Article 5 statute of limitation bars recovery for loan breach - Washington Supreme Court
The parties are (1) Meridian, which received a construction loan from (2) KCU. The loan required Meridian to obtain additional independent financing by means of an irrevocable [Letter of Credit]. Meridian arranged such an LOC from (3) Alhadeff in satisfaction of this requirement; Alhadeff authorized his bank, (4) Wells Fargo Bank, N.A. (Wells Fargo), to issue that LOC to KCU for the benefit of Meridian. Thus, in total, four parties are involved in this unusual LOC transaction: Meridian, KCU, Alhadeff, and Wells Fargo.
So essentially, the contract between Meridian and Alhadell issued an LOC to KCU for Meridian's benefit, and to draw on the LOC, KCU had to certify that Meridian wasn't defaulting. KCU did such a certification, even though it was false, and Aldaheff sought to recover.
Confused yet? If not, you probably work for a big firm doing really boring things. I applaud you for your attention span.
COA tried to say this wasn't article V and thus the standard contract Statute of Limitations applied:
The core of the present appeal boils down to a dispute about the meaning and scope of the phrase, "[a]n action to enforce a right or obligation arising under this Article." Id. Alhadeff contends that his causes of action, grounded as they are in the common law, do not seek to enforce rights or obligations "arising under" Article 5. KCU, on the other hand, argues that Alhadeff's claims do in fact seek to enforce rights or obligations "arising under" Article 5 and that they are thus barred by the one-year limitations period. The trial court sided with KCU, concluding that all of the causes of action arose under the Article 5 warranty and were barred by the statute of limitations. The Court of Appeals disagreed, characterizing his actions as arising under the common law of contract, tort, and equity, not the warranty, and therefore holding that they were timely. For reasons outlined below, we agree with the trial court with respect to most of Alhadeff's claims and hold that they are barred by the statute of limitations; additionally, we find that his other claims are meritless. We thus reverse the Court of Appeals and remand for entry of summary judgment for KCU.
. . .
No underlying contract existed between Alhadeff, the applicant, and KCU, the beneficiary. Rather, the underlying contract in the transaction, the Letter of Credit Agreement, was between Alhadeff and a fourth party, Meridian. The letter between Alhadeff and KCU confirming the terms of the LOC is not a contract. Its language does not indicate an offer, acceptance, or any new consideration. The letter merely verified the conditions under which KCU was entitled to draw on the LOC. The trial court specifically held that there was no contract between Alhadeff and KCU recognized by the common law. With no underlying contract to breach, Alhadeff has no basis outside of the statutory warranty for his breach of contract claims. Accordingly, these claims are displaced by the warranty and barred by the one-year limitations period.