The opinion of the court was delivered by: Roszkowski, District Judge.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This matter comes before the court for a ruling following a
bench trial beginning on August 18, 1980 and ending on August 28,
Plaintiff, EVRA Corporation, formerly known as Hyman-Michaels
Company ("Hyman-Michaels"), brought this civil action against
Swiss Bank Corporation ("Swiss Bank") for its failure to promptly
make payment of an installment of ship charter hire in accordance
with a telex request sent by Continental Illinois National Bank
and Trust Company of Chicago ("Continental"). Hyman-Michaels'
complaint alleges breach of contract, negligence and breach of
Hyman-Michaels, pursuant to Rules 13(a) and 14, F.R.Civ.P.,
filed a counterclaim against Continental for its alleged
wrongdoing in connection with the transaction in question.*fn1
Hyman-Michaels seeks recovery from Continental under theories of
negligence, breach of contract, and breach of fiduciary duty.
Jurisdiction of this court is invoked pursuant to 28 U.S.C. § 1332.
After a thorough examination of the entire record of this
action, the court makes the following Findings of Fact and
Conclusions of Law.
In 1973, Hyman-Michaels was an Illinois corporation with its
principal place of business at Chicago, Illinois. It was engaged
in the international and domestic purchase and sale of scrap
metals and oceanic freighter shipping.
In 1976, Hyman-Michaels sold its scrap metal business to Azcon
Corporation and at the same time changed its name to EVRA
Swiss Bank is a Swiss corporation with its principal office in
Basle, Switzerland. It is a major international bank with offices
throughout the world.
Continental is a national banking association with its
principal place of business located in Chicago, Illinois.
Continental is also a major international bank with offices
throughout the world.
In April, 1972, Hyman-Michaels entered into a written contract
to sell and deliver a quantity of steel scrap to a Brazilian
corporation over a period of two years. The contract provided
that the purchaser could decline to purchase scrap if its price
exceeded a certain amount. Hyman-Michaels entered into a joint
venture agreement with the Schiavone-Bonomo Corporation for the
performance of the Brazilian contract under which
Schiavone-Bonomo was to provide a portion of the steel scrap and
Hyman-Michaels was to provide the ships to transport the scrap.
In June, 1972, Hyman-Michaels entered into a standard form time
charter ("Charter") with the Pandora Shipping Company for a ship
known as the "Pandora" intending, among other things, to use it
in delivering the scrap metal under the Brazilian contract. The
Charter was for one year, with two successive six-month options
exercisable by Hyman-Michaels.
The Charter rate for the vessel for the first twelve months was
$1,825 a day, to be paid semi-monthly "in advance" to the account
of Pandora Shipping Company at Banque de Paris et des Pays-Bas
(Suisse) SA, Geneva, Switzerland ("Banque de Paris"). The daily
Charter rates for the successive six-month option periods were
$1,925 for the first six-month period and $2,050 for the second.
The Charter provided that if Hyman-Michaels failed to pay the
hire in advance, the owner was at liberty to withdraw the vessel
from Hyman-Michaels' service.
The Pandora was delivered to Hyman-Michaels' service on July
27, 1972 at 2100 hours.
Hyman-Michaels made the payments of the first through fifth and
eighth through eighteenth installments of the Charter hire by
wire transfers. Each of the wire transfers was made through
Continental. Continental used Swiss Bank as its correspondent
bank for the wire transfers of the first, fourth, fifth and
eighth through eighteenth installment payments. All of these wire
transfers were sent to and received by Swiss Bank's telex machine
In each instance when a Charter installment payment was made
through Continental, Hyman-Michaels received after requesting
such payment a document from Continental entitled "Receipt
Non-Negotiable" (hereinafter referred to as Continental's "advice
At the time Hyman-Michaels entered into the Charter, charter
rates were at the bottom of the market. By October, 1972,
however, charter rates had gone up dramatically. The sharp
uptrend continued throughout the remaining period of the Charter
and the Charter option periods.
Hyman-Michaels made the payments of the sixth and seventh
installments of the Charter hire by checks sent in the mail. On
October 30, 1972, the owner of the Pandora notified
Hyman-Michaels that it was withdrawing the Pandora from the
Charter because the seventh installment payment, due on October
26, had not been received by Banque de Paris. This attempted
withdrawal of the Pandora was submitted to a panel of three
arbitrators in accordance with the Charter. On December 5, 1972,
the panel ruled that the owner of the Pandora could not withdraw
her from the Charter, but put Hyman-Michaels on notice that the
payment provision of the Charter would be strictly enforced
Subsequent to the arbitration proceeding, Hyman-Michaels
reverted to the use of wire transfers exclusively for the payment
of the Charter installments. Beginning with the eighth
installment payment, the procedure followed by Hyman-Michaels was
to have its accounting department make a request to Continental
to effect a wire transfer a few days before each Charter hire
payment was due.
By March, 1973, the price of steel scrap under Hyman-Michaels'
contract with the Brazilian corporation rose to such a level that
the Brazilian corporation elected not to purchase any more scrap.
Hyman-Michaels thus had the opportunity to subcharter the vessel
on the open spot market. Hyman-Michaels entered into a subcharter
for the Pandora under which it was to be loaded with grain at
Baton Rouge, Louisiana on April 28, 1973 for delivery to Poland.
At or about 9:17 A.M. on April 25, 1973, Carlos Oliveros, an
employee of Hyman-Michaels, telephoned Continental and requested
that Continental make a wire transfer in the amount of $27,040.62
to the account of the Pandora's owner at Banque de Paris for the
Charter hire period of April 27-May 11, 1973. Payment of this
installment was due at or before 2100 hours (9 P.M.) Geneva time
on April 27, 1973.
The requested telex message was prepared by Continental in
Chicago. It was then forwarded at 4:36 P.M. (Chicago time) by
telex to Continental's London Branch for retransmittal to Swiss
Bank in Geneva. The telex message requested that retransmission
be addressed to Swiss Bank's telex machine 22235.
Continental issued its standard Continental advice form to
Hyman-Michaels for the wire transfer and Hyman-Michaels received
it at or before 8:30 A.M. of April 27, 1973. This advice form
confirmed to Hyman-Michaels that its account had been debited for
$27,040.62 and that Continental was proceeding to execute the
Beginning at about 9 A.M. (London time) on April 26, 1973,
Brian Brown, a telex operator employed by Continental's London
Branch, tried to retransmit the April 25 telex instruction to
Swiss Bank's general telex number 22235. After trying
unsuccessfully for almost an hour to reach the general number,
Brown diverted the telex message to Swiss Bank's telex machine
22226, a number he had used in the past, which was located in
Swiss Bank's Foreign Exchange Department.
Prior to April 27, 1973, Continental's London Branch had
diverted several cables from the general telex machines at Swiss
Bank to those in Swiss Bank's Foreign Exchange Department. In
1973, the Foreign Exchange Department was located on the same
floor as, and next door to the Cable Department, in which telex
machine 22235 was located. Swiss Bank never complained to
Continental's London Branch about diversion to telex machine
22226 in the Foreign Exchange Department and never notified
Continental not to use it.
Swiss Bank's foreign exchange room telex machines would receive
an average of three to four telexes per week destined for other
departments of the bank. Swiss Bank had no procedure for logging
these telexes or insuring that they were promptly acted upon.
In April, 1973, Swiss Bank's telex machine 22226B was not
equipped to make copies of telex messages which it received. In
addition, it did not automatically shut off when it ran out of
paper, but continued to receive messages which were not recorded
in any manner.
Swiss Bank had no systematic method of checking the telex
machines in the foreign exchange room to see if they had paper.
The machines were operated by junior foreign exchange dealers who
were not professional telex operators.
Swiss Bank took no action whatsoever in response to the April
26, 1973 telex from Continental's London Branch. The court finds
that Swiss Bank either (a) lost the April 25, 1973 telex message,
or (b) failed to have paper in its machine 22226B at the time
that the message was being received, in which case no actual copy
of the message would have been produced.
At about 8:30 A.M. (Chicago time) on Friday, April 27, 1973,
Hyman-Michaels received a telex message from the owner of the
Pandora stating that the owner had withdrawn the vessel from
service under the Charter because the nineteenth installment had
not been paid to its account at Banque de Paris.
Between 8:45 A.M. and 9 A.M., Albert Moeng of Hyman-Michaels
contacted Richard Beutel of Continental, advising him of the
owner's claimed non-receipt. Hyman-Michaels instructed
Continental to instruct its correspondent, Swiss Bank, to persist
in attempting to effect the payment even in the face of a
rejection by the owner's bank.
Hyman-Michaels telephoned the owner's representative on the
morning of April 27, 1973 and told him that payment had been
made. The owner persisted in his decision to withdraw and
notified Hyman-Michaels that all further attempts to effect
payment would be rejected.
Hyman-Michaels' admiralty counsel at Hill, Betts & Nash of New
York City were informed of the situation early on April 27. They
contacted the owner's attorneys and, through negotiations with
them, reached an agreement that day for the submission of ...