## Facts

- Benedot, an Alabama retailer formed to sell Benetton clothing exclusively, operated stores in Dothan and Auburn and placed multiple orders with Benetton over several years.
- Benedot asserted that all shipments were late and included nonconforming merchandise; it accepted the goods rather than return them due to cost and logistical difficulty.
- Benedot’s account became substantially past due (approximately $140,000, with the amount disputed).
- Benetton represented that personnel changes would lead to future orders being timely and conforming; Benedot then placed a spring/summer 1988 order.
- As a condition of shipping that order, Benetton required a $20,000 payment and an irrevocable standby letter of credit for $61,000.
- Southland Bank issued the letter of credit in Benetton’s favor for Benedot’s account; drafts were permitted within a stated time window and required an “official invoice statement” showing an unpaid balance 60 or more days past due for qualifying merchandise.
- When Benedot’s balance became more than 60 days past due, Benetton attempted to draw on the letter of credit.
- Benedot sued and obtained a temporary restraining order, then a preliminary injunction, prohibiting Benetton from drawing and Southland from honoring any draw, and requiring escrow of the funds.
- Benetton appealed the preliminary injunction.

## Issues

1. Whether alleged fraud or nonconforming goods in the underlying sales relationship justified enjoining the beneficiary’s draw and the issuer’s honor of an irrevocable standby letter of credit.
2. Whether Benedot proved the requirements for a preliminary injunction, including fraud sufficient to invoke a narrow exception to letter-of-credit independence and irreparable injury without an adequate remedy at law.

## Decision

- The Alabama Supreme Court reversed the preliminary injunction and remanded.
- The court held Benedot did not establish fraud in the transaction sufficient to bar a draw under the letter of credit.
- The court held Benedot did not show irreparable injury because monetary damages and contract remedies were available.
- The trial court was instructed to dissolve the injunction and release to Benetton the funds due under the letter of credit.

## Legal Principles

- A letter of credit is an independent obligation of the issuer to honor a complying documentary demand, separate from disputes under the underlying contract between applicant and beneficiary.
- Courts should not interfere with payment under a letter of credit based on ordinary contract disputes over performance (including late delivery or nonconforming goods).
- Injunctive relief against honor is limited to narrow situations involving forgery or fraud; breach-of-contract allegations, without more, do not satisfy the fraud exception.
- Promissory fraud requires proof that, at the time the promise was made, the promisor intended not to perform and intended to deceive; nonperformance alone is insufficient.
- A preliminary injunction requires, among other elements, a substantial likelihood of success and irreparable injury without an adequate remedy at law; purely monetary harm generally is not irreparable.

## Conclusion

The court enforced the independence of the standby letter of credit and rejected an injunction premised on alleged nonconforming goods and an unproven claim of promissory fraud, holding that Benedot’s remedies lay in damages for any contract breach rather than blocking payment on complying letter-of-credit documents.


Benetton Servs. Corp. v. Benedot, Inc., 551 So. 2d 295 (Ala. 1989)