UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF NEW YORK
January 11, 1979
DELBRUECK & CO., Plaintiff,
MANUFACTURERS HANOVER TRUST COMPANY, Defendant
The opinion of the court was delivered by: BRODERICK
This action arises out of the transfer of funds of plaintiff Delbrueck & Co. ("Delbrueck") by defendant Manufacturers Hanover Trust Company ("Manufacturers") to The Chase Manhattan Bank, N.A. ("Chase") for the account of Bankhaus I.D. Herstatt, K.G.a.A. ("Herstatt") on June 26, 1974.
Shortly before the funds left Manufacturers, Herstatt was formally ordered closed by the German banking authorities. This action concerns that closing, its impact with respect to contractual obligations between Delbrueck and Herstatt, and the actions taken by plaintiff, defendant, and Chase in the wake of the closing.
Delbrueck charges Manufacturers with negligence a) in transferring the funds when it knew or should have known of the action that had been taken with respect to Herstatt; and b) in failing to reclaim the funds from Chase. Delbrueck seeks damages in the amount of $ 5 million.
Delbrueck is a private German banking partnership with a principal office in Cologne. Manufacturers is a New York banking corporation with a principal office in New York City. Jurisdiction exists under 28 U.S.C. § 1332(a)(2).
A bench trial was held before me. This opinion constitutes my findings of fact and conclusions of law pursuant to Rule 52(a), Fed.R.Civ.P.
For many years prior to June 26, 1974, Delbrueck was a customer of Manufacturers and maintained an account with Manufacturers in New York City. Manufacturers was a paying and receiving bank for Delbrueck in the United States and, as such, was responsible for receipt and transfer of United States dollars upon instructions from Delbrueck.
On June 14, 1976, Delbrueck entered into two foreign exchange contracts with Herstatt. The two contracts provided for delivery by Delbrueck, on June 26, 1974, of $ 10 million and.$ 2.5 million, respectively, in exchange for an agreed upon amount of German marks to be delivered by Herstatt to Delbrueck. The dollars were to be paid by Manufacturers to the Herstatt account at Chase in New York, and the German marks in exchange were to be paid in Hamburg into Delbrueck's account at the German state central bank.
On June 25, 1974 at 6:10 p.m.
Delbrueck sent to Manufacturers a telex payment order directing the transfer on June 26, 1974 of the $ 12.5 million to the Herstatt account at Chase.
A separate foreign exchange contract required payment of $ 10 million by Delbrueck to Herstatt on June 27, 1974. Early on June 26, 1974 Delbrueck sent to Manufacturers a telex payment order directing the transfer on June 27, 1974 of the $ 10 million to the Herstatt account at Chase.
Events of June 26, 1974 significant to this action are outlined in the following table:
On July 10, 1974, I. e., two weeks later, Manufacturers delivered to Chase a letter requesting the return of the $ 12.5 million. Chase did not return the funds.
The New York Clearing House Association ("Clearing House") maintains computer facilities and implements techniques for the transfer of funds among its member banks. In June, 1974 the Clearing House was using the Clearing House Interbank Payments System ("CHIPS"), a computerized interbank system for the transfer of funds involving international customers of Clearing House member banks. Manufacturers and Chase were member banks of the Clearing House and participants in CHIPS.
The CHIPS system eliminates checks for interbank transfers. Under it, funds are transferred electronically through a central computer located at the Clearing House with connecting terminals located at the member and associate member banks.
Choice of Law
Since this is a diversity case, this court must apply New York law, including its conflicts of law rules, in determining the law to be applied. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941). See Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938).
The choice of law principles of New York have been developed for torts actions in a line of cases following Babcock v. Jackson, 12 N.Y.2d 473, 240 N.Y.S.2d 743, 191 N.E.2d 279 (1963). Choice of law is determined by a government interest analysis, I. e., which forum has the most significant relationship with the facts and parties; which forum has a greater interest in having its policies, as reflected in the relevant law, applied?
Of the players in this drama, both defendant Manufacturers and Chase are banks which have their principal places of business in New York. Although plaintiff Delbrueck and Herstatt are private German banks, they transacted business in this forum through Manufacturers and Chase, respectively. The acts and omissions by Manufacturers which Delbrueck alleges constituted negligence occurred in New York.
The relevant and significant computer system, CHIPS, operated in New York. New York has a greater interest in the resolution of this case than does Germany.
Manufacturers' Transfer of Funds
I find that Manufacturers is not liable for negligence in transferring the $ 12.5 million from the account of Delbrueck to Chase for the account of Herstatt.
Delbrueck's claim that Manufacturers should have shut down Manufacturer's entire CHIPS system when Manufacturers learned of the Herstatt bank failure shortly after 11:30 a.m. is untenable. Through its CHIPS system, Manufacturers serviced many customers, and it could not reasonably have been expected to place in jeopardy the contracts of its customers by a shutdown of its CHIPS transfers.
I find that Manufacturers was not negligent in transferring the $ 12.5 million on June 26, 1974. I dismiss out of hand the suggestion that negligence can be predicated on Manufacturers' failure to learn of Herstatt's closing prior to 11:30 a.m. Someone at Manufacturers learned of the Herstatt failure approximately six minutes before the transfer was made; it is not reasonable to conclude that Manufacturers was negligent because notice of the Herstatt failure did not reach the Payment and Receiving Department within that six-minute time span. I also note that, at 11:30 a.m. on June 26, Delbrueck directed Manufacturers, by telex, not to pay the $ 10 million due June 27, but made no mention of the payments due June 26 which are at issue. Manufacturers reasonably could have assumed that Delbrueck, for reasons known only to Delbrueck, wished to go ahead with the June 26 transfer. (Herstatt had already performed its obligations under the June 14 contract for exchange on June 26. (See note 2)).
In any event, even if Manufacturers had been negligent in making the CHIPS transfers, liability could not be predicated upon that negligence because of Delbrueck's contributory negligence during the morning hours of June 26, 1974.
Delbrueck's cause of action in this case arose prior to September 1, 1975. I must therefore apply the rule of contributory negligence. N.Y.C.P.L.R. § 1413 (McKinney 1976).
"Contributory negligence is conduct on the part of the plaintiff, contributing as a legal cause to the harm he suffered, which falls below the standard to which he is required to perform for his own protection. . . . (T) he plaintiff is denied recovery because his own conduct disentitles him. . . ." W. Prosser, The Law of Torts P 65 at 416-17 (4th ed. 1971).
Delbrueck learned of the Herstatt bank failure at 10:45 a.m., yet Delbrueck did not correspond with Manufacturers until 11:30 a.m. Moreover, in its first contact with Manufacturers, at 11:30 a.m., Delbrueck instructed Manufacturers to cancel the transfer to Chase for Herstatt scheduled for June 27, 1974. It made no references to the transfer at issue here, scheduled for June 26. Delbrueck's failure to refer, explicitly or generally, to cancellation of these transfers constituted negligence.
Manufacturers' Efforts to Obtain a Refund
I find that Manufacturers is not liable for negligence in its efforts to obtain from Chase a refund of the $ 12.5 million transferred on June 26, 1974.
Plaintiff asserts that the failure of Manufacturers to invoke its rights under various rules of CHIPS and of the Committee on International Banking evidences defendant's negligence. Plaintiff has misapprehended these rules and there was no negligence on Manufacturers' part in not proceeding as Delbrueck now suggests.
Rule 8 of the CHIPS rules provides that, on the day following the release of CHIPS payments by an associate member bank, a Clearing House member may refuse to accept the debit position of the associate member on whose behalf it is making settlements. CHIPS rule 8 has no application in the instant case: both Manufacturers and Chase were Clearing House members, and no associate member was involved in the transactions of June 26, 1974.
Rule 9 of the CHIPS rules provides for situations in which the mechanisms of the CHIPS system generate an error. This rule applies only to those circumstances in which the system itself I. e., the computer or its software causes an error E.g., where the system fails to print out the credit message or the system accidentally deletes a message which was in fact released. This rule has no application to this case.
Administrative Procedure No. 2 of CHIPS provides:
The rules pertaining to the CHIPS System regarding errors are applicable only to System generated errors. All other types of errors are to be referred to the C.I.B. rules on adjustment of payments in error.
The Committee on International Banking ("C.I.B.") rule on the Adjustment of Payments Made in Error provides for the retransfer of funds to a sending bank where there has been an error, provided the bank seeking the refund furnishes the receiving bank with a written admission of error and a satisfactory letter of indemnity. The errors dealt with in the C.I.B. rules are errors of a clerical nature on the part of the sending bank (here, Manufacturers). These rules apply only to errors committed by the sending bank, such as the making of a payment (a) on the wrong date, (b) to the wrong receiving bank, (c) in the wrong amount, or (d) to the right receiving bank but for the wrong account. Thus, this C.I.B. provision would become applicable in this action only if there had been an error of a clerical nature on the part of Manufacturers in connection with the making of these payments. Manufacturers made no such error; it executed the payment orders as directed by Delbrueck.
Delbrueck argues that if Manufacturers had delivered to Chase a written revocation of the transfer before 9 p.m., when the funds formally were credited by Chase to the Herstatt account, Chase would have been obligated, under common law, to return the funds. Manufacturers argues that Chase would have refused a written revocation of the transfer and would not have returned the funds. However, the position taken by Delbrueck is, in effect, that, had there been a timely written revocation, Delbrueck could have successfully brought suit against Chase on the written revocation. Manufacturers contends that a CHIPS transfer is the legal equivalent of a cashier's check and that under Article 4 of the Uniform Commercial Code, revocation was impossible; therefore Delbrueck could not have prevailed in an action against Chase and, as a matter of law, lack of written demand cannot be deemed negligence.
I find that Manufacturers was not negligent. As an agent it kept its principal, Delbrueck, informed of the steps it was taking and followed directions from Delbrueck with respect to other steps to take.
However, even if Manufacturers had been negligent in failing to make written demand on Chase on June 26, liability could not be predicated upon that negligence because of Delbrueck's contributory negligence.
As discussed in Section V, Supra, Delbrueck was contributorily negligent if its conduct, which contributed as a legal cause to the harm it suffered, fell below the standard required of it for its own protection.
Delbrueck personnel knew, before Chase formally credited the $ 12.5 million to the account of Herstatt, that Chase was taking the position that it would not return any funds. Mr. Sig Binder of Manufacturers gave this information to Mr. Georg Georgius of Delbrueck via telephone. Mr. Georgius thanked Mr. Binder for the efforts made by Manufacturers and suggested that Manufacturers continue its endeavor. Mr. Georgius, who was advised by counsel who was "deeply involved in all of this,"
did not instruct or suggest to Manufacturers that Manufacturers deliver to Chase a written revocation of the transfer. Moreover, although Mr. Georgius himself spoke on behalf of Delbrueck to several Chase personnel about a refund, Delbrueck itself did not send to Chase a written revocation of the transfer.
I find that Delbrueck was contributorily negligent by its failure either to direct Manufacturers to deliver to Chase a written revocation of the transfer, or, as the principal on whose behalf the transfer was made, to send to Chase a written revocation, E.g., by telex.
The action is dismissed.