By interpreting essentially similar disclaimers in participation contracts, many courts have issued summary judgments in favour of leading banks in favour of fraud and misrepresentation. In The Banco Espanol of Credito v. Security Pac. Nat`l Bank, 973 F. 2d 51 (2d Cir. 1992), sued the lead bank, including breach of contract, misrepresentation and breach of disclosure on the basis of superior knowledge. Id. at 54. Originally: at Banco Espanol, the main bank refused to grant new loans to a borrower when it became aware of the borrower`s financial difficulties. Id. at 54. Despite this refusal, the main bank sold stakes in the original loan, and the borrower was insolvent. If the borrower was in late payment, the participating bank filed a complaint on the grounds that the lead bank withheld essential information about the transaction.
Id. The lead bank requested a summary assessment of the participant`s misrepres shot on the basis of the disclaimer in the participation agreement. Id. at 54. An alliance is essentially a promise to do or not to do something in the common interest in the future. A participation agreement could include examples of relevant agreements: it is well established that participation agreements with specific exclusions of liability may prevent a participating bank from recovering in the event of misrepresentation and fraud against a leading bank. If a participant clearly refuses to use a bank when he decides to acquire a stake, the participant cannot prove that it is a negligent misrepresentation or fraud: legitimate since then. Such a provision begins with the interpretation of the treaty. As noted above, each bank`s rights and obligations are expressly defined in the participation agreement. In general, the parties agree that the lead bank will be diligent in the production, supervision, management and execution of the loan.
An example of such a language is: “Lead Bank takes the same care and discretion in the production, supervision, management and execution of the loan that Lead Bank would normally assume on its own behalf in the production, supervision, management and execution of the loan.” In many cases, when it comes to a participant`s responsibility to conduct an independent investigation, the OCC Banking Circular is cited as a public authority. See Colorado State Bank of Walsh v. FDIC, 671 F. Supp. 706 (D. Colo. 1987) that the OCC guidelines provide that participants conduct independent and prudent assessments of proposed loans and that a participant is responsible for “determining the value and security of the loan in which he or she participated”) (referring to Northern Trust Co., 619 F. Supp 1340, 1343 (W.D. Okla. 1985). A loan participation usually involves an agreement between sophisticated lenders, which takes place in the length of the weapons. As a result, courts across the country implement participation agreements consistently on their terms.
New Bank of New England v. Toronto-Dominion Bank, 768 F. Supp. 1017, 1020 (S.D.N.Y. 1991); See z.B. Banco Espanol de Credito v. Security Pac. Nat`l Bank, 973 F.2d 51, 56 (2d Cir. 1992), cert. denied, 509 U.S. 903 (1993). Each participation agreement is unique, but many agreements contain standard provisions to promote consistency and compliance with standards of good banking practice and previous judicial interpretations of participation agreements.
This article focuses on these standard provisions and how they may affect the rights and obligations of the lead bank and the participant. However, the parties are not always able to agree on the best course of action with respect to important administrative decisions regarding loan participation. In cases where there are only two parts – a lead and a participant – this can lead to a deadlock.