2012 Commercial Law Developments

VIII. Letters of Credit, Investment Securities, and Documents of Title

A. Letters of Credit

  • Fish Creek Capital, LLC v. Wells Fargo Bank, 2012 WL 2335315 (10th Cir. 2012) -- A lender did not violate the duty of good faith and fair dealing by extending a letter of credit the lender had issued to ensure the beneficiary's completion of infrastructure improvements to the borrower's property.

  • Michigan Commerce Bank v. TDY Industries, Inc., 2011 U.S. Dist. LEXIS 137992 (W.D. Mich. Dec. 1, 2011) -- A letter of credit was not a "perpetual" letter of credit with a five year statutory expiration under UCC § 5-106(d) because the magic word "perpetual" was not used.  The court follows the Ninth Circuit Golden West case.

B. Investment Securities

  • Smith v. Powder Mountain, LLC, 2012 WL 5262638 (11th Cir. 2012) -- A creditor that received a court order awarding it the debtor's securities accounts and then reached agreement with securities intermediary on how to transfer the entitlements had "control" under UCC § 8-106(d)(2) sufficient to defeat the rights of intervening garnishor even though the intermediary's agreement was conditioned on receipt of additional documentation.  The court held their control can exist even though subject to a condition other than the debtor's consent.  As a result, the creditor was a protected purchaser with priority over the garnishor.

    Comment:  The status of the creditor as a protected purchaser should not have been relevant to the rights of a later-in-time lieu creditor.

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