Banque Paribas v. Hamilton Industries International

Hamilton Industries International, Inc. (Hamilton) (plaintiff) bid on a subcontract with Saudi Medcenter, Ltd. (SMC), which had bid on construction work in Saudi Arabia. SMC asked subcontractors to guarantee their bids. Hamilton paid American National Bank in Chicago (ANB) (plaintiff) about $300,000 for a standby letter of credit to provide security for SMC if Hamilton defaulted. The letter said that ANB would pay the Banque de Paris et des Pay-Bas (Paribas) (defendant) if Paribas sent a signed and certified statement that SMC had demanded payment on the guarantee. Paribas signed the guarantee in favor of SMC, using a form provided by ANB as a model. Paribas’s guarantee expired on February 28, 1983, and stated that it was to be interpreted under Saudi law. ANB’s letter expired on March 15. On February 24, SMC called Paribas to demand payment. Paribas notified ANB by cable. On February 28, SMC sent Paribas a telex to “confirm” the call “this afternoon,” stating that the letter of credit was “called off.” Paribas’s manager testified that the telex was intended to confirm SMC’s demand. Paribas sent ANB a signed, certified statement that SMC had demanded payment. In March, SMC sent Paribas a written demand with the correct number and date of the guarantee. Although the guarantee had expired, Paribas paid SMC. ANB refused to reimburse Paribas and sued Paribas in a United States federal district court to decide which entity should get the $300,000, interpleading Hamilton. Hamilton had agreed to reimburse ANB and moved for summary judgment. The district court ruled for ANB, reasoning that ANB need not pay because Paribas had not strictly complied with the letter’s terms, treating SMC’s failure to send a timely written demand as a violation of a condition precedent of the guarantee and treating the guarantee as part of the letter.