Article

Note: Morgan 32 Holdings, LLC (Owner) required a construction contractor, Atria Builders, LLC (Contractor), to post two standby LCs in a combined amount of US$1,000,000 payable to Petra Mortgage Capital Corp. (Beneficiary/Owner's Lender).

The loan agreement between Owner and Beneficiary/Owner's Lender provided that on Contractor's default under the construction contract, Beneficiary/Owner's Lender was authorized to draw on the standbys. After Contractor incurred escalated construction costs and time delays, Owner cancelled the construction contract and Beneficiary/Owner's Lender drew on the two standbys and was paid. Contractor then sued Owner and Beneficiary/Owner's Lender for damages incurred from Beneficiary/Owner's Lender's improper drawing.

The Supreme Court, New York County, Gammerman, J.H.O., granted Beneficiary/Owner's Lender's motion to dismiss Contractor's causes of action. On appeal, the Supreme Court of New York, Appellate Division, First Department, Saxe, J.P., Catterson, Acosta, Abdus-Salaam, Roman, J.J., unanimously affirmed.

The Judges found that Contractor's right to recover losses based on Beneficiary/Owner's Lender's improper draw down was expressly addressed in the construction contract which stated Contractor was required to seek indemnification and payment from Owner. Therefore, Contractor's quasicontract claim against Beneficiary/Owner's Lender was barred by the terms of the construction contract.

[JEB/mcp]

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