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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2010 LC CASE SUMMARIES 10 So.3d 653 (Fla. App. 5th Dist. 2008) [USA]
Topics: Injunctions; US Rev. UCC §5-109; Material Fraud
Type of Lawsuit:
Applicant sued Beneficiary to enjoin Issuer from honoring Beneficiary's drawings.
Parties: Appellant/Lender/Beneficiary - Colonial Bank, N.A. (Counsel: J. Stephen McDonald and Stephanie L. Knott of Shuffield, Lowman & Willson, P.A. (Orlando)) Appellee/Borrower/Applicant- Taylor Morrison Services, Inc. (Counsel: Howard S. Marks and Christy T. Nash of Graham, Builder, Jones, Pratt & Marks, LLP (Winter Park)) Appellees/Developer- Earley Development, Inc. and Hubert R. Earley (Counsel: Ladd H. Fassett of Fassett, Anthony & Taylor (Orlando)) Appellees/Issuer- M and T Bank
Underlying Transaction: A loan for the purchase of land.
LC: Standby LC for US$2,000,000. Silent as to governing rules.
Decision: The District Court of Appeal of Florida, Fifth District, in a Per Curiam opinion reversed an order of the Circuit Court for St. Johns County temporarily enjoining Issuer from releasing the proceeds from a letter of credit to Beneficiary.
Rationale: An injunction is not available under Florida Rule of Civil Procedure 1.610(c), where there is no substantial likelihood of success on the merits.
Article
Factual Summary: Borrower/Applicant agreed to pay a US$2,000,000 deposit in the form of a letter of credit from Issuer to secure a loan from Lender/ Beneficiary to finance the development of townhomes on property owned by Developer. When the Borrower/Applicant terminated the contract due to alleged default by the Developer, it demanded the return of the letter of credit. Developer then declared that Borrower/Applicant had defaulted first and demanded that Lender/Beneficiary draw on the letter of credit. As a result, Lender/Beneficiary demanded the proceeds of the letter of credit from Issuer. Whereupon Borrower/Applicant sought a temporary injunction to prevent Issuer from payment, which was granted. On appeal, reversed.
Legal Analysis:
1. Injunction and Elements: The opinion stated that in Florida, "[a] temporary injunction may be entered if the party seeking the injunction establishes the following: (1) the likelihood of irreparable harm; (2) the unavailability of an adequate remedy at law; (3) a substantial likelihood of success on the merits; and (4) consideration of the public interest". It concluded that the trial court had abused its discretion in granting the injunction because there was little evidence to show potential for success of Borrower/ Applicant's claims that Developer defaulted for failed preparation of the land, and because there was ample evidence that Applicant defaulted for failure to pay the taxes before a default by Developer. The opinion concluded that the prima facie case necessary to grant the injunction was not established in the trial court.
Comment:
1. Injunction; US Rev. UCC §5-109. It is amazing that more than 15 years after the completion of Revised UCC Article 5 and more than 50 years after the adoption of Prior UCC Article 5, courts and attorneys are unaware of the requirement that there be a finding of LC fraud in order to give rise to an exception to the issuer's obligation to honor a complying presentation under an LC. While the result of this decision is correct, in that there is a mere contractual dispute, it is shocking that neither the trial court nor the intermediate appellate court cites Revised UCC §5-109(b) which requires a determination of LC fraud.
[JEB/mcb]
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