The process for negotiating a loan can often lead to disagreements between a borrower and a lender as to whether a loan commitment was made, or what the terms of the loan are. In Illinois, the Credit Agreements Act attempts to provide some certainty for parties in the loan negotiation process. The Credit Agreements Act is not new. It has been in place for almost 25 years. But both borrowers and lenders need to be aware that Illinois courts have strictly held borrowers to the requirements of the Act, and refused to enforce credit agreements unless they scrupulously adhere to the provisions of the Act.

At the outset, it is important to emphasize that this Act only applies in the commercial context. Agreements for the extension of credit which are primarily for personal, family, or household purposes, are not covered by the Act. So consumer borrowers are not bound by the requirements of the Act.

The Act provides that a borrower may not maintain an action on or in any way related to a credit agreement unless it 1) is in writing; 2) expresses an agreement or commitment to lend money, extend credit or delay or forbear repayment of money; 3) sets forth relevant terms and conditions; and 4) is signed by the lender and the borrower.

So the statute has broad reach and bars a borrower from asserting a claim in any way related to a credit agreement. As a result, the Act bars more than suits to enforce the agreement itself. Courts have used this Act to bar claims setting forth alternate theories, such as breach of fiduciary duty, or tortious interference with contract as long as those claims are in any way related to a credit agreement.

It is also important to note that the Act applies to alleged agreements by a lender to delay or forbear in the collection of a credit agreement. So the Act applies to more than just initial negotiations for new loans. It applies to loan modification negotiations, and negotiations of forbearance agreements. Those agreements must comply with the Act’s requirements.

Multiple court decisions in Illinois have strictly enforced the Credit Agreements Act by refusing to enforce alleged agreements to extend credit unless they scrupulously meet the requirements of the Act. It is critical, for example, that the lender sign the agreement, as both parties must sign a credit agreement for it to be valid. Recently, the Appellate Court for the Second District of Illinois has taken this further, and ruled against a borrower where the lender executed an agreement, but that agreement was not signed by the borrower. (It is unclear why the borrower did not sign the document it was trying to ask the court to enforce, but it apparently did not do so.) Avanti v. BMO Harris Bank, N.A., 2014 W.L. 7273795 (Ill.App.2d Dist.).

The borrower in this case sought a $25 million credit facility from the lender to open retail health care clinics within SuperValu stores. The borrower and the bank both executed a “Summary of Terms and Conditions.” One week later, amended loan terms were prepared and signed by the bank. However, the borrower did not sign the amended terms (“Amended Terms”). Additionally, the bank drafted several documents related to the prospective credit facility, including a “Commercial Account Agreement,” a “Global Treasury Management Services Agreement,” a “Secured Account Agreement,” and a “Certificate of Account Resolutions-Limited Liability Company” (“Related Documents”). The borrower signed all of the Related Documents, and the bank signed a couple of them. Subsequent to these documents being prepared and signed, the bank advised the borrower that the loan was being finalized, but due to logistical problems the closing would be delayed. Eventually, on the last possible day for closing, the bank advised the borrower that it would not be going through with the loan. The borrower sued stating that it suffered extensive losses, causing it to close several clinics, forfeit other prepayments, and lose exclusivity and non-competition agreements with various hospital systems.

The trial court granted the bank’s motion to dismiss the borrower’s complaint and the Appellate Court upheld that ruling. The most notable thing about this case is that the court refused to enforce the agreement even though the Amended Terms were signed by the bank. The court strictly construed the Act to require both the bank and the borrower to sign the agreement. This is true even though the borrower signed the Related Documents, because the court believed that they were “generic” and not tailored to this loan transaction.

Additionally, this case, consistent with prior court decisions, used the Act to dismiss Plaintiff’s claims for breach of fiduciary duty and tortious interference with contract. In fact, the court quoted an earlier appellate court case with approval, finding “There is no limitation as to the type of actions by a debtor which are barred by the Act, so long as the action is in any way related to a credit agreement.”

The Avanti case underscores, once again, how important it is for both borrowers and lenders to be aware of the requirements of the Credit Agreements Act when they are in the loan negotiation process. Failing to do so can have especially dire consequences for borrowers, who risk being unable to enforce credit agreements, even if they believe the agreements are binding.