1. Explain why the independence principle was critical in the decision in this case.

2. What advice would you offer parties in terms of drafting a letter of credit?

3. What is the effect of a beneficiary of a letter of credit submitting all the required documentation under a letter of credit?

In 2007, Wood Center Properties (WCP) entered into a Purchase and Sale Agreement to buy five shopping centers from Robert B. Greene and Louisville Mall Associates, LP, and several other mall property groups (collectively, the “Mall Appellants”). While performing its due diligence, WCP discovered environmental contamination at the Crestwood Shopping Center, one of the shopping centers it intended to purchase. A prior shopping center tenant, Crestwood Coin Laundry (Tenant), spilled hazardous chemicals used in its dry cleaning business. As a result of the contamination, WCP chose not to purchase Crestwood Shopping Center, and the parties amended the Purchase and Sale Agreement to reflect WCP’s decision.

Shortly thereafter, Greene offered to provide WCP with an irrevocable Letter of Credit, issued by M & T Bank, in the amount of $200,000.00. The Letter of Credit’s purpose was to insulate WCP from liability and fund the environmental cleanup if the Tenant failed to do so. With that inducement, Crestwood Shopping Center was put back in the contract as one of the properties being purchased by WCP. Paragraph two of the amended contract provided:

At closing, Robert M. Greene, individually, shall deliver an irrevocable letter of credit for the benefit of Wood Center Properties, LLC in the amount of Two Hundred Thousand Dollars ($200,000.00) drawn on M & T Bank. This letter of credit shall extend for one (1) year from the date of Closing, and shall automatically renew for one (1) additional year unless Notice of non-renewal is given to [WCP] at least 60 days prior to the expiration date on the face of the Greene Letter of Credit.

On June 13, 2007, M & T Bank issued the Letter of Credit for the benefit of WCP. The Letter of Credit contained an original expiration date of June 12, 2008, that provided:

It is a condition of this credit that it shall be deemed automatically extended without amendment for one (1) year from the expiration date hereof, or any future expiration date, unless sixty (60) days prior to any expiration date M & T Bank notifies [WCP] in writing that M & T Bank elects not to consider this credit renewed for any such additional period.

On April 7, 2008, M & T Bank automatically renewed the Letter of Credit for a second year and provided WCP and Greene with a letter of renewal, notifying them that the Letter of Credit’s new expiration date was June 12, 2009. On March 6, 2009, M & T Bank sent a second renewal letter to WCP and Greene, again giving notice that it was automatically extending the Letter of Credit for a third year and its new expiration date was June 12, 2010.

After receiving M & T Bank’s March 6, 2009, letter, Greene told M & T Bank his view that the Letter of Credit was only valid for two years and should expire on June 12, 2009. Greene requested that M & T not renew the credit. Despite Greene’s request, M & T did not send a nonrenewal notification to WCP. WCP sought payment under the Letter of Credit and submitted the documents to M & T that were necessary for payment.

WCP filed a declaratory judgment action seeking the court’s ruling that WCP was entitled to draw on the Letter of Credit. The court entered summary declaratory judgment in WCP’s favor. Greene appealed.

JUDICIAL OPINION

ACREE, Judge … A standby letter of credit is intended to ensure a party to a contract fulfills his or her obligations, including non-monetary obligations. Here, M & T Bank, the issuer, at the request of Greene, the applicant, issued a standby Letter of Credit in the amount of $200,000.00 to WCP, the beneficiary.

The “independence principle,” one of the key principles underlying letter of credit law, provides that the underlying contract and the letter of credit are utterly independent of one another……………………