MRPC Christiana LLC v. Crown Bank
N15C-02-010 EMD
| Del. Super. Ct. | Dec 26, 2017Background
- MRPC obtained a $12,988,000 construction/bridge loan from Crown Bank in December 2012 to renovate and reflag a Newark, DE hotel; loan was secured by mortgages, security agreements, assignments of rents, and multiple guaranties from related entities and individuals.
- Loan structure: Permanent Note ($7,640,000) and Interim Note ($5,348,000) (Interim to be paid by an SBA 504 loan). Crown retained certain disbursement controls and required $1.5M cash collateral to be held at the bank.
- Construction encountered a major sprinkler/flood event and numerous change orders, increasing project costs substantially; MRPC submitted 23 draw requests and the parties executed two written loan modifications (May 2014 and Sept. 2014) extending maturity dates.
- Disputes: timing and amount of Crown’s draw disbursements, treatment of the $1.5M cash collateral (Crown placed funds in a money-market account), and whether course-of-conduct or other breaches by Crown excused MRPC’s performance.
- MRPC sued Crown for negligence, breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference, and unjust enrichment; Crown asserted 21 counterclaims seeking repayment under the Notes, enforcement of security, in rem levies, and guarantor liability.
- Bench trial result: Court found some non‑material breaches by Crown (e.g., delayed funding, account type for the $1.5M) but no material breach or bad‑faith conduct excusing performance; found MRPC and guarantors in default and awarded judgment to Crown on the notes and related remedies (principal, interest, penalties, fees; Crown to submit attorney‑fee affidavit).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Crown materially breached the Loan Agreement (e.g., delayed draws, handling of $1.5M) | Crown’s funding delays, account handling and other conduct materially deprived MRPC of the contract’s benefits and justify damages/forfeiture | Any Crown breaches were minor or reasonable responses to construction issues; MRPC remained obligated under the Notes | Court: Crown committed some breaches (draw timing; CD vs money-market) but none were material; MRPC not excused from performance |
| Whether parties modified the Agreement by course of conduct | MRPC: Crown’s conduct and repeated dealings effectively modified terms (relaxed timing, approvals) | Crown: modifications were written (May and Sept mods); no mutual, clear intent to modify by conduct | Court: No mutual, clear modification by conduct; written modifications were controlling when intended |
| Breach of implied covenant of good faith and fair dealing | MRPC: Crown negotiated extensions and handled funds in bad faith, thwarting MRPC’s expectations and blocking other lenders | Crown: acted reasonably to protect collateral and enforce lending limits; conduct not motivated by bad faith | Court: No breach of implied covenant; plaintiff failed to show bad motive or deceptive conduct |
| Crown’s entitlement to recover under Notes and guaranties | MRPC: Crown’s breaches bar or reduce recovery | Crown: MRPC defaulted (failed to repay on maturity; improper removal of cash collateral); guarantors unconditionally obligated | Court: MRPC breached notes (failure to pay at maturity; withdrawal of $1.5M) and Crown entitled to judgment on principal, accrued default interest, penalties, fees; guarantors liable |
Key Cases Cited
- EnviroFinance Group, LLC v. Environmental Barrier Co., LLC, 113 A.3d 775 (N.J. Super. App. Div. 2015) (breach of contract elements)
- Kampf v. Franklin Life Ins. Co., 161 A.2d 717 (N.J. 1960) (court enforces clear contract language)
- Dontzin v. Myer, 694 A.2d 264 (N.J. Super. App. Div. 1997) (ascertaining parties’ intent from contract language)
- Roach v. BM Motoring, LLC, 155 A.3d 985 (N.J. 2017) (material breach test adopting Restatement factors)
- Merchants Indem. Corp. v. Eggleston, 179 A.2d 505 (N.J. 1962) (options available following material breach)
- Segal v. Lynch, 48 A.3d 328 (N.J. 2012) (modification requires mutual and clear intent and new consideration)
- Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Center Assoc., 864 A.2d 387 (N.J. 2005) (bad motive or intention required for breach of implied covenant of good faith and fair dealing)
- Wade v. Kessler Institute, 798 A.2d 1251 (N.J. 2002) (no breach of implied covenant absent contract)