Article

Note: In lieu of a down payment for the purchase of real estate, Atlanta Development, Inc. (Applicant/ Buyer) provided Emerald Capital Investments, LLC (Beneficiary/Seller) with a standby LC issued by Wachovia Bank for US$ 60,000. The LC provided that it would be payable to Beneficiary "in the event of an uncured breach" by Applicant or refunded to Applicant "in the event of an uncured breach" by Beneficiary.

When Beneficiary failed to complete necessary improvements or record the exemption plat, it sought an extension of time. An amendment to the contract was prepared by the Beneficiary to which the Applicant added handwritten wording (denoted in italics) and was executed by the parties:

"The closing date specified in the aforementioned Agreement is hereby amended as follows:

This transaction shall be closed on July 19, 2001, or on such other date as may be agreed to by the parties in writing, or within 14 days from completion of the property as described in Special Stipulation # 1." The transaction did not close on 19 July and the parties never agreed in writing to a different date. On 30 July, Applicant/Buyer notified Issuer that its contract with Beneficiary/Seller had expired and directed the Issuer to "extinguish the letter because 'the seller has failed to fulfill the terms of the agreement, to wit: [local government] has not approved the Plat nor have the improvements been installed."

On 1 August, the exemption plat was recorded by the local government but development improvements remained incomplete. The next day, an agent for the Beneficiary informed Applicant that Beneficiary "was ready to close on the property and asked [Applicant] to select a closing date."

Prompted by changes in the real estate market, Applicant advised Beneficiary in writing on 8 August, that it would not agree to amending the contract again and requested return of the LC. Beneficiary declined and instead presented the LC to Issuer for payment. For unknown reasons described in the opinion as "purely technical", Issuer refused to honor.

On learning of the attempted draw, Applicant's attorney threatened legal action against Beneficiary in a letter should it attempt to make another "baseless presentment" under the LC. According to the court, "the letter requested written assurances that no further attempt would be made to present the document to [Issuer] for payment."

After Beneficiary failed to provide written assurances and refused to return the LC, Applicant sued Beneficiary on 20 August for breach of contract, fraud, unjust enrichment, punitive damages, and attorney fees. The following day, Beneficiary's counsel notified Applicant that it was the party in breach and Beneficiary subsequently contracted with another party to sell the same property. Beneficiary later counterclaimed against Applicant for breach of contract, unjust enrichment, and attorney fees for bad faith.

The trial court denied Applicant's motion for summary judgment, granted Beneficiary's motion to dismiss Applicant's claims, and granted summary judgment to Beneficiary on its counterclaim for breach of contract on the issue of liability for the breach. On appeal, the Court of Appeals of Georgia, Fourth Division, Smith, J., reversed and remanded for a trial.

In a deposition, Beneficiary had testified that he understood that the original contract stipulated a closing date of June 15 or "up until November 15th", claiming "the outside date" was the date that the letter of credit expired. The appellate court noted:

"[Beneficiary] admitted the contract made no mention of November 15 and there had been no discussion with [Applicant] about having a November 15 expiration date. [Beneficiary] also conceded that he did not learn that the letter of credit had an expiration date of November 15 until after May 15, 2001, more than a month after [Beneficiary] and [Applicant] had executed the contract. [Beneficiary] testified that by his interpretation of the contract, the closing could have occurred on June 15, or two weeks after final approval of the exemption plat and completion of the work required by the contract, or any time before November 15 when the letter of credit expired. When asked, 'and so under your reading, that date could continue for years; isn't that right?' he responded, 'I don't know.'"

Noting that the evidence regarding the intent of the parties as indicated in the contract terms was open to more than one interpretation, the court concluded that the determination of intent would benefit from a full trial.

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

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.