Because oral agreements — a person’s word — ensures
the order of the financial markets.
“The LSTA has long advocated for efforts to
promote certainty and fairness in the execution of
trades, and we believe it’s necessary to honor and
enforce oral agreements and correspondence between
parties,” said Elliot Ganz, general counsel for the
LSTA. “Treating oral agreements as binding is a watershed moment and necessary to protect against chaos
and ensure the order of the financial markets.”
Impact on the Markets
Had the lower court decision prevailed, the integrity
of the U.S. debt and equity markets would have been
in serious jeopardy going forward, with parties having
carte blanche to back out of agreed upon trades arbitrarily or because of changing market conditions. That
not only could have affected institutional markets, but
could have trickled down to unsettle trading markets
that comprise investments in 401Ks, mutual funds and
any number of other financial accounts where both
large and small investors save for college, retirement,
homes and the like.
Markets demand a platform of absolute confidence.
This decision not only restores that platform, it permanently defines and protects it going forward. “A trade
is a trade” or “your word is your bond,” are concepts to
live by — in business and in life. abfj
MARTIN EISENBERG is the principal of the Law Offices of
Martin Eisenberg, a White Plains, NY-based firm. His areas
of practice include bankruptcy and business litigation,
distressed debt and bankruptcy claim trading, creditors’
rights and general civil litigation.
The court sided with Stonehill, which I represented.
The case stemmed from the auction sale of an $8.7
million distressed mortgage loan; the case made its way
through three New York courts dating back to 2014.
BOTW had accepted Stonehill’s offer to purchase
the mortgage loan by accepting its bid and agreeing to
use a standard industry form as the loan sale agreement. But BOTW pulled out of the deal when the
market changed in its favor (earning it millions), saying
it was not bound to sell the loan to Stonehill because it
didn’t have a signed agreement that was “subject to the
mutual execution.” BOT W also maintained that it was
not bound to sell the loan to Stonehill because, under
the auction terms, the bank had the sole discretion to
withdraw the loan from the sale at any time.
Court of Appeals Overrules
Fortunately, the Court of Appeals disagreed with
that argument and the lower court’s decision, ruling
that the failure of BOTW to sell the loan to Stonehill
was a breach of contract. The appeals court wrote in
its decision that the language in the bid acceptance
confirmation that the sale was “subject to the mutual
execution of an acceptable loan sale agreement” did
not clearly express an intent by the bank that it would
not be bound to sell the loan unless and until the loan
sale agreement was signed. The court stated, “Less
ambiguous and more certain language is necessary
to remove any doubt of the party’s intent not to be
bound absent a writing.” The court also ruled that the
bank could not withdraw the loan from the sale once it
accepted Stonehill’s bid.
In other words, a trade is a trade, even if a contemplated formal agreement is never signed, as long as
the parties have agreed to the material terms of the
The Court of Appeal’s unanimous decision was
forward-looking, practical and based on common
sense and practice. Because it is not subject to appeal,
it puts an end to any doubt as to when a deal is actually a deal. The decision will reverberate across the
country and around the world as New York is considered the gold standard of governing laws in commerce
Some trade groups, such as the Loan Syndications
& Trading Association (LSTA), which works to increase
transparency, education, fairness and order in the loan
markets, are calling this a “watershed” moment. Why?
Markets demand a platform of absolute confidence. This
decision not only restores that platform, it permanently defines
and protects it going forward. “A trade is a trade” or “your word
is your bond,” are concepts to live by — in business and in life.