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Indasu International v. Citibank

decided: November 17, 1988.


Defendant Citibank, N.A. appeals from a judgment entered after a bench trial in the United States District Court for the Southern District of New York (Broderick, J.) in favor of Indasu International, C.A. on its claim under a guarantee contract governed by Ecuadorian law. Reversed.

Winter and Miner, Circuit Judges, Billings, District Judge.*fn*

Author: Miner

MINER, Circuit Judge:

Plaintiff-appellee Indasu International, C.A. ("Indasu") commenced this diversity action in the United States District Court for the Southern District of New York (Broderick, J.) against Citibank, N.A. ("Citibank") claiming the face amount of a Carta de Garantia ("Guarantee"). The Guarantee was issued by Citibank as guarantor in favor of Indasu to ensure that Corporacion Estatal Petrolera Ecuatoriano ("CEPE") would enter into and perform a contract. Citibank twice moved unsuccessfully to dismiss the action on grounds of forum non conveniens, contending that Ecuador would be the proper forum. Judge Broderick heard the case without a jury, after which he directed entry of judgment in favor of Indasu for the face amount of the Guarantee, $1,500,000.00, plus interest.

Citibank appeals from the judgment, asserting that it was prejudiced substantially by the district court's denial of its motion for dismissal based on forum non conveniens. Citibank also argues that the district court misapplied Ecuadorian law when it read into the Guarantee the "course of conduct" and "intent" of the parties to the guaranteed contract, thus varying the purported preconditions of that instrument without Citibank's consent. Finally, Citibank contends that the district court erred in finding that the preconditions had not been violated.

We affirm the district court's denial of the motion to dismiss on grounds of forum non conveniens. We reverse, however, the judgment of liability arising from the Guarantee because, under Ecuadorian law, a guarantee containing written conditions cannot be modified or waived without the consent of the guarantor.


Indasu is a Panamanian corporation with its principal place of business in Miami, Florida. Indasu is affiliated with a Venezuelan corporation, Hideca Oil International ("Hideca"). On July 24, 1980, Hideca entered into an agreement with the state oil company of Ecuador, CEPE, in connection with a government project to exploit gas deposits in the Guayaquil Bay, off the coast of Ecuador. In this "Guayaquil Agreement"*fn1 Hideca agreed to transfer to CEPE its rights to one or more of three specific oil drilling platforms. According to the Agreement, Hideca held options to rent the platforms for three years at fixed rentals on a "bare boat" (i.e., without crew) basis. Within ten days of the date of the Agreement, CEPE was to "nominate" which of the platforms it wished to rent. CEPE promised to sign a lease for the platform within forty-five days of the date of the Agreement, and to provide a performance guarantee (the Guarantee that is the subject of this action) in the amount of $1,500,000 against its obligation to sign the lease. The Agreement also required the parties to create an "Open Capital Company" that would operate the platform. CEPE then was to enter into a contract with the new company, obligating CEPE to furnish personnel, insurance and maintenance for the platforms.

The deadline for nominating the specific platform to be provided under the Guayaquil Agreement passed without any nomination by CEPE and without objection by Hideca. Thereafter, in a "Nomination Agreement" dated August 7, 1980, CEPE nominated the "Goldman L-780 platform," listed in clause 1(b) of the Guayaquil Agreement as "under construction in Europe, availability December 1980." The specific platform nominated was known as the "Salen V." The Nomination Agreement contained certain "terms and conditions": (1) Hideca was to deliver the complete technical specifications for the nominated platform within thirty days; (2) CEPE was to conduct a final inspection of the platform at the European shipyard prior to delivery; (3) Hideca was to negotiate a delivery-date guarantee, to be issued by a "first class international bank," against a December 1980 delivery of the platform; and (4) CEPE would comply with its obligation under the Guayaquil Agreement to provide a performance guarantee.

A public scandal erupted after the Nomination Agreement was signed, making it politically undesirable for CEPE to deal with Hideca. Hideca suggested as a substitute its platform broker, Indasu, so that CEPE could honor the agreements without dealing directly with Hideca. On August 27, 1980, a representative for Hideca, Dr. Sardi, telexed CEPE that Indasu would assume Hideca's obligations to CEPE. The specific obligations undertaken by Indasu, which tracked Hideca's obligations to CEPE, were set forth in the telex. CEPE apparently consented to Indasu's assumption of these commitments. The telex also provided that CEPE would issue the performance bond guarantee "in favor of Indasu," to "be in effect until the signing of the definitive lease contract."

On August 28, 1980, an official of CEPE visited Citibank's Quito, Ecuador office and discussed the proposed performance guarantee with two Citibank officials. There, the CEPE official obtained the application form for the letter of guarantee and was told to provide instructions regarding specific terms to be included in the guarantee. The application form, dated August 28, 1980, requests that the bank issue a performance bond in favor of Indasu to guarantee "that CEPE will sign a lease contract for a Goldman L-780 jack-up self-elevating platform in accordance with the conditions contained in [a specified] Official Letter." The official letter, dated August 29, 1980, requests the issuance of the bank guarantee and specifies the "condiciones," or terms, including: (1) a daily rental price for the platform of $43,000; (2) delivery by Indasu of a counter-guarantee in favor of CEPE for any delays in delivering the platform after December 31, 1980 and for the same amount as the CEPE guarantee; (3) the right of CEPE to inspect the platform prior to signing the lease; and (4) compliance with all provisions of the agreements between Hideca and CEPE. The official letter also requests that the guarantee automatically terminate upon the non-compliance with any one of the specified "condiciones."

The "Guarantee"*fn2 issued by Citibank on September 2, 1980 is an "unconditional and irrevocable" guarantee of CEPE's performance in favor of Indasu, subject to the four specific "condiciones" listed in CEPE's August 29 request. Included also is an automatic termination clause providing that "in the event of failure to comply with any of the [condiciones] . . . the guarantee issued by this document shall automatically cease to be in effect." It further provides that CEPE would sign the lease within forty-five days (by October 17th) and that the Guarantee would expire December 31, 1980.

On September 23rd, CEPE telexed Indasu that it had failed to issue a counter-guarantee as required by the August 27 telex. CEPE threatened to cancel the Citibank Guarantee unless Indasu provided a counter-guarantee within twenty-four hours. Indasu responded on September 24th, claiming that the events triggering Indasu's obligation to provide a counter-guarantee had not yet transpired and that the terms of the counter-guarantee had never been agreed to.

On October 3, 1980, CEPE instructed Citibank to declare the Guarantee void due to Indasu's failure to comply with the agreed terms. On October 8th, nine days before the scheduled deadline for signing the platform lease, Citibank telexed Indasu, cancelling the Guarantee. At that time, Indasu had an offer from Salen, the platform manufacturer in Europe, to lease at least three platforms of the type specified in the Guayaquil Agreement, but with full crew (not "bare boat") and not the ...

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