HomeMy WebLinkAboutA016 - Letter dated April 20, 2001 regarding letter of credit 3` al
- City Attorney's Office
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515 Clark Avenue,P. O.Box 811
Caring People Ames,IA 50010
Quality Programs
Ereep,. Se,n Phone: 515-239-5146 •Fax: 515-239-5142
April 20, 2001
The Honorable Ted Tedesco, Mayor
And Members of the City Council
Of The City of Ames, Iowa
Re: Subdivision Letter of Credit- Country Meadows
Dear Mayor Tedesco and Council Members:
The subdivider has demanded that the City accept a letter of credit by the Clarke County State Bank
of Osceola,Iowa,without a correspondent arrangement with an Ames bank to be the place where the
documents that trigger payment can be delivered and payment received. This relates to Section 23.409
of the Ames Code. That section requires a subdivider who has not completed required public
improvements to post a"bond" in favor of the City to secure completion of the work. A "bond"is
defined by section 23.201 as:
"Any form of security including a letter of credit...in an amount and form satisfactory
to the City Council."
When the City staff reviews documents pertaining to a subdivision, they look to me to approve the
"form" of the bond.
On reviewing the letter of credit submitted for this subdivision I noted that it states:
"... on delivery of documents as specified if presented in this office in Ames ..."
Since Clarke County State Bank has no office in Ames, I proposed that either Clarke County Bank
make a correspondent arrangement with a bank in Ames, or an Ames bank be the source of the letter
of credit. Other alternatives are to use "... a cash deposit, surety bond, collateral, property, or
instrument of credit..."
The subdivider does not want to make an arrangement with an Ames bank. I will not set the precedent
of agreeing to deliver the documentary letter of credit to a bank outside the city.
The decision of the Iowa Supreme Court in 1s`National Bank of Council Bluffs v.Rosebud Housing
Authority(1980) 291 N.W.2d 41 is instructive. The Court made it clear that the purpose of a letter
of credit is to give "guaranteed rapid payment". The issuing bank's obligation to pay is triggered,
absolutely, without regard to any possible disputes between the City and the subdivider, when the
original of the letter of credit and the original documents specified on the letter of credit are delivered
and surrendered,with a"demand and draft"to the issuing bank or the designated correspondent bank
of the issuing bank. This is not a transaction that I would want to do through the mail. It is not
unreasonable for the City to refuse to put itself in the position of having to go to Clarke County to
deliver the documents and receive payment. However, even if the Council should decide otherwise,
the letter of credit submitted will need to be rewritten because the Clarke County Bank has no office
in Ames.
Yours truly,
.,e4John R. Klaus
City Attorney
JRK:dls
cc Matt Eilers