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February 25, 1997


The opinion of the court was delivered by: SHADUR

 Banco del Estado ("Banco") has brought a three-count Second Amended Complaint ("Complaint" *fn1" ) against Navistar International Transportation Corporation and Navistar International Export Corporation (collectively "Navistar") in connection with Banco's payment under two letters of credit for the purchase of 80 buses sold by Navistar to Sidauto S.A. ("Siduato"). Banco, in its own right and as Sidauto's assignee, asserts claims for (1) fraud, (2) breach of contract and implied warranty of good faith and (3) breach of the implied warranty of fitness for a particular purpose.

 Navistar has moved for dismissal of the entire Complaint under Fed. R. Civ. P. ("Rule") 12(b)(6), and the motion is fully briefed and ready for decision. For the reasons stated in this memorandum opinion and order, Navistar's motion is granted in part and denied in part.

 Rule 12(b)(6) Standards

 Familiar Rule 12(b)(6) principles require this Court to accept as true the Complaint's well-pleaded factual allegations, together with all reasonable inferences in Banco's favor ( Ledford v. Sullivan, 105 F.3d 354, 1997 U.S. App. LEXIS 1312, 1997 WL 28983, at *2 (7th Cir.)). Dismissal is appropriate only if "it is clear that no relief could be granted under any set of facts that could be proved consistent with [Banco's] allegations" (id., quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984)). Hence the following Facts section credits Banco's allegations in their entirety. *fn2"


 In February 1993 Navistar's inventory included approximately 92 buses that it had manufactured in 1989 and 1990 for an ultimately aborted sale to a customer in the Dominican Republic. Because those buses had been in Navistar's inventory longer than any other group of comparably valued vehicles, Navistar executives (particularly those responsible for Latin American sales) were extremely anxious to sell them (PP8-9). In early February Navistar invited representatives of Sidauto (a Colombian company interested in importing buses to that country for public transportation) and Banco (a nationalized banking corporation organized under the laws of Colombia) to travel to the United States to view the buses (PP1, 2, 10).

 On February 25, 1993 Navistar's representative in charge of sales to Colombia, Raul Echeverri ("Echeverri"), and Navitrans International Ltd. ("Navitrans") manager Andres Duque ("Duque") met in New Carlisle, Ohio with Sidauto's managers Julio Cesar Cortes and Antonio Cortes (collectively "Cortes Brothers"), Banco director Dario Restrepo ("Restrepo") and a branch manager of a Banco office in Bogota, Astrid McAllister ("McAllister"). Echeverri and Duque escorted McAllister, Restrepo and Cortes Brothers to an uncovered lot in which the buses were being stored. McAllister and Restrepo looked briefly at one snow-covered bus and at a second that had been moved inside, touched up with paint and otherwise prepared for the inspection visit (PP10-12).

 On February 26, 1993 the parties met at Navistar's office in Miami to discuss a sale of the buses. Navistar's Director of Operations for Latin America Ramon Curros ("Curros") attended the meeting along with Echeverri, Duque, Restrepo, McAllister and Cortes Brothers (P13). Curros represented to McAllister, Restrepo and Cortes Brothers that the buses were new and that the manufacture of the buses' bodies had been completed in 1992 and 1993 (PP14-15). Either or both of Curros and Echeverri further represented to McAllister, Restrepo and Cortes Brothers that the buses were "Model 1993 as a complete unit" (P16). Navistar representatives did not disclose that the buses had vehicle identification numbers ("VIN numbers") that, pursuant to United States Department of Transportation regulations, identified the buses as model year 1990 by the appearance of the letter "L" as the tenth character of the VIN number (P18).

 On April 6, 1993 and again on April 21, 1993 Navistar issued a pro forma invoice describing the buses in Spanish as "Buses nuevos, vendidos ano de 1993" (P21). Banco's Federally Certified Judicial Interpreter has certified that those words translate to English as "New 1993 buses sold" (P22). *fn3" Navistar submitted a notarized copy of the invoice to Incomex, the Colombian government agency responsible for import permits, and to the Colombian Customs Service (P23). Knowing that Incomex would not issue an import permit for buses that were not of the current model year, Navistar had crafted the description so that the buses could be identified to Incomex as new 1993 model buses while simultaneously allowing Navistar to claim (if challenged) that Navistar meant only that the buses were unused as of their 1993 sale (PP27, 28). On April 27, 1993 Incomex issued an import permit for the buses, including a stamp on each page stating in Spanish that the buses were "New Merchandise Model 1993" (P25; Ex. D).

 On May 1, 1993 Navistar's Senior Group Vice President of International Operations Robert Johnson ("Johnson") met in Bogota with Echeverri, McAllister, Restrepo and Julio Cesar Cortes to celebrate the issuance of the Incomex permit. At that luncheon meeting Johnson and Echeverri inspected the Incomex permit and became concerned that the buses were falsely described as "Model 1993" buses when in fact they were 1990 model buses. Johnson did not believe that either McAllister or Restrepo was aware of that concern (PP29-31).

 On May 3, 1993 Johnson, Echeverri and other Navistar people met with McAllister and Restrepo at a Banco office for approximately five hours, during which time the Navistar group sought to cause Banco to issue the first letter of credit (P32). Navistar's application for that first letter of credit tracked the invoice by describing the buses as "Buses nuevos, vendidos ano de 1993." Johnson and Echeverri knew that (1) Banco assumed the description was accurate, (2) Banco further assumed that the description accurately conformed to the Incomex import permit (as it did) and (3) Banco was relying on the buses as security for the credit that it was issuing to Sidauto under the letters of credit (PP34-35). But neither Johnson nor Echeverri disclosed his already-described concerns to any Banco representative.

 On May 4, 1993, after Navistar's Chicago headquarters faxed a verification with small corrections to the first letter of credit application, Banco issued a $ 968,625 letter of credit (PP33, 37-38). On June 11, 1993, after Johnson had once again visited Banco's Bogota office, where he again failed to raise his concerns about whether the buses were described inaccurately in both the letter of credit application and the Incomex permit, Banco issued a second letter of credit in the amount of $ 753,375 (PP39-40).

 Navistar shipped 45 buses to Santa Marta, Colombia between May and August of 1993, and shipped the other 35 buses to Cartagena, Colombia in July 1993 (PP41-42). To receive payment under the letters of credit, Navistar submitted bills of lading and commercial invoices to the confirming banks representing that Navistar had shipped "new 1993 buses" to Sidauto (P43). In each instance Navistar was paid the amount requested under the letter of credit (P44).

 Upon their arrival in Colombia the buses were detained by the Colombian Customs Service ("Colombian Customs"). Colombian Customs determined after investigation that the buses were incorrectly described to Incomex as new 1993 model buses when, in fact, the buses' VIN numbers showed that they were from model year 1990 (P48). Navistar nonetheless continued to maintain that the buses were properly described as new 1993 model buses, making these representations to Colombian officials:

1. On June 25 and July 8, 1993 Navistar received letters from Colombian Customs requesting information about the year of manufacture of the buses. On July 26, 1993 Curros wrote to Colombian Customs that the buses were new and that the year of completion of their manufacture was 1993 (P51; Ex. H).
2. On August 6, 1993 Curros sent identical letters to Colombian Customs officials in Bogota, Cartagena and Santa Marta certifying that the buses were finished by Navistar in 1993, that any characterization of the buses other than as described in the invoices lacked validity and that the buses were "new in every extension of the word" (P52; Ex. I).
3. On August 24, 1993 Curros executed a certificate, which was notarized and authenticated at the Colombian Consulate in Miami, stating that the buses were totally new and finished in 1993. That certificate further stated that it and earlier certifications submitted by Navistar should be used as valid criteria to determine the year of manufacture and model of the buses (PP53-54; Ex. J).
4. On August 31, 1993 Curros executed another certificate repeating the representations in the August 24 certificate and adding that the buses were 1993 model buses (P56; Ex. K).

 In reliance on Navistar's continued representations that the buses were 1993 model buses, Banco paid nationalization fees, storage and other related charges (P50).

 On November 22, 1993 Navistar provided Banco with Certificates of Origin for the buses that represented the buses as model year 1993 (P57; Ex. L). Banco submitted those Certificates to Colombian Customs on November 24. Believing the Certificates to be valid, Colombian Customs ordered the release of 44 buses located in Bogota (PP58-59). Banco was paid $ 509,272 upon auction of those 44 buses. But in December 1993 Colombian Customs officially seized the 35 buses at Cartagena, and Colombian Customs is now seeking to annul its November 24, 1993 order releasing the 44 buses to Banco on the basis that Navistar's representations regarding the 1993 model year of the buses were false (PP61-63).

 Pursuant to the application for the letters of credit, Sidauto has assigned to Banco all causes of action it may have against Navistar arising out of this matter (P65). Thus Banco has standing to advance all of the claims in the Complaint.

 Procedural History

 This case, originally assigned to this Court's colleague Honorable Brian Barnett Duff, was reassigned to this Court's calendar on October 10, 1996 after Judge Duff's retirement from regular active service under 28 U.S.C. ยง 372(a). Shortly before that Judge Duff had issued a September 24, 1996 opinion that dealt with an initial Navistar motion to dismiss, and that dismissed with prejudice Banco's claims for (1) breach of the presentment warranty under Section 5-111 of the Uniform Commercial Code ("UCC") (810 ILCS 5/5-111), *fn4" (2) negligent ...

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