Construction and other commercial borrowers in Illinois are well advised to take note of the Illinois Credit Agreements Act (ICAA) in their dealings with lenders. Simply put, unless a credit agreement between a bank and a commercial borrower is in writing and otherwise meets the requirements of the ICAA, the agreement is unenforceable and the borrower cannot rely on oral promises made by the lender even if the borrower has suffered disastrous consequences as a result of its reliance on them.
At first blush, the ICAA appears relatively innocuous. According to the ICAA, for any commercial credit agreement to be enforceable by a borrower against the lender, it must:
- Be in writing
- Express an agreement or commitment to lend money or extend credit or delay or forebear repayment of money
- Set forth the relevant terms and conditions of the loan or extension of credit
- Be signed by both the creditor and the borrower
On closer analysis, though, and as interpreted by appellate courts throughout Illinois, it appears the ICAA is entirely pro-lender and insulates from liability the most egregious misconduct by a bank based upon oral promises it makes and then reneges upon regardless of the impact on the borrower.
For example, under the ICAA a “credit agreement” is defined broadly to cover not only traditional agreements to loan money or extend credit, but also agreements to delay or forebear repayment of money. 815 ILCS 160/1. With respect to any such oral agreements, “[a] debtor may not maintain an action on or in any way related to [such] a credit agreement…” 815 ILCS 160/2. The phrase “on or in any way related to a credit agreement” has been broadly interpreted by trial courts and courts of appeal throughout Illinois.
The lesson to be learned from the broad application of the ICAA by courts in Illinois is simple: if a lender makes an oral promise to its commercial borrower relating in any fashion to a credit agreement, get it in writing, make sure it is signed by both parties, and make sure all relevant terms and conditions are contained within writing. Otherwise, the borrower will have no recourse against the lender based upon its reliance on the lender’s oral promises, no matter how disastrous the consequences.