Article

Note: An LC was issued on behalf of Musket Corp. (Buyer/Applicant), in favor of PDVSA Petroleo, S.A. (Seller/Beneficiary), to pay for the sale of diesel oil. After the goods were shipped, Advanced Engineering Development Ltd. (Broker), contacted Buyer/ Applicant asking it to pay for the freight, for which Seller was responsible. Buyer/Applicant agreed to pay for the freight provided that the cost would be credited to its balance. However, when Seller/ Beneficiary drew on the LC, it did not deduct for the freight.

Buyer/Applicant then sued Seller/Beneficiary for breach of contract and unjust enrichment. In connection with the action, Buyer/Applicant obtained an ex parte order attaching the LC proceeds and moved to confirm the order. The United States District Court for the Southern District of New York, Marrero, U.S.D.J., applying New York law, denied the request by Buyer/Applicant to confirm the attachment with respect to the funds being held by the court.

The court stated that Buyer/Applicant must be able to prove that its likelihood of success in the breach of contract and unjust enrichment action is more probable than not in order to maintain the attachment. The court noted that Buyer/Applicant failed to meet this burden in that it was unable to prove that Seller/ Beneficiary was bound by the actions of the Broker. The court noted that the record showed no action on the part of the supposed principal, Seller/Beneficiary, which would support a claim of apparent authority, only actions by the purported agent, which were legally insufficient.

Comment:

While the court is correct that likelihood of success must be proven to maintain an attachment, it is unclear if the court appreciates that an attachment of an LC is identical in its effect to an injunction and cannot be maintained absent material fraud under Rev UCC §5-109. There being nothing alleged that rises to the level of material fraud, the action cannot succeed.

[JEB/zrb]

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