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Commercial dispute at appeals court centers on notice-and-cure, recorded encumbrance and alleged self-dealing
Summary
In Newnan v. CBW Lending LLC, the appellant contends CBW and related entities breached a mortgage by recording an unconsented encumbrance and then structuring related financing that advantaged insiders; the appellee contends recorded consents and notice-and-cure rules preclude relief.
The Appeals Court heard a complex commercial appeal in which a mortgagee, Newnan, contends a borrower/owner (CBW and related entities) violated a mortgage covenant by recording an unconsented second mortgage, then repaying insiders and restructuring ownership so the mortgagee lost priority and contractual remedies.
Appellant counsel argued CBW and its related entities created a multi-entity financing (described in argument as transfers through VNO and other entities) that resulted in an encumbrance on the property in 2017; counsel said Newnan received no written notice of the encumbrance and thus was denied the contractual 10-day notice-and-cure opportunity provided by the mortgage. The appellant urged the court not to permit the borrower to 'cure' the violation years later and said the structure had the practical effect of allowing insiders to be paid or to recover value before Newnan.
Opposing counsel said the mortgage required written notice and a cure period for specified breaches and that, on these facts, the recording and later instruments (including a recorded consent in the impounded record) meant the alleged encumbrance never ripened into an uncured event of default. Defense counsel also contended alternative contract provisions and the 2011 settlement agreement limited the lender's remedies and that some rights were recourse-only to the property.
The justices questioned whether, as a matter of contract interpretation and equitable principle, a party should be permitted to withhold notice of an encumbrance and then claim the payor lost all contractual protections, and whether the payor's later remedies were foreclosed when a public-record search with reasonable diligence would have revealed the recorded mortgage. Counsel debated whether summary judgment was appropriate or whether disputed factual questions about the timing and the parties'intent required a trial.
The court submitted the matter after argument.
