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EVRA CORP. v. SWISS BANK CORP.

May 12, 1981

EVRA CORPORATION, FORMERLY KNOWN AS HYMAN-MICHAELS COMPANY, PLAINTIFF,
v.
SWISS BANK CORPORATION, A SWISS CORPORATION, DEFENDANT AND THIRD-PARTY PLAINTIFF, V. CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO, A NATIONAL BANKING ASSOCIATION, THIRD-PARTY DEFENDANT.



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, 1980.

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 fiduciary duty.

Swiss Bank, pursuant to Rule 14(a) of the Federal Rules of Civil Procedure ("F.R.Civ.P."), joined Continental as a third-party defendant on the grounds that Continental is or may be liable to Swiss Bank for all or part of plaintiff's claim against it. Continental in turn filed a counterclaim against Hyman-Michaels, seeking recovery from Hyman-Michaels for all or part of the damages for which Continental might be found liable to Swiss Bank.

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.

FINDINGS OF FACT*fn2

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 Corporation.

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 22235.

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 form").

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 thereafter.

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 wire transfer.

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.

In retransmitting the April 25 message from Continental's London Branch to Swiss Bank's machine 22226,*fn3 Brown received Swiss Bank's "answer-back" at the beginning and at the end of the message. In between the two "answer-backs", Brown had a clear copy of the message on his telex machine in London. Accordingly, the court finds that on April 26, 1973, at approximately 9:52 A.M. Geneva time, Swiss Bank received the retransmission of the April 25 message on its telex machine 22226B.

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 ...


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