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.



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.