Dulien Steel Products, Inc. of Wash. v. Bankers Trust Co.

• Decision Date: 19 December 1960
• Parties: DULIEN STEEL PRODUCTS, INC., OF WASHINGTON, Plaintiff, v. BANKERS TRUST COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

189 F. Supp. 922

DULIEN STEEL PRODUCTS, INC., OF WASHINGTON, Plaintiff, v. BANKERS TRUST COMPANY, Defendant.

United States District Court S. D. New York.

December 19, 1960.

Weil, Gotshal & Manges, New York City, for plaintiff. Ira M. Millstein, New York City, Michael A. Schuchat, Washington, D. C., Marshall C. Berger, New York City, Geiger, Harmel & Schuchat, Washington, D. C., of counsel.

White & Case, New York City, for defendant. Orison S. Marden, Macdonald Flinn, George P. Vlassis, New York City, of counsel.

FREDERICK van PELT BRYAN, District Judge.

This action concerns a letter of credit in the sum of $60,500 in favor of one Richard Sica which was opened for the account of plaintiff Dulien Steel Products, Inc. by Seattle-First National Bank and confirmed by defendant Bankers Trust Company. Bankers paid the face amount of the letter to the beneficiary Sica. Dulien seeks to recover from Bankers the amount so paid.

The complaint alleges two claims. The first is on the theory that Bankers, having repeatedly requested instructions as to payment, and being advised of amendments to the credit, paid Sica in disregard of instructions not to pay and in direct violation of the amendments. The second and alternative claim is on the theory that Bankers was negligent in failing to give notice that it would disregard instructions not to pay and in representing to Dulien and leading it to believe that it would not pay by requesting instructions which it disregarded. Dulien also alleges that Bankers is estopped by reason of such representations from asserting in bar any right or obligation which it might have had to pay Sica.

Bankers says that it paid Sica in accordance with the terms of the credit and had both the right and the obligation to do so. It denies the other material allegations of the complaint.

Dulien is a Washington corporation. Bankers was incorporated under the laws of New York. Jurisdiction is based on diversity of citizenship, 28 U.S.C. § 1332.

Dulien has moved for summary judgment pursuant to Rule 56, F.R.Civ.P., 28 U.S.C., on its first claim only. Bankers has cross-moved for summary judgment on both claims. The motions are before me on affidavits supplemented by depositions.

The essential facts about which there is no real dispute are as follows:

Some time in early 1956 Dulien entered into a contract to sell scrap steel through the Office Commun des Consommateurs de Ferraille (O. C. C. F.) the purchasing authority for the European Iron & Steel Community. Payment to Dulien in an amount in excess of $3,000,000 was to be accomplished through several letters of credit established in its favor.

An organization known as Marco Polo Group Projects, Ltd., Tangiers, was apparently entitled to a commission from Dulien for having arranged the transaction. Payment to Marco Polo was to be made through two letters of credit, only one of which is involved here.

On June 29, 1956 this letter of credit in the amount of $60,500 was opened for Dulien's account by the Seattle-First National Bank. The beneficiary was Richard Sica. Seattle Bank requested Bankers to confirm the letter. On July 10, 1956 Bankers advised the beneficiary that "We Bankers Trust confirm the credit * * * and thereby undertake that all drafts drawn and presented as specified in the credit will be duly honored." The letter was to expire on September 30, 1956.

The letter of credit provided that "payment in full * * * shall be made without question" prior to the expiry date upon (1) presentation of a simple receipt signed by Sica, the beneficiary, reading as follows:

"Received from the Bankers Trust Co. of New York the sum of $60,500 U. S. currency, for services rendered through the Marco Polo Group Projects, Ltd. of Tangier."

and (2) notification from the Seattle Bank that Dulien had negotiated the requisite documents for payment against letters of credit established in its favor in connection with the O. C. C. F. contract.

Bankers was not advised of the terms of the underlying transaction, what connection Marco Polo had with it, or what Sica's connection was with Marco Polo.

On September 27, 1956 Sica's attorney delivered to Bankers the signed receipt called for by the letter of credit and Sica's draft for $60,500 to hold until notified that they were to be presented. He also requested that Bankers seek advice from the Seattle Bank as to whether payment should be made, i. e., whether Dulien had negotiated the documents against the credits in its favor. In compliance with this request Bankers Trust wired the Seattle Bank on October 1, 1956 as follows:

"Refer your credit 14718 our reference 75632 simple receipt for $60,500.00 called for in credit has been presented to us with request to notify you immediately by wire and receive your authenticated wire instructions to either honor or dishonor the presentation. Please wire may we pay against simple receipt."

On the same day the Seattle Bank replied:

"* * * Your ref. no. 75632 our credit 14718 drawing for $60,500.00. Our answer is you may not pay. No documents have been negotiated against any of the letters of credits established to the name of Dulien Steel Products Inc. of Washington, Seattle, Washington, which letters of credit cover contract No. 28/NAMC as issued to the name of Dulien Steel Products Inc. of Washington, Seattle, Washington by the O. C. C. F. at 36 Rue Ravenstein, Bruxelles, Belgium. We understand letter of credit 14718 will be amended showing expiry October 31, 1956."

However, prior to October 1, completely unknown to Bankers, Dulien had completed negotiations with Marco Polo looking toward, among other things, a modification of earlier understandings between them.

These negotiations culminated in a letter from Marco Polo dated August 29, 1960 agreeing to substantial amendments to the terms and conditions of the outstanding letter of credit. Under the proposed amendments the face amount was to be reduced from $60,500 to $35,500 and payment of this reduced amount was to await full payment to Dulien by O. C. C. F.

Seattle Bank received the Marco Polo letter of modification through Dulien with its approval about September 10, 1956. On September 11 Seattle Bank wrote Dulien suggesting changes in the proposed modifications which are not significant here, and also stating:

"It would be preferable to issue an entirely new letter of credit * * but if this is not possible the foregoing amendments undoubtedly would serve the same purpose. * * *

"If you approve, please sign and return the enclosed copy or advise us of any objections you may have."

Neither Dulien nor Seattle Bank advised Bankers as to these communications, nor sent copies to Bankers at this time, and Bankers was wholly unaware of them until October.

On October 2, 1956, the day after the Seattle Bank had advised Bankers that Dulien had not negotiated the documents, but that it understood that the credit in favor of Sica would be extended, it wrote Bankers at Dulien's request that the credit to Sica had been extended to October 31 and that "all other terms and conditions remain unchanged". Bankers thereupon made the corresponding change in its credit and confirmed the credit as thus extended to Sica's attorney. Thus, the original letter of credit was extended at Dulien's own request for another month without modification.¹

Had this extension not been requested by Dulien the present controversy would never have arisen. The original letter of credit could not have been paid and Sica would not have been in a position to force payment.

On October 8, 1956 Bankers again wired Seattle Bank for advice as to whether Dulien had negotiated the documents under the O.C.C.F. credits and asked "may we pay?" The next day, October 9, the Seattle Bank replied that Dulien had negotiated the designated documents. Thus, at this point the conditions of the letter had been met and Bankers Trust was required to honor drafts of Sica against the original letter of credit as extended without modification.

In the October 9 wire, however, Seattle Bank, although it had been aware of the proposed modifications since September 10, for the first time also notified Bankers that "Dulien * * * has requested that payment be deferred * * * because of arrangements between them and the Marco Polo Group Projects, Ltd. * *" It listed the proposed amendments and concluded with a request that Bankers "contact" Sica for "acceptance of the proposal and amendments * * *."

In response to Bankers' advice to Sica requesting acceptance of the proposed changes Sica's attorney informed Bankers by registered mail on October 10 that Sica "has not effected any modification of the original letter of credit * * * and therefore expects payment in the amount reflected in such original letter of credit."

Bankers immediately notified Seattle Bank of Sica's position, quoting his attorney's letter in full. Its wire concluded with the word "Instruct". Upon receipt of this message Seattle informed Dulien of its contents and requested instructions as to what to "advise Bankers Trust Company". Dulien was also informed that if its instructions were "to reject the request to pay, you must supply us Seattle Bank with a letter of indemnity * * * to hold us harmless against any loss or damage whatsoever by reason of such rejection or refusal of payment." Dulien promptly agreed to the required indemnity, stated that "our obligation under this Letter of Credit lies with Marco Polo Group Projects, Ltd. and not in Richard Sica as an individual", and instructed Seattle Bank to reject payment except in accordance with the amendments.

Fortified by the indemnity Seattle Bank wired Bankers Trust on October 12 "Do not pay", quoted Dulien's letter to the effect that the obligation was to Marco Polo, not to Sica individually, and advised that instructions to Sica's attorney to accept the modifications² would be forthcoming from Italy. No mention was made by Dulien or Seattle Bank...