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Note: Hilton Group PLC, an international company registered in England and Wales, and the world's largest gaming concern (Hilton), sold its South Africa interest, Ladbroke Casino Holdings, SA (Pty) Limited (Ladbroke) to Galaxy International Limited, Guernsey, UK (Galaxy). Payment was to be deferred for two years upon the submission by Galaxy of US$2,500,000 irrevocable letter of credit from a reputable bank. Galaxy procured the letter of credit from David H. Diggins of Greenville, South Carolina.

Various exchanges of emails and faxes occurred between Diggins, Galaxy, and a party alleging to be Branch Banking & Trust Co of South Carolina (BB&T), including a document purported to be a BB&T standby letter of credit subject to UCP500 and a document purported to be an Officers Resolution affirming the signature authority of the Anthony Persons signing the letter of credit. Hilton apparently telephoned BB&T in the relevant location and spoke to someone identifying themselves as the party signing the letter of credit and who affirmed they had the authority to do so. The original letter of credit apparently was sent directly to Galaxy and presented by them at the closing.

Excerpts from the LC:

We hereby establish our Irrevocable Unconditional Letter of Credit ... .

...

If the Bank is not then in default hereunder by reason of its having wrongfully failed to honor a demand for payment hereunder, this Credit shall be promptly surrendered by you to the Bank upon the Expiration Date.

...

This Credit set forth in full the terms of the Bank's undertaking. This undertaking shall not in any way be modified, amended or amplified by reference to any document, Credit is referred to or to which this Credit relates and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement.

We hereby engage with you that drafts drawn under and in compliance with the terms of this Letter of Credit will be duly honored upon presentation of documents to us upon the expiration date.

Hilton and Galaxy concluded the sale of Ladbroke to Galaxy. Two years later, Galaxy advised Hilton that Galaxy would not be able to pay the US$2,500,000 and Hilton demanded payment from BB&T under the letter of credit.

BB&T received the drawing and checked its records. Finding no record of the transaction, BB&T determined the credit was a forgery as it was not issued by the bank and declined payment. At the time of issuance of the alleged credit, BB&T did have an employee in the relative location by the name of Anthony Persons, who disavowed all knowledge of the transaction.

Hilton alleged the credit was issued by BB&T, that Anthony Persons had sent the faxes and actual letter of credit, that Persons had apparent authority that Hilton took the instrument in good faith, and the instrument should be enforced against BB&T.

BB&T noted there were no direct communications between the bank and Hilton (therefore there was no apparent authority), the alleged letter of credit did not appear in the bank records, and the applicant, Diggins, did not have lines of credit with the bank. BB&T further noted the language and form of the credit was unprofessional and raised several questions of authenticity on its face. BB&T claimed Hilton failed to follow prudent business practices (did not receive the LC from an advising bank and did not have Persons signature authenticated by a bank). Donald SMITH served as an expert witness for BB&T. BB&T also presented a handwriting expert who stated the signature on the credit was not that of BB&T employee Persons.

At trial, the jury found the testimony of the handwriting expert persuasive and found in favor of BB&T.

[JEB/csb]

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