Article

Note: Applicant/Purchaser provided an LC as a down payment to secure its contract to purchase a unit in a 108-unit condominium on the Gulf of Mexico from Beneficiary/Developer. Applicant/Purchaser subsequently sought to avoid the contract by giving notice of revocation, contending that Beneficiary/ Developer had failed to comply with applicable law (Interstate Land Sales Full Disclosure Act, 15 USC §§ 1707 et seq.) regarding the time within which the unit must be completed (two years) and failed to provide a required property report. Beneficiary/ Developer immediately drew on the LC and was paid.

Applicant/Purchaser sued Beneficiary/Developer in federal court to recover the LC proceeds and for costs. Beneficiary/Developer moved to dismiss for lack of subject matter jurisdiction and for summary judgment.

The United States District Court for the Southern District of Alabama, Steele, J., ruled that Applicant/ Purchaser had jurisdiction to claim revocation under US federal law. The court noted that Developer's arguments regarding an exemption to the statute went to the merits of the case and did not deprive it of jurisdiction. The court also ruled that a motion for summary judgment cannot take place before discovery, stating that Beneficiary/Developer could renew its motion later.

Comment:

In the heated market for beach front property of the early part of this decade, standbys were widely used to secure units of projects not yet begun with the expectation that the unit would be resolved before the standby was ever drawn down. This case is the first reported one from that craze. It is not likely to be the last.

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.