Article

Note: In connection with its construction project to build a facility, Associated Warehousing, Inc. (Applicant) entered negotiations with "Banterra Corporation d/b/a/ Banterra Bank" (Putative Issuer), the holding company for a state-chartered commercial bank, to secure funding involving a non-revolving construction loan, a real estate term loan, and an LC which was "to support an eventual Bond Issue for the permanent financing of [the two] loans." As described in the opinion, the agreement was set forth in a Term Letter sent by Putative Issuer, including "the purpose, amount, repayment, maturity, and rate of the loans. Fees were to be paid pursuant to 'issuance of Letter of Credit.' The terms of the Letter of Credit stated the purpose, amount, repayment, and fee of the loan. Notably, the rate was 'to be determined if Letter is drawn.'" It also listed collateral. However, the Term Letter was not signed by either party and expressly described itself as a "preliminary proposed terms letter."

After Putative Issuer issued the two loans, Applicant learned that it was not a rated bank and that its LC would not satisfy the requirement for the bond issue. Negotiations for the issuance of a wraparound LC from a rated bank failed when Putative Issuer refused to guarantee the LC. Applicant then filed suit against Putative Issuer for breach of contract, breach of implied covenant of good faith and fair dealing, misrepresentation by omission, and promissory estoppel. The U.S. District Court, Western District of Kentucky, Russell, J., denied Putative Issuer's motion to dismiss Applicant's claim on the grounds of failure to state a cause of action.

Although the Term Letter stated it was "merely intended to provide the basis for further discussions," the Judge found that Applicant had alleged facts sufficient to show consideration and overcome a motion to dismiss. Because there was a factual dispute as to whether the Term Letter was a valid contract, the Judge concluded that Applicant's claim for breach of an implied covenant of good faith and fair dealing could not be dismissed either. Regardless of the existence of a contract, the Judge found that the fact that Putative Issuer failed to disclose that it was a non-rated bank was sufficient for Applicant to overcome a motion to dismiss on its claim of misrepresentation. Finally, in regard to its claim of promissory estoppel for having incurred higher loan funding costs as a result of Putative Issuer not issuing the LC, the Judge ruled that Applicant had pled facts sufficient to overcome dismissal.

[JEB/plc]

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