When a contract between two loan servicing corporations contained a drop-dead date specifying that it could not be extended past June 2018, the district court erred in granting one corporation an injunction that kept the contract in force past the drop-dead date. The appellate court found that interpreting the contract as the district court did would have trapped one party in the contract with no way to extricate itself and that this outcome could not have been the intended outcome of the agreement.
BankDirect Capital Finance and Capital Premium Financing both participate in the market for loans to finance insurance premiums. In 2010, Capital Premium exhausted the line of credit that funded its operations. It approached BankDirect with a request for operating capital. BankDirect was willing to purchase the loans that Capital Premium made, and to pay Capital Premium to service those loans while they were outstanding, but it demanded a right to purchase Capital Premium’s business outright after five years.
Capital Premium agreed to the terms and the contract went into force in December 2010. The option to purchase could be exercised near the fifth anniversary. If BankDirect elected not to purchase Capital Premium, then either side could extend the term by notice given before Jan. 4, 2016; otherwise, the deal would wrap up on Jan. 31, 2016. Any extension could not exceed the contract’s drop-dead date, June 1, 2018, after which neither side would have any obligation to the other. Continue reading ›