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Note: Cross Creek, L.L.C and its owner, Robert Bellows (Contractor), purchased property in the City of Columbus, Indiana (City) and subdivided it. Contractor then entered into a Subdivision Improvement Agreement with City that required Contractor to install sidewalks in the subdivision. To assure that the sidewalks would be completed, Contractor provided City with a standby LC from Salin Bank (Bank), the proceeds of which were to be used to complete the sidewalks in the event Contractor failed to do so.

Several years later, Contractor sold 19 lots in the subdivision to Kenneth and Elizabeth Patton and Patton Homes, L.L.C. (Developer). Contractor told Developer that Developer would be responsible for completing sidewalks. Although Developer believed it would be responsible only for common area sidewalks in front of the lots it had purchased, Contractor intended to delegate responsibility for all common area sidewalks to Developer.

A year later, the standby provided by Contractor expired, and Developer obtained its own standby from Bank in favor of City. Sidewalks in certain common areas were never completed, and City drew on Developer's LC, using the LC proceeds to complete all of the sidewalks in the subdivision, including sidewalks that were part of Developer's lots. Developer sued Contractor and City for reimbursement. Developer claimed that this use of standby proceeds was improper because Contractor had not assigned the obligation to complete all common area sidewalks to Developer, and the obligation to complete the sidewalks in front of the lots belonging to Contractor remained with Contractor.

The Bartholomew Superior Court, Meek, J., entered judgment for Contractor and City, ruling that City "had the right to rely upon the language in the letter of credit that [Developer] had assumed the duties of building sidewalks for all of Cross Creek Subdivision, including common areas." On appeal, the Court of Appeals of Indiana, May, J., reversed, ruling that "[Developer's] letter of credit is almost entirely boilerplate, and the only mention of the sidewalks is in a section addressing the content of a statement the City must provide the Bank in order to be paid from the funds of the letter of credit...That language, which refers only to the procedure the City and Bank must follow, does not establish [that Developer] 'assumed' any duties, nor does it establish the extent of any such duties."

[JEB/pbl]

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