Ochoco Lumber Co. v. Fibrex & Shipping Co., Inc.
Court of Appeals of Oregon
994 P.2d 793 (2000)
Fibrex & Shipping (defendant) obtained a $3.9 million loan from West One Idaho Bank secured by personal guarantees from its shareholders, the Sahekis (defendants), and a standby letter of credit that Fibrex arranged through Ochoco Lumber Company (plaintiff), which obtained the letter of credit from First Interstate Bank to secure both its own log-purchase obligation to Fibrex and the West One loan. When Fibrex defaulted on the loan, the letter of credit was drawn to pay it off, and Ochoco reimbursed First Interstate for that payment, then sought to step into West One's shoes via equitable subrogation to enforce West One's rights against Fibrex and the Sahekis; the trial court dismissed Ochoco's claims, ruling neither an issuer nor an applicant of a standby letter of credit could ever be equitably subrogated to a beneficiary's rights, and Ochoco appealed.
Whether the issuer or the applicant of a standby letter of credit, having paid a beneficiary's claim under the letter, may assert equitable subrogation rights against the original defaulting debtor.