Legal Case Summaries

Article

Factual Summary: To assure the payment of lease obligations, applicant had a standby letter of credit issued in favor of its landlord. During the term of the lease the tenant/applicant withheld rent and brought an action against the beneficiary/landlord for failure to repair the roof. Prior to the resolution of the dispute, the tenant/applicant moved for a Yellowstone injunction (an injunction which prevents the landlord from terminating the lease and tolls the period in which the tenant can cure any of its defaults) and an injunction preventing a draw under the standby.

The trial court granted the Yellowstone injunction but denied the injunction to prevent a draw. The court reasoned that a draw would not cause irreparable harm to the applicant because a court would have the power to remedy the damage caused by the draw. On appeal, affirmed.

Legal Analysis:

1. Injunction against draw: The appellate court relied on the independence principle and noted that "as the purchaser of a letter of credit, the tenant is not a party to the letter of credit and cannot enjoin the bank from paying, or the beneficiary from demanding, the funds pursuant to the letter of credit." (quotingChiat/Day Inc., Adv. v. Kalimian,105 A.D.2d 94, 96). The appellate court then stated that the only way to obtain an injunction against payment is to allege fraud in the transaction or presentation which the applicant had not done.