## Facts

- A construction company had an approximately eleven-year borrowing relationship with its commercial bank, including numerous revolving credit notes that were routinely renewed.
- Over that relationship, the company frequently made payments days or weeks late, and the bank typically did not enforce strict payment deadlines; at times it simply debited the company’s deposit accounts to cover amounts due.
- In November 1982, the company executed a $400,000 promissory note requiring an interest payment on March 1, 1983, with principal due later.
- While negotiating for additional credit, the company missed the March 1 interest payment.
- The bank grew concerned about the company’s financial condition, requested a list of customers and accounts receivable, and obtained the information.
- On March 24, with the interest payment 23 days overdue, the bank announced it was accelerating the note and demanded immediate payment of all amounts due.
- At the meeting, the company offered to pay the overdue interest by tendering a check, but the bank refused the tender.
- After acceleration, the bank collected the note balance by setting off the company’s deposit accounts and by collecting directly from the company’s account debtors using the customer/receivables information.
- The company sued for wrongful acceleration and related conduct, alleging the bank’s course of dealing required notice and an opportunity to cure and that the bank acted without good faith in invoking an insecurity-based acceleration.

## Issues

1. Whether the bank’s long course of accepting late payments created waiver or estoppel barring immediate acceleration for a brief payment delinquency without prior notice and an opportunity to cure.
2. Whether sufficient evidence existed for a jury to find the bank lacked good faith in accelerating under an insecurity clause.
3. Whether the trial court properly granted a directed verdict for the bank after the company’s case-in-chief.

## Decision

- The Supreme Court of New Mexico reversed the directed verdict for the bank.
- The court held the evidence created a jury question whether the bank was estopped, based on its course of dealing, from accelerating without prior notice and an opportunity to cure.
- The court held the evidence also created a jury question on the bank’s good faith in accelerating under the insecurity clause.
- The case was remanded for a new trial encompassing both estoppel and lack of good faith; the company was required to prevail on both to recover damages for wrongful acceleration.

## Legal Principles

- Waiver may be implied in fact from conduct indicating an intent not to insist on strict contractual performance.
- Waiver by estoppel may arise when one party’s conduct reasonably induces the other party’s reliance on less strict performance, making strict enforcement unfair without appropriate notice.
- A sustained course of dealing tolerating late payments can support fact issues on whether a lender must provide notice and a chance to cure before invoking strict default remedies.
- Acceleration under an insecurity clause is permitted only if the creditor acts in good faith—i.e., with an honest belief that the prospect of payment or performance is impaired.
- Where evidence allows competing inferences about estoppel and good faith, those issues are for the fact-finder, and a directed verdict is improper.

## Conclusion

The court required a jury trial on whether the bank’s established practice of tolerating late payments estopped it from abruptly accelerating without warning and on whether the bank acted in good faith in declaring itself insecure; the borrower could recover damages only by proving both.


J.R. Hale Contracting Co. v. United N.M. Bank at Albuquerque, 110 N.M. 712, 799 P.2d 581 (N.M. 1990)