Note: Frederick Whittemore (Applicant) used his personal investment account to guarantee a loan obligation undertaken by his friend, Edwin Yeo, principal of Yeo Farms (Borrower), causing a standby letter of credit to be issued in Borrower's favor. Borrower defaulted on the loan in May 2009 and the beneficiary drew on the LC.

Applicant sued Borrower for unjust enrichment, and the Supreme Court, New York County, Braun, J., entered default judgment in Applicant's favor in the amount of USD 1,182,546 with interest. On appeal, the Appellate Division of the Supreme Court of New York, First Department, Gonzalez, Andrias, Saxe, Richter and Clark, JJ., affirmed. The appellate court found that the evidence established a prima facie claim that Borrower was unjustly enriched at Applicant's expense.

The appellate opinion noted that Applicant had guaranteed the loan as a favor, the arrangement was not grounded in any contractual agreement, and thus unjust enrichment remained a viable cause of action. The appellate court rejected Borrower's argument that the unjust enrichment claim was untimely asserted because Borrower's default in appearing in the action waived any affirmative defenses, and regardless, Applicant commenced the action within the six-year "catchall" statute of limitations.

The appellate court also rejected Borrower's argument that Applicant had a duty to mitigate damages, finding that Borrower failed to demonstrate Applicant's failure to mitigate, including the extent to which damages allegedly could have been litigated. The damages were certain under the LC and readilycalculable attendant bank fees.



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.