The opinion of the court was delivered by: KNOX
This litigation represents an attempt to sort out part of the financial responsibility for the failure of a low-cost housing development, the Bridgeport Gardens, located at Bridgeport, Harrison County, West Virginia. There are four parties to this case: West Virginia Housing Development Fund (hereinafter The Fund), John E. Sroka, The United States National Bank, (hereinafter The Bank) and James T. Lynn, Secretary of the Department of Housing and Urban Development (hereinafter HUD).
While the record of this case is replete with allegations as to who was responsible for the demise of the Bridgeport Gardens, the issue presently before the court can be simply put: Who is liable to the plaintiff for the sum of $66,350? No one appears to dispute the fact that the plaintiff is entitled to this money.
The relationship of these four parties to the Bridgeport Gardens is as follows: The Fund is a government instrumentality and public body corporate of the State of West Virginia, created under Chapter 31, Article 18, Section 1, et seq., of the Code of West Virginia, 1931, as amended. This Fund was created to fulfill certain public purposes, including the financing of residential housing. The Fund executed a loan of $3,317,500 to the Bridgeport Gardens Associates, a West Virginia limited partnership of which John E. Sroka was a general partner. This partnership was the general developer responsible for completion of the project. The initial closing of this loan took place on April 24, 1972, at the office of the Federal Housing Commissioner in Charleston, West Virginia.
HUD was related to the project as an insurer. On March 31, 1972, HUD issued to the Fund a "Commitment for Insurance of Advances". Under this commitment, the Federal Housing Commissioner agreed to endorse for insurance the mortgage note of $3,317,500 executed between the Fund and the Partnership.
The final party in this picture is the Bank which issued a letter of credit to the plaintiff on April 24, 1972. This letter of credit was required as part of the contract between the Fund and HUD as will be discussed in detail in Part II of this memorandum.
On or about May 1, 1973, the Partnership defaulted on the terms and conditions of the loan from the Fund. At this time, the unpaid balance of the loan was $764,868.25. HUD paid the plaintiff this full sum but deducted the amount of the letter of credit - $66,350. On August 3, 1973, the plaintiff executed and forwarded a sight draft to defendant seeking payment of the letter of credit. On August 8, 1973, the bank notified the plaintiff of its dishonor of the letter of credit.
The plaintiff instituted this cause of action on June 5, 1974, seeking payment of the $66,350 from all three of the other parties to the transaction. On July 17, 1974, Sroka filed a crossclaim against HUD. Schematically, the posture of the case looks like this:
The Fund vs. The Bank (issued letter of credit)
(plaintiff & mortgagee)
vs. Sroka (mortgagor)
vs. HUD (insurer)
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