Article

Note: To assure repayment of a construction loan, Borrower obtained a standby LC for US$237,760.20 in favor of the lender, Centennial Mortgage, Inc. (Beneficiary).

When Borrower defaulted on the loan, it sought injunctive relief to prevent Beneficiary from drawing on the LC, which was denied. Centennial Mortgage, Inc. v. Blumenfeld, 745 N.E.2d 268 (Ind. Ct. App. 2001). Beneficiary then drew on the LC, which was honored.

Since the loan was also insured by a US government agency, the Department of Housing and Urban Development (Insurer), Beneficiary made a claim on the policy which was paid by Insurer, less the amount of the proceeds of the LC. Subsequently, Applicant sued Beneficiary for breach of contract and conversion in state court, and was awarded 50 percent of the amount drawn on the LC plus costs and interest. Centers v. Centennial Mortgage, Inc., 398 F.3d 930 (7th Cir. 2005).

After Beneficiary paid the judgment, it claimed a proportionate amount of the award from Insurer. Insurer refused. In the meantime, Beneficiary transferred its claim against Insurer to a shareholder, William Centers (Assignee).

Assignee then brought this action against Insurer for breach of the insurance contract. On Insurer's Motion to Dismiss for lack of jurisdiction under the applicable US federal statute, the Court of Federal Claims, Baskir, J., dismissed the action.

The court said that it lacked jurisdiction because there was no privity of contract between Insurer and Assignee. Applying a federal statute prohibiting the assignment of claims (The Anti-Assignment Statute), the court noted that the statute was intended to protect Insurer from the possibility of double claimants, and the adverse affects of transfers by not allowing available defenses and counterclaims that occur after the assignment. 31 U.S.C. §3727(a), (b). While the court recognized some exceptions to the statute existed (e.g. merger or successors in interest), it concluded that these exceptions did not apply to voluntary transfers.

[JEB/al]

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