## Facts

- Hook Point, LLC, a real estate developer, sought financing from Branch Banking and Trust Company (BB&T) to develop a Lake Murray subdivision.
- BB&T agreed to a $5.1 million loan and a $2 million line of credit.
- The loan was secured by a first mortgage on the property, personal guarantees, and a $1.5 million standby letter of credit (LC) issued by First Reliance Bank in favor of BB&T.
- Hook Point defaulted (including unpaid taxes and missed interest/principal payments) and BB&T accelerated the debt and sought to draw on the LC.
- Hook Point admitted it was at least $70,000 behind on interest but argued BB&T could not draw the full $1.5 million because it exceeded the interest then due.
- Hook Point sued BB&T and others, alleging fraudulent inducement and other claims, and sought to stop BB&T from drawing and First Reliance from honoring the LC.
- The circuit court entered a temporary restraining order and then a preliminary injunction limiting BB&T’s draw to accrued interest, barring honor beyond that amount, requiring First Reliance to extend the LC for one year, and requiring Hook Point to post a $50,000 bond.
- BB&T appealed the preliminary injunction.

## Issues

1. Whether allegations of fraud tied to the underlying loan transaction justified enjoining a beneficiary’s draw on a standby letter of credit under the fraud exception to the independence principle.
2. Whether Hook Point satisfied the requirements for preliminary injunctive relief (including irreparable harm, likelihood of success, no adequate remedy at law, and preserving the status quo) to restrict or condition payment under the letter of credit.

## Decision

- The Supreme Court of South Carolina reversed the preliminary injunction.
- The court held that the independence principle bars conditioning a beneficiary’s LC rights on disputes over the underlying loan, absent a showing of fraud sufficient to trigger the narrow fraud exception.
- The court applied a strict fraud standard: an injunction may issue only when the beneficiary has no colorable claim or factual basis for asserting rights under the LC.
- Because Hook Point was in default and BB&T’s draw had a factual basis, Hook Point failed to show a likelihood of success on a claim warranting interference with the LC.
- The injunction improperly altered, rather than preserved, the legal status quo by limiting draw rights and compelling extension of the LC.

## Legal Principles

- A letter of credit is independent of the underlying contract; the issuer’s obligation to honor a complying presentation is separate from disputes over the underlying transaction.
- Courts may enjoin honor or drawing on a letter of credit only under a narrow fraud exception.
- For LC-related injunctive relief based on fraud, the moving party must show the beneficiary has no colorable claim or basis in fact to draw under the letter of credit.
- A preliminary injunction requires a showing of irreparable harm, likelihood of success on the merits, and no adequate remedy at law, and it must preserve the status quo ante rather than rewrite contractual or documentary payment rights.

## Conclusion

The court reversed the injunction because BB&T’s right to draw on the standby letter of credit had a factual basis grounded in Hook Point’s default, and Hook Point’s allegations about the underlying loan did not meet the strict “no colorable claim” fraud standard required to justify judicial interference with letter-of-credit payment mechanics.


Hook Point, LLC v. Branch Banking & Tr. Co., 397 S.C. 507, 725 S.E.2d 681 (S.C. 2012)