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Note: A land annexation agreement between Squires Landing (Developer) and the City of Rochelle (City) required Developer to maintain a USD 43,000 escrow account for the benefit of City. In the event Developer developed the land, City could apply the funds of the escrow account toward the cost of improving an intersection on or near the property. The parties later amended the annexation agreement to allow Developer to provide a standby LC to City instead of maintaining the escrow account, and Developer secured a USD 43,000 LC from its bank (Issuer).

More than two years after Developer sold the property to AKCK, LLC (Purchaser), subject to the annexation agreement, Purchaser demanded that City release the LC. City refused to do so, and instead, drew on the LC proceeds, which the Issuer honored. Developer then sued City, seeking injunctive relief for return of the LC proceeds and a declaratory judgment that the drawing was improper. City filed a third-party complaint against Purchaser, arguing that if the court found in favor of Developer, that Purchaser was obligated to provide escrow.

The trial court granted summary judgment in favor of City, which then dismissed the complaint against Purchaser. The Appellate Court of Illinois, Second District, in an opinion by Spence, J., reversed and granted summary judgment for Developer.

The appellate court ruled that Developer's "obligation to maintain an escrow (or [LC]) terminated once it assigned the agreement to (Purchaser)." The opinion noted that the agreement did not require City to approve any assignment made by Developer, and the court's reading of the annexation agreement allowed Developer to withdraw the escrow or LC upon assignment of the agreement to Purchaser. The appellate court ruled that City was wrong to refuse to release the LC to Developer, and that Developer was entitled to a refund of the LC proceeds.

[MJS]

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