Note: In 2006, West Georgia National Bank (Lender) opened a line of credit for David Hewitt (Borrower) in the maximum principal amount of USD 6 million to finance property development. First National Bank of Georgia (Predecessor Bank), Lender's successor in interest, agreed to extend and modify the loan several times. It also issued a commitment letter in 2008, setting forth conditions for issuance of a standby letter of credit that was to secure bond financing for the development. The commitment letter stated that Predecessor Bank's commitment would "'be terminated and become null and void' if the [LC] was not issued within 45 days."

The standby was never issued. When the last loan renewal expired, Borrower failed to repay the loan. Subsequently, Predecessor Bank closed and Lender purchased the assets from the FDIC and made a written demand to Borrower for payment under the note.

In response, Borrower sued Lender for breach of contract and other claims, alleging that the 2006 loan agreement was supplemented by an oral agreement to give the loan a five year term. Borrower also alleged that Predecessor Bank had breached its commitment letter. The trial court found for Lender and on appeal, the Court of Appeals for Georgia, McFadden, J., affirmed.

The appellate court agreed with the trial court that the language of the written agreement demonstrated that there was not a five year term. The court also noted that Borrower's claim that the actual agreement differed from the written agreement was barred by the federal D'Oench Duhme doctrine which "protects bank depositors and federal guarantors of banks by prohibiting reliance on any agreements which are not of record and which would have the effect of misleading Lenders or the public authority."

The court also disregarded as without merit Borrower's argument that the D'Oench Duhme doctrine only applied to the FDIC. The court noted that under the D'Oench Duhme doctrine, oral agreements between debtors and failed banks will not be enforced against bank authorities. Furthermore, the court ruled that Borrower's promissory note was validly assigned to Lender and that any promissory estoppel claims must be defeated as they fail under the D'Oench Duhme doctrine.

Lastly, the appellate court agreed with the trial court that Predecessor Bank had not breached its commitment letter since Borrower was not a party or third-party beneficiary to the commitment, which in any event terminated by its own terms 45 days after it issued.



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.