Article

Factual Summary:After Beneficiary presented complying documents, Applicant served it with a notice of preliminary injunction preventing injuncted Issuer from honoring. When the injunction had been lifted, issuer did not act on the presentation. Beneficiary then sued for wrongful dishonor and the court granted summary judgement in favor of Beneficiary. Issuer moved for reconsideration. Held: Denied.

Legal Analysis:

1. Injunction; Effect on Issuer: The court considered the effect of an injunction on the issuer. It stated that "While the injunction-be it a temporary restraining order or a preliminary injunction-was in place, [Issuer] was excused from having to take any action to honor or properly dishonor [Beneficiary's] second presentment."

2. Injunction, Effect on Beneficiary: The court stated that the beneficiary "should ... not make a presentment" "once it received notice of the temporary restraining order". However, the court noted that Beneficiary had started the presentation process in China prior to service of notice of the restraining order. The documents were received by Issuer three days after service of the order. In response to the argument that this presentation was void, the court stated that "that the second presentment was not void upon its arrival at [Issuer]. At most it was voidable, but even that seems doubtful under these facts. In any event, no effort was made by [Issuer] or [Applicant] to have the second presentment declared void."

3. Injunction, Dissolution; Preclusion: The court considered what it characterized as a "riddle": who as between Beneficiary and Issuer "had a duty to act with regard to the letter of credit?" Noting that there was no Massachusetts law on point, the court looked to US federal decisions that "point in a direction that makes sense from a point of view that takes into account the significance to the commercial community of letters of credit and the law that surrounds them." Relying on Kelley v. First Westroads Bank, 840 F.2d 554 (8th Cir. 1988), the court concluded that the temporary restraining order and preliminary injunction merely preserve the status quo. "When the temporary restraining orders expired, the Issuing Banks were under an obligation to process the letters of credit; they had the option, of course, to honor the drafts or to reject them if they determined them to be nonconforming. Failure to honor or properly dishonor the drafts during the pertinent period constituted a wrongful dishonor."

Comment:

This practical decision seeks to strike the proper balance between respect for the injunction and the relative duty of the parties under LC practice. It only partially succeeds. Service of an injunction does prevent presentation of documents or honor. It does not, however, restrain the issuer from examining the presentation nor does it stay the running of the reasonable time under UCP500 Articles 13 and 14 as the opinion seems to suggest. The option of refusing the presentation remained while the injunction was in place and would have rendered it moot since such an action presumes that the documents comply on their face with the terms and conditions of the LC. Having failed to act within a reasonable time, the issuer would be precluded from claiming that the documents are not in compliance with the terms and conditions of the LC.

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