The opinion of the court was delivered by: WERKER
This diversity action was commenced by plaintiff International Leather Distributors, Inc. ("International Leather") against the defendant Chase Manhattan Bank, N. A. ("Chase") and arises from an allegedly improper payment on a letter of credit. This suit having been tried on the merits before the Court on November 1, 1978, and all the evidence having been duly considered, judgment is rendered for the defendant. Pursuant to Fed.R.Civ.P. 52(a), my findings of fact and conclusions of law are as follows:
International Leather is a New Jersey corporation engaged in the business of importing, processing and selling leather, while Chase is a national banking association with its principal place of business in New York. Pretrial Order, Agreed Findings PP 1, 3.
In 1972, International Leather entered into a business arrangement with two Argentine companies, Meiners International, S. A. ("Meiners") and Provisa, S. A. ("Provisa"), pursuant to which Meiners was to procure and tan leather hides and Provisa was to export them to International Leather in the United States. Tr. at 15-16; Pretrial Order, Agreed Findings P 6.
In June 1972, International Leather opened a checking account with Chase at its main branch in New York City. Provisa utilized the Banco Argentina de Comercio ("BAC") in Buenos Aires as its bank. Pretrial Order, Agreed Findings PP 5, 7.
In November 1972, in order to provide Provisa and/or Meiners with financing to continue their operations, International Leather obtained a line of credit from U.S. Industries, Inc. ("U.S. Industries"), one of its major customers in the United States. This line of credit took the form of two letters of credit issued by Bankers Trust Company, U.S. Industries' bank, to the benefit of Chase. One of the letters of credit was in the amount of $ 1,000,000 and expired May 15, 1973 and the other letter of credit was in the amount of $ 500,000 and expired November 15, 1973. International Leather used part of this line of credit to borrow $ 800,000 cash from Chase in separate transactions of $ 500,000 and $ 300,000, which amounts were advanced to Provisa with Chase's knowledge. The remainder of the line of credit was used on November 20, 1972 to open a $ 700,000 letter of credit to the benefit of BAC. This letter of credit (the "BAC credit") was intended to induce BAC to extend credit to Provisa and/or Meiners and expired on May 1, 1973. Tr. at 22-23; Pretrial Order, Agreed Findings PP 11-15, 18.
The BAC credit, as amended on November 27, 1972, contained the following documentary requirements:
YOUR DRAFTS AT sight for full invoice value ACCOMPANIED BY YOUR SIGNED STATEMENT THAT PROVISA SAICIFIA AND/OR MEINERS INTERNATIONAL SAICFIA HAS FAILED TO REPAY U.S. DOLLAR AND/OR ARGENTINE PESO AMOUNT DUE BANCO ARGENTINA DE COMERCIO BUENOS AIRES, ARGENTINA ON EXPIRATION DATE OF CREDIT FACILETY PHOTOCOPY OF CREDIT FACILITY DOCUMENTATION
Joint Trial Exhs. 3, 5.
The amendment was made by Chase with International Leather's approval. Pretrial Order, Agreed Findings P 22. Joseph Ruccio, the president of International Leather,
reviewed the BAC credit as well as the amendment thereto and understood what the documentary requirements were. Tr. at 23-25; See also Joint Trial Exhs. 5, 6.
In March 1973, Ruccio and a Mr. Evans, who was then associated with Meiners and who has since passed away, met at Chase's offices in New York with William Timmerman, the Chase lending officer handling the International Leather account.
At this meeting, Evans informed Timmerman that because of the problems and general situation in Argentina, BAC "was getting nervous about everything." Although Evans and Ruccio represented to Timmerman that these general problems did not concern Provisa, Evans raised the possibility of BAC drawing under the BAC credit. Neither Evans nor Ruccio cited any reasons specifically involving Provisa for this belief. Evans asked Chase to finance International Leather instead of drawing on the Bankers Trust letters of credit in the event BAC did draw on the BAC credit. Chase agreed to do so, and asked Ruccio to execute on behalf of International Leather an undated promissory note in the amount of $ 700,000 which would be used in the event of a BAC drawing. Ruccio agreed to and did sign the promissory note, which was received in evidence as Joint Trial Exh. 8. Tr. 60-62, 68-69.
On April 26, 1973, BAC sent a telex to Chase which by its terms was to be considered dated February 26, 1973. The telex was received by Chase on April 27, 1973 and stated that it was to be considered a draft for $ 700,000 under the BAC credit. The telex also stated that it was BAC's signed statement that Provisa had failed to repay amounts due BAC on the expiration date of credit facilities that included peso loans equal to $ 750,000. In addition, the telex alleged that Provisa had failed to properly liquidate export operations in excess of $ 2,200,000 and that BAC consequently was entitled to draw the full amount of the BAC credit. The telex concluded by stating that confirmation of the telex, photocopies of all documentation supporting the credit facilities granted and cancelled, and a properly signed draft were being airmailed. Pretrial Order, Agreed Findings PP 23, 24; Joint Trial Exh. 7.
On April 27, 1973, after Chase received the BAC telex, Timmerman telephoned Ruccio and read him the entire text of the telex.
Pretrial Order, Agreed Findings P 25; Tr. at 62-63. Ruccio knew at that time that the required documents had not yet been received by Chase. Tr. at 4, 63. See Joint Trial Exh. 7. Ruccio then authorized Chase to pay BAC under the BAC credit and to make the loan to International Leather to cover that payment as they had previously agreed. Tr. at 4, 63. On April 27, 1973, or shortly thereafter, the $ 700,000 demand note that Ruccio had executed at the March 1973 meeting and that had been left undated was apparently dated April 27, 1973.
In addition, Ruccio also executed a $ 300,000 demand note to cover the $ 300,000 note due May 1, 1973 that had been executed when International Leather borrowed the $ 800,000 cash from Chase to lend to Provisa. Tr. at 7-8, 61-62; See Pretrial Order, Agreed Findings P 28. At approximately the same time, Ruccio received a copy of the April 26, 1973 telex, which he placed into his files. He did not consult Argentine counsel with respect to Provisa's indebtedness to BAC. Tr. at 32-33.
On April 30, 1978, Chase sent to International Leather a confirmation of its payment to BAC under the BAC credit. The confirmation, which Ruccio received and read, contained the typed-in notation: "CABLE PAYMENT(.) UPON RECEIPT OF THE RELATIVE DOCUMENTS WE SHALL BE PLEASED TO REVERT TO THIS TRANSACTION." Joint Trial Exh. 9. Ruccio thus knew ...