Levin v. Meagher
Court of Appeals for the First District of California
2004 WL 1664864 (2004)
Adam Levin (plaintiff) partly paid Todd Meagher (defendant) for an ownership interest with a promissory note secured by a letter of credit requiring Meagher to certify Levin's default to draw on it. Levin's obligations included paying off a Wells Fargo line of credit Meagher had guaranteed by April 21, 2003; Levin paid it off on April 17, but Wells Fargo's systems didn't reflect the payment for several days, leading a Wells Fargo employee to tell Meagher on April 22 that a balance still showed. Meagher sent Levin a default notice; Levin responded the same day with a written statement from the Wells Fargo employee confirming the payment had been received. Meagher nonetheless presented the letter of credit to draw on it based on the claimed default and refused to withdraw the request even after Levin's response. Levin sued for an injunction, and the trial court granted a preliminary injunction against Meagher, who appealed.
Whether, under the Uniform Commercial Code, an issuer of a letter of credit is required to honor a draft if a required representation by the beneficiary has no basis in fact or there is no bona fide claim to payment under the underlying contract.