SW Legal studies in Business

Injunction Allowed to Block Payment by Letter of Credit When Good Legal Remedy Not Available
Description Ohio high court held that a court may enjoin payment by letter of credit when there is evidence of fraud in a transaction and the issue of the letter would not be likely to receive adequate compensation via litigation later. Since multiple parties in several nations were involved, and fraud was shown to be likely, an injunction against payment was reasonable.
Topic Negotiable Instruments and Credit
Key Words Letter of Credit; Presentation; Fraud
C A S E   S U M M A R Y
Facts Mid-America, a tire wholesaler issued a letter of credit (LC) for over $500,000 via First National Bank of Chicago for PTZ Trading, a European exporter selling tires and beneficiary of the LC. PTZ offered to obtain surplus winter Michelin tires in France to ship to Mid-America. The deal fell apart when Mid-America became concerned that the tires were non-conforming with the agreement. Mid-America sued to enjoin payment under the LC. The trial court agreed. The seller appealed and the appeals court reversed. The buyer appealed.
Decision

Reversed. The injunction is reinstated. If there is an adequate remedy at law, an injunction will not be issued. The UCC permits injunctive relief against honoring a letter of credit if all conditions under state law have been met, including inadequacy of remedy at law, which includes full indemnity via practical litigation. Here, where buyer has shown that there may be fraud involved, an action to recover damages would not be an adequate legal remedy because it would not be as prompt, efficient, and practical as an injunction. Rather, it would involve multiple suits against different defendants in several jurisdictions.

Citation Mid-America Tire, Inc. v. PTZ Trading Co., 768 N.E.2d 619 (Sup. Ct., Ohio, 2002)

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