Opinion ID: 878533
Heading Depth: 1
Heading Rank: 2

Heading: Letter of Credit # 85 Sherwood & Roberts Inc. 2806 Garfield Missoula, MT 59801

Text: Re: Prospect Associates, Inc. 2806 Garfield, Suite D Missoula, Montana 59801 Gentlemen: At the request and for the account of Prospect Associates, Inc., of Missoula, Montana, First Security Bank of Missoula of Missoula, Montana, hereby guarantees the availability of funds in the amount of $100,000.00 for the purpose of securing Prospect Associates, Inc.'s, performance of its loan agreement with Sherwood & Roberts Inc., as well as its performance of that certain Mortgage and Promissory Note payable to Sherwood & Roberts Inc. This letter of credit shall expire on midnight on the 15th day of July, 1982. This letter of credit shall be exercisable by Sherwood & Roberts Inc. only upon the unremedied default by Prospect Associates, Inc. in its performance of any of the following documents; that certain loan application agreement, loan commitment letter, promissory note, or mortgage, which documents evidence that certain loan transaction dated July 15, 1980 wherein Sherwood & Roberts Inc. is named as lender and mortgagee and Prospect Associates, Inc. is named as mortgagor and borrower. FIRST SECURITY BANK OF MISSOULA By /s/ Duane G. Scheeler Duane G. Scheeler, President In the fall of 1980 various subcontractor bills, tax payments and interest payments went unpaid. Consequently construction of the subdivision was halted preventing completion of the subdivision and the sale of lots. The resulting loss of revenue led to Prospect's failure to make the payments required by the loan agreement and promissory note. Prospect alleges, and filed in the District Court affidavits supporting its allegations, that this chain of events was triggered by Sherwood's failure to disburse loan funds on schedule as required by the agreement. It alleges that Sherwood decided to pull out of the western Montana real estate financing market midway in the disbursement process and unjustifiably refused to honor Prospect's proper request for disbursements. Prospect contends that had it received the requested loan proceeds, it would have been able to perform its obligations under the various loan agreements. After demanding payment, Sherwood filed a mortgage foreclosure action against Prospect and a separate action against the Bank to collect the face amount of the letter of credit. In the bank action, First Security asserted that the document was not in fact a letter of credit, but was a conditional instrument of guaranty. Bank submitted evidence that the parties intended the instrument to be an instrument of guaranty. Sherwood's evidence was to the contrary. The Bank and Prospect also claimed that Prospect's nonperformance was caused by Sherwood's nonperformance and was therefore not a default. Thus they argued the condition for payment was not met and Sherwood could not recover on the letter of credit. First Security and Prospect have filed affidavits that the parties intended by use of the phrase unremedied default that the note would be payable only if Sherwood had fulfilled all of its obligations and Prospect then failed to perform. They emphasize that the term default was used rather than simply nonperformance. Prospect, already defendants in the mortgage foreclosure action brought by Sherwood, moved in the bank action to intervene, or for consolidation of the foreclosure action with the letter of credit action. Both motions were denied. Thereafter, the Bank filed against Prospect as a third party defendant. Sherwood moved for summary judgment on the letter of credit in the bank action. After a hearing on the motion for summary judgment, the District Court issued a order granting the same. In the order, the court stated that the letter of credit issued by the Bank was a valid letter of credit under section 30-5-102(1)(c), MCA. In addition, the court found that the condition necessary for Sherwood to collect on the letter of credit was Prospect's unremedied default on the promissory note. The court concluded that mere nonpayment by Prospect of the promissory note constituted unremedied default, regardless of whether Sherwood caused it. The court thus found the Bank liable for the face amount of the letter plus interest to Sherwood. The District Court certified the summary judgment against the Bank as one proper for appeal under Rule 54(b), M.R.Civ.P. The third party action between the Bank and Prospect is still pending in the District Court.