Article

Note: To prevent termination of its agency agreement, Delex (Agency/Applicant), an air cargo freight forwarder, had J.P. Morgan Chase Bank, N.A. (Issuer) issue a letter of credit for US$100,000 in favor of Aeroflot-Cargo (Carrier/Beneficiary). Six months later, Carrier/Beneficiary terminated the agency agreement and presented documents to Issuer on 11 September 2009, under which payment was scheduled to be made on 16 September 2009. On 15 September 2009, Agency/Applicant obtained a temporary restraining order enjoining Carrier/ Beneficiary from drawing upon the letter of credit and restraining Issuer from honoring it. On Agency/ Applicant's motion for a preliminary injunction, the Supreme Court of New York, Queens County, Markey, J., denied the motion.

The Judge observed that the independent character of the letter of credit, as provided in US Rev. UCC §5-103(d), required honor "even if there has been a breach of the underlying contract by [Beneficiary], [Issuer] ... must honor the draft upon presentation. In this case, however, there is not even an allegation by petitioners that it does not owe Aeroflot the amount sought on the letter of credit."

The Judge also ruled that Agency/Applicant had failed to sufficiently allege that the documents were forged or materially fraudulent or that the honor of the presentation would facilitate a material fraud by the Carrier/Beneficiary on the Issuer or the Agency/ Applicant under US Rev. UCC Section 5-109. He stated that there was "neither an allegation of fraud nor facts, in detail, that amount to fraud contained in the petition. Although there are conclusory allegations that [Carrier/Beneficiary] was misappropriating [Agency/Applicant's] trade secrets and customer lists and making disparaging comments about [Agency/ Applicant] to alienate [Agency/Applicant] from its customer base, there are no specific factual allegations to support such a claim." Furthermore, the Judge stated that the fact that Carrier/Beneficiary had terminated the agency agreement only six months after demanding and receiving the letter of credit did not amount to material fraud, because the agreement provided that it "could be terminated by either party without prejudice to fulfillment by each party of all obligations accrued prior to the date of termination at any time."

[JEB/mcb]

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