In these unchartered and chaotic economic times, rights and remedies in various loan arrangements are going to become the focus of lenders and borrowers as they undertake an analysis of their respective obligations. In this context, it is useful to revisit a lender’s rights with regard to a demand note, since the right to make demand may be an advantageous option for lenders in certain circumstances.
In 1993, in a case of first impression litigated by Hackett Feinberg partner Richard Gentilli, the Supreme Judicial Court affirmed that in a commercial setting in Massachusetts, demand notes mean exactly what they say: “a holder of [a demand] note may determine to collect the balance due for any reason, good or bad. Good faith is not a condition of a holder’s decision to collect the amount due on a demand note.” In that case, HF represented Shawmut Bank, N.A. in a claim on account of a demand note, which the borrower disputed and challenged Shawmut’s right and motives in making demand. See Shawmut Bank, N.A. v. Miller, 415 Mass. 482 (1993). The SJC determined that even allegations by the borrower that the actions of the bank “were malevolent and deplorable” were not sufficient to derail the bank’s right to make demand. Id. Finally, the presence of events of default in the note separate from the demand feature of the note did not serve to invalidate the lender’s unfettered right to make demand.
A lender’s absolute right to make demand on a demand instrument has been repeatedly reaffirmed by state and federal courts over the years, most recently in another case litigated by HF, Santander Bank, N.A. v. Santilli Enterprises, Inc., 2018 WL 1385430, at *4 (Mass. Super. 2018) (“Under the express terms of the Demand Note, [the lender] was entitled to make a demand in light of [borrower’s] default, even if (as occurred) [the borrower] later made all overdue payments.”)
HF’s creditors’ rights and litigation attorneys have over 40 years of experience representing lenders in restructures and enforcement actions. We are here to offer lenders the benefits and efficiencies that come from these years of experience.
You can contact any of our workout, creditors’ rights and litigation partners at (617) 422-0200: