In Ussery v. Branch Banking and Trust Company, 2015 WL 5655952 (N.C. Supreme Court, 25 September, 2015), plaintiff alleged he met with a bank loan officer and discussed his furniture assembling business plan and was assured by the officer that his business would qualify for an SBA loan. Over the next two years the business obtained three commercial loans from the bank. Plaintiff alleged that he frequently inquired as to the status of the government-backed loan and was repeatedly assured he would receive it.
However, two years after the initial inquiry, the loan officer informed plaintiff no government-backed loan was available. Knowing this, plaintiff closed his business and started selling off its assets. Fully aware that he had various potential causes of action against the bank, plaintiff nevertheless obtained a commercial loan from the bank in order to consolidate his debts and reduce his monthly payments. Plaintiff later entered into several loan modification agreements. Each time he reaffirmed his obligation and waived any offsets and defenses against the note or the bank.
Over six years after first learning no government-backed loan was available, plaintiff filed suit alleging negligence, negligent misrepresentation, breach of contract, unfair and deceptive trade practices, breach of fiduciary relationship, breach of duty of good faith dealing and fraud. Plaintiff alleged the loan officer had made various oral assurances over the period of loan reaffirmations that the loan would not have to be repaid. Summary judgment was granted for the bank, which claimed that each cause of action was barred by the applicable statute of limitation. A divided Court of Appeals reversed, opining that the bank was equitably estopped from relying on its limitations defenses because assurances it made to plaintiff about working out their differences may have induced him to delay filing suit.
Observing that “[p]arties are [generally] free to waive various rights, including those arising under statutes” RL Regi N.C., v, Lighthouse Cove, LLC, 367 N.C. 425, 428, 762 S.E.2d 188, 190 (2014), the Supreme Court reinstated summary judgment in favor of the bank.
A debtor who, on the one hand, acknowledges his debt obligations and waives any defenses against that obligation cannot, at the same time, claim he reasonably relied on contemporaneous assurances that the very same debt would be canceled. See Int'l Harvester Credit Corp. v. Bowman, 69 N.C.App. 217, 220, 316 S.E.2d 619, 621, disc. rev. denied, 312 N.C. 493, 322 S.E.2d 556 (1984) (holding the defendants' reliance unreasonable as a matter of law when the defendants signed a guaranty that expressly contradicted the creditor's assurance).
Ussery, at 8.
While the opinion in Ussery strongly suggests plaintiff would likely have withstood a motion for summary judgment had he not waived rights of offset and defenses when he reaffirmed his loan, it appears clear that once a debtor accepts the benefit of a loan and reaffirms his obligations to his creditor, he can no longer rely on promises or representations made prior to reaffirmation. For the debtor, he must make a hard choice whether to proceed with legal action or enter into a new contract with his creditor, albeit on less advantageous terms than he believed was promised. For the creditor who is unable to fulfil more generous promised loan terms, extending credit on less generous terms with loan language that requires the debtor to waive offsets or defenses against the bank is likely to protect the bank from subsequent litigation, at least in a commercial loan setting.