Article

Note: In connection with a dispute regarding a credit card processing agreement, back office service provider, Taylor Building Management, Inc. (Service Provider), entered into a settlement agreement with Priority Payments Systems LLC (Processor). The agreement provided that on its execution US$300,000 would be paid to Service Provider and the balance in the reserve account would be paid if Service Provider tendered an irrevocable standby LC on or before a given date. The agreement stipulated that the LC could be issued by Bank Hapoalim (Issuer), and "shall be in form and from an issuer acceptable to [Processor] and shall name [Processor] as the sole beneficiary." The settlement agreement also provided that Processor (Beneficiary) "is not obligated to accept the letter of credit if [Service Provider] attempts to deliver after the deadline." On this basis, Processor and Service Provider entered negotiations regarding the terms of the LC.

During this period, Processor assigned its rights under the settlement agreement to Global Payments Direct, Inc. (Assignee), who continued negotiations with Service Provider. When no agreement was reached, Assignee declared Service Provider to be in default. Service Provider then sued Assignee and Processor on multiple counts, including a demand for specific performance requiring Assignee to accept the LC in a certain form.

On motion by Assignee, the New York Supreme Court, Bernard, J., dismissed all claims for failure to state a cause of action and denied Service Provider's motion for summary judgment.

Service Provider argued that the assignment of rights under the agreement was "impermissible" because it "materially increased [Service Provider's] burden of risk" and added undue complexity to the LC approval process. The court rejected this contention, noting that the settlement agreement was freely assignable and "superseded any prior or contemporaneous understandings or agreements." Further, the Judge found that Assignee did not raise concerns or conditions in assuming the agreement other than those raised by Processor. Service Provider also argued that Processor had accepted the draft LC prior to the assignment, compelling Assignee to accept as well. However, the court found that there had been no prior acceptance of this draft, noting that Assignee would not have been obligated to accept such an agreement in any event.

[JEB/as]

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