The transcript of the video follows below for further review.
The case of Rister v. Yadkin Bank arose out of a United States Small Business Administration ("SBA") loan that Defendant Yadkin Bank ("the Bank") made in 2011 to a corporate borrower, Mystique Makeover, LLC, a salon in Charlotte, North Carolina, operated by Maria L. Rex. Rister attempted to represent himself in the litigation. In July 2011, Plaintiff Timothy Rister and Ms. Rex signed a Commitment Letter with the Bank, acknowledging that they each intended to be guarantors on the loan for a maximum principal amount of $100,000. In September 2011, Rister signed an SBA Unconditional Guarantee (SBA Form 148) with respect to the loan, agreeing unconditionally to pay the lender all amounts owed under the loan. In 2014, Ms. Rex ceased her business operations due to disability, the corporate borrower defaulted on the loan, and Ms. Rex filed for bankruptcy. Following the borrower's default, the Bank's North Carolina counsel, Ellis & Winters LLP, sent a demand letter to Rister dated May 2, 2014, informing him that as a result of the default, the principal balance, all accrued but unpaid interest, and all other amounts owing under the loan were immediately due and payable in full. In September 2014, Rister commenced the present action, filing a Complaint against the Bank containing seventeen counts, following which the Bank filed a Motion to Dismiss the Complaint in its entirety.
Rister asserted claims of "negligence/mistake/deception/bad faith" concerning a "commitment fee." Rister alleged that the Commitment Letter failed to sufficiently define the "packaging fee" and "SBA fee". He alleged that the terms "packaging fee" and "SBA fee" are "ambiguous and vague," and that the Commitment Letter failed to provide a "detailed breakout as to what these fees were." He also alleges that, by virtue of the Commitment Letter and the Unconditional Guarantee, the Bank "owed a duty of good faith and fair dealing" to him, "created a confidential relationship" with him, and had "a fiduciary duty to disclose details of [the] 'packaging fee' and 'SBA Fee'" to him because he and the Bank "were in a commitment letter contract and a 'contract of guaranty'". In addition, Rister alleged that the Bank's failure to sufficiently define the SBA and packaging fees caused a "unilateral mistake" on his part, such that "any contract is unenforceable or voidable by the plaintiff."
The Court noted that courts have refused to find a general duty of care between a lender and a guarantor. Likewise, Rister's allegations that the Bank failed to provide a detailed breakout of the fees do not state a claim for breach of the covenant of good faith and fair dealing, which occurs when "a party unreasonably exercises discretion authorized in a contract."
With respect to Rister's claim of unilateral mistake, the Court noted that one of the "basic elements required for a court to find a unilateral mistake" is that the mistake "must be to a 'basic assumption' or the essence of the contract." The Court stated that the Amended Complaint did not plausibly allege that Rister made a mistake as to a basic assumption of an agreement. Indeed, as the Bank points out, the nature of Rister's alleged mistake is unclear from the Complaint. Moreover, the fees listed in the loan are only a small fraction of the amount of the loan, and so it is difficult to imagine how any mistake concerning those fees could be basic to the transaction. The second element of a unilateral mistake is that "the party alleging the mistake must not bear the risk of the mistake by being aware, at the time the contract is made, that the party has 'limited knowledge' of the facts to which the mistake relates and treating this limited knowledge as sufficient." The allegations in the Complaint failed to meet this element because Rister was or should have been aware at the time he signed the Commitment Letter that the Letter did not include a "detailed breakout" of the fees. Finally, even if Rister could establish the elements of a unilateral mistake, "courts do not grant relief when the mistake is unilateral, instead of mutual, and is not due to the fault of the other party." The Court ruled that Rister had not plausibly alleged that he made a unilateral mistake due to the fault of the Bank.
In sum, the allegations in Rister's Complaint failed to state a claim upon which relief may be granted.
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Clients personally guaranteed SBA 504 loan balance of $750,000. Clients also pledged the business’s equipment/inventory and their home as additional collateral. Clients had agreed to a voluntary sale of their home to pay down the balance. We intervened and rejected the proposed home sale. Instead, we negotiated an acceptable term repayment agreement and release of lien on the home.
The client personally guaranteed an SBA 7(a) loan for $150,000. His business revenue decreased significantly causing default and an accelerated balance of $143,000. The client received the SBA's Official 60-day notice with the debt scheduled for referral to the Treasury’s Bureau of Fiscal Service for aggressive collection in less than 26 days. We were hired to represent him, respond to the SBA's Official 60-day notice, and prevent enforced collection by the Treasury and the Department of Justice. We successfully negotiated a structured workout with an extended maturity date that included a reduction of the 14% interest rate and removal of substantial collection fees (30% of the loan balance), effectively saving the client over $242,000.
Clients' 7(a) loan was referred to Treasury's Bureau of Fiscal Service for enforced collection in 2015. They not only personally guaranteed the loan, but also pledged their primary residence as additional collateral. One of the clients filed for Chapter 7 bankruptcy thinking that it would discharge the SBA 7(a) lien encumbering their home. They later discovered that they were mistakenly advised. The Firm was subsequently hired to review their case and defend against a series of collection actions. Eventually, we were able to negotiate a structured workout for $180,000 directly with the SBA, saving them approximately $250,000 (by reducing the default interest rate and removing Treasury's substantial collection fees) and from possible foreclosure.
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