What You Need to Know

• The New Jersey Appellate Division affirmed summary judgment in favor of a lender that declined a construction draw request based on the clear terms of its loan agreement.
• A construction lender may limit advances to “work-in-place” and require inspection approval before disbursing funds.
• Off-site prefabricated materials do not qualify as “work-in-place” if the loan agreement conditions advances on work being physically in place and approved by the lender’s inspector.
• Disclosures during underwriting do not override or modify unambiguous loan agreement terms between sophisticated parties.

New Jersey Appellate Division Upholds Lender’s Right to Deny Construction Loan Advance

In Vineland Chestnut Ave., LLC v. Fulton Bank, N.A., 2026 N.J. Super. Unpub. LEXIS 156 (Super. Ct. App. Div. Jan. 30, 2026), the Appellate Division affirmed the trial court’s grant of summary judgment to a bank on borrower’s claims that a construction draw should have been advanced. In doing so, it focused on the terms of the construction loan agreement that gave the Bank the right to inspect all “work-in-place” before advancing funds for same.

Dispute Over Whether Off-Site Prefabricated Materials Qualified as “Work-in-Place”

Defendant, Vineland Chestnut, LLC (“Vineland”), contracted with Family Dollar Stores of New Jersey, LLC (“Family Dollar”) to construct a store.  To finance the construction, Vineland entered into a construction loan agreement with Fulton Bank (the “Bank”).  Section 11(f) of the Agreement provided that:

All Advances shall be made only for work-in-place as found satisfactory by the Lender’s construction inspector . . . ., whose inspections in no case shall be construed as an acceptance by the Lender of quality of work and shall be deemed performed for the Lender’s sole benefit and not for the benefit of the

Vineland contracted with a sub-contractor to prefabricate the store’s steel structure off-site and deliver it to the construction site with cash on delivery (“COD”). The Bank knew of this arrangement through the loan agreement and underwriting process. Two weeks before the structure was to be delivered, Vineland requested that the Bank advance $97,952 in loan proceeds to pay for the structure.

The Bank declined the advance maintaining a pre-fab building was not “work-in-place” and that an inspection report was necessary with sufficient time for it to be reviewed before any funds were advanced. Because the sub-contractor would not deliver the structure without payment, construction delays ensued, liens were filed, and Vineland defaulted on its Loan. It eventually obtained financing from another lender and completed the project.

Vineland subsequently sued the Bank for breach of contract, breach of the implied duty of good faith and fair dealing, and tortious interference. After discovery and voluntary dismissal of the tortious interference claim, the trial court granted the Bank’s summary judgment motion based on the clear terms of the loan agreement.

Court Finds Loan Agreement Clear and Unambiguous

On appeal, Vineland argued the contract terms were ambiguous and the fact that the Bank knew the sub-contractor’s off-site work and COD terms prior to closing the Loan required the Bank to advise it as an “issue” in providing the Loan.

The Appellate Division affirmed the trial court finding that the Loan Agreement was clear and unambiguous. Per Section 11(f), the Bank agreed to only advance on “work-in-place,” and had the right to inspect same. It then found that while the agreement did not define “work-in-place,” it defined “work” as “all of the work of the [c]ontractor in pursuit of completing the project.” Thus, the pre-fab steel structure could qualify as “work.” However, Section 2(h) of the agreement required “work” to be “in place and found satisfactory to the As such, “in-place” could not include a steel structure built off-site. Thus, the Bank was within its right to decline the advance. Since the breach of implied duty claim mirrored the rejected contract claim, it failed too.

Key Takeaways for Lenders and Borrowers in Construction Financings

This decision emphasizes the significance of the definition of terms in loan documents. It also reinforces that the loan documents control and disclosures in the underwriting process do not justify deviating from the clear terms between sophisticated parties.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Keshav Agiwal at kagiwal@riker.com.