Article

Note: Southern Homes, AL, Inc. (Buyer/ Applicant), a residential development company entered into a contract which, as amended, provided for the purchase of land from Bermuda Lakes, LLC (Seller/Beneficiary). Buyer/Applicant, as required by the contract, provided a standby letter of credit for US$300,000 to assure payment.

The contract required the land to be purchased in four "take downs." Prior to each of the four purchases, the Seller/Beneficiary had to satisfy certain conditions. Buyer/Applicant sent notice to Seller/ Beneficiary claiming that it had failed to meet the required conditions and stating that the contract was terminated. On the same day, the Buyer/Applicant filed an action seeking a declaratory judgment against Seller/Beneficiary in Louisiana. The purpose of the action was to declare that the termination was lawful and to require the LC to be returned.

Shortly thereafter, Seller/Beneficiary filed suit for fraud and breach of contract in the Alabama Circuit Court. Seller/Beneficiary then moved for a preliminary injunction against Buyer/Applicant enjoining prosecution of the Louisiana action. Buyer/ Applicant was informed about the preliminary injunction hearing less than two hours prior to the hearing and consequently, Buyer/Applicant's counsel participated by phone.

The Alabama Circuit Court issued the preliminary injunction enjoining Buyer/Applicant from continuing the action in Louisiana. On appeal, the Supreme Court of Alabama, per curiam, reversed and remanded.

The supreme court held that a court can only issue a preliminary injunction when both parties received sufficient notice of the hearing. The court applied Rule 65(a)(1), Ala. R. Civ. P. which states that "[n]o preliminary injunction shall be issued without notice to the adverse party." The rule was violated because two hours of prior notice was insufficient time for Buyer/Applicant to prepare for a hearing. A specific length of time to prepare was not specified, but, a "fair opportunity" is required.

[JEB/njh]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.