Opinion ID: 1159151
Heading Depth: 3
Heading Rank: 2

Heading: Did Old Colony's failure to provide long-term financing defeat the parties' reasonable expectations?

Text: Big Land's final argument is that all parties to the sale of the hotel and the loan and subordination agreements were operating under the assumption that Old Colony would provide permanent financing at some time in the not-too-distant future. Big Land asserts that, even had its note not been repaid from the proceeds of the Old Colony loan, its position would have been improved significantly had that loan been made, since the likelihood of CEI's defaulting on a twenty-year mortgage was far less than the likelihood of default on L & N's short-term construction loan. Big Land claims that we should interpret the subordination agreement in light of this factor and set that agreement aside because the parties' reasonable expectations were defeated when Old Colony withdrew its commitment. There is no doubt that Big Land, CEI, and L & N expected that Old Colony would provide long-term financing; thus the only real question is whether, as a matter of law, Big Land is entitled to avoid the subordination agreement on the ground that Old Colony backed out. Stated differently, the pertinent question is whether Big Land or L & N must bear the burden of an event which, on this record, was not the fault of either of them. [13] The few courts that have considered this kind of situation have concluded that a lender who advances funds in reliance on a subordination agreement is entitled to prevail, either because the subordinated party is estopped from denying his agreement to subordinate or because the senior lienholder is likened to a bona fide purchaser. See Dreckshage v. Community Federal Savings & Loan Association, 555 S.W.2d 314 (Mo. 1977) (en banc); Comptroller v. Gards Realty Corp., 68 A.D.2d 186, 416 N.Y.S.2d 821 (1979) (per curiam). We agree with these authorities and hold that Big Land was not entitled to any relief because it turned out that Old Colony did not provide long-term financing. AFFIRMED. CONNOR, J., not participating.