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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2010 LC CASE SUMMARIES No. 5:08-CV-00052-TBR, 2010 WL 2745981 (W.D. Ky. July 9, 2010) [U.S.A.]; Motion to Alter Judgment, No. 5:08-CV-00052-TBR, 2010 U.S. Dist. LEXIS 114182 (W.D. Ky. Oct. 26, 2010) [U.S.A.]
Topics: Contract to Issue LC; Rating
Type of lawsuit: Borrower sued Bank Financier for breach of contract, breach of the covenant of good faith and fair dealing, deceit, negligent misrepresentation, and promissory estoppel for breach of a promise to issue a rated standby.
Parties: Plaintiff/Borrower B Associated Warehousing, Inc. (Counsel: Douglas Gene Sharp, Eric Michael Jensen, Timothy A. Shenk - Morgan & Pottinger, P.S.C.; Harold T. Hurt, Richard W. Jones - Hurt Jones & Boblin) Defendant/Bank Financier B Banterra Corp. d/b/a Banterra Bank (Counsel: Brian M. Johnson, Matthew A. Stinnett - Greenebaum Doll & McDonald PLLC)
Underlying Transaction: A bond issue supporting construction project.
LC: Standby LC for US$1,650,000. Silent as to governing rules.
Decision: The United States District Court, W.D. Kentucky, Paducah Division, Russell, J., granted Bank Financier's Motion for Summary Judgment. Subsequently, the Judge denied Borrower's Motion to Alter Judgment.
Prior History: Associated Warehousing Inc. v. Banterra Corp., 5:08CV00052TBR, 2009 WL 1856633 (W.D. Ky. June 25, 2009), Noted in 2010 Annual Review of International Banking Law and Practice at 434.
Rationale: Where it is apparent from a preliminary writing that there is no contract, extrinsic evidence is not available to show that an agreement was intended.
Article
Factual Summary: In order to proceed with a construction project for its warehouse facility, Borrower arranged for a bond issue to be backed by a regional bank which. The bond in turn, required a standby letter of credit issued in its favor by a rated bank. When Borrower contacted Bank Financier regarding financing for the construction project, the two sides discussed a financing package which included a real estate loan, a construction loan, and the letter of credit to support the bond issue.
Bank Financier then sent a "Terms Letter" to Borrower in order to "outline certain preliminary financing terms for purposes of further discussion". The two sides were soon after able to close on the real estate loan and the construction loan.
Prior to the "Terms Letter" being received, Borrower found out that Bank Financier was not a rated bank. Borrower unsuccessfully approached several rated banks for a wrap around LC to support Bank Financier's standby. Although the construction loan and real estate loan were already closed, negotiations regarding the wrap-around LC failed, and ultimately none was issued.
Borrower then sued Bank Financier for breach of contract, breach of the covenant of good faith and fair dealing, deceit, negligent misrepresentation, and promissory estoppel. The trial court granted Bank Financier's Motion for Summary Judgment and subsequently denied Borrower's Motion to Alter Judgment.
Legal Analysis:
1. Contract to issue LC. Applicant argued that the court should look to extrinsic evidence to supply terms in the Terms Letter. The Judge refused, stating "it is evident from the language of the Terms Letter that it was not intended as a binding contract." Borrower also claimed that Bank Financier was liable based on theories of fraud, reliance, or negligent misrepresentation. The Judge rejected these claims, noting that Applicant was aware that Bank Financier was not rated prior to receipt of the letter.
On Borrower's Motion to Alter Judgment, the Judge stated that Borrower had presented no new arguments with regard to breach of contract or breach of covenant of good faith and fair dealing. The Judge also emphasized that in the findings of the original opinion, there was no basis to support the claims of fraud by omission, negligent misrepresentation, or promissory estoppel.
[JEB/jds]
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