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ISRAR AHMED v. NATIONAL BANK OF PAKISTAN

September 27, 1983

ISRAR AHMED and SYSTEM ENGINEERING LTD., Plaintiffs,
v.
NATIONAL BANK OF PAKISTAN, WALL STREET, NEW YORK BRANCH, SYED MAHMOOD HAIDER, MANAGER OF NATIONAL BANK OF PAKISTAN, WALL STREET, NEW YORK BRANCH, TEREX EXPORT DIVISION, A UNIT OF ATI, ARIF DURRANI and SIKANDER DURRANI, Defendants



The opinion of the court was delivered by: EDELSTEIN

MEMORANDUM OPINION, FINDINGS OF FACT AND CONCLUSIONS OF LAW

 EDELSTEIN, District Judge:

 INTRODUCTION

 In this action plaintiffs Israr Ahmed ("Ahmed") and System Engineering Ltd. ("System") allege that defendant National Bank of Pakistan, Wall Street, New York Branch, (the "Bank") and the Bank's general manager, defendant Syed Mahmood Haider ("Haider") negotiated and wrongfully paid a letter of credit and conspired with the beneficiary of the letter of credit to defraud plaintiffs. Plaintiffs claim that as a consequence of the defendants' actions, they have been damaged in the amount of $5,000,000.

 The Bank and Haider have moved pursuant to Fed. R. Civ. P. 56(c) to dismiss the complaint and for summary judgment on the grounds that there are no genuine issues of material fact and that, as a matter of law, the complaint fails to state a claim upon which relief can be granted. The same defendants have also moved pursuant to Fed. R. Civ. P. 37 to dismiss the complaint on the ground that plaintiffs willfully failed to comply with an order of the court requiring production of certain documents requested by defendants.

 FACTUAL BACKGROUND

 On October 16, 1978, National Bank of Pakistan, Karachi Branch, opened letter of credit No. KCY/DEF/3/84489 (the "letter of credit") in favor of defendant Terex Export Division, a unit of ATI, which is a California corporation ("Terex"). The letter of credit was opened at the request and for the account of the Controller of Military Accounts, Karachi, Pakistan to arrange for the payment of certain aircraft equipment ordered by the Directorate of Procurement of the Government of Pakistan from Terex. Terex was the beneficiary under the letter of credit. One of the documents required for presentation under the letter of credit is described in the letter of credit as an "FAA/FCC Certificate (whichever is applicable)." No specimen form of the "FAA/FCC Certificate" was provided to the Bank. See Deposition transcript of Israr Ahmed, dated February 2, 1983, p. 76. On November 1, 1978, the Bank advised Terex of the opening of the letter of credit.

 On January 18, 1979 Terex submitted to the Bank its draft in the amount of $20,470.00 together with accompanying documents for the purpose of drawing against the letter of credit. One of the documents presented to the Bank purported to be an "FAA Certificate." *fn1" On January 26, 1979 an officer of the Bank, S. A. Quddusi, examined the draft and documents submitted by Terex and found them to be in accordance with the terms and conditions of the letter of credit and that the Bank should honor and pay the Terex draft. See Affidavit of S. A. Quddusi, sworn to April 12, 1983, paras. 3-7. On January 29, 1979 the Bank made payment to Terex in the amount of $20,402.53, having deducted bank charges of $67.47. Subsequently, it was determined that the purported "FAA Certificate" was false. *fn2" Plaintiffs allege that the correct quantity of goods was not shipped to Pakistan and that as a consequence the government of Pakistan demanded payment from plaintiffs for the loss or replacement of certain supplies. See Complaint, paras. 37-40.

 On July 29, 1982 plaintiffs Ahmed and System commenced the instant action. Ahmed and System allege that the Bank and Haider wrongfully made payment of the letter of credit to Terex by failing to exercise due care in not detecting that one of the documents required under the letter of credit was nonconforming. Plaintiffs contend that as a result of defendants' actions they have been damaged in that they have not received compensation for their services and have been held responsible by officials of the Pakistan government for the failure to provide the correct quantity of goods. *fn3" See Complaint, paras. 23-25. Plaintiffs further allege that the Bank and Haider conspired with defendants Terex, and Arif Durrani and Sikander Durrani, who are shareholders of Terex, to destroy plaintiffs' business, and that Terex, and Arif and Sikander Durrani are liable for breach of contract. Plaintiffs bring this action as third-party beneficiaries under the letter of credit contract. Jurisdiction is predicated under 28 U.S.C. § 1332.

 On April 12, 1983 Ahmed and the Bank moved pursuant to Fed. R. Civ. P. 56(c) to dismiss the complaint and grant summary judgment in their favor on the grounds that plaintiffs have no standing to assert any claims under the letter of credit and that as a matter of law the payment of the letter of credit was proper and defendants have not engaged in a conspiracy to harm plaintiffs' business. Ahmed and the Bank have also moved pursuant to Fed. R. Civ. P. 37 to sanction the plaintiffs by dismissing the complaint for their alleged failure to comply with discovery orders of the court.

 DISCUSSION

 A. Plaintiffs' Standing to Bring the Action

 Plaintiffs purport to bring this action as third-party beneficiaries under the letter of credit agreement. The court has searched the record for some coherent exposition of the plaintiffs' assertion of standing, but has found none. *fn4" Apparently, plaintiffs' assertion of standing is based on their notion that as agents for Terex they stood to benefit from the transaction underlying the letter of credit, and that therefore they enjoy the status of third-party beneficiaries of the letter of credit itself.

 The Uniform Customs and Practice for Documentary Credits (1974 Revision) International Chamber of Commerce Brochure No. 290 (the "UCP") is incorporated in and governs the subject letter of credit. *fn5" KMW International v. Chase Manhattan Bank, N.A., 606 F.2d 10, 15 (2d Cir. 1979); Oriental Pacific (U.S.A.), Inc. v. Toronto Dominion Bank, 78 Misc.2d 819, 357 N.Y.S.2d 957 (Sup. Ct. 1974). See § 5-102(4) of the Uniform Commercial Code (Article 5 of the Uniform Commercial Code inapplicable where UCP applies). General Provision C of the UCP provides that "credits, by their nature, are separate transactions from the sales or other contracts on which they may be based and banks are in no way concerned with or bound by such contracts." See Marino Industries, Inc. v. Chase Manhattan Bank, N.A., 686 F.2d 112 ...


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