Article

Factual Summary:

The issuer agreed to issue letters of credit on behalf of the applicant to facilitate the purchase and sale of sugar and alcohol between the applicant and the beneficiary. The agreement was established by three documents, a Trade Letter of Credit Agreement, a Security Agreement, and a Credit Facility. The LC was issued pursuant to the Credit Facility, and the LC's terms included a "green clause" provision, permitting the beneficiary to draw an advance of US$ 2 million prior to the deliver of the goods, and this amount became the applicant's loan obligation to the issuer. The issuer demanded payment when the loan became due. The applicant repaid the interest, but refused to pay the principal, claiming that under its agreement with the issuer it was only obligated to pay back 20% of the loan in the event that the beneficiary defaulted. The agreement was allegedly negotiated by the applicant's former Chief Operating Officer, who died in a plane crash shortly after the loan became due.


Legal Analysis:

1. Reimbursement Agreement: Modifications:The applicant claimed that the terms of the reimbursement were altered to allow 80% of the loan to be non-recourse to the applicant, but it produced no written document to prove this claim. It offered extrinsic evidence to prove its claim, but the court barred such evidence under the parole evidence rule. The court stated that "the agreements establishing this relationship [between the issuer and the applicant] are governed by traditional contract law."

The applicant argued that the Credit Facility controlled the relationship between the parties, which did not contain a 'no oral modification' provision. The court ruled, however, that that the Credit Facility expressly stated that the Letter of Credit Agreement remained in full force and effect. The Letter of Credit Agreement provided that "[n]o waiver or amendment of or forbearance to enforce any of Bank's rights hereunder shall be effective unless expressly granted in writing."

Even if the credit facility did not specifically refer to the Letter of Credit Agreement, the two documents are interrelated and co-dependent, and in such circumstances New York contract law holds that documents should be read and interpreted together.

The court concluded that: "The presence of the 'no oral modification' provision contained in the Letter of Credit Agreement must be read to prohibit a change in the terms of reimbursement without written confirmation."

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