## Facts

- American Bell International, Inc. contracted in July 1978 with Iran’s Ministry of War to provide telecommunications consulting services and equipment for a large modernization program.
- The contract price was about $280 million and included a $38.8 million down payment.
- Iran retained a contractual right to demand return of the down payment, reduced by 20% of amounts invoiced by Bell that Iran did not object to; roughly $30.2 million remained callable.
- To secure the callable down payment, Bank Iranshahr issued an unconditional guarantee in favor of Iran.
- Manufacturers Hanover Trust Company issued an irrevocable “back-to-back” letter of credit in favor of Bank Iranshahr, payable on demand upon proper presentation tied to Iranshahr’s payment under its guarantee.
- Following the Iranian Revolution, the Islamic Republic replaced the prior government, repudiated the contract, and sought return of the down payment through the guarantee/letter-of-credit structure.
- Bell alleged Iran had not paid substantial invoices and moved for a preliminary injunction to bar Manufacturers from paying under the letter of credit.

## Issues

1. Whether the court should preliminarily enjoin Manufacturers from honoring a demand under an unconditional, irrevocable letter of credit issued in a back-to-back arrangement.
2. Whether Bell showed irreparable harm and either likelihood of success on the merits or sufficiently serious questions plus a balance of hardships in its favor.
3. Whether an exception such as “fraud in the transaction” applied to permit judicial interference with the letter-of-credit obligation.

## Decision

- The court denied Bell’s motion for a preliminary injunction.
- The court refused to restrain payment under the letter of credit absent a clear showing of fraud or similarly exceptional circumstances.
- The court found Bell’s asserted injury from a draw on the letter of credit was primarily monetary and did not satisfy the irreparable-harm requirement.
- The court held that Iran’s repudiation and alleged nonpayment under the underlying contract did not, on the record presented, establish the kind of fraud that would justify enjoining payment.

## Legal Principles

- An irrevocable letter of credit is independent of the underlying commercial contract; the issuer’s duty is determined by compliance with the credit’s documentary conditions, not by disputes over performance of the underlying deal.
- Courts are strongly disinclined to interfere with payment under letters of credit because commercial reliability depends on prompt, predictable honor of conforming demands.
- Preliminary injunctive relief requires irreparable harm plus either (a) likelihood of success on the merits, or (b) serious questions on the merits and a balance of hardships tipping decidedly toward the movant.
- The “fraud in the transaction” basis for enjoining letter-of-credit payment is narrow; ordinary contract breach, repudiation, or nonpayment allegations typically do not suffice without a strong showing of fraud connected to the draw.

## Conclusion

The court declined to block payment under an unconditional, irrevocable letter of credit because Bell did not meet the preliminary-injunction standard and did not show fraud or other extraordinary circumstances sufficient to overcome the independence of the letter-of-credit obligation from the underlying contract dispute.


Am. Bell Int’l, Inc. v. Islamic Republic of Iran, 474 F. Supp. 420 (S.D.N.Y. 1979)