## Facts

- Brown-Marx Associates, Ltd., an Alabama limited partnership, sought to purchase and renovate an office building in Birmingham using interim financing to be repaid with permanent financing.
- Emigrant Savings Bank issued a written commitment for permanent financing; Brown-Marx paid $22,000 for the commitment and $11,000 to extend it.
- The commitment provided alternative financing: a “ceiling” loan up to $1.1 million if specified closing conditions were met, or a “floor” loan of $750,000 if major requirements for the ceiling loan were not met.
- A key ceiling-loan condition required signed leases providing at least $714,447 in annual rentals, along with other documentation (including renovation documentation and a minimum appraisal).
- As the closing deadline approached, Brown-Marx did not achieve the required minimum annual rentals in signed leases.
- Emigrant refused to fund the $1.1 million ceiling loan based on the unmet minimum-rentals condition.
- Brown-Marx sued for breach of contract and asserted tort claims, including an alleged “tort of bad faith,” as well as theories sounding in fraud and wantonness.
- A jury found for Brown-Marx on the contract claim and awarded $543,000 after being instructed that “substantial performance” could satisfy the conditions precedent.
- The district court granted a new trial due to erroneous jury instructions, then entered summary judgment for Emigrant (and later Prudential) on all claims.

## Issues

1. Whether the commitment’s minimum-rentals requirement for the $1.1 million loan was a condition precedent requiring strict compliance, or could be satisfied by substantial performance.
2. Whether Alabama law recognizes an independent tort claim for “bad faith” in a commercial lending/loan-commitment dispute between a bank and a borrower.
3. Whether the record supported triable claims for other tort theories (including fraud or wantonness) sufficient to defeat summary judgment.

## Decision

- The Eleventh Circuit affirmed the order granting a new trial and the subsequent summary judgment for Emigrant and Prudential on all claims.
- The court held that the minimum-rentals requirement was a material condition precedent to the ceiling loan and was not met; substantial performance did not excuse the shortfall under the commitment’s structure.
- The court held that Alabama’s bad-faith tort, as recognized at the time, did not extend beyond the insurance context to a bank’s refusal to fund a commercial loan.
- The court held that the remaining tort theories failed for lack of evidence creating a genuine dispute of material fact, given the undisputed contractual basis for the refusal to fund the ceiling loan.

## Legal Principles

- When a loan commitment clearly makes a quantitative threshold (such as a specified minimum in signed leases) a condition precedent to a higher loan amount, strict satisfaction of that condition is required under Alabama contract principles as applied in a commercial setting.
- The doctrine of substantial performance does not permit a jury to rewrite or dilute a clearly stated, central condition precedent in a negotiated commercial financing commitment.
- Alabama’s tort of bad-faith refusal to perform, as construed in this decision, is confined to the insurer–insured relationship and is not a general tort applicable to ordinary contractual disputes such as loan commitments.
- Where the lender’s refusal to perform is supported by an undisputed failure of a contractual condition precedent, allegations of fraud or wantonness must be supported by specific evidence; otherwise, summary judgment is proper.

## Conclusion

The court enforced the loan commitment’s strict conditions for the $1.1 million “ceiling” loan, rejected substantial performance as a substitute for the unmet minimum-rentals threshold, and held that Alabama’s bad-faith tort did not apply to a commercial loan-commitment dispute, leaving no tort or contract claim to survive summary judgment.


Brown-Marx Assocs., Ltd. v. Emigrant Sav. Bank, 703 F.2d 1361 (11th Cir. 1983)