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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1996 LC CASE SUMMARIES 79 F.3d 1148 (6th Cir. 1996)
Topics:
Apparent Authority of a Bank Employee; Statute of Frauds: Oral Promise to Issue a L/C.
Type of Lawsuit:
Applicant sued issuer to enforce an oral promise to issue a L/C for the full amount needed.
Principals:
Plaintiff/Applicant: Human Services Plaza Partnership;
Defendant/Issuer: The Huntington National Bank;
Defendant: The Huntington Mortgage Co.;
Defendant: The Huntington Co.
Underlying Transaction:
Financing of building construction.
LC:
78 month L/C for US $23,500,000. Silent as to whether subject to UCP.
Procedural History:
The U.S. Court of Appeals for the Sixth Circuit, per curiam, affirmed the trial court's entry of judgment for the issuer notwithstanding the jury's verdict for the applicant.
Rule:
Bank employee did not have the apparent authority orally to bind the bank to large commitment where the oral promise violated the statute of frauds.
Article
Factual Summary: To finance applicant's construction project, it discussed issuing a L/C to assure payment of bonds by the defendant investment company with the bank. The putative issuer subsequently informed the applicant that it would limit its participa tion to $8,000,000. The applicant, contending that the issuer had committed itself to issue the L/C for the full amount, filed suit. At trial, the jury found that the issuer had made an oral promise to commit to the full amount. The court, however, found that there was insufficient evidence that the issuer's agent had apparent authority orally to commit the issuer to issue the letter of credit. Moreover, the court found that the contract, not reduced to writing, failed under Ohio's Statute of Frauds. It entered judgment not-withstanding the verdict. On appeal, affirmed.
The applicant argued that the issuer held out its agent as a "Relationship Banker" who had the authority orally to commit the bank to this transaction based on its past dealings with the agent who had secured another loan for $825,000.
Legal Analysis:
1. Apparent Authority of Bank Employee: The appellate court held that the prior dealings between the applicant and the bank employee could only lead the applicant to believe that the employee was authorized orally to commit the bank to loans of up to $825,000.
2. Statute of Frauds: The appellate court rejected the applicant's argument that the Statute of Frauds did not apply because the promise was one which could be performed within one year because the issuance of the letter of credit was to take place 45 days later. Instead, the court noted that the issuance of the L/C was not the end of the issuer's performance obligations. The court also rejected the applicant's claim that an initial memorandum from the bank, concerning the financing, satisfied the statute of frauds.
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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.