Note: Citibank, N.A. (Issuer) issued a letter of credit on behalf of Allen Silverman (Applicant). After Issuer honored the LC, Issuer sought reimbursement from Applicant. Issuer and Applicant entered into a written forbearance agreement in which Applicant acknowledged his reimbursement obligations under the LC and the amount due. However, Applicant failed to reimburse Issuer after the agreement expired.

Issuer then sued Applicant, submitted the LC and forbearance agreement to the court, and moved for summary judgment. The Supreme Court, New York County, Schweitzer, J., granted Issuer's motion for summary judgment. On appeal, the Supreme Court, New York County, Appellate Division, Gonzalez, P.J., Sweeny, Moskowitz, Acosta, Manzanet-Daniels, JJ., modified the judgment to delete the award of sanctions and otherwise affirmed.

Applicant claimed that Issuer violated the U.S. Bank Holding Company Act (BHCA) and Equal Credit Opportunity Act (ECOA) by demanding additional collateral for entry into a forbearance agreement. The appellate court ruled that a bank cannot be liable under the BHCA for engaging in "traditional banking practices". The court stated: "To demand additional collateral from a debtor who is in default in exchange for extending that debtor's letter of credit is well within traditional banking practices". The court also found no evidence of age discrimination by Issuer. However, even if such claims were true, the court observed that they would not void the underlying transaction or prevent Issuer from enforcing the LC and forbearance agreement.

Additionally, Applicant argued that he was entitled to a set-off on the amount due under the LC because of Issuer's negligent misrepresentation and breach of fiduciary duty. However, the appellate court ruled that such claims were separate and would not void Applicant's obligations under the LC and forbearance agreement. Therefore, the appellate court severed Applicant's negligent misrepresentation and breach of fiduciary duty claims.

Finally, Applicant claimed that Issuer orally agreed to forbear after the written forbearance agreement expired and Issuer waived its rights under the LC. However, the appellate court found that the LC and forbearance agreement both contained enforceable provisions providing that they could not be changed orally, and that Issuer had repeatedly stated that it was not waiving its rights. Therefore, the court rejected Applicant's claims that Issuer had waived its rights.



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.