Ark. Code Ann. § 4-5-109 (2026)
Fraud and forgery
-
If a presentation is made that appears on its face strictly to comply with the terms and conditions of the letter of credit, but a required document is forged or materially fraudulent, or honor of the presentation would facilitate a material fraud by the beneficiary on the issuer or applicant:
- the issuer shall honor the presentation, if honor is demanded by (i) a nominated person who has given value in good faith and without notice of forgery or material fraud, (ii) a confirmer who has honored its confirmation in good faith, (iii) a holder in due course of a draft drawn under the letter of credit which was taken after acceptance by the issuer or nominated person, or (iv) an assignee of the issuer's or nominated person's deferred obligation that was taken for value and without notice of forgery or material fraud after the obligation was incurred by the issuer or nominated person; and
- the issuer, acting in good faith, may honor or dishonor the presentation in any other case.
-
If an applicant claims that a required document is forged or materially fraudulent or that honor of the presentation would facilitate a material fraud by the beneficiary on the issuer or applicant, a court of competent jurisdiction may temporarily or permanently enjoin the issuer from honoring a presentation or grant similar relief against the issuer or other persons only if the court finds that:
- the relief is not prohibited under the law applicable to an accepted draft or deferred obligation incurred by the issuer;
- a beneficiary, issuer, or nominated person who may be adversely affected is adequately protected against loss that it may suffer because the relief is granted;
- all of the conditions to entitle a person to the relief under the law of this state have been met; and
- on the basis of the information submitted to the court, the applicant is more likely than not to succeed under its claim of forgery or material fraud and the person demanding honor does not qualify for protection under subdivision (a)(1) of this section.
History. Acts 1997, No. 1070, § 1.
Case Notes
Adversary Relationship.
Where the plaintiff buyers asserted that defendant sellers acted fraudulently in presenting drafts for payment, when in fact they had already been paid, there existed a truly adversary relationship between the plaintiffs and the issuing banks, because the issuing banks were free, before plaintiffs' successful application to the state court for a temporary restraining order, to honor the drafts and demand payment from the plaintiffs on the basis of plaintiffs' promissory notes to the banks executed to induce the banks to issue the letters of credit. W.O.A., Inc. v. City Nat'l Bank, 640 F. Supp. 1157 (W.D. Ark. 1986) (decision under prior law).
Fraud in the Transaction.
A beneficiary who tenders a draft knowing that its certification of nonpayment by the buyers is in fact false is guilty of “fraud in the transaction” within the meaning of the exception under the pre-1997 version of this chapter so as to relieve the issuer of a letter of credit from the duty of honoring a draft on it. W.O.A., Inc. v. City Nat'l Bank, 640 F. Supp. 1157 (W.D. Ark. 1986) (decision under prior law).
Existence of a small amount of back charges on a contract did not support a finding that developer committed fraud when it stated it had been very satisfied with the work of a contractor who later defaulted; therefore, it was error to grant permanent injunctive relief to issuer of irrevocable letter of credit and prevent the bank from honoring the draft drawn on the letter of credit. Rose Devs., Inc. v. Pearson Properties, Inc., 38 Ark. App. 215, 832 S.W.2d 286 (1992) (decision under prior law).