Note: Century Valley Ranch, LLC, (Applicant) a single purpose entity, formed to own and operate an almond farm, assigned to Pacific Millennium U.S. Corporation (Assignee) a 50 percent interest.

Applicant obtained an LC in the amount of USD 1,750,000 issued to secure a loan from East West Bank (Beneficiary). The LC amount was later increased to USD 2,400,000. In response to Assignee's request to sell its shares in Applicant to Applicant's Principal (Principal), Principal sent a letter proposing that Principal pay off the outstanding USD 2,200,000 balance of the East West loan and pay an additional USD 1,328,000 to Assignee for Assignee's shares. Assignee responded with an executed signature page agreeing to sell its "membership" interest for "cash." Principal was unable to close by the date indicated on the signature page.

Assignee, in an email to Principal, indicated that it had renewed the LC for USD 1,800,000, acknowledging that Principal agreed to pay down the East West loan by USD 100,000 per month. Principal continued to pay down the East West loan by USD 100,000 per month, and then paid off the loan balance by obtaining financing from another source, before informing Assignee that it had paid off the loan, and that "this should end the Central Valley chapter." When Assignee's principal requested reports from Applicant, Assignee was informed that it was no longer a shareholder of Applicant.

Applicant alleged that the contract of sale effectuated by the engagement letter and the signature page was subsequently orally modified, and that Assignee agreed to remove the requirement of the USD 1,328,000 in order to purchase Assignee's membership interest in Applicant, in exchange for releasing Assignee's principal's debt to Principal of USD 1,800,000.

Assignee sued Applicant for inter alia declaratory relief as to the validity and enforceability of the agreement to transfer Assignee's membership interest in Applicant. Assignee argued that the oral modifications were invalid for lack of new consideration. The Superior Court of San Diego, Styn, J., ruled that the oral modification was valid. On appeal, the California Court of Appeals, Irion, J., Nares, Acting P.J., and O'Rourke, J., in an opinion by Irion, J., affirmed.



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.