United Technologies Corp. v. Citibank, N.A.

United Technologies Corporation and United Technologies International, Inc. (United) (plaintiffs) sold cable to Telecommunication Company of Iran (TCI) (defendant) pursuant to contracts requiring United to obtain performance bonds from Iranians’ Bank (IB) (defendant). The amounts due under the bonds were to be proportionately reduced upon performance. IB issued the bonds after United procured two letters of credit from Citibank, N.A. (defendant) in IB’s favor. The letters entitled IB to payment if IB had to pay under a bond or if IB’s bond liability remained outstanding as of a letter’s expiration. United had to reimburse Citibank for any payments. The letters did not state a deadline for TCI to assert that United breached the parties’ contract or to seek payment under the bonds. United completed delivery in August 1978, and TCI made full payment. TCI did not claim any defect in United’s performance. In December 1978, IB cabled Citibank that IB’s bond obligations were extended until June 1979 and requested Citibank either to extend a letter (whose expiration United had already extended to January 9, 1979) to June 1979 or to pay IB. Citibank responded that United fulfilled its contracts and that the bonds should have been cancelled. Likely due to ongoing civil unrest in Iran, IB did not respond until late February, when it demanded payment. IB and Citibank engaged in similar correspondence regarding a letter whose expiration date Citibank previously extended to February 24. On March 5, United obtained a state-court temporary restraining order enjoining Citibank from paying IB. Citibank removed the case to federal court, where United moved for a preliminary injunction. Per United, fair grounds for litigation regarding the merits existed because (1) there was fraud in the transaction given that United fully performed and TCI never asserted any breach, (2) Iran’s political turmoil could account for TCI’s demand despite United’s performance, and (3) IB’s demands were untimely because the letters had already expired. With respect to timing, Citibank argued that its demand delay was commercially reasonable due to Iran’s political situation, but Citibank cited no basis for unilaterally extending the letters’ expirations.