Topics: Cancellation

Note: After settling a dispute over fees paid for client referrals with Gary Goldberg Planning Services (Beneficiary), Advisors Financial Center (Applicant) sued to enforce the settlement agreement. After final judgment was entered against it in an action over fees, Applicant appealed and posted a standby letter of credit from M&T Bank (Issuer) in the amount of US$ 340,000 in favor of Beneficiary in lieu of a supersedeas bond to stay execution of the judgment. On appeal, the Superior Court of New Jersey, Appellate Division, affirmed the judgment for Beneficiary, but remanded the case for damages to be reconsidered.

The opinion states that the parties agreed that the standby was to terminate if "the Appellate Division remand[ed] the matter back to the lower Court for a new trial or new findings by the Court below in favour of [Applicant]" but does not indicate whether the agreement was embodied in the terms of the standby itself. The standby provided "[i]t is a condition of this credit that it shall be deemed automatically extended without amendment for sixty (60) days from the expiration date hereof, or any future expiration date, unless thirty (30) days prior to any expiration date [Issuer] notifies the beneficiary in writing that [Issuer] elects not to consider this credit renewed for any additional period."

Applicant moved to vacate the original trial court judgment in favor of Beneficiary, and sought release of its standby. Beneficiary sought sanctions under New Jersey Rule 1:4-8 (Frivolous Litigation), but the Superior Court of New Jersey, Appellate Division ruled that since the matter had been remanded for reconsideration of damages, Beneficiary no longer had a valid final judgment and the standby had "terminated pursuant to the parties' express agreement." As such, Applicant's motion to vacate was not frivolous, and the standby was invalid.

Comment: If the standby did not provide for cancellation or the beneficiary did not consent, the standby could not have "terminated" until the notice of non extension at the next cycle. Of course, the beneficiary could not properly draw on the standby either, which makes this point a technicality in the case.



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.