The Tennessee Court of Appeals recently found that a “take or leave it offer” extended by a lender to a borrower experiencing financial difficulty was not duress. SK Food Corp., et al. v. FirstBank, No. M2016-01019-COA-R3-CV, 2017 WL 776116 (Tenn. Ct. App. Feb. 28, 2017).
Borrowers met with Lender about refinancing an existing loan with Lender. Id. at *1. The parties executed a commitment letter specifying that the lender’s security interest would be a “first lien deed of trust” and requiring a nonrefundable commitment fee from borrowers. Id. The loan ultimately did not close due to an existing lien on the security pledged by the Borrowers. Id. The Borrowers filed suit, seeking return of the commitment fee. Id. The Borrowers alleged, in part, that the commitment fee should be returned because the commitment letter was executed under duress. Id. at *3. The trial court granted summary judgment for the Lender. Id.
On appeal, the Borrowers asserted that the trial court erred by not finding that there was a genuine issue of fact as to whether the commitment was made under duress. Id. The Borrowers asserted that the Lender made the offer on a “take it or leave it basis,” at a time when the Lender knew Borrowers were experiencing financial difficulty. Id. Even taking these allegations as true, the Court of Appeals found that Borrowers failed, as a matter of law, to establish duress. Id.
Specifically, the Court found that neither a “take it or leave it offer” nor the Borrower’s financial distress were grounds for duress. Id. Indeed, the Court noted that an “offer to make a contract commonly involves an implied threat by one party, the offeror, not to make a contract unless his terms are accepted by the other party, the offerree. Such threats are an accepted part of the bargaining process.” Id. (citing Restatement (Second) of Contracts § 176 cmt. A (1981).