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ENGEL INDUS. v. FIRST AMERICAN BANK

June 1, 1992

ENGEL INDUSTRIES, INC., Plaintiff,
v.
FIRST AMERICAN BANK, N.A., Defendant and Third-Party Plaintiff and MEDCON ENTERPRISES, INC., Defendant and Third-Party Plaintiff v. KHALED FAISAL AL HEGELAN and UBAF ARAB AMERICAN BANK Third-party Defendants



The opinion of the court was delivered by: STANLEY SPORKIN

 Plaintiff Engel Industries ("Engel") brought this action seeking damages for a commercial transaction that broke down as a result of the onset of hostilities between the United States and Iraq. Plaintiff had a contract to sell equipment to defendant Medcon Enterprises ("Medcon") which was in turn intending to sell the equipment to an Iraqi government agency. Defendant Medcon arranged to pay for the purchase with an irrevocable letter of credit issued by defendant First American Bank ("First American") in favor of the plaintiff. Plaintiff is suing First American Bank for failing to honor the letter of credit. Plaintiff is also suing Medcon Enterprises for breach of contract.

 The action has become procedurally complex since the filing of the initial complaint. Medcon Enterprises and First American Bank have brought third-party actions against an individual, Khaled Faisal Al Hegelan, and a bank, UBAF Arab American Bank, who were to provide payment to defendants Medcon and First American Bank on behalf of the Iraqi government agency that was ultimately purchasing plaintiff's equipment. Defendant First American has also filed a cross-claim against defendant Medcon Enterprises. Finally, defendant Medcon Enterprises has filed a counterclaim against Engel seeking return of a downpayment.

 Cross-motions for summary judgment on the original complaint are currently pending before the Court. As no genuine issue of material fact remains to be decided, the Court is now prepared to rule on these motions. See Celotex v. Catrett, 417 U.S. 317 (1986).

 I. FACTS

 Plaintiff Engel is in the business of manufacturing various types of heavy machinery. Defendant Medcon contacted Engel to inquire whether Engel would be interested in a contract to manufacture machinery used for the roll forming of steel. Medcon told Engel that the machinery was to be used in Iraq in a plant that was going to manufacture air conditioning equipment. Engel expressed interest in Medcon's proposal, and proceeded to participate in discussions with the Iraqi purchasers. Engel and Medcon arranged a transaction wherein Engel was to sell the roll forming machinery to Medcon which would in turn sell it to the Iraqi purchasers. On May 23, 1990, Engel and Medcon signed a contract (Purchase Order EI 001) committing themselves to the deal. After the contract was signed, Medcon opened a letter of credit at First American Bank in favor of Engel for $ 272,103.00. Mercantile Bank in St. Louis, Missouri, where Engel is based, served as advising bank. The letter expired on September 30, 1990. By the terms of the letter, when Engel completed general assembly drawings, it was entitled to draw a downpayment of 10% of the amount of the letter of credit ($ 27,210.30). Engel was to deliver the machinery FOB its factory in St. Louis Missouri, loaded into containers suitable for shipping and marked with labels showing the destination in Iraq no later than August 24, 1990. Engel was required to present the documents to Mercantile Bank proving that the goods had been delivered and was to receive the balance of the letter of credit in return. The transaction did not go according to plan.

 In compliance with the President's Executive Order and because of the underlying force majeure events beyond our control, Medcon Enterprises, Inc. must and hereby does withdraw, cancel and rescind Purchase Order EI 001. . . . You should advise your bank to return all original Letter of Credit documents to the issuing bank for cancellation.

 See Exhibit D, Plaintiff Engel Industries' Motion for Summary Judgment. Then on August 14, 1990, First American wrote to Engel and stated:

 In light of the terms of the underlying trade transaction relating to Iraq and the Central Bank of Iraq letter of credit, we regret to advise you that First American Bank, N.A. is prohibited by these Executive Orders from making payment under its Letter of Credit No. ID-43720 at this time.

 See Exhibit 3, Complaint. First American sent an almost identical letter to Mercantile Bank dated August 16, 1992. Despite the information it received from Medcon and First American, Engel continued its performance under the contract and the letter of credit. On August 2, when Engel first received word from Medcon to halt the project, it had substantially completed its performance. The only things left to be done were the painting and crating of the equipment. See Exhibit N, Plaintiff Engel Industries' Motion for Summary Judgment (Affidavit of Michael Zimmer). It finished manufacturing Medcon's order and was ready to perform as required under its contract with Medcon. It had the necessary documents prepared to present to Mercantile in order to receive payment on the letter of credit. See Exhibit O, Plaintiff Engel Industries' Motion for Summary Judgment (Affidavit of Shirley Boerngen). However, on August 24 when Engel called Mercantile Bank to make arrangements to present the documents, Mercantile informed Engel that it would not accept the documents. That day Mercantile Bank wrote to Engel as follows:

 As stated in this letter [we received from First American], First American will not remit payment for documents presented; therefore, at this time Mercantile Bank of St. Louis will be unable to assist you in the handling of the documentation.

 See Exhibit 4, Complaint. Finally, on August 29, 1990, First American sent a letter to Engel demanding return of the downpayment.

 In an effort to mitigate damages, plaintiff began to sell some of the machinery. It sold the first piece on August 28, 1990 after it was barred from presenting its documents. See Affidavit of Michael Zimmer in Support of Plaintiff Engel Industries, Inc.'s Motion for Summary Judgment (filed separately). It sold more during the next months. Plaintiff was able to recoup some funds from these sales but it also lost significant amounts in costs of disassembly and repacking as well as lost interest. Plaintiff seeks $ 148,000 in damages for the losses it suffered. Defendant Medcon has filed a counterclaim to recoup the ...


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