Article

Prior History: 2006 Mich. App. LEXIS 3510 (Mich. Ct. App. 2006) [USA], abstracted at 2007 ANNUAL SURVEY 171.

Note: Howell Township, Michigan (USA) (Beneficiary) required a development, English Gardens Condominium, LLC (Applicant), to post a standby LC in order to secure the completion of a condominium complex. Claiming that there was outstanding landscaping work and in view of the pending expiration of the LC, Beneficiary drew on the LC for the full amount without itself completing the work for reimbursement as apparently required by the terms of the local ordinance. The township ordinance authorized the local government to complete improvements on its own and reimburse themselves through the LC for expenses incurred. The LC required only that Beneficiary assert that Applicant failed to fulfill its contractual obligations which Beneficiary had stated. Because the documents complied, Issuer honored.

Claiming that Beneficiary had improperly drawn on the LC and seeking refund of unused proceeds, Applicant sued Beneficiary. The trial court entered summary judgment for Beneficiary. The Intermediate Appellate Court reversed and remanded with respect to the LC claim. On appeal, the Supreme Court entered summary judgment in favor of Beneficiary of the LC.

Ruling in favor of Beneficiary, the court concluded that the ordinance permitted the seizure of deposited security in order to ensure completion. It ruled that Beneficiary was not restricted to drawing only for expenditures related to completed work, but also in anticipation of expenditure to complete work.

[JEB/alh]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.