Article

Note: To ensure that the Snake River Sporting Club Development Company (Applicant/Developer) would complete infrastructure improvements in a residential real estate development, it obtained a standby LC governed by the Wyoming version of US UCC Article 5 issued by Wells Fargo Bank, N.A. (Issuer) in favor of Teton County Board of Commissioners (Beneficiary). The LC had a one-year expiration date, but was reissued three times for an additional year each. Subsequently, Fish Creek Capital, LLC (Purchaser) obtained a USD 1.425 million loan from Issuer for the purchase of property in the same development. Applicant/Developer never completed the infrastructure improvements and Beneficiary drew on the LC.

After the standby was reissued a second time, Purchaser notified Issuer that extending the LC adversely affected the value of its property and sued, claiming that Issuer breached a covenant of good faith and fair dealing in the loan agreement by doing so. The U.S. District Court for the District of Wyoming dismissed the lawsuit. On appeal, a panel of the U.S. Court of Appeals for the Tenth Circuit, Briscoe, Porfilio, and Murphy, in an opinion by Porfilio, J., affirmed.

Purchaser alleged that it relied on the completion of the infrastructure, that Issuer had negotiated extensions of the LC for its own benefit, and that Purchaser was a third-party beneficiary of the LC entitled to damages for Issuer's failure to pay Purchaser after expiration of second extension. Issuer moved to dismiss, contending that its only duty was to lend money to Purchaser and to honor complying presentation by Beneficiary.

The appellate court ruled that Issuer's only obligation under the loan agreement was to lend money. Only Beneficiary was identified to receive the proceeds from the LCs, and the appellate court ruled that Purchaser otherwise failed to show that it was an intended third-party beneficiary. The appellate court also noted that Issuer was reducing its obligations or adversely affecting property values by extending the LC. The appellate court added that the Wyoming Uniform Commercial Code regarding independence weakened Purchaser's position because "provisions of the Wyoming Uniform Commercial Code, which expressly govern the LCs, reinforce the conclusion that [Issuer] was not obligated to [Purchaser] for any failure of performance in the underlying contract for which the LCs were issued."

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