Court, Oakland County, Michigan granted summary judgment in favor of Lender/Issuer. On appeal, the Court of Appeals of Michigan affirmed in an opinion by Kelly, J.

Borrowers and Guarantors argued that their default was occasioned by the failure of Lender/Issuer to extend credit in the full amount negotiated between them, namely USD 5 million and, instead, extending credit in the amount of USD 4.3 million and requiring the pledge of the remaining assets as security, contrary to the negotiated agreement causing catastrophic consequences due to the financial recession of 2007/8. The appellate opinion characterized this "lender liability" claim as a "breach of contract counterclaim framed as an affirmative defense."

Both the trial and appellate court based their decisions in considerable part on Michigan Statute M.C.L. 566.132(2) which provides in part "(2) An action shall not be brought against a financial institution to enforce any of the following promises or commitments of the financial institution unless the promise or commitment is in writing and signed with an authorized signature by the financial institution: (a) A promise or commitment to lend money, grant or extend credit, or make any other financial accommodation".

The appellate court noted that this provision extended the requirements for an enforceable promise by requiring more than a series of memoranda to establish the promise. The court stated "In 1992, Michigan's Legislature decided to provide greater protection to financial institutions from potentially fraudulent or spurious claims by disgruntled borrowers . . . To that end, the Legislature provided that no one may bring an "action" against "a financial institution" if the action seeks to "enforce" a promise or commitment by the financial institution "unless the promise or commitment is in writing and signed with an authorized signature by the financial institution." This provision applies to a "promise or commitment"-as alleged here-to "lend money." The appellate court interpreted this provision to mean that a person seeking to enforce a promise or commitment to lend "must present evidence that the promise or commitment itself was reduced to writing and properly signed. It is not, therefore, sufficient to show that the financial institution memorialized a portion of the agreement or reduced a preliminary understanding to writing and then later orally agreed to proceed under that framework, nor is it sufficient to present a series of documents-some signed and others not signed-that together purport to be the agreement; rather, the proponent must present evidence that the financial institution actually agreed to the essential terms of the promise or commitment, and each of those essential terms must be accompanied by the required signature."

Since there was no dispute that the Lender/Issuer decided not to finalize the preliminary agreement, the appellate court concluded that summary judgment was appropriate.

Comment: This case is summarized as a reminder that many jurisdictions have similar requirements regarding promises by banks to lend or extend credit.

The Statute:

Mich. Comp. Laws § 566.132, Agreements, contracts, or promises for which signed writing required; enforcement

Sec. 2. (1) In the following cases an agreement, contract, or promise is void unless that agreement, contract, or promise, or a note or memorandum of the agreement, contract, or promise is in writing and signed with an authorized signature by the party to be charged with the agreement, contract, or promise:

(a) An agreement that, by its terms, is not to be performed within 1 year from the making of the agreement.

(b) A special promise to answer for the debt, default, or misdoings of another person.

(c) An agreement, promise, or undertaking made upon consideration of marriage, except mutual promises to marry.

(d) A special promise made by a personal representative to answer damages out of his or her own estate.

(e) An agreement, promise, or contract to pay a commission for or upon the sale of an interest in real estate.

(f) An assignment of things in action, whether intended as a transfer for sale, for security, or otherwise.

(g) An agreement, promise, contract, or warranty of cure relating to medical care or treatment. This subdivision does not affect the right to sue for malpractice or negligence.

(2) An action shall not be brought against a financial institution to enforce any of the following promises or commitments of the financial institution unless the promise or commitment is in writing and signed with an authorized signature by the financial institution:

(a) A promise or commitment to lend money, grant or extend credit, or make any other financial accommodation.

(b) A promise or commitment to renew, extend, modify, or permit a delay in repayment or performance of a loan, extension of credit, or other financial accommodation.

(c) A promise or commitment to waive a provision of a loan, extension of credit, or other financial accommodation.

(3) As used in subsection (2), "financial institution" means a state or national chartered bank, a state or federal chartered savings bank or savings and loan association, a state or federal chartered credit union, a person licensed or registered under the mortgage brokers, lenders, and servicers licensing act, Act No. 173 of the Public Acts of 1987, being sections 445.1651 to 445.1683 of the Michigan Compiled Laws, or Act No. 125 of the Public Acts of 1981, being sections 493.51 to 493.81 of the Michigan Compiled Laws, or an affiliate or subsidiary thereof.

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This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.