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Note: When Associated Warehousing, Inc. (Applicant) sought financing for its construction project, it arranged for loans and a standby letter of credit to be issued by Banterra Bank. Subsequently, however, it was discovered that the LC had to be issued by a rated bank and that Banterra Bank was not rated. Banterra was unable to arrange for a wraparound LC with First Tennessee Bank, a rated bank, and Applicant refused to accept a Banterra LC without enhancement by a rated bank.

Applicant then sued Banterra for breach of contract, breach of the covenant of good faith and fair dealing, deceit, negligent misrepresentation, and promissory estoppel. On Banterra's motion to dismiss the negligent misrepresentation theory, the US District Court for the Western District of Kentucky, Russel, CJ., denied the motion.

The Judge noted that negligent misrepresentation occurs when a false statement is made without the exercise of reasonable care or competence on which another detrimentally relies. Banterra argued that the claim was predicated on an omission and not an affirmative misstatement. The Judge rejected this argument, noting that the compliant as amended alleged that "Banterra represented in its term letter that it would issue to AWI a letter of credit and that Banterra failed to exercise reasonable care to determine that it was rated bank for the purpose of issuing the letter of credit. It was the representation that it would be issued a letter of credit, not whether Banterra was or was not a rated bank, that [Applicant] alleges to have relied upon to its detriment."

[JEB]

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