Community First Bank v. First Central Bank McCook
310 Neb. 839
| Neb. | 2022Background
- In June 2017 First Central (lead bank) and Community First (participant) executed a document titled "Participation Agreement" and an accompanying June 1, 2017 commitment letter; Community First advanced $300,000.
- The June 1 letter described the participation as "Your commitment shall be until August 1, 2017" and stated "All principal and accrued interest is due on August 1, 2017." Community First’s signature page also listed an August 1, 2017 maturity.
- First Central’s signature page listed a December 15, 2030 maturity tied to an existing March 30, 2011 promissory note to the Kleins for $861,006.04 (paid in annual installments through 2030).
- The parties executed several extensions (ultimately to December 15, 2018); First Central paid Community First $26,249.22 in September 2018 but declined to pay the remaining claimed balance after the final maturity date.
- Community First sued for breach of contract (and related claims); the district court granted summary judgment to First Central, treating the agreement as a participation with no debtor-creditor relation.
- The Nebraska Supreme Court reversed and remanded, holding the contract ambiguous and that genuine issues of material fact exist about whether the transaction was a true participation or a disguised loan, so neither party was entitled to summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Nature of the transaction: participation vs. loan | The arrangement was a loan from Community First to First Central; First Central therefore breached by not repaying at maturity | The agreement is a participation (sale of undivided interest) without recourse; no debtor-creditor relationship | Contract ambiguous; genuine factual dispute whether participation or disguised loan; remanded |
| Ambiguity in contract terms (maturity, payment obligations) | The commitment letter and Community First signature page show an August 1, 2017 (extended to 12/15/2018) maturity and an immediate repayment obligation | The agreement’s express language ("shall not be construed as creating a debtor-creditor relationship" and standard participation terms) shows intent to be a participation | Court finds internal inconsistencies (conflicting maturity dates; possible implied guarantee) create ambiguity; extrinsic evidence permitted |
| Entitlement to summary judgment | Community First: entitled because First Central breached when it failed to pay after maturity | First Central: entitled because unambiguous participation terms absolve it of repurchase/recourse obligations | Neither party entitled to summary judgment; genuine issues of material fact preclude judgment as a matter of law |
Key Cases Cited
- Northern Bank v. Federal Deposit Ins. Corp., 242 Neb. 591 (Neb. 1993) (describes features of bank loan participations and participant credit risk)
- Central States Resources v. First Nat. Bank, 243 Neb. 538 (Neb. 1993) (addresses when duty to pay participants arises upon receipt of proceeds)
- In re Corporate Financing, Inc., 221 B.R. 671 (E.D.N.Y. 1998) (sets out multi-factor test distinguishing true participations from disguised loans)
- In re Sackman Mortgage Corp., 158 B.R. 926 (S.D.N.Y. 1993) (emphasizes looking to written agreement first and treating term/recourse as determinative)
- McVay v. Western Plains Corp., 823 F.2d 1395 (10th Cir. 1987) (identifies guarantees or repurchase obligations as indications of transactions other than true participations)