Banks & Banking – Loan Negotiations – Capital Gains Deferral Period – Duty to Negotiate in Good Faith

Where the parties had no binding loan agreement, the defendant-bank is not liable for failing to tell the plaintiff-borrower how much of an equity injection would result in loan approval. The court declines to address whether a claim for breach of a duty to negotiate in good faith is cognizable in North Carolina.

We affirm summary judgment for the bank.

Plaintiff planned to sell certain property and build a new hotel. In order to defer capital gains taxes, plaintiff was required to, inter alia, reinvest all gains on the sale into construction within 180 days after the sale.

In addition to the sale proceeds, plaintiff required a construction loan to build the new hotel. Plaintiff obtained a loan approval from the bank, but the loan approval expired before plaintiff had a contract to purchase the land on which it intended to build the new hotel, a construction contract or even a firm construction quote from a general contractor.

The parties began negotiating the loan again. Without waiting to be sure a new loan would be approved, plaintiff sold its property. The loan was not approved. Plaintiff obtained a loan from a different bank, but not within 180 days after the sale of its property.

Fraud

There is no enforceable loan agreement appearing in the record, and plaintiff has not shown that the bank breached a duty to disclose a material fact relating to a future transaction.

Presuming, without deciding, that the bank had a duty to disclose the amount of an equity injection it would require, plaintiff has not forecast sufficient evidence to refute the testimony of bank personnel that the bank never determined a specific amount of equity injection that would have resulted in the loan being approved.

Plaintiff cannot show it reasonably relied on any assurance that it would receive a loan from the bank. No record evidence suggests the bank induced plaintiff’s decision to start the clock on its § 1031 “like-kind” exchange by selling its existing property without having first obtained a construction quote or securing its financing.

Duty to Negotiate in Good Faith

North Carolina’s appellate courts have not recognized a claim for breach of a duty to negotiate in good faith. While our Business Court has done so, we decline to address whether a claim for breach of a duty to negotiate in good faith is cognizable in North Carolina, considering our Supreme Court’s longstanding precedent in Boyce v. McMahan, 285 N.C. 730, 208 S.E.2d 692 (1974) that “a contract, or offer to contract, leaving material portions open for future agreement is nugatory and void for indefiniteness.”

Further, plaintiff has admitted there was no written agreement to continue negotiating in good faith, and no bank representative communicated an agreement to negotiate the loan in good faith.

Affirmed.

HD Hospitality, LLC v. Live Oak Banking Co. (Lawyers Weekly No. 012-395-22, 21 pp.) (Fred Gore, J.) Appealed from New Hanover County Superior Court (Kent Harrell, J.) Lorin Lapidus and Gray Wilson for plaintiff; Henry Kitchin and Abigail Golden for defendant. 2022-NCCOA-638