Fair Finance: Boiled by Boilerplate
Equipment Leasing & Finance Magazine
It used to be so easy. The borrower and lender would enter into a loan and security agreement, fund the loan and perfect the security interest in the collateral. A year or two later the borrower might want an additional funding, perhaps providing supplemental collateral, and the parties would enter into an amended and restated loan and security agreement. This simplified the documentation and saved on legal fees.
Not so fast. A federal court of appeals decision, In re: Fair Finance Company, declared that the borrower’s bankruptcy trustee had established that refinancing loan documents were ambiguous as to whether the parties clearly intended an amended and restated loan agreement to extinguish the original loan agreement and the security interest that it had created. The lender hence was forced to litigate whether it had lost its security interest in the collateral. This article will discuss how lenders and finance lessors can cope with this judicial decision.
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“Fair Finance: Boiled by Boilerplate,” by Stephen T. Whelan was published in the October 2017 edition of Equipment Leasing & Finance Magazine. To read the article or full magazine online, please click here. Reprinted with permission.