Appellants sought review of judgment of the Superior

Appellants sought review of judgment of the Superior Court of the City and County of San Francisco (California), which issued a preliminary injunction against appellants, restraining them from presenting documents necessary to obtain payment under a bank letter of credit procured by appellee.

Nakase Law Firm explains constructive fraud


Appellees sought to purchase from appellants’ entire capital stock of corporation. Appellees executed promissory notes to appellants, one of which allowed appellees to offset any liability suffered in connection with the purchase of corporation. Appellees delivered to appellants letters of credit to guarantee the notes. Appellees offset against the note, and sued for an injunction to prevent appellants from demanding payment on the letters. Trial court enjoined appellants from presenting documents needed to authorize payment for the letters. Court affirmed. Letters of credit were contemporaneous with right of setoff and could not be construed apart from it. Appellants’ failure to disclose certain liabilities of corporation could have given rise to right of setoff. Appellants were not given unrestricted right to limit appellees’ setoff right by demanding payment of the letters. Agreement could have been specifically enforceable, because stock could have had peculiar value due to appellants’ sole ownership of corporation.


The court affirmed lower court’s decision.