Banque Paribas v. Hamilton Industries Intern., Inc., s. 84-1477

• Decision Date: 22 July 1985
• Docket Number: Nos. 84-1477,84-1559,s. 84-1477
• Parties: 41 UCC Rep.Serv. 561 BANQUE PARIBAS, Plaintiff-Appellant, v. HAMILTON INDUSTRIES INTERNATIONAL, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 380

767 F.2d 380

41 UCC Rep.Serv. 561

BANQUE PARIBAS, Plaintiff-Appellant, v. HAMILTON INDUSTRIES INTERNATIONAL, INC., Defendant-Appellee.

Nos. 84-1477, 84-1559.

United States Court of Appeals, Seventh Circuit.

Argued April 17, 1985.

Decided July 22, 1985.

Shalom L. Kohn, Sidley & Austin, Chicago, Ill., for plaintiff-appellant.

Joel G. Chefitz, Kirkland & Ellis, Chicago, Ill., for defendant-appellee.

Before POSNER and COFFEY, Circuit Judges, and DUMBAULD, Senior District Judge. ^*

POSNER, Circuit Judge.

This appeal presents a dispute over an international letter of credit. For general background see Rubenstein, The Issuer's Rights and Obligations Under a Letter of Credit, 17 UCC L.J. 129 (1984); Note, Confirming Bank Liability in Letter of Credit Transactions: Whose Bank Is It Anyway?, 51 Ford.L.Rev. 1219 (1983). Hamilton Industries International, a Wisconsin corporation, bid for a subcontract with Saudi Medcenter, Ltd. (SMC), a Saudi Arabian corporation that had bid on a contract to do construction work for a Saudi Arabian university. SMC required that Hamilton's bid be guaranteed. Bid guarantees are common in construction work. If the contractor has to guarantee his bid (as in fact Saudi Arabian law requires, see Gnichtel, The Intricacies of Performance Guarantees in Saudi Arabia, 100 Banking L.J. 354, 355 (1983)), he will want guarantees of his subcontractors' bids. If Hamilton backed out of its deal with SMC, the latter might not be able to make good on its bid guarantee at all, and at least would have to make a new subcontract with someone else, maybe on much worse terms.

Hamilton obtained a letter of credit from American National Bank in Chicago for $290,700, the amount of security demanded by SMC (equal to one percent of the amount of Hamilton's bid). This is what is called a "standby" letter of credit, as its purpose was to provide security for the beneficiary, SMC, against a default by its supplier, Hamilton. The letter of credit names the Bahrain branch of the Banque de Paris et des Pays-Bas (Paribas) as "advising" bank, and states that American National Bank will pay Paribas the amount of the letter of credit upon Paribas' demand if accompanied by "your [Paribas'] signed statement certifying that you have been called upon to make payment under your guaranty issued in favor of" SMC. As the letter of credit thus contemplates that Paribas will pay the beneficiary of the letter of credit (SMC), pursuant to Paribas' guarantee, and then be reimbursed by American National Bank, the issuing bank, Paribas' actual status was probably that of a "confirming" rather than "advising" bank. See Auto Servicio San Ignacio, S.R.L. v. Compania Anonima Venezolana de Navegacion, 586 F.Supp. 259, 263 n. 6 (E.D.La.1984). An alternative characterization is that the guarantee was actually a letter of credit issued by Paribas, with American National Bank the beneficiary. We shall see that for purposes of deciding this appeal nothing turns on whether Paribas is deemed the confirming bank or the issuer of a second letter of credit of which the American National Bank was the beneficiary.

The letter of credit issued by American National Bank states, "we have issued the above letter of credit in your favor in consideration of your [Paribas'] issuance of a letter of guarantee in favor of" SMC, the letter "to expire on February 28, 1983" and to be "in accordance with Exhibit A attached." Exhibit A is a "Form of Tender Letter of Guarantee," addressed to SMC, and intended to be signed by Paribas. The critical undertakings in the guarantee are the following: "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" the amount guaranteed, i.e., $290,700; and "the Guarantor's Agent must receive your written demand hereunder within the period of the effectiveness of this letter of guarantee"--i.e., no later than February 28. The letter of credit itself was to expire on March 15. The guarantee recites that it shall be construed in accordance with Saudi Arabian law.

Paribas retyped the guarantee on its own letterhead, signed it, and sent it to SMC. On February 24, 1983, SMC telephoned Paribas, demanding payment under the guarantee. Paribas cabled American National Bank the same day advising it that Paribas had been called upon to pay SMC under the terms of the guarantee, and requesting American National Bank to treat the cable as Paribas' formal demand for payment to it under the letter of credit. Before the letter of credit expired on March 15 Paribas followed up the cabled demand to American National Bank with a signed written statement certifying that Paribas had been called on to make payment to SMC in accordance with the guarantee.

According to Paribas, on February 28, the last day on which the guarantee was in force, Paribas received the following telex from SMC: "Subject: King Saud Project.... 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." Paribas' deputy manager in Bahrain testified by affidavit that this telex was intended (despite the wording, which suggests the opposite, and the discrepancy in dates) to confirm the telephone demand of February 24 for payment of the guarantee. But it was not until March that SMC sent Paribas a written demand that actually recited the number and date of the guarantee. Although the guarantee had expired, Paribas paid SMC anyway, and then repeated its demand for reimbursement by American National Bank, which refused and brought this suit.

The suit bases jurisdiction on diversity; interpleads Hamilton, SMC, and Paribas under Rule 22 of the Federal Rules of Civil Procedure; and asks the court to decide who is entitled to the $290,700 that American National Bank has refused to pay Paribas. Since Hamilton has agreed to hold American National Bank harmless should American be ordered to pay Paribas, the real fight is between Hamilton and Paribas. A separate fight between Hamilton and SMC over the subcontract is not involved in this appeal.

On Hamilton's motion for summary judgment against Paribas, the district court held that Paribas had paid SMC under the guarantee in violation of the terms of the letter of credit. 583 F.Supp. 164 (N.D.Ill.1984). It reasoned as follows: the guarantee was a part of the letter of credit, so that American National Bank was not obligated to make good on the letter of credit unless Paribas complied with the terms of the guarantee; Paribas had failed to comply with those terms, by paying SMC even though the only written demand that SMC had made before the guarantee expired--the telex of February 28--contained no reference to the number and date of the guarantee. Having concluded that Paribas was not entitled to payment from American National Bank under the letter of credit, the district court dismissed as moot Hamilton's cross-claim against Paribas (a claim we take up at the end of this opinion). The court certified both of its orders--the order granting Hamilton's motion for summary judgment against Paribas and the order dismissing Hamilton's cross-claim as moot--under Rule 54(b) of the Federal Rules of Civil Procedure for immediate appeal. This was proper, since the two orders, between them, disposed of the entire dispute between Paribas and Hamilton. Walker v. Maccabees Mutual Life Ins. Co., 753 F.2d 599, 601 (7th Cir.1985).

The parties have treated us to a learned debate on many fine points of commercial law, but it seems to us that the decision of this appeal must turn on the simple principle that a contract dispute cannot be resolved on summary judgment when the meaning of the contract depends on the interpretation of ambiguous documents and can be illuminated by oral testimony. Fitzsimmons v. Best, 528 F.2d 692, 694 (7th Cir.1976). The critical issue on which Paribas' right to reimbursement for the money it paid out to SMC turns is whether it was a condition precedent to that right that Paribas receive a written demand from SMC specifying the date and number of the guarantee that Paribas had issued to SMC. This issue can be decomposed into two questions: Did the guarantee make such specification a condition precedent? If so was the guarantee meant to be incorporated in American National Bank's letter of credit, which defines Paribas' right of reimbursement? Only if both questions can be answered "yes" on the record of the summary judgment proceeding was Hamilton entitled to summary judgment.

1. Conceivably, although improbably, the requirement in the guarantee of a written demand that "shall refer to the number and date of this letter of guarantee" is solely for the protection of the guarantor, Paribas, and waivable by it, rather than even partly for the protection of American National Bank. (The expiration date on the letter of credit is an example of a provision clearly intended for the protection of the issuing bank, American National Bank, and its customer, Hamilton.) If Paribas in response to an incomplete written demand paid the wrong person or paid too much, it would be stuck; it could not get reimbursement from American National Bank. See Voest-Alpine Int'l Corp. v. Chase Manhattan Bank, N.A., 707 F.2d 680, 686 (2d Cir.1983). But as a matter of fact it paid the right amount to the right person, and it is not obvious why American National Bank (or Hamilton) should benefit from Paribas' risk-taking. It was not, to repeat, a risk taken with American National Bank's money or Hamilton's money, since if Paribas made a mistake it would be its mistake, and it would bear the cost. True, there is another problem with the demand. The telex of February 28 is mysterious; on its face, it...