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CORPORACTION VENEZOLANA DE FOMENTO v. VINTERO SALE

April 14, 1978

CORPORACION VENEZOLANA DE FOMENTO, Plaintiff,
v.
VINTERO SALES CORPORATION, VINTERO CORPORATION, THE MERBAN CORP., SECURITY PACIFIC INTERNATIONAL BANK, VINCENT A. DE LYRA, ROBERT J. REDMOND and JAMES E. HIMOFF, Defendants, and CANADIAN IMPERIAL BANK OF COMMERCE, THE ROYAL BANK OF CANADA INTERNATIONAL LIMITED, BANQUE CANADIENNE NATIONALE, BANQUE PROVINCIAL, LaSALLE NATIONAL BANK and AMERICAN SECURITY AND TRUST COMPANY, Intervening Defendants, v. VENEZOLANA DE CRUCEROS DEL CARIBE, C.A., Additional Defendant on the Counterclaim by Intervening Defendants, and MERBAN INTERNATIONAL, INCORPORATED, Additional Defendant on the Second Cross-Claim by Intervening Defendants



The opinion of the court was delivered by: CONNER

MEMORANDUM AND ORDER

 CONNER, D.J.:

 Plaintiff in this diversity action seeks a declaratory judgment that its guarantees of two multi-million dollar loans are null and void and rescission of the guarantees and of the underlying loan agreements. The party which financed the loans and several Canadian and American banks which purchased interests in the promissory notes issued in connection therewith assert that the loans are in default and have counterclaimed for the award of principal and interest said to be owing from the guarantor. *fn1" Presently before the Court are the motions of defendants Merban, Redmond and Himoff and those of the intervening defendants for summary judgment dismissing the complaint and holding plaintiff liable on the notes.

 The loan agreements in issue in this case -- one executed on April 30, 1975 (the "April Agreement") and the other on October 15, 1975 (the "October Agreement") -- have a distinctly international flavor. The parties thereto are defendant The Merban Corporation ("Merban")(the lender), a Swiss corporation with its principal place of business in New York; Venezolana de Cruceros del Caribe, C.A. ("Cariven") (the borrower), a Venezuelan corporation with its principal place of business in Caracas, Venezuela; and plaintiff Corporacion Venezolana de Fomento ("CVF")(the guarantor), a Venezuelan corporation wholly owned by the government of Venezuela and organized to help obtain financing for new industry. The purpose of the loans was to finance Cariven's purchases of two vessels, the S. S. Santa Rosa and the S. S. Santa Paula, from a New York corporation with its principal place of business in New York, defendant Vintero Sales Corporation ("Vintero")(the seller).

 The April and October loan agreements were drafted nearly identically. Both provided, in substance, (1) that Merban open for the account of Cariven an irrevocable letter of credit in favor of Vintero for $ 5,525,000; (2) that Cariven deliver to Merban eight interest-bearing promissory notes, in principal amounts totalling $ 5,813,950; and (3) that CVF guarantee the obligations assumed by Cariven under the Agreement, with a specific guarantee of the Notes. The first of the April series of notes was to be due November 1, 1976, and the first of the October series, April 15, 1977, with the remaining notes to mature at six-month intervals thereafter, until April 30, 1980, under the April Agreement, and October 15, 1980, under the October Agreement. The Agreements provided that the loans would earn interest at a specified rate to be paid upon the expiration of each period of six months from the dates of execution of the Agreements. In each Agreement, the provision for the CVF guarantee read as follows:

 
"The 'Corporacion Venezolana de Fomento' of the Republic of Venezuela, an autonomous official institute, domiciled in Caracas, represented by [its 'Chairman' in the April Agreement, and by its 'Acting President' in the October Agreement] . . . authorized for this instrument by the Board of Directors of the Corporacion at its meetings of March 13, 1973, January 23, 1974 and March 8, 1974 and also by the Council of Ministers at its meeting of March 7, 1974, in accordance with Official Communication from the Ministry of the Treasury No. HCP-200-0215 of March 8, 1974, constitutes itself as guarantor and principal debtor to guarantee the obligations assumed by 'VENEZOLANA DE CRUCEROS DEL CARIBE, C.A.' towards 'THE MERBAN CORPORATION' by virtue of the present contract and specifically agrees to endorse the notes which are to be issued in accordance with the provisions of Article 1.6."

 On the date of execution of each Agreement, Cariven delivered to Merban eight promissory notes evidencing the indebtedness, each in the amount of $726,743.75. The notes recite that they bear "interests computed from the date of issue, payable every six (6) months until maturity of same." Each note is guaranteed on the face thereof by CVF as follows:

 
"CORPORACION VENEZOLANA DE FOMENTO of the Republic of Venezuela, herein represented by [its 'President' in the April guarantees and by its 'Acting President' in the October guarantees], duly authorized by its Directory in its meetings held on March 13, 1973 and January 23 and March 8, 1974, and by the Cabinet of the Republic of Venezuela, in its meeting held on March 7, 1974, hereby jointly and severally guarantees, with waiver of any defense, offset, or counterclaim, the payment of this Promissory Note on its due date."

 Following Merban's receipt of each series of notes, and pursuant to CVF's request, Merban paid CVF the sum of $87,209.25 as CVF's commission for its guarantee of the Cariven financing.

 Thereafter, in accordance with the terms of each Agreement, Merban opened irrevocable letters of credit for the account of Cariven with Security Pacific International Bank ("Security Pacific") in favor of Vintero in the amount of $ 5,525,000. Vintero subsequently drew $ 4,143,750 under each letter of credit.

 Merban later endorsed each series of Notes in blank and delivered them to Security Pacific as collateral for the credit extended by Security Pacific to Merban. The April Notes were then transferred by Security Pacific to Chemical Bank ("Chemical") to be held by Chemical for the benefit of Security Pacific, Merban and any other persons to whom Merban's affiliate, Merban International, might thereafter sell participating interests in the Notes; the October Notes were held by Security Pacific (rather than Chemical) for the same purpose.

 Following the delivery of the April Notes to Chemical, Merban International sold to four Canadian banks -- intervening defendants Canadian Imperial Bank of Commerce, The Royal Bank of Canada International Limited, Banque Canadienne Nationale, and Banque Provinciale ("intervenors") -- participations in the Notes in the aggregate principal amount of $ 5,318,950. *fn2" Chemical issued to each Canadian bank participant a certificate of participation transferring ownership in the Notes to the extent of the interest purchased. Similarly, subsequent to the delivery of the October Notes to Security Pacific, Merban International sold to intervenors LaSalle National Bank ("LaSalle") and American Security and Trust Company ("American Security") participations in the October Notes in the aggregate principal amount of $ 2,000,000. Each of these banks also received a certificate of participation (issued by Security Pacific) transferring ownership in the Notes to the extent of the interest purchased.

 Merban retains for its own account an interest in the April Notes to the extent of $ 500,000 in principal amount, and in the October Notes to the extent of $ 3,813,950 in principal amount.

 On April 15, 1976 and April 30, 1976, respectively, Cariven failed to pay the installments of interest which were then due on the October and April Notes. No payments of principal or interest have been made since October 30, 1975. Each of the Notes provides:

 
"Failure to pay any interests hereunder, within thirty (30) days after due, shall cause the whole note to become due and collectible at once."

 Defendant Merban and intervening defendants assert that the Notes are now due and collectible from CVF with interest.

 As the basis for being relieved of its obligations under the guarantees, plaintiff contends that numerous conditions precedent to their effectiveness were not satisfied and that the guarantees and the loan agreements underlying them were procured by fraud in which Merban, through various of its employees and agents, was a participant. Although the loan "participants" (intervenors) are not alleged to have been a party to any fraudulent or conspiratorial conduct, their own attempt to enforce the guarantees "notwithstanding any right of plaintiff to rescind [them] as against Merban" is resisted on the ground that they did not take the notes in good faith and without notice of defenses against them and are therefore not holders in due course under principles of negotiable instruments. *fn3"

 April and October Loan Agreements and Guarantees

 Conditions Precedent

 Plaintiff contends that there were six conditions precedent to the effectiveness of its guarantees. These were: (1) that the two ships to be purchased by Cariven have a capacity of 800 passengers each; (2) that a "ship mortgage" ("prenda naval") on each ship in favor of plaintiff be acquired with the funds obtained from the guarantees; (3) that the shareholders of Cariven increase the company's capital of the enterprise to the amount of the guarantee; (4) that the enterprise have available in cash not less than Bs. 2,000,000 (Venezuelan currency) for working capital; (5) that approvals for ...


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