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Abstract: 

The rise in corporate loan defaults has resulted in a resurgence of fraud-based claims that aim to attack the validity and enforceability of credit facilities and corporate lending products, and to emasculate long-standing protective terms and conditions that lenders historically relied upon both to ensure consistent enforcement of their rights and to avoid protracted litigation, costly discovery, and the unpredictably of trials. At the same time, the attack on the financial industry’s credibility and integrity, especially in the areas of sub-prime lending and residential mortgage backed securities, has provided commercial borrowers and their counsel much fodder for their own fraud-based defenses and claims against their lenders. This article analyzes how recent decisions have addressed these claims and lender liability to such challenges, and then suggests ways lenders can mitigate risks during the underwriting, administration, and enforcement of commercial loans.

Keywords: fraudulent inducement to borrow; merger and integration; parol evidence rule; waivers; Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn.; risk mitigation

Affiliations:  1: Hahn & Hessen LLP; 2: Hahn & Hessen LLP; 3: Hahn & Hessen LLP.