Proving You’re The Holder Of The Note
Indiana Condominium Association Liens, Part I: Foreclosure

Wire Payment Received One Day Late Did Not Breach Forbearance Agreement

If a lender receives a loan payment one day late, is it an actionable default?  Singleton v. Fifth Third Bank, 2012 Ind. App. LEXIS 532 (Ind. Ct. App. 2012), decided in the context of a forbearance agreement, advises that the answer depends on the contract language. 

Forbearance terms.  In the forbearance agreement in Singleton, the lender agreed to forbear from its loan enforcement action from April 4, 2011 to the earlier of (i) June 30, 2011 or (ii) the occurrence of any “Termination Event.”  A “Termination event” was the occurrence of, among other things, a failure to perform any of the obligations contained in the agreement.  Upon the occurrence of a Termination Event, the lender was entitled to file an agreed judgment in its favor and against the borrower.

Payment terms.  The forbearance agreement contained an obligation that the borrower “shall make payments” to lender by certain dates set forth in a payment schedule.  The last payment, in the amount of $350,000.00, was due June 30, 2011.  The agreement did not expressly provide for a particular method of payment or whether certain methods would or would not be acceptable.  The agreement did not require the borrower to make the final payment using a wire and was silent as to the date a payment would be deemed made if made using a wire, or any other method of payment.

The payment.  On the afternoon of June 30, 2011, the borrower and his counsel contacted the lender’s representative about how to make the final payment.  The lender’s representative directed borrower’s counsel to make a wire transfer, as had been done with prior payments.  Borrower’s counsel sent a confirming email to the lender’s representative that the final payment “will be wired today,” and the lender’s representative replied by stating “thank you.”  At 3:39 p.m. the borrower initiated the final payment via a wire transfer from his bank to the lender.  The borrower obtained a wire transfer receipt stating the “effective date” and “entered date” was June 30, 2011.  The rub was that the wired funds were not received by the lender until the morning of July 1, 2011.

Paid vs. received.  The lender sought the entry of the agreed judgment, arguing that the final payment under the forbearance agreement was untimely because the lender received the funds on July 1, 2011, one day late.  The trial court agreed and entered judgment against the borrower.  On appeal, the borrower contended that the trial court improperly created terms in the forbearance agreement requiring that the June 30, 2011 payment had to be “received by” that date, when the agreement stated only that borrower “shall make payments” by that date.  In essence, the borrower’s argument was that the forbearance agreement was a payment contract and not a “received by” contract. 

Not untimely.  The Court of Appeals reversed the trial court’s decision based upon the terms, or lack thereof, in the forbearance agreement, together with the lender’s oral directive to wire the funds.  The borrower’s payment was not untimely and did not constitute a Termination Event under the agreement:

We are not at liberty to supply omitted terms while professing to construe a contract.  Accordingly, we decline to expand upon the general language in the Forbearance Agreement that [borrower] “shall make payments” . . . to include a more specific requirement that a payment, if made by a funds-transfer system as contemplated by Ind. Code §26-1-4.1, must be made by issuing a payment order at a time and with instructions calculated to ensure, taking into account any applicable statutory requirements or possible variations, that the funds would be received or otherwise deposited into [lender’s] account by the applicable due date.  The Forbearance Agreement does not include such a specific requirement. 

More than anything, Singleton is a lesson in contract drafting.  If, as a lender, you intend to strictly enforce payment defaults, then your loan documents or settlement agreements must be crystal clear.  If they are, Indiana courts typically will enforce them, likely even with a one-day breach.  If the forbearance agreement in Singleton contained language that the final payment must have been “received by” or “delivered to” the lender by June 30, 2011, then the lender may have prevailed.