Opinion
May 10, 1994
Appeal from the Supreme Court, New York County (Lewis R. Friedman, J.).
The IAS Court did not abuse its discretion in determining that the plaintiffs had established entitlement to a preliminary injunction by demonstrating a likelihood of success on the merits, irreparable injury should the relief sought be denied and a balancing of the equities in their favor (Grant Co. v. Srogi, 52 N.Y.2d 496, 517), based upon the court's finding that the plaintiffs had demonstrated, via the affidavits of experts, the parties' shipping invoices, and a surveyor's report, that the defendant had committed active intentional fraud in the underlying transaction and corresponding documentation with respect to the non-conforming and virtually worthless goods shipped which were to be paid for by that letter of credit.
Although a letter of credit constitutes a separate contract between the issuing bank and the beneficiary independent of the underlying contract between the parties engaged in the business transaction and although banks issuing letters of credit deal in documents and not in goods and are ordinarily not responsible for any breach of warranty or nonconformity of the goods involved in the underlying sales contract, nevertheless, both case and statutory authority in New York allow a court of appropriate jurisdiction to enjoin payment pursuant to a letter of credit and an issuing bank to refuse payment, where, as here, active fraud on the part of seller in the underlying transaction has been shown and the holder has not taken the draft under circumstances that would make it a holder in due course (UCC 5-114 [b]; see, United Bank v Cambridge Sporting Goods Corp., 41 N.Y.2d 254, 258-260; Royal Bank v. Weiss, 172 A.D.2d 167, 168).
Defendant herein is not an innocent third-party holder of the draft, but rather is the alleged perpetrator of the alleged fraud, wherein non-conforming and virtually worthless merchandise was substituted for the documented goods.
Nor did the IAS Court err in finding that plaintiff Takeo had legal standing to seek the preliminary injunction enjoining payment of the irrevocable letter of credit, where, as here, the record reveals that Takeo was in direct contractual privity with the defendant as the buyer of the merchandise in the underlying transaction and was therefore responsible to the ultimate Hong Kong customers, including Wah Tong, which had opened the subject letter of credit for the benefit of the defendant; that UCC 5-114 (2) (b) does not, on its face, limit solely to "customers" the persons entitled to seek injunctive relief, but rather provides only that upon notification from the "customer" of "fraud, forgery or other defect not apparent on the face of the documents * * * a court of appropriate jurisdiction may enjoin such honor", and that any possible technical defect which may have existed as a result of the initial application made solely by Takeo for injunctive relief was corrected when the IAS Court subsequently granted, without opposition, a motion to add Wah Tong as a necessary party plaintiff in the underlying action on the same day the injunctive relief was granted (see, Matter of Simonds v Power Auth., 64 A.D.2d 746, 748).
We have reviewed the defendant's remaining claims and find them to be without merit.
Concur — Rosenberger, J.P., Kupferman, Asch, Nardelli and Williams, JJ.