TANDY BRANDS, INC., APPELLANT,
v.
MASTER MARKETING ASSOCIATION, INC., BOCA RATON LAND DEVELOPMENT, INC. AND SUN BANK/PALM BEACH COUNTY, N.A., APPELLEES
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Tandy Brands appealed two orders: one denying its motion to dismiss for lack of jurisdiction and another enjoining Sun Bank from honoring an irrevocable letter of credit. The court affirmed the denial of the motion to dismiss but reversed the injunction, holding that breach of contract allegations do not constitute fraud in the transaction sufficient to prevent payment under a letter of credit.
The court affirmed the denial of the motion to dismiss because the record showed substantial competent evidence that the nonresident defendant was engaging in business in Florida in connection with the suit. The court reversed the injunction against honoring the irrevocable letter of credit because breach of contract allegations do not constitute fraud in the transaction sufficient to override a bank's obligation to honor a conforming draft.
[1] A nonresident corporation is deemed to be engaging in business in Florida, and a suit is connected with that business, when substantial competent evidence supports these…
[2] A bank's obligation under a letter of credit is independent of the underlying transaction.
Previewing 2 of 6 headnotes on this case. FLexlaw’s editorially structured points of law — every proposition, pinpointed — are reserved for members.
Join FLexlaw to unlock all legal intelligence“a bank's obligation under a letter of credit is totally independent of the underlying transaction”
Establishes the fundamental principle governing letters of credit that prevents injunctions based on underlying contract disputes.
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Join FLexlaw to unlock all legal intelligenceTandy Brands, a nonresident corporation, was engaging in business in Florida in connection with the present suit. The plaintiff/appellee sought an inj…
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PER CURIAM.
This non-final appeal challenges two orders. The first denied the defendant/appellant’s motion to dismiss for lack of jurisdiction. The second order enjoined the Sun Bank from honoring a draft on an irrevocable letter of credit. We affirm in part and reverse in part.
The record contains substantial competent evidence that appellant, a nonresident corporation, was engaging in business in Florida and that the present suit is connected with the conduct of that business. Thus, we affirm the trial court’s denial of the defendant/appellant’s motion to dismiss. See Moo Young v. Air Canada, 445 So. 2d 1102 (Fla. 4th DCA), petition for review dismissed, 450 So. 2d 489 (Fla.1984); Shoei Safety Helmet Corp. v. Conlee, 409 So. 2d 39 (Fla. 4th DCA 1981), dismissed, 421 So. 2d 518 (Fla.1982).
Turning next to the injunction against honoring the irrevocable letter of credit, we note the fundamental principle that “a bank’s obligation under a letter of credit is totally independent of the underlying transaction.” KMW International v. Chase Manhattan Bank, N.A., 606 F. 2d 10, 15 (2d Cir.1979). The independence of the letter of credit from the underlying contract has been called the key to the commercial vitality of the letter of credit. See, e.g., United States v. Sun Bank, 609 F. 2d 832 (5th Cir.1980); Pringle-Associated Mortgage Corp. v. Southern National Bank, 571 F. 2d 871 (5th Cir.1978). Section 675.5-114(1), Florida Statutes (1983), specifies that an issuing bank must honor drafts or demands for payment under a letter of credit when the documents required by the letter of credit appear on their face to comply with the terms of the credit. An exception to the bank’s obligation to honor an apparently conforming draft or demand for payment occurs when a required document is “forged or fraudulent or there is fraud in the transaction.” § 675.5-114(2), Fla.Stat. (1983).
Plaintiff/appellee in the case at bar asserted fraud in the transaction as justification for the injunction. This concept was discussed by the Colorado Supreme Court in Colorado National Bank v. Board of County Commissioners, 634 P. 2d 32, 39 (Colo.1981). There, the court held:
Fundamentally, ‘fraud in the transaction,’ ... must stem from conduct by the beneficiary of the letter of credit as against the customer of the bank. It must be of such an egregious nature as to vitiate the entire underlying transaction so that the legitimate purposes of the independence of the bank’s obligation would no longer be served. ‘[I]t is generally thought to include an element of intentional misrepresentation in order to profit from another....’ This fraud is manifested in the documents themselves, and the statements therein, presented under the letter of credit. One court has gone so far as to say that only some defect in these documents would justify a bank’s dishonor. (Citations omitted.)
Here, plaintiff/appellee has alleged that the defendant breached its contractual obligations by failing to properly market, package, ship and warehouse certain products. Even if established, such allegations would not support a finding of fraud in the transaction. See generally KMW International v. Chase Manhattan Bank, N.A., supra; Cappaert Enterprises v. Citizens and Southern International Bank, 486 F.Supp. 819 (E.D.La.1980). Accordingly, we reverse the order enjoining Sun Bank from honoring a draft or demand against the irrevocable letter of credit issued in favor of the appellant.
AFFIRMED IN PART AND REVERSED IN PART.
ANSTEAD, LETTS and HURLEY, JJ., concur.
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SEA Mgmt. Serv., Ltd. v. Club SEA, Inc., 512 So. 2d 1025 (Fla. 3d DCA 1987)…675.106, Fla.Stat. (1985). As SMS correctly points out, the independence of the obligations under letters of credit from the underlying contracts they are used to finance is vital to their efficacy. See Tandy Brands, Inc. v. Master Marketing Assoc., 481 So. 2d 925 (Fla. 4th DCA 1985). Since Universal breached a contractual duty owed directly to SMS, it cannot [*1027] be considered a disinterested party owing no independent liability to any claimant. Consequently, it did not satisfy the conditions necessary t…
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B.G.H. Ins. Syndicate, Inc. v. Presidential Fire & Cas. Co., 549 So. 2d 197 (Fla. 3d DCA 1989)…equired document is “forged or fraudulent or there is fraud in the transaction.” § 675.114(2), Fla.Stat. (1987). Plaintiffs/appellees in the case at bar asserted fraud as justification for the injunction. In Tandy Brands v. Master Mktg. Ass’n Inc., 481 So. 2d 925 (Fla. 4th DCA 1985), the court determined that even if defendant’s failure to properly market, package, ship, and warehouse certain products was established, such actions would not support a finding of fraud in the transaction. Similarly, we conclud…
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Cargill v. Sunlight Foods, 586 So. 2d 366 (Fla. 3d DCA 1991)…990). An exception to the bank’s duty to honor the demand occurs if apparently conforming documents are “forged or fraudulent or there is fraud in the transaction.” § 675.114(2), Fla.Stat. (1989); Tandy Brands, Inc. v. Master Marketing Ass’n, Inc., 481 So. 2d 925, 926 (Fla. 4th DCA 1985); B.G.H. Fraud in the transaction must rise to a level of: such an egregious nature as to vitiate the entire underlying transaction so that the legitimate purposes of the independence of the bank’s obligation would no longer…
Previewing 3 of 4 citing cases — full citator treatment, depth of discussion, and citing context are member features.
Join FLexlaw to unlock all legal intelligenceAuthorities Cited
- KMW Int'l v. Chase Manhattan Bank, 606 F.2d 10 (2d Cir. 1979)
- Young v. AIR Canada, 445 So. 2d 1102 (Fla. 4th DCA 1984)
- Pringle-Associated Mortg. Corp. v. S. Nat'l Bank OF Hattiesburg, 571 F.2d 871 (5th Cir. 1978)
- Shoei Safety Helmet Corp. & Shoei Kako Co., Ltd. v. Conlee, 409 So. 2d 39 (Fla. 4th DCA 1981)
- United States v. SUN Bank OF Miami, 609 F.2d 832 (5th Cir. 1980)