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decided: April 17, 1975.



Judah I. Labovitz, Philadelphia, for appellants; Wolf, Block, Schorr & Solis-Cohen, Philadelphia, of counsel.

Gregory M. Harvey, Philadelphia, for appellee Paulette Cymbalista; Morgan, Lewis & Bockius, Philadelphia, of counsel.

James Eiseman, Jr., Drinker, Biddle & Reath, Philadelphia, for appellee, Girard Bank.

Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Jones, C. J., did not participate in the consideration or decision of this case.

Author: Roberts

[ 461 Pa. Page 347]


This appeal requires us to review the trial court's denial of a preliminary injunction to restrain honor of a draft under an international letter of credit. A precise statement of the facts, which are complex, is necessary for a proper understanding.

On February 11, 1972, a lease was executed by Intraworld Industries, Inc., a corporation*fn1 headquartered in Wilkes-Barre, Pennsylvania, and Paulette Cymbalista, a citizen of Switzerland and resident of Italy. Cymbalista agreed to lease to Intraworld the Hotel Carlton, a luxury

[ 461 Pa. Page 348]

    hotel located in St. Moritz, Switzerland, for a term of 15 years at an annual rental of 800,000 Swiss francs, payable in semi-annual installments.*fn2 The lease provided that Intraworld was required to prepay the rent for the initial 18-month period. Intraworld was also obligated to procure, within the first 100 days of the term, a performance bond in the amount of $500,000.00 "to insure to lessor the payment of the rent."*fn3

Intraworld entered into possession of the hotel on May 1, 1972. Shortly thereafter, Intraworld assigned its interest in the lease to its subsidiary, Vacanze In Paradiso Hotels, S.A., a Swiss corporation.*fn4

At a later time,*fn5 Intraworld and Cymbalista executed an addendum to the lease (to which the parties have referred by its German title "Nachtrag"). The Nachtrag cancelled Intraworld's obligation to procure a performance bond and substituted a duty to provide letters of credit issued by "the Girard Trust Company of Philadelphia" in order to guarantee rental payments one year in advance. Two letters of credit were specifically required, each in the amount of $100,000.00, maturing in November, 1973, and May, 1974, to secure the rent due at those times. After each rental payment, Intraworld was to provide a new letter of credit "in order that the lessor remains secured one years [sic] rent in advance." The Nachtrag also provided:

"In the event the lessee should not fulfill its obligation to pay, so that the letter of credit must be used, . . .

[ 461 Pa. Page 349]

    then the lessor can terminate the lease immediately without further notice. In this case, the lessor retains the rent paid or guaranteed for the following year as a stipulated penalty for non-performance of the contract from the lessee, in doing so the lessor retains the right to make a claim for additional damages not covered by the stipulated penalty."

On September 1, 1972, Intraworld and the Girard Trust Bank, Philadelphia, entered into an agreement to provide the letters of credit required by the Nachtrag. Girard agreed to

"issue a letter of credit . . . in the amount of $100,000 under which the Lessor may draw a sight draft on [Girard] for payment of the sum due under said lease (a) on November 10, 1973 and (b) May 10, 1974. Under the terms of such letter of credit, payments will be made if the Lessor presents a draft as provided in such letter of credit. Each such letter of credit will expire . . . on the twentieth day after the payment under said lease is due."*fn6

In accordance with the agreement, Girard issued two irrevocable letters of credit on September 5, 1972. Each authorized Cymbalista to draw a draft on Girard in the amount of $100,000.00 if Intraworld failed to pay the rent when due.*fn7

[ 461 Pa. Page 350]

In the summer of 1973, the relationship between Cymbalista and Intraworld began to go awry. Norbert Cymbalista, Paulette's husband, visited the hotel in August and, after discussions with the manager, became very concerned over the hotel's financial condition. He discovered that there were unpaid bills in excess of $100,000, that all telephone and Telex communications had been cut off for nonpayment of bills, and that the filing of mechanics liens against the hotel was imminent. After a trans-Atlantic telephone call, the Cymbalistas travelled to the United States within several days of Norbert's discoveries to attempt to resolve the hotel's difficulties with Intraworld. However, as Norbert testified,

"I tried to reach [the president of Intraworld] innumerable times by telephone and each time his secretary answered that he would call me back and he never did. I stayed a whole month in the United States trying continually to reach him and it was never possible."

[ 461 Pa. Page 351]

On August 20, 1973, apparently while the Cymbalistas were in the United States, their Swiss counsel sent a letter to Intraworld reciting the unpaid bills, erosion of the Carlton's reputation, and internal corporate difficulties (apparently of Intraworld's Swiss subsidiary). It concluded:

"Based upon [Swiss law] and in reference to the provisions of the Lease Contract, we herewith extend to you a final time limit up to September 15, 1973 in order to:

(a) to pay all due debts,

(b) to supply the necessary means to safeguard proper management of the business,

(c) to complete the Board of Directors according to the law.

Within this time limit you must prove to the Hotel Owners that the aforementioned measures have been effectuated. Should you [fail to?] comply with this demand within the time-limit, the Lease Contract will be regarded as void."

Intraworld's Swiss counsel replied to the August 20 letter (but this reply is not in the record). Finding this reply unsatisfactory, Cymbalista's Swiss ...

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