Question

REGER DEVELOPMENT, LLC V. NATIONAL CITY BANK UNITED STATES COURT OF APPEALS, SEVENTH CIRCUIT 592 F.3d 759 (2010) FACTS: Reger Development borrowed money from National City Bank, using a revolving line of credit supported by a promissory note. At the point that National City discussed the possibility of calling the note, Reger Development sued the bank for breach of contract and fraud. The district court granted National City’s motion to dismiss Reger’s complaint. Reger had met with the bank prior to usingPage 348 the line of credit to discuss the loan. Reger asked about changing the terms of the credit agreement. The bank representative, Duncan, responded that the National City documents were non-negotiable. Reger then executed the contract. The main question here is whether the promissory instrument entitles National City to demand payment from Reger at will. National City moved to dismiss Reger’s complaint. The district court granted this motion, and Reger appealed. ISSUE: Did National City breach its contract with Reger Development? REASONING: The first clause in the note in question reads: PROMISE TO PAY: Reger Development, LLC (“Borrower”) promises to pay to National City Bank (“Lender”), or order, in lawful money of the United States of America, on demand, the principal amount of Seven Hundred Fifty Thousand & 00/100 Dollars ($750,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT: Borrower will pay this loan in full immediately upon Lender’s demand. Borrower will pay regular monthly payments of all accrued unpaid Interest due as of each payment date, beginning July 25, 2007, with all subsequent Interest payments to be due on the same day of each month after that. The court reasoned that the language of the note gave National City the right to collect scheduled monthly interest payments, and these demands did not deviate from the structure of a demand note. Specifically, the court relied on the note’s statement that National City could demand payment at any time. Further, the language of the note reinforces National City’s right to collect scheduled monthly interest payments and does not deviate from the structure of a demand note. The court also addressed Reger’s argument that National City had breached its contract by demanding payment despite Reger’s being in good economic standing and that the bank had inappropriately changed the terms of the contract without Reger’s full consent. As revealed in the following direct quote, the court found Reger’s argument to be vacuous: While Illinois law generally holds that “a covenant of fair dealing and good faith is implied into every contract absent express disavowal,” the duty to act in good faith does not apply to lenders seeking payment on demand notes. In light of this controlling law, appellant’s complaint appears vacuous. Reger Development’s allegations are “that National City breached the Contract Documents by arbitrarily and capriciously (1) demanding payment under the Line of Credit even though Reger Development was in good standing and (2) unilaterally changing and attempting to change the fundamental terms of the Contract Documents without Reger Development’s consent.” Reger Development attempts to substantiate the first part of the breach claim by pointing to several provisions in the Note that it believes to be fundamentally inconsistent with the nature of a demand instrument. These include the “INTEREST AFTER DEFAULT” provision, which reads, in relevant part, “[u]pon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased by adding a 2.000 percentage point margin;” the prepayment clause, which allows the borrower to pay down “all or a portion of the amount owed earlier than it is due;” and the clause that grants National City the right to access the borrower’s financial information. Reger Development describes the latter as a “financial insecurity” provision that conditions the right to demand payment on some economic cause. We are not persuaded by the suggestion that these references to due dates and default somehow overpower the repeated, explicit contract language setting forth the lender’s right to demand payment at any time. DECISION AND REMEDY: The court affirmed the district court’s decision to grant National City’s motion to dismiss. SIGNIFICANCE OF THE CASE: This case provides an illustration of how the court determines whether a note constitutes a demand instrument. Specifically, one can see the vigorous attention the court gives to the specific language of a note. What is the ambiguity in the agreement with National City that Reger believes provides him with a proper basis for his cause of action against National City?

Answer 1

Reger beleives his contract has been inexplicably tweaked without his consent and thus the National City banks actions are fraudulent.

However the demand note is an instrument which is straightforward and adjoined by personal guarantee by borrowers sole member and thus both parties have read and agreed with mutual consent is the assumption made making Regents claim full of flaws.