Diakan Love, SA v. Al-Haddad Bros. Enterprises

• Decision Date: 16 April 1984
• Docket Number: No. 84 Civ. 1088 (PNL).,84 Civ. 1088 (PNL).
• Citation: 584 F. Supp. 782
• Parties: In the Matter of the Petition of DIAKAN LOVE, S.A., Petitioner, v. AL-HADDAD BROS. ENTERPRISES, INC., Respondent, and Morgan Guaranty Trust Company of New York, Garnishee.
• Court: U.S. District Court — Southern District of New York

584 F. Supp. 782

In the Matter of the Petition of DIAKAN LOVE, S.A., Petitioner, v. AL-HADDAD BROS. ENTERPRISES, INC., Respondent and Morgan Guaranty Trust Company of New York, Garnishee.

No. 84 Civ. 1088 (PNL).

United States District Court, S.D. New York.

April 16, 1984.

Olwine, Connelly, Chase, O'Donnell & Weyher, Renato C. Giallorenzi and Robert J. Kochenthal, Jr., New York City, for petitioner.

Hill, Betts & Nash, John C. Mamoulakis, New York City, for respondent.

Davis, Polk & Wardwell, Philip C. Potter, Jr., and James L. Kerr, New York City, for garnishee.

OPINION AND ORDER

LEVAL, District Judge.

Al-Haddad Bros. Enterprises, Inc., a Tennessee Corporation, moves to vacate the attachment of its interest as beneficiary of an irrevocable letter of credit served on the confirming bank. Morgan Guaranty Trust Company of New York, the garnishee, joins in the motion.

I.

On February 15, 1984, Diakan Love, S.A. filed a verified petition in this court naming Al-Haddad as respondent seeking confirmation of an arbitration award for breach of a charter party. The amount of the award was $247,602.98. The petition was not served on the respondent, Al-Haddad, but instead it was accompanied by an affidavit that Al-Haddad could not be found within the district and included a prayer for issuance of process of attachment and garnishment of goods, chattels, credits and effects belonging to Al-Haddad.

Al-Haddad has offices in Nashville in the business of exporting grain and other commodities to middle eastern customers. Before this action was commenced, in transactions apparently unrelated to its dispute with Diakan, it was furnished with two irrevocable letters of credit naming it as beneficiary in connection with contracts to sell yellow corn to a purchaser in Baghdad. See Kennedy Aff. Exhs. B, D. The letters of credit were issued by Rafidain Bank, Baghdad, subject to the Uniform Customs and Practice for Documentary Credits ("UCP") at the instance of Rafidain's customer, the purchaser of the corn. Each required the presentation of specified documents as a condition of payment of drafts drawn on it. See N.Y.U.C.C. § 5-107(1).

As to the first letter, No. 9087, for $29,568,000, issued December 29, 1983, Morgan Guaranty served as advising bank. Accordingly Morgan had no contractual obligation to honor drafts drawn on it. See N.Y.U.C.C. § 5-107(1).

As to the second letter, No. 9249, for $7,832,000, issued Jan. 5, 1984, it was confirmed by Morgan Guaranty, which accordingly was contractually committed to honor drafts which conformed to the letter's requirements. See N.Y.U.C.C. § 5-107(2).

On February 15, Diakan served Morgan Guaranty with Process of Maritime Attachment and Garnishment pursuant to Rule B of the Supplemental Rules for certain Admiralty and Maritime claims. As of that date Al-Haddad had not sought to collect payment under either letter of credit.

Al-Haddad's attorney states he learned of the garnishment from an attorney for Morgan Guaranty on February 17. On February 21, Al-Haddad made a general appearance in this action and asked that the attachment be vacated as it was not necessary to obtain jurisdiction. Diakan opposed. The parties discussed but did not reach accommodation.

On February 22, Al-Haddad presented drafts and conforming documents under the confirmed letter of credit to Morgan Guaranty. (The record does not indicate when Al-Haddad had come into possession of the conforming documents.) The bank withheld from its payment to Al-Haddad the amount specified in the attachment. Al-Haddad then moved to vacate the attachment. Morgan Guaranty joins in the application.

II.

The motion poses the question whether Diakan's service of the writ on Morgan Guaranty constituted an effective attachment of property of Al-Haddad. This turns on whether Al-Haddad's interest as beneficiary in an executory letter of credit constituted either attachable property of Al-Haddad in the hands of Morgan or a debt owed to Al-Haddad by Morgan. I rule that it did not and accordingly vacate the attachment.

In the first place, it would be stretching the conventional meaning of words to consider the beneficiary's interest in a letter of credit as either its property in the hands of the bank or a debt owed to it by the bank. This is absolutely clear as to the first letter on which Morgan's role was solely that of advising bank. Upon Al-Haddad's presentation of documents conforming to the letter Morgan would have had no obligation to pay; it would have been free at its election to advance funds, anticipating reimbursement by the issuing bank, or to decline to do so.

Diakan argues that, nonetheless, a different conclusion is warranted on the second letter of credit, for which Morgan played the role of confirming bank and therefore had undertaken a contractual obligation to pay Al-Haddad for the issuing bank's account upon Al-Haddad's presentation of conforming documents.

Even on Morgan's confirming role, however, it would be stretching conventions to conclude that, prior to Al-Haddad's presentation of conforming documents, Morgan was either indebted to Al-Haddad or held any of its property. Morgan had received no property of Al-Haddad. Its books would have showed no debt owed to Al-Haddad. What it had done by acceptance of the confirming role on Rafidain's letter of credit was to undertake a commitment to Rafidain (which in turn had undertaken the same obligation to its customer), that, if and when Al-Haddad were to present conforming documents, Morgan would advance money against the letter for Rafidain's account. Although Morgan's acceptance of the confirming role made its payment of Rafidain's letter obligatory rather than optional, its commitment was nonetheless executory and contingent. See Robinson v. O.F. Shearer & Sons, Inc., 429 F.2d 83, 85-86 (3 Cir.1970); Schirmer Stevedoring Co., Ltd. v. Seaboard Stevedoring Corp., 306 F.2d 188, 193 (9 Cir. 1962). The obligation of Morgan to pay would not arise unless and until Al-Haddad performed such acts as put it in possession of conforming documentation and presented such documentation to Morgan, none of which would necessarily occur.

The conclusion that the beneficiary's interest in an executory letter of credit is not attachable property is further supported by the multi-party relationship which the letter constitutes. Whatever the interest of the beneficiary may be, the letter also implicates interests of at least the issuing bank and its customer who will often have posted security for the issuance of the letter. To permit the attachment on the theory that the letter represents simply property of the beneficiary would ignore and confound the inseparable interests of other parties.

I conclude that Morgan's contingent obligation did not constitute either attachable property of Al-Haddad or a debt owed to Al-Haddad. In similar circumstances, the Court of Appeals for the Fifth Circuit dismissed an action in which jurisdiction was assertedly predicated upon the service of a writ of garnishment upon a bank with respect to the defendant's interest as beneficiary in documentary letters of credit issued by the garnishee. Sisalcords do Brasil Ltd. v. Fiacao Brasileira, 450 F.2d 419 (5 Cir.1971), cert. denied, 406 U.S. 919, 92 S.Ct. 1771, 32 L.Ed.2d 118 (1972).

I do not, however, rest my decision solely on the executory and contingent nature of Morgan's obligation. Under different circumstances involving the assignment of royalty rights, the New York Court of Appeals found the existence of attachable property where the obligation of the garnishee to pay the defendant was...