Amendment Language

A further lesson is that lenders’ counsel should be extremely careful to word amendments to loan agreements in such a way as to make unambiguous and clear that it is an amendment of the original loan agreement, not a new agreement. The following are some suggestions:

• It is prudent to state explicitly that the original loan agreement will remain in full force and effect, and that the present agreement does not terminate the original loan agreement or any of the obligations thereunder.

• Language such as “supersede,” “in lieu of” or “revoke and cancel” should be absolutely avoided because that is precisely the language that New York courts have found extinguishes a prior agreement and creates a new one (in other words, effects a novation).

Conclusion

When restructuring a loan, it is important to be mindful of the language of the anticipatory waiver contained in the guaranty of the original loan, and of the language used in the amended loan documents in order to avoid the extra complication of having to obtain reaffirmations of existing guaranties. New York courts have found that broad waiver language in guaranties, consenting to subsequent modifications in the terms of the loan, may ensure that guarantors remain liable notwithstanding any restructuring of the loan, so long as the amended loan documents are not worded so as to effect a novation of the original loan agreement.

Alan M. Christenfeld is senior counsel at Clifford Chance US. Shephard W. Melzer is counsel at Herrick, Feinstein. Stephen D. Brodie, a partner at Herrick, Feinstein, and Julie Albinsky, a law clerk at Herrick, Feinstein, assisted in the preparation of this article.

Endnotes:

1. Citicorp Leasing Inc. v. United American Funding Inc., No. 03 Civ 1586 (WHP), 2005 WL 1847300 at *6 (S.D.N.Y. Aug. 5, 2005).

2. Banco Portugues do Atlantico v. Asland, 745 F.Supp. 962, 967 (S.D.N.Y. 1990).

3. Id.

4. See Id.; American Bank & Trust Co. v. Koplik, 87 A.D.2d 351 (1st Dept. 1982).

5. Leeward Isles Resorts v. Hickox, 853 N.Y.S.2d 41 (1st Dept. 2008).

6. Id.

7. Banco Portugues, supra, 745 F.Supp at 970.

8. White Rose Food v. Saleh, 99 NY 2d 589, 591 (2003).

9. Bank of New York v. CMS Funding, 745 F. Supp. 962 (S.D.N.Y. 1990)

10. Manufacturers and Traders Trust Co. v. Thielman, 461 N.Y.S.2d 86, 86-87 (4th Dept. 1983).

11. In re Boco Enterprises Inc., 204 B.R. 407 (Bankr. S.D.N.Y. 1997).

12. First American Bank of New York v. Builders Funding Corporation, 607 N.Y.S.2d 460 (3rd Dept. 1994).

13. Crossland Fed. Savings v. Suna, 935 F.Supp. 184 (E.D.N.Y. 1996).

14. See Koplik, supra, 87 A.D.2d 351.

15. Regency Equities Corp. v. Reiss, No. 93 Civ 8096 (CSH), 1995 WL 362496 (S.D.N.Y. June 16, 1995).

16. Koplik, supra, 87 AD 2d at 354.

17. Globe Food Services Corp. v. Consolidated Edison Company of New York, 184 A.D.2d 278.

18. Globe Food Services, supra, 184 A.D.2d 278; Citigifts Inc. v. Pechnik, 112 AD 2d 832 (1st Dept. 1985); Northville Industries Corp. v. Fort Neck Oil Terminals Corp., 474 N.Y.S.2d 122 (2nd Dept. 1984).

19. Northville Industries Corp. v. Fort Neck Oil Terminals Corp., 474 N.Y.S.2d 122 (2nd Dept. 1984).

20. Northville, supra, 474 N.Y.S.2d at 124-25.

21. Globe Food Services, supra, 184 AD 2d at 279.

22.. See Aetna Casualty & Surety Co. v. New York City School Construction Authority, No. 95 Civ. 9412 (LMM), 1997 U.S. Dist. LEXIS 7145 (S.D.N.Y. May 21, 1997); Citibank, N.A. v. Outdoor Resorts of America Inc., No. 91 Civ. 1407 (MBM), 1992 U.S. Dist. LEXIS 9624 (S.D.N.Y. June 29, 1992).

23. Citibank, supra, 1992 U.S. Dist. LEXIS 9624 at *15-16.