International Banking Law: Condition Precedent

5771 Words Dec 28th, 2010 24 Pages
International Banking Law

Bluebird Ltd, owners of a football team, the Bluebirds, is in need of loan finance to provide the seating and other fittings in a shortly to be completed new football stadium. It negotiates a revolving credit facility with Popular Bank. The term sheet that forms part of a commitment letter prior to signing the agreement states that, because there will be a very short time in which to install the seating, work can begin on this prior to completion of the stadium.

Bluebird and Popular Bank sign the loan agreement. However, in July, when Bluebird seeks to draw the loan funds down to begin the job of installing seating, Popular Bank point to a clause in the loan agreement headed ‘Condition Precedent’. This
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A loan agreement is a contract like any other and requires the usual elements of a contract, namely an offer, acceptance and consideration, plus an intention to create legal relations. If all these conditions are met then there will be a binding agreement. Chitty on Contracts defines a loan as:

“…a contract whereby one person lends or agrees to lend a sum of money to another, in consideration of a promise express or implied to repay that sum on demand, or at a fixed or determinable future time, or conditionally upon an event which is bound to happen, with or without interest.”

We shall consider here the contract between Bluebird Ltd and Popular Bank and the problems that they have.
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Firstly we should consider whether there is a contract between the two parties. Popular Bank have made an offer to Bluebird Ltd when they put together their loan agreement, together with term sheet and commitment letter. Bluebird Ltd accepted that agreement when they signed the loan agreement, the consideration being the loan money and the promise of reimbursement, their intent to create legal relations being clear. All the basic legal requirements of a contract are present and there are no untoward circumstances such as duress, therefore we must conclude that the loan agreement is a valid contract at this stage.

Bluebird Ltd have chosen to set up a revolving credit facility with Popular Bank. A revolving
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