Factual Summary: To finance the purchase and subsequent resale of steel billets to an Israeli corporation, applicant obtained a credit facility. Pursuant to that facility, two LCs were issued in favor of separate beneficiaries. Subsequently, the applicant requested that the issuer loan additional amounts to operate the Israeli Emergency Wheat Program. The applicant's president informed the issuer that under Israeli law the arrangement had to be made with an Israeli company. In connection with this arrangement, the applicant made partial repayment of the credit facility and the issuer opened a letter of credit at the request of an Israeli corporation owned by the applicant's president. The reimbursement agreement between the issuer and the Israeli corporation required reimbursement was to be made by the Israeli corporation and/or the applicant under the credit facility within 90 days after payment under the credit.

At this point, the relationship between the parties began to turn sour. The issuer repeatedly requested information regarding the credit facility. The applicant failed to pay the issuer the remaining balance of the credit facility when due. The issuer then requested that the applicant provide information pursuant to the Israeli corporation's letter of credit. The applicant did not comply with the issuer's requests. Thereupon, after the expiration of the 90-day period, the issuer provided notice to the applicant that it was in default with the regard to both the credit facility and the LC, and sued the applicant in a separate action to recover the amounts paid under both arrangements. The evidence revealed that the lender had been defrauded by the activity of the borrower's president, who was subsequently convicted of 24 counts of fraud and was in prison at the time of the trial. Judgement was rendered in favor of the issuer.

The applicant then brought this action against the issuer based on the Israeli Emergency Wheat Program LC. The applicant alleged the issuer was liable to it for the breach of contract, tortious interference with contract, and bad faith. Both parties moved for summary judgement and the court dismissed the action. On appeal, affirmed.

Legal Analysis:

1. Integration Clause: The applicant argued that the maturity date in the Reimbursement Agreement did not run from the actual date of the loan but from the time that the arrangements were in place to enable the conduct of business. To support its theory, it offered prior documents and expert reports, the latter of which the trial court refused to admit. The appellate court agreed with the trial court that the Reimbursement Agreement was not ambiguous, was integrated, and that expert opinion was superfluous and unnecessary.

2. Lender Liability/Fraud: The lender had been defrauded by the president of Red Rock. The appellate court began its analysis with the statement: "As the district court began its statement of the facts so do we: 'this case features the unlikely prospect of a plaintiff suing a bank that was defrauded by the criminal activity of a plaintiff's president'... ."



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.