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Note:In order to meet production demands for the manufacture and sale of steel pipe for the offshore petrochemical industry, Tubos de Acero de Mexico, S. A., the lessee, leased an ultrasonic pipe testing inspection unit from American International Investment Corp., Inc., a company from whom it had previously purchased a similar unit.

The lessor indicated that the 12-month lease at the rate of US$ 31,500 per month was contingent on the purchase of a new unit. The 1997 lease agreement contained a "contingent upon" clause, which read: "this lease is contingent upon Lessee buying their new or used [UT] Units from Lessor, and having Lessor renovate any inspection equipment needed by Lessee while the unit is being leased." The lease also provided that "all spare parts replaced must remain original, and must be purchased from Lessor."

In order to assure payment of the lease, lessee provided an LC issued by Banco Santander in the amount of US$ 650,000 and confirmed by Hibernia National Bank. According to both the 1997 lease and the LC, the purpose of the LC was "to ensure the return of the UT unit, the payment of all money owed to [lessor] and its contractors, and compliance with the terms of the lease." Both the lease and the LC were subsequently extended.

At the end of the lease, the lessee returned the unit, having purchased a unit from another company. After inspecting the returned UT unit, and acknowledgement on the part of lessee of damage and the presence of reproduced and replacement parts, lessor faxed two invoices totaling US$198,925 to lessee, allegedly due under the lease for repairs to the unit and "down time". Lessor also informed lessee of claims filed for breach of contract and damages.

Subsequently, the lessor drew on the LC, presenting an invoice signed by its president, George Sfeir, stating that "all money owed was not paid in full," that "not all the terms of the lease were followed," and that lessor was entitled to the entire amount of the LC. On its face, the invoice conformed with the terms of the LC and the Confirming Bank paid lessor the entire sum. Lessee subsequently filed breach of contract, fraud, and conversion claims against lessor and its president in the Western District of Louisiana, alleging that they wrongfully drew down the entire US$650,000 LC.

Lessor counterclaimed, seeking damages for alleged breach of contract, violations of certain Louisiana trade provisions, and punitive damages. Lessor and its president filed motions for summary judgment on the fraud and conversion claims. The District Court for the Western District of Louisiana, Haik, J., denied lessor's motion, but granted that of its president. On appeal by the lessee, the award of partial summary judgment in favor of the president was reversed.

The court first addressed the dismissal of the claims against the president. The court found that although a corporation is deemed to be a distinct legal entity and that agents for the corporation cannot be held personally liable for the corporation's debts or wrongdoings, there is an exception under the "alter ego" doctrine, where "the corporate entity is disregarded to such an extent that the affairs of the corporation are indistinguishable from the affairs of the officer or director." A basis for liability exists where the officer or agent commingles corporate and officer funds, or where the funds personally benefit the officer in some way. Liability can also be established where the officer committed fraud, or where the agent commits acts of conversion on behalf of the corporation.

The court found that the claims against lessor and its president would be identical since the president was acting in his capacity as an agent for the company and that it could not distinguish one from the other. As there were genuine issues of material fact pertaining to the fraud and conversion claims against lessor in the drawing of the LC, the court held there was a basis for finding similar liability for the agent and reinstated the claims against the president.

As to the conditional term in the lease, the court noted that it had been drafted by the lessor, that it created a true condition, and that its effect was to permit the lessor to terminate the lease on the failure of the condition, not to require the lessee to purchase a unit from it.

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