The opinion of the court was delivered by: Cote, District Judge.
Plaintiffs bring this diversity action against a number of
different defendants alleging improper breaches of a letter of
credit and a series of underlying agreements. Plaintiffs were the
first beneficiary to a letter of credit. In the causes of action
relevant to the present motion, they complain principally that
their sub-contractor wrongfully obtained money under the letter
of credit due to errors by the advising and confirming bank with
respect to one transfer made on presentation of a performance
bond and another made to an escrow account. The advising and
confirming bank under the letter of credit now moves for summary
judgment. Plaintiffs make a cross motion for summary judgment.
For the reasons stated, the bank's motion for summary judgment is
granted in full and plaintiffs' motion is denied.
Plaintiff Hussein Nassar was in the business of exporting cars
and the sole proprietor of plaintiff Insearch Marketing and
Trading Company ("Insearch"), a business located in Texas at the
time of the relevant transactions. After the Gulf War in August
1991, Al-Jazira Trading Company ("Al-Jazira"), a Kuwaiti company,
entered into a contract with the Kuwaiti government to supply 100
armored General Motors trucks to be used at the first meeting of
the member states of the Gulf Cooperation Council in Kuwait on
December 25, 1991. In order to obtain the trucks, Al-Jazira
entered into an agreement with Insearch and Mr. Nassar in the
amount of $3,036,625. Insearch then sought a sub-contractor and
entered into a similar agreement with Florida Fleet Sales Inc.
("Florida Fleet"). Nassar had no previous dealings with the
principals of Florida Fleet and subcontracted with them because
they looked "like good people." The purchase price of the trucks
under this agreement was $2,286,995. The agreements called for
shipping the trucks by ocean freighter prior to November 10,
1991, to assure they would arrive in time for the conference.
Payment under the agreement between Insearch and Al-Jazira was
to be effected through a letter of credit issued by the National
Bank of Kuwait in Safat, Kuwait ("NBK Kuwait") with the National
Bank of Kuwait in New York, New York ("NBK New York") serving as
the United States advising and confirming bank. Al-Jazira applied
to NBK Kuwait to issue an irrevocable letter of credit in the
amount of $3,036,625, with Insearch named as the first
beneficiary. NBK Kuwait issued the letter of credit by telex on
October 7, 1991.
NBK New York advised Insearch of the letter of credit on October
Under its terms, the letter of credit was to function as
follows: Upon meeting certain conditions specified in the letter
of credit, involving the presentation of documents describing the
vehicles and bills of lading from the shipment, the first
beneficiary Insearch would be permitted to be paid in the form of
a draw on the letter of credit. As the advising and confirming
bank, NBK New York would assure that the conditions had been met
and make the payments to Insearch. The letter of credit was
irrevocable and expired on November 18, 1991, meaning that
Insearch had to present all of the required documents before this
date to be paid.
As written, the letter of credit permitted Insearch to draw
twelve percent of the balance of the credit:
immeidiately [sic] upon presentation of their simple
receipt in triplicate accompanied by an unconditional
performance bond issued or confirmed by [NBK New
York] in favor of applicant, valid until 31st
December 1991 and payable on applicant's first
demand. . . .
On the day of the issuance of the letter of credit, this
provision was amended to change the percentage to ten percent of
the total, or $303,662.50. In addition, the language
"unconditional performance bond issued or confirmed by [NBK New
York]" was amended to read instead "performance bond for
[$364,395.00] on the standard format issued by a recognized
insurance company legally operating under U.S. laws or issued and
confirmed by [NBK New York]."*fn1
At NBK New York, the letter of credit was handled by Athanasia
"Soula" Stephanides, the supervisor of the bank's letter of
credit department. On the day of the issuance of the letter of
credit, Ms. Stephanides met with Mr. Nassar of Insearch and Fred
M. Dellorfano,*fn2 the attorney for Florida Fleet, who had
previously contracted with Insearch to ship the vehicles. At the
meeting, the parties reviewed a performance bond dated October 7,
1991 and issued by Worldwide Business Services, Inc.
("Worldwide"). By its terms, the performance bond binds Worldwide
to make payments to Al-Jazira and Insearch in the amount of
$364,395.00 to guarantee Florida Fleet's performance under the
October 7, 1991 agreement until the termination date of December
31, 1991.*fn3 The bond is signed by Mr. Nassar as agent for
Al-Jazira*fn4 and Mr. Dellorfano, as attorney in fact for
Florida Fleet, as well as by a representative of Worldwide.
NBK New York proceeded to fax the performance bond to NBK
Kuwait for review by it and by Al-Jazira. Al-Jazira responded on
October 9 that "[t]he performance bond dated [October 7]
submitted by Insearch Marketing and Trading Co. is acceptable
to us and we hereby authorized [sic] you to pay 10% of the
[letter of credit] value." (Emphasis added.) Although the
characterization of these actions is in dispute,*fn5 it is
undisputed that Nassar then executed a document dated October 9
on Insearch letterhead acknowledging receipt of $303,662.50 under
the letter of credit. It is also undisputed that Nassar, as
principal of Insearch, signed another agreement dated October 10,
1991, that authorized NBK New York to pay the proceeds of the
draft of $303,662.50 to Fred Dellorfano.*fn6 Nassar says that
this transfer to Florida Fleet was necessary to allow it to
obtain special parts for the trucks. Nassar also says the
transfer was made in part in reliance on the performance bond and
in part because Dellorfano and Stephanides insisted on making it.
After this transfer, on October 10 Insearch made Florida Fleet
a "second beneficiary" under the letter of credit. In a document
signed by Mr. Nassar, Insearch irrevocably transferred its rights
to draw on the letter of credit up to about $2 million to Florida
Fleet. After this time, problems in the performance of the
underlying contract began to arise. After Florida Fleet had
shipped 10 trucks by ocean freighter, Florida Fleet informed
Nassar that it could not deliver the remaining 90 trucks by the
November 10, 1991 deadline.
Payment to Escrow Account
In order to guarantee arrival by December 25, 1991, it was
necessary to transport the remaining 90 vehicles via air
shipment. On November 21, 1991, the letter of credit was amended
to extend the time for delivery of the remaining 90 vehicles
until December 5, 1991 and to require all invoices to be signed
by Mr. Al-Asfour, a representative of Al-Jazira.*fn7 The parties
inquired with private air transport carriers but found them to be
too expensive. Dellorfano then stated that he had contacts with
the office of Senator Sam Nunn and the United States Military
Assistance Command, and that the United States Air Force would
ship the trucks for $440,000, the cost of the fuel. He then told
the parties that the military required payment to be made through
an escrow account earmarked for it prior to shipment. Instead of
establishing a separate escrow account, which would cause
additional delays, the parties agreed to use Dellorfano's
personal escrow account to hold the funds.
On December 9, 1991, the letter of credit was again
amended.*fn8 The amendment read as follows:
"You are authorised [sic] to advance [$440,000] to be
placed in `escrow' account No.4-125-746 of Fred M.
Dellorfano with Rockland Trust Company, Rocklan[d],
Massachusetts, ABA No. 4-125-746 with a condition
that funds are to be released against presentation of
a written guarantee from the proper U.S. army
authority that the 90 vehicles have already been
transported to Kuwait and provided this guarantee
carry [sic] the authorized signatures of
representatives of both [Florida Fleet and Insearch].
. . . This amendment represents total air
transportation cost of 90 vehicles and no further
claim towards freight from any party will be
entertained. If these conditions is [sic] not
satisfied within the next 10 days from the date of
transfer of funds in the foregoin [sic] `escrow'
account, the amount in full . . . will have to be
returned back to you. . . . In case of discrepancies,
discuss the discrepancies with [Al-Asfour of
Al-Jazira] who has the authority to waive the
As a result of this amendment, on December 9, 1991, Mr.
Dellorfano for Florida Fleet, Mr. Nassar for Insearch, and Mr.
Al-Asfour for Al-Jazira, executed a letter agreement addressed to
Ms. Stephanides. The terms of the letter agreement call for the
transfer of $440,000 to Dellorfano's escrow account at Rockland
Trust Company. In exchange, Dellorfano agreed to the following:
1. Such funds will be released only against the
presentation of a written guarantee from the proper
U.S. Government Authority that ninety (90) ...