American Nat. Bank & Trust v. Hamilton Industries

• Decision Date: 22 February 1984
• Docket Number: No. 83 C 1536.,83 C 1536.
• Parties: AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, Plaintiff, v. HAMILTON INDUSTRIES INTERNATIONAL, INC., Banque De Paris, and Saudi Med Center, Ltd., Defendants.
• Court: U.S. District Court — Northern District of Illinois

583 F. Supp. 164

AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, Plaintiff, v. HAMILTON INDUSTRIES INTERNATIONAL, INC., Banque De Paris, and Saudi Med Center, Ltd., Defendants.

No. 83 C 1536.

United States District Court, N.D. Illinois, E.D.

February 22, 1984.

COPYRIGHT MATERIAL OMITTED

Francis X. Grossi, Jr., Laurie G. MacFarlane, Katten, Muchin, Zavis, Pearl & Galler, Alan N. Salpeter, James D. Brusslan, Mayer Brown & Platt, Chicago, Ill., for plaintiff.

Shalom L. Kohn, Sara J. Gourley, Sidley & Austin, David C. Roston, Mary Rose Gage, Altheimer & Gray, Joel G. Chefitz, Stephen C. Neal, Michael R. Levinson, Kirkland & Ellis, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

WILLIAM T. HART, District Judge.

American National Bank ("ANB") brought this interpleader action on March 4, 1983, to resolve the relative rights of Hamilton Industries International, Inc. ("Hamilton"), Banque De Paris ("Paribas") and Saudi Med Center, Ltd. ("SMC") under an ANB letter of credit. Hamilton and Paribas have filed cross-claims that seek to establish their right to the $290,700 fund here at issue. In addition, Hamilton has filed a four count cross-claim against SMC, based upon the relationship which gave rise to the ANB letter of credit.

Subject matter jurisdiction exists in this action by virtue of diversity of citizenship. 28 U.S.C. § 1332(a)(3). Venue is proper with respect to the interpleader action in this District because ANB "resides" here and issued the letter of credit in this District. 28 U.S.C. §§ 1391(a) and (c). Currently before the Court is SMC's challenge, in the form of a motion to dismiss, to the Court's personal jurisdiction over Hamilton's cross-claims against SMC. SMC did not respond to the interpleader complaint. Also before the Court are Hamilton's motions for summary judgment as to the interpleader complaint and the cross-claims of Paribas.

I. Hamilton's Motions For Summary Judgment

A. Facts

The facts necessary to decide Hamilton's motions are not in dispute. In August of 1982, Hamilton arranged for ANB to issue a letter of credit in the amount of $290,700. The letter of credit secured Hamilton's bid (as subcontractor) to supply SMC with equipment to be installed in a new academic area SMC was to build at King Saud University in Saudi Arabia. On August 11, 1982, ANB issued an "Irrevocable Straight Letter of Credit" (the "ANB credit") listing Hamilton as "applicant," SMC as "beneficiary" and "Paribas: Bahrain Branch" as "advising bank." The expiry date of the ANB credit is given as "March 15, 1983 at our counters in Chicago." The body of the credit, which describes the conditions upon which payment was to be made, contains the following statements:

Your signed statement certifying that you have been called upon to make payment under your guaranty issued in favor of SMC ... We have issued the above letter of credit in your favor in consideration of your issuance of a letter of guarantee in favor of SMC for US $290,700 to expire on February 28, 1983, at the request of our customer Hamilton in accordance with Exhibit A attached herewith. (emphasis added).

Attached as Exhibit A was a "Form of Tender Letter of Guarantee" in favor of SMC, with blanks provided for the issuer's name and location. Paribas, through its Bahrain Branch, issued this Tender Letter of Guarantee (the "Paribas guarantee"), in the amount of $290,700, on August 23, 1982. Pertinent portions of the Paribas guarantee state:

(a) We the Guarantor hereby unconditionally agrees sic to pay to you forthwith following demand made by you in writing (which writing shall refer to the number and date of this letter of guarantee) to our agent ...

* * * * * *

(d) This letter of guarantee shall remain valid and in full force and effect to the end of the 28 days of February, of the year of 1983 by which time any claim thereunder must be received by the Guarantor's Agent.

* * * * * *

(f) The Guarantor's Agent must receive your written demand hereunder within the period of the effectiveness of this letter of guarantee set forth in paragraph (d) above at P.O. 5993, Manama, State of Bahrain. (emphasis added).

On February 24, 1983, Paribas-Bahrain received a telephone call from SMC, demanding payment under the Paribas guarantee. On February 28, 1983 at 11:15 a.m. ANB received a cable dated February 24, 1983, from Paribas. The cable advised that Paribas had been called upon to make payment to SMC "under the terms of your letter of credit." Paribas also requested that the cable be treated "as a formal demand under the terms and conditions of your L/C with supporting documents to be forwarded to you in due course." At 10:02 p.m. local time, on February 28, 1983,¹ Paribas-Bahrain received a telex message from SMC dated February 28, 1983, reading as follows:

Subject: King Saud Project—L/C from Hamilton Industries. This confirms the telephone conversation the undersigned had with you this afternoon, wherein it was requested that the letter of credit established by Hamilton Industries in favor of SMC in connection with a bank guarantee on the above subject be called off.

On March 7, 1983, Paribas-Bahrain received a letter from SMC dated February 28, 1983 which demanded payment of the entire amount of the "guarantee," and which refers to the number and date of the guarantee.

On March 14, 1983, one day before the expiry date of its letter of credit, ANB received a letter dated February 28, 1983, together with a sight draft dated February 24, 1983, in which Paribas again demanded payment under the ANB credit.² The accompanying certification, also dated February 28, 1983, states: "We, Banque Paribas, Bahrain, certify that we have been called today 24 February 1983 upon to make payment under our guarantee ...."

In the interim period between ANB's receipt of Paribas' initial telex on February 28, 1983 and ANB's receipt of the documents later sent by Paribas, additional telexes were exchanged between the banks. A March 2, 1983 telex from Paribas advises ANB as to the manner in which Paribas desired payment to be made. A March 2, 1983 telex from ANB, referencing Paribas' initial demand for payment, states: "Unable to honor your demand due to request not conforming to Letter of Credit." On March 3, 1983, Paribas telexed ANB, requesting a description of specific nonconformities. On March 4, 1983, ANB replied: "You did not submit proper drafts or the required certification and beyond that we cannot advise you how to comply." In this telex, ANB also advised Paribas that it had filed the instant interpleader action. On March 7, 1983, Paribas responded, stating that ANB would be receiving shortly proper documents which had been recently mailed by Paribas. A March 8, 1983 telex from ANB indicates that ANB had not yet received these documents. Finally, on March 15, 1983, ANB acknowledged receipt of the documents sent by Paribas, but added "we cannot add further to our Telex of March 4, 1983, and await resolution of Court action." Paribas paid SMC the full amount of the guarantee on June 4, 1983.

B. The Role of Paribas

ANB's letter of credit, on its face, raises a question as to the status of Paribas. While Paribas is listed as an advising confirming bank in the space provided on ANB's form, the body of the credit tends to indicate that Paribas is also the intended beneficiary of the ANB credit. For the purposes of its motion for summary judgment, Hamilton concedes that Paribas, rather than SMC, was the beneficiary of the ANB credit. However, before dealing with a motion for summary judgment against Paribas on the theory that Paribas is the beneficiary of the ANB credit, the Court must be satisfied that Paribas would not have any greater entitlement to the fund at issue if its role were that of a confirming bank.

A recent decision by the Second Circuit indicates that Paribas would enjoy no better rights in this action as a confirming bank then it would as a beneficiary. See Voest-Alpine Internat'l Corp. v. Chase Manhattan Bank, 707 F.2d 680 (2d Cir.1982). A beneficiary may exact payment under a letter of credit from an issuing bank despite a modification to the underlying contract which expands the beneficiary's liability. However, Voest-Alpine indicates that an issuing bank is entitled to demand strict compliance with the confirming bank's initial engagement to the ultimate beneficiary of the letter of credit, regardless of the confirming bank's modification of the conditions of that engagement. 707 F.2d at 684-85. This result is entirely reasonable, as any modification by the confirming bank would otherwise extend the obligations of the issuer as well, while an extension of the beneficiary's obligations in no way affects the issuer. Since, as discussed below, Paribas never received a proper demand under its "guarantee" from SMC, Paribas would have no right to reimbursement from ANB, were it a confirming bank. Therefore, the Court examines what right to payment Paribas has as beneficiary of the ANB credit.

To evaluate Paribas' rights as beneficiary of the ANB credit, the Court must examine the nature of the Paribas guarantee. While it is axiomatic that in the standard letter of credit transaction the respective rights and duties of an issuer and beneficiary are wholly independent of the underlying contract and the issuer-customer contract, the present case involves an unusual combination of overlapping letter of credit transactions. Therefore, the Court must reject Paribas' characterization of its actions with regard to its payment to SMC as modifications of the underlying contract, with no effect on its right to receive payment from ANB.

The standard letter of credit transaction involves three independent contracts: (i) the issuer-customer contract, by which the issuer agrees to issue its credit in exchange for reimbursement from its customer and a fee; (ii) the credit itself, by which the issuer agrees to pay the beneficiary upon...