Article

Note: In connection with the issuance of bonds for a commercial renovation project, Thomas McCaughey and Joe Murphy jointly guaranteed repayment of an irrevocable letter of credit in the amount of US$5,400,000 issued by Bank of America (Issuer) to their limited partnership, Boxwood Assoc. (Applicant). In April 1988, Issuer "extended the letter of credit" to Applicant with only Joe Murphy (Guarantor) liable, releasing Thomas McCaughey (Discharged Guarantor) from personal liability for the letter of credit.

In 1989, drawings occurred and Applicant failed to reimburse Issuer. In the meantime, litigation was pending between Guarantor and Discharged Guarantor for monies owed for draws on another LC that was issued by Citibank that they also had guaranteed. When Issuer demanded reimbursement from Guarantor, Guarantor and Issuer entered into a settlement agreement, which stipulated that Guarantor would assign to the Issuer half of any proceeds that Guarantor recovered in his litigation with Discharged Guarantor on the separate Citibank letter of credit. When the jury in the Citibank case awarded Guarantor US$487,500, US$243,750 of this sum was paid to Issuer.

Discharged Guarantor claimed that Issuer breached the 1988 release by agreeing to take his monies for Guarantor's obligation on the letter of credit, and seeking equitable relief, sued Issuer.

The United States District Court for the Southern District of Georgia, Edenfield, J., granted summary judgment in favor of Issuer. On appeal, the United States Court of Appeals, Eleventh Circuit, in a Per Curium opinion, affirmed.

The Judge ruled that the monies paid by Discharged Guarantor and obtained by Issuer through its settlement with Guarantor were for liability for Discharged Guarantor's indebtedness on the Citibank letter of credit, and not Issuer's letter of credit, so the monies were outside the scope of the 1988 agreement. The Judge also ruled that equitable remedies for unjust enrichment could not be sought for breach of the 1988 release, because it was an express agreement.

[JEB/mcb]

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