Xantech Corp. v. Ramco Industries, Inc.
| Decision Date | 30 November 1994 |
| Docket Number | No. 20A04-9409-CV-346,20A04-9409-CV-346 |
| Citation | 643 N.E.2d 918 |
| Parties | 25 UCC Rep.Serv.2d 912 XANTECH CORPORATION, Appellant-Defendant, v. RAMCO INDUSTRIES, INC., Appellee-Plaintiff, Society National Bank, Indiana, Appellee-Defendant. |
| Court | Indiana Appellate Court |
Xantech Corporation appeals from the trial court's grant of Ramco Industries' request for a preliminary injunction against Society National Bank.
We reverse and remand.
Did the trial court err in granting Ramco's request for a preliminary injunction?
On February 15, 1990, Xantech entered into a contract with Ramco 1 for the sale of certain of its assets to Ramco. The purchase price was partially secured by an irrevocable standby letter of credit drawn on Society National Bank's predecessor, Ameritrust National Bank. 2 The letter of credit was issued to Xantech.
A dispute regarding the purchase of Xantech's assets arose between Xantech and Ramco on or about December 20, 1993. As a result of the dispute, Xantech notified Ramco that it was in default on the contract. When Ramco failed to cure the default, Xantech attempted to draw approximately $45,000.00 on the letter of credit.
In the meantime, Ramco filed a request for a preliminary injunction against Society seeking to enjoin Society from disbursing funds to Xantech pursuant to the letter of credit. Ramco did not include Xantech in this action. On March 15, 1994, the trial court entered findings of fact and conclusions of law and issued a temporary restraining order against Society. On March 24, 1994, the trial court apparently conducted a hearing, then entered findings of fact and conclusions of law and issued a preliminary injunction against Society.
On or about April 12, 1994, Society informed Xantech that it could not honor Xantech's request to draw on the letter of credit because of the existence of the preliminary injunction. On May 9, 1994, Xantech filed a motion to intervene and a motion to vacate the preliminary injunction. The trial court permitted Xantech to intervene and held a hearing on Xantech's motion to vacate. After taking the case under advisement, the trial court found that it would be inappropriate to dissolve the preliminary injunction and ordered that "the funds remain undisbursed and in Elkhart County pending further hearing." R. at 175. Xantech now appeals from the denial of its motion to vacate the preliminary injunction. Society declined to file an appellate brief. Additional facts are stated in our discussion of the issue.
Xantech claims the trial court erred in entering the preliminary injunction against Society which prevents it from disbursing money to Xantech pursuant to the letter of credit. The granting of a preliminary injunction rests in the sound discretion of the trial court. The exercise thereof will not be interfered with unless it is shown such action is arbitrary or constitutes a clear abuse of discretion. Whiteco Industries, Inc. v. Nickolick (1990), Ind.App., 549 N.E.2d 396, 397.
In support of its allegation, Xantech first claims to be an adverse party. As such Xantech argues, it should have been joined in Ramco's injunction proceedings pursuant to Ind.Trial Rule 65(A)(1) which provides:
"No preliminary injunction shall be issued without an opportunity for a hearing upon notice to the adverse party."
Moreover, because it was wrongly excluded from the proceedings, Xantech posits, the "real" hearing on the preliminary injunction did not take place until the trial court heard its motion to vacate the preliminary injunction. Thus, because the trial court failed to make findings of fact in its order denying Xantech's motion as required by Ind.Trial Rule 65(D) and Ind.Trial Rule 52(A), Xantech argues that the preliminary injunction should be vacated. 3
We need not address these procedural arguments, however, because it is apparent from the record that the dispute between Xantech and Ramco involves the contract for the sale of Xantech's assets, as opposed to a dispute over the letter of credit itself.
Apparently, in late 1993, Xantech and Ramco modified their contract. Xantech agreed to reduce the purchase price of the assets by approximately $45,000.00, and Ramco agreed to pay off the reduced balance immediately in cash. Xantech also agreed to release its security interest in some of Ramco's assets. The dispute arose when Xantech discovered that Ramco had sold all of its assets before paying Xantech. Also, Ramco never followed through with the modification acknowledgement procedures as required by Xantech. Ramco paid the modified purchase price by check in late December 1993, but never made any more payments to Xantech. Xantech finally cashed Ramco's check in the Spring of 1994, under a reservation of rights. It notified Ramco of its default on the original contract, and sought to draw some $45,000.00 on the letter of credit issued by Society.
In its motion for a preliminary injunction, Ramco claimed "[t]hat Xantech Corporation is attempting to perpetuate a fraud by demanding payment under the Irrevocable Letter of Credit when payment in fact has been made in full by reason of the accord and satisfaction between Xantech Corporation and Ramco Industries, Inc." R. at 9. Of course, in its motion to vacate the preliminary injunction and at the hearing, Xantech denied any fraudulent activity.
In All Season Ind. v. Tresfjord Boats A/S (1990), Ind.App., 563 N.E.2d 174, we considered allegations of fraud with respect to letters of credit:
(2) Unless otherwise agreed, when documents appear on their face to comply with the terms of the credit but a required document does not in fact conform to the warranties made on negotiation or transfer of a document of title (IC 26-1-7-507) or of a certified security (IC 26-1-8-306), or is forged or fraudulent, or there is fraud in the transaction:
(a) The issuer must honor the draft or demand for payment if honor is demanded by a negotiating bank or other holder of the draft or demand which has taken the draft or demand under the credit and under circumstances which would make it a holder in due course (IC 26-1-3-302) and in an appropriate case would make it a person to whom a document of title has been duly negotiated (IC 26-1-7-502) or a bona fide purchaser of a certificated security (IC 26-1-8-302); and
(b) In all other cases as against its customer, an issuer acting in good faith may honor the draft or demand for payment despite...
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