Stonehill Capital Management LLC v. Bank of the West

New York Court of Appeals · Corporations

CorporationsContractsAuctionsContract Formationauction saleswinning bidmutual assentmeeting of the minds

Facts

Bank of the West used Mission Capital Advisors to conduct a competitive online sealed-bid auction of loans, including the syndicated Goett Loan, and circulated an Offering Memorandum stating that accepted non-contingent final offers would require immediate execution of a pre-negotiated asset sale agreement and a 10% non-refundable deposit. Stonehill submitted the winning bid, told Mission that the provided loan sale agreement was not appropriate for a syndicated loan, and proposed either modifying it or using standard LSTA documentation instead. Bank of the West then sent written confirmation accepting Stonehill's bid, identifying the loan, price, closing timing, and payment instructions, while its counsel later indicated a preference for LSTA documents and continued to exchange documents to move the closing forward. After learning that Stonehill was refinancing the loan and that the loan's value had increased, Bank of the West refused to proceed with the sale and later received substantially more on the loan than Stonehill's accepted bid price.

Issue

Did Bank of the West's acceptance of Stonehill's auction bid create an enforceable contract to sell the Goett Loan even though the parties had not yet executed a written sale agreement and Stonehill had not yet submitted the 10% deposit? More specifically, were the signed writing and deposit conditions precedent to contract formation or merely post-agreement requirements for consummating performance?

Rule

A binding contract forms when the parties' objective manifestations of intent show mutual assent to sufficiently definite material terms. In the auction context, a seller's acceptance of a bid generally forms a binding contract unless explicit terms make the bid contingent on future conduct. Formulaic 'subject to' language, without a clear and unmistakable expression that no party will be bound unless and until a writing is executed, does not by itself make execution of a written agreement or payment of a deposit a condition precedent to contract formation; such requirements may instead be conditions precedent to performance under an existing contract.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Crescent Harbor Funding, a lender in Dallas, hired Blue Mesa Advisors to run a sealed-bid auction for a distressed participation interest. The offering packet stated that accepted final offers would require prompt execution of the seller's transfer agreement and a 10% nonrefundable deposit. After Nisha Patel submitted the highest bid, Blue Mesa emailed: "Seller accepts your bid for the Lakeview participation at $3.4 million. Closing set for Friday; wiring instructions attached; signed transfer papers and deposit due Wednesday." Two days later, after the asset's value rose, Crescent Harbor refused to sell.

Is a court most likely to find that a binding contract was formed when the seller accepted Nisha's bid?

Explanation. The majority held that in an auction, a seller's acceptance of a bid generally forms a binding contract unless explicit terms make the bid contingent on future conduct. Here, the seller accepted a final bid and specified the asset, price, timing, and payment instructions. Under that rule, later execution of transfer papers and payment of a deposit are best understood as conditions precedent to performance, not to formation, absent clear language that no one is bound unless and until a writing is signed and delivered. (Derived from Stonehill Capital Management LLC v. Bank of the West (n.d.).)