Article

Note: Developer agreed with Town of Manchester, Ct, USA (Town), to complete improvements in connection with approval of a zoning application for a residential development. In accordance with applicable regulations, Developer obtained a standby letter of credit from First Connecticut Capital LLC (Issuer) in favor of Town/Beneficiary. Apparently, Developer’s rights secured the standby and Developer subsequently assigned its rights to Issuer by warranty deed in lieu of foreclosure.

When the provincial improvements were not made, Town/Beneficiary sued Issuer for breach of contract and moved for a prejudgment remedy. The Superior Court of Connecticut, Judicial District of Hartford, Epstein, J. granted a prejudgment remedy.

Town/Beneficiary based its claim on the fact that approval of zoning application created implied contract with Developer. Town argued further that Issuer had succeeded Developer by way of the warranty deed in lieu of foreclosure, so that it became a “subsequent developer”, and subsequently failed to execute repairs and improvements.

Issuer maintained that it was merely a lender, not a developer (or “subsequent developer”). Moreover, Issuer put forward argument that an implied agreement between Developer and Town/Beneficiary could not have been concluded due to the fact that a letter of credit existed which constitutes an express contract.

Issuer conceded that it had sought to execute repairs and improvements – but only to escape liability under the letter of credit and not because it may have thought itself bound by any (other) contract. Once the standby expired, Issuer ceased repair/improvement activities since no claim on the standby was possible. The Judge stated: “If this court accepted this argument as a basis for defeating the town’s implied contract claim, it would, in effect, be sanctioning bad faith”.

Further, the Judge addressed the Issuer’s argument that an implied contract may never come into existence when an express one is in existence: while court accepted that there was an express contract between Town and Issuer (the standby letter of credit), this fact could not preclude the subsequent formation of implied contract. The Judge observed that the standby and the contract for repairs and improvements concern and give rise to different contractual relationships.

[KCM]

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