Article

Notes: Walison Corp. (“Contractor”) contracted with Abbey Manor Special Needs Apartments, L.P., (“Owner”) to renovate a building in Hempstead, Nassau County, New York, USA. The Community Preservation Corporation (“Lender”) agreed to finance the renovation by providing a construction loan contingent on issuance of a standby letter of credit issued by Valley National Bank for USD 582,428 which was provided by Contractor.

The contract between Contractor and Owner provided that “if no permanent loan is being offered to [Owner] by [Lender] in connection herewith, until the Loan Documents are satisfied in full… the obligation of [Contractor] to provide the Letter of Credit shall terminate (90) days after the issuance of the temporary certificate of occupancy.” The contract further stipulated that, “Unless [Lender] waives the requirement of a Letter of Credit and the Loan Documents at that time…. [Owner] shall be obligated to provide a substitute Letter of Credit to [Lender] in the amount then required by [Owner] in its reasonable discretion and as otherwise provided in the Loan Documents.”

After obtaining the standby, various disputes arose regarding Contractor’s work and Owner’s obligations. Contractor then sued both Lender and Owner for, among other things, breach of contract. Lender informed both the parties and the court that it was exercising its right to draw on the LC, which for reasons not explained in the opinion had been reduced to USD 150,000. Contractor sought to enjoin the payment of the LC, but the court denied its application.

Applicant/Contractor subsequently made a four-pronged motion seeking (1) to enjoin Lender from drawing on the LC in bad faith and in violation of a stipulation which requires a conference with the Court to determine that an event of default has occurred; (2) to enjoin Owner from violating the Parties’ Stipulation and Settlement Agreement; (3) if Lender is allowed to draw on the LC, a declaratory judgment requiring Owner to immediately obtain a substitute LC; and (4) if Lender is allowed to draw on the LC and Owner defendants fail to substitute the funds, a judgment requiring Owner defendants to indemnify Contractor. The Supreme Court of New York for New York County, Oing, J., denied the motion.

In light initial decision denying Contractor’s request to prevent Lender from drawing on the LC, the Judge found the first prong of the motion was moot. In denying the second prong of Contractor’s motion, the Judge noted “Such equitable relief is not proper given that [Contractor] has an adequate remedy of law in the form of breach of contract.” The Judge denied the third-prong of Contractor’s motion because it was still sharply disputed as to whether Contractor had “satisfied the condition precedent to trigger a substitute Letter of Credit.” Finally, despite the presence of an indemnification agreement, the Judge denied the fourth-prong of Contractor’s motion because Contractor had failed to demonstrate that there was a failure to make any such payment as required.

[ABS/mjb/gmc]

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