Mid-America Tire, Inc. v. PTZ Trading Limited
Supreme Court of Ohio
768 N.E.2d 619 (2002)
Mid-America Tire (Mid-America) (plaintiff) agreed to buy tires from PTZ Trading (PTZ) (defendant) after PTZ falsely claimed to be the sole authorized seller of overstocked Michelin tires and misrepresented that a "2C" designation on the tires simply meant storage in two warehouses, when it actually meant the tires could not legally be sold in the United States. Mid-America opened a letter of credit naming PTZ's agent as beneficiary, payable only once Mid-America authorized shipment; after discovering the truth, Mid-America never authorized shipment and sued to enjoin payment on grounds of fraud. The trial court granted a permanent injunction, but the appellate court reversed, holding the UCC allows enjoining a letter of credit only for forged documents, not fraud in the underlying sale; Mid-America appealed.
Whether, under Uniform Commercial Code section 5-109, fraudulent activity in the underlying transaction for the sale of goods is grounds for enjoining an issuer of a letter of credit from making payment to the beneficiary.