By: April N. Pinder, Esq.

Does the exact contract language regarding payments really matter? According to a recent Indiana Court of Appeals decision, yes.

In Singleton v. Fifth Third Bank, 2012 Ind. App. LEXIS 532 (Ind. Ct. App. 2012), the Indiana Court of Appeals was asked to review a payment provision in a forbearance agreement between a borrower and a lender. The payment provision in question stated the borrower “shall make payments” to the lender on certain dates, in certain amounts, in exchange for the lender’s forbearance of pending litigation and other proceedings under a set of loan documents between borrower and lender. The agreement did not set forth any specific terms regarding payment method.

The last payment under the agreement was due by June 30, 2011 (the “Due Date”). On the Due Date, borrower sent a wire transfer to lender in the agreed upon amount. Borrower received confirmation from his bank that the “effective date” and “entered date” of the wire transfer was the Due Date. This payment method had been used in the past under this agreement, and lender’s representative had advised borrower’s counsel that this method would be acceptable for the June 30th payment.

Unfortunately, the wired funds were not received by the lender until the morning of July 1, 2011, one day after the Due Date. Lender then petitioned the Court for an agreed judgment based on borrower’s default on the terms of the agreement. The trial court ruled in favor of the lender and the borrower appealed.

The Court of Appeals reversed the trial court’s decision, stating it would not “supply omitted terms while professing to construe a contract.”  The agreement did not specifically state a date on which payments had to be “received” by the lender, only dates on which borrower had to make payments. The Singleton Court declined to make a more specific interpretation of the general payment language, finding that borrower did satisfy the terms of the agreement by making a final payment on the required date and was not in default.

Lesson: Be specific! If you intend to strictly enforce provisions in your loan documents, or have specific requirements for compliance, be exact in language used in the agreement. If you decide borrower must have a payment credited to his account on a certain date, be precise. A court is unlikely to interpret a specific intent from general language.

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