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Note: Oceanside Village, Inc. (Applicant) obtained a standby LC from Cubica Group, LLLP (Issuer) in favor of Merchants Commercial Bank (Beneficiary/Creditor) to collateralize a line of credit for a construction project in the Virgin Islands. When Beneficiary/Creditor demanded payment on line of credit and was not paid, it drew on the standby LC. Beneficiary/Creditor’s drawing on the standby LC caused Applicant to default on another obligation to First Bank for a separate project in St. Croix.

Beneficiary/Creditor sued both Applicant and Issuer for breach of contract. Issuer and Applicant counterclaimed against Beneficiary/Creditor alleging fraudulent misrepresentation, conversion, and unjust enrichment arising out of Beneficiary/Creditor’s allegedly false demand under the line of credit and improper drawing on the standby LC.

Beneficiary/Creditor responded to the counterclaim by arguing that Issuer’s and Applicant’s claims fell outside of the one-year statute of limitations for claims arising under the rights and obligations of LCs under the Virgin Islands’ version of U.C.C. § 5-115 (Statute of Limitations).

Beneficiary/Creditor moved to dismiss after Applicant’s and Issuer’s first amended answer, and Applicant and Issuer responded by moving for leave to amend answer for a second time. The Superior Court of the Virgin Islands, Francois, J., granted Applicant’s and Issuer’s motion for leave to file second amended complaint in part, and ruled that only one count was futile.

The Judge ruled that Applicant’s and Issuer’s allegation that Beneficiary/Creditor fraudulently executed the standby LC in an effort to enrich Beneficiary/Creditor at Applicant’s and Issuer’s expense should be covered by the two-year statute of limitations for unjust enrichment. The court further stated that the one-year statute of limitations for enforcing rights and obligations under LCs did not apply in this case because an unjust enrichment claim does not arise under the rights and obligations of a LC.

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