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CINERAMA, INC. v. SWEET MUSIC

September 18, 1972

CINERAMA, INC., a New York corporation, Plaintiff,
v.
SWEET MUSIC, S.A., a Swiss corporation, and Union Bank of Switzerland, a Swiss corporation, Defendants


Tenney, District Judge.


The opinion of the court was delivered by: TENNEY

MEMORANDUM

Defendant Union Bank of Switzerland (hereinafter the "Bank") moves this Court for summary judgment pursuant to Fed.R.Civ.P. 56: (1) granting its counterclaim against plaintiff Cinerama, Inc. (hereinafter "Cinerama") to the extent of $1,825,000 plus interest and costs, and (2) dismissing Cinerama's complaint insofar as it seeks a declaratory judgment that Cinerama is not liable to the Bank upon its written guarantee of payment of obligations owed to the Bank by Sweet Music, S.A. (hereinafter "Sweet Music"). Jurisdiction is founded upon 28 U.S.C. §§ 1332, 2201 (1970). For the reasons cited infra, defendant's motion is partially granted.

 By way of background, in August 1969 Cinerama, a publicly owned New York corporation, and Sweet Music, one of a group of Swiss corporations owned and controlled by Harry Saltzman, a motion picture producer, commenced negotiations for the production by Sweet Music and distribution by Cinerama of a motion picture to be entitled "Toomorrow". Sweet Music already had embarked upon production of the film, but needed additional funds to complete it. The parties contemplated that Cinerama would guarantee a loan from the Bank to Sweet Music to finance the production of "Toomorrow", and that Cinerama in return would receive distribution rights in certain geographic territories. Negotiations between Cinerama and Sweet Music were handled principally by Benjamin Rockmore, general counsel for Cinerama, and Irving Moskovitz and Peter Schiller, New York counsel for Sweet Music and Harry Saltzman. Moskovitz and Schiller also handled the negotiations between Sweet Music and the Bank. The negotiations between Cinerama and Sweet Music resulted in a written contract dated September 11, 1969 (hereinafter the "Agreement"), signed by Cinerama and delivered to Schiller on October 7, 1969, together with a written guarantee of that date in letter form signed by George F. Wiemann, Cinerama's Vice President-Finance and addressed to the Bank (hereinafter the "Guarantee"). On that same day, Schiller forwarded these and other documents to Sweet Music. On October 15, 1969, the Bank approved the loan and, between October 16, 1969, and January 28, 1970, Sweet Music withdrew the full amount of the loan -- 9,000,000 Swiss Francs. (Berdoz Affid. para. 4, Exh. B.) Thereafter relations between Cinerama and Sweet Music deteriorated because Sweet Music allegedly failed to live up to its obligations under the Agreement. By letter dated November 5, 1971 (Berdoz Affid., Exh. C), the Bank demanded repayment of the loan from Sweet Music, and since Sweet Music is now in default, the Bank seeks to enforce Cinerama's October 7, 1969, Guarantee.

 In an effort to avoid liability, Cinerama argues first that Sweet Music had no authority to deliver the Guarantee to the Bank as anything but a "proposed" Guarantee. This contention is without merit. Nowhere on its face is there any indication that the document was to be regarded as a "proposed" Guarantee. Moreover, the facts set forth in Schiller's affidavit in support of the Bank's motion for summary judgment, which are uncontroverted by the opposing affidavits, show beyond doubt that Sweet Music was authorized to deliver the Guarantee to the Bank as a fully operative instrument.

 As is evidently customary in the motion picture business, paragraph J-1 of the Agreement required that Sweet Music provide Cinerama with a completion bond from a third party in order to assure Cinerama that should the production costs of the film exceed the amount of the anticipated loan from the Bank plus money already invested from other sources, an additional sum would be made available by the third party to complete the film and deliver it to Cinerama. Accordingly, Sweet Music arranged for Crown Agents in London (hereinafter "Crown") to provide a completion bond in favor of Cinerama. Crown sent the bond to Schiller prior to October 7, 1969, for delivery to Cinerama on the condition that Schiller effect delivery only after Crown received assurance that $250,000 or one million Swiss Francs would be made available to them in the event they had to advance money under the bond. The Bank was prepared to provide Crown with the necessary deposit or assurance, but only on condition that it first received Cinerama's Guarantee for the loan to Sweet Music. In view of this situation, on October 3, 1969, Schiller and Rockmore agreed that Cinerama would execute the Guarantee so that it could be delivered to the Bank. In order to protect Cinerama from the risk that Crown would not receive the deposit or assurance it sought from the Bank, thereby preventing Schiller from delivering the bond to Cinerama, Rockmore extracted additional personal promises from both Saltzman and Moskovitz that the completion bond be delivered promptly and that the other documents involved in the transaction be duly signed and delivered. If all was not accomplished by October 31, 1969, Cinerama's Guarantee was to be returned. This agreement was reduced to a letter drafted by Schiller and dated October 3, 1969 (Schiller Affid., Exh. A), and delivered by him to Cinerama on October 7, along with the written promises of Saltzman and Moskovitz. (Schiller Affid., Exhs. B, C.) In return, Schiller received from Cinerama the signed Guarantee and Agreement which he immediately forwarded to Sweet Music in Switzerland. On the same day, Schiller sent a telex to Sweet Music advising them that the documents were on the way, and outlining Sweet Music's obligations under the October 3 letter agreement. (Schiller Affid., Exh. E.) Thereafter, on October 10, 1969, the Bank issued its guarantee to Crown for one million Swiss Francs for the completion bond. (Schiller Affid., Exh. G.) On October 14, 1969, the signed documents referred to in the October 3 letter agreement were delivered to Cinerama (Schiller Affid., Exh. F), and on October 20, 1969, Crown's completion bond was delivered. (Schiller Affid., Exh. I.)

 Therefore, the terms under which Cinerama agreed its Guarantee was to be delivered to the Bank were completely satisfied by Sweet Music, so that no basis in fact exists for Cinerama's contention that Sweet Music was not authorized to effect delivery. Moreover, even if the terms of the October 3 letter agreement were not satisfied, by placing the completed Guarantee in the hands of Sweet Music, Cinerama clothed Sweet Music with apparent authority to deliver it to the Bank. Belloni v. Freeborn, 63 N.Y. 383, 389 (1875); Russell v. Freer, 56 N.Y. 67, 71 (1874); 10 Williston on Contracts, § 1244, at 783-84 (3d ed. 1967).

 Second, Cinerama contends the loan to Sweet Music was made in reliance upon Saltzman's line of credit with the Bank, and not in reliance upon the Cinerama Guarantee, postulating that the Guarantee was not delivered to the Bank until after the loan already had been made. Cinerama sets forth no facts, however, to support this conclusion, and facts, not hypotheses, must be averred to raise the issue. See Turner v. Lundquist, 377 F.2d 44, 48 (9th Cir. 1967); Mertens v. Agway, Inc., 278 F. Supp. 95, 99 (S.D.N.Y.1967). In paragraph 3 of his affidavit Philippe de Weck, the Bank's General Manager responsible for approving the extension of credit to Sweet Music, states that the Guarantee "had been delivered to Union Bank and was in the Bank's possession, when the loan to Sweet Music was approved on October 14, 1969." Although de Weck does not explicitly state the exact time and manner in which the Guarantee was obtained by the Bank, such a determination is not crucial to the issue of reliance. It is undisputed that Cinerama fully intended to guarantee the loan and for that reason gave Sweet Music the Guarantee on October 7, 1969, for transmission to the Bank. The Bank's "Protocol" dated October 13, 1969, (in which are described the terms of the proposed loan to Sweet Music, the security offered, and the bases for the Branch Office's recommendation that the loan be made) states: "The Cinerama Inc. of New York . . . has already declared itself willing to guarantee the credit in question," and goes on to outline the results of a credit check on Cinerama, and finally concludes with a recommendation that the loan be made "[in] view of . . . [ inter alia ] -- the financial position of the guarantor." (de Weck Affid., Exh. A.) Moreover, the loan agreement between Sweet Music and the Bank, a copy of which was sent to Rockmore by Schiller on October 28, 1969, states that the Bank was placing at Sweet Music's disposal a credit of 9,000,000 Francs "in consideration of the guarantee in the same amount of Cinerama, Inc., New York." (Rockmore Affid., Exhs. 10, 11.) Therefore, whether or not the Bank actually had the Guarantee in hand on October 15 when the loan was approved, or whether the Bank received it a few days later, the Protocol and loan agreement clearly show that the Bank was induced to advance credit to Sweet Music in reliance upon Cinerama's promise to add its Guarantee as surety. See McNaught v. McClaughry, 42 N.Y. 22, 24 (1870); Chester Airport, Inc. v. Aeroflex Corp., 37 Misc. 2d 145, 237 N.Y.S.2d 752 (Sup.Ct.1962), modified, 18 A.D.2d 998, 238 N.Y.S.2d 715 (1963).

 Third, Cinerama contends that the Bank never accepted its Guarantee: (1) because the terms of the Bank loan to Sweet Music were different from the terms of the loan guaranteed by Cinerama; and (2) because the Bank tried to get Cinerama to sign its own form of guarantee. Alternatively, Cinerama argues that the terms of the loan were different from the loan Cinerama contemplated guaranteeing, so that Cinerama has been discharged from its obligation of repayment.

 At this point it is necessary to examine the Guarantee, which is set forth below, keeping in mind that it was drafted by Cinerama (in fact, by its general counsel, Rockmore), and is therefore to be construed strictly against it.

 
[Cinerama Letterhead]
 
October 7, 1969
 
Union Bank of Switzerland
 
Zurich, Switzerland
 
Re: ...

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