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FRENCH AMERICAN BANKING CORP. v. FLOTA MERCANTE GR

April 29, 1985

FRENCH AMERICAN BANKING CORPORATION, Plaintiff, against FLOTA MERCANTE GRANCOLOMBIANA, S.A., and FIREMAN'S FUND INSURANCE COMPANY, Defendants


The opinion of the court was delivered by: DUFFY

MEMORANDUM & ORDER

KEVIN THOMAS DUFFY, D.J.:

Plaintiff, French American Banking Corporation ("FABC"), commenced this action to recover approximately $4 million plus interest due and payable to it for bills of lading for shipments of coffee issued by defendant Flota Mercante Grancolombiana, S.A. ("Flota"). Flota pledged these bills of lading to FABC in connection with amounts FABC loaned to Colombian Coffee Company ("Colombian"). When Colombian defaulted on the loans, FABC made a demand on Flota for the coffee covered by the bills of lading or the value thereof. Flota denied the genuiness of the bills of lading. FABC alleges that Flota is liable for the bills of lading which were issued by or on behalf of Flota. Alternatively, FABC alleges that because the bills of lading were either forged or counterfeit, defendant Fireman's Fund Insurance Company ("Fireman's") is liable on its Banker's Blanket Bond issued to FABC. Fireman's now moves pursuant to Fed. R. Civ. P. 56(b) for summary judgment dismissing the Amended Complaint as against it. Alternatively, Fireman's moves to dismiss plaintiff's "Eighth Claim, Against Fireman's" in which plaintiff asserts that Fireman's breached its obligation of good faith in connection with the insurance contract. FABC opposes the motion filed by Fireman's.

 FABC moved pursuant to Fed. R. Civ. P. 15(a) for leave to file a Second Amended Complaint to assert a claim based on an advance of new value to Colombian on November 18, 1982 on the faith of seven bills of lading which are also claimed by Flota to be fictitious. By Stipulation and Order filed November 27, 1984, the plaintiff was granted leave to file a Second Amended Complaint in the form set forth in plaintiff's motion to amend. Accordingly, plaintiff's motion to amend is denied as moot.

 FACTS

 In January of 1981, FABC began to provide financing to Colombian; Colombian was granted an $8 million line of credit to finance the importation of coffee from Colombia. Most of the coffee imported by Colombian was purchased by it from Luis A. Duque Pena E. Hijos, Ltda. ("Duque Ltda.") which is controlled by Luis Duque. Luis Duque's two sons, Victor and Alberto Duque, were principals of Colombian. For the most part, the coffee was transported by truck to Colombian ports where it was loaded on ships, including ships owned by Flota. The bills of lading, which were issued by Flota once the coffee was on board, would be forwarded by Duque Ltda. to Colombian Coffee in New York, which used them to obtain financing from banks such as plaintiff.

 The terms of the financing arrangement between FABC and Colombian were set forth in a letter dated January 19, 1981, a General Loan and Security Agreement, an Acceptance Agreement, a Continuing Letter of Credit Agreement, a Uniform Commercial Code ("UCC") Financing Statement, and a guaranty executed by Duque Ltda. Through these documents, financing was made available for the inland portion of the shipment as well as the transportation of the coffee from Colombian ports to the United States.

 FABC agreed to finance under letters of credit the inland transportation of coffee. Under the financing arrangement pertaining to inland transportation, FABC would issue a letter of credit for the account of Colombian in favor of Duque Ltda. which would be payable against the inland (truck) bill of lading issued at the Duque Ltda. mill. Duque Ltda. would then present to a bank in Colombia the bill of lading and an invoice. Upon notification of presentment to the Colombian bank, FABC would authorize the Colombian bank to make payment to Duque Ltda. FABC would then charge the account of Colombian for the amount. The inland bills of lading financing was for 85 percent of the coffee value; it was limited to an aggregate credit line of $4 million and made payable within 60 days which ordinarily was the maximum time that it took to ship the coffee from the mill to the port.

 FABC also provided financing with respect to the oceangoing portion of the shipment for 100 percent of the coffee value. The financing was advanced against ocean bills of lading issued by a steamship company, such as Flota, in a Colombian port. A representative of Colombian would deliver duly endorsed bills of lading to FABC which would then return them to Colombian in exchange for trust receipts which obligated Colombian to pay to FABC any proceeds it received upon the sale of the coffee. Furthermore, by a security agreement perfected by filing, Colombian granted FABC a general security interest in its accounts and inventory.

 In or about July of 1982, Banco Nacional, a Colombian bank, collapsed causing liquidity problems for the Duque interests in Colombia. Thereafter, certain coffee proceeds that Colombian had been obligated to remit to FABC under trust receipts were diverted to Colombia. See Affidavit of Rodrigo Munoz, FABC's officer in charge of the Colombian account at 7. Specifically, $987,000 of the $5 million diversion had been amounts owed FABC on the trust receipts. Id. At one point in July, approximately $9.3 million in financing to Colombian was outstanding. *fn1"

 By mid-November 1982, Colombian had reduced its indebtedness from $9.3 million to $4.4 million. Of the $4.9 million reduction, Colombian made a $2 million cash payment to FABC and supplied current bills of lading for $1.8 million for shipments to Germany and Japan to secure the existing indebtedness owed against overdue trust receipts. *fn2" In November, FABC agreed to finance a single pre-sold coffee shipment to the United States for $2 million against receipt of seven bills of lading; these are among the bills of lading which Flota claims are fictitious. *fn3" The bills of lading had been surrendered by FABC for trust receipts. FABC asserts that the decision to provide financing in November of 1982 was based on Colombian's progress in reducing its indebtedness and Colombian's plan to negotiate with another bank, Banque Worms, for a $5-10 million line of credit. By late December, the loans that were outstanding had been reduced to approximately $3.9 million. These loans were secured by $1.8 million in current bills of lading and approximately $2.2 million in current trust receipts.

 On December 22, 1982, FABC agreed to finance, against bills of lading, another specific shipment of coffee to the United States in the amount of $1.3 million. The financing was conditioned on Colombian's first supplying ocean bills of lading to cover coffee of a value of $537,000 which had been financed earlier but was covered only by inland bills of lading and on Colombian's paying $880,000 which was due on existing trust receipts. On December 30, 1982, Colombian paid the $880,000 and delivered the two ocean bills of lading to cover most of the unaccounted-for coffee. However, because the bills of lading covering the shipment for which FABC was going to extend $1.3 million were for a shipment to Japan rather than the United States, as was originally agreed, FABC refused to finance one set of the Japanese destined bills of lading which lacked "on board" stamps.

 In anticipation of the expected $1.3 million advance from FABC, Colombian had already drawn on and delivered to another bank, Societe Generale, a check for $653,000 on December 30, 1982. Although FABC rejected the bills of lading which lacked the appropriate stamps, on January 3, 1983, it advanced Colombian $650,000 to cover the check to Societe Generale. On December 31, 1982, Colombian delivered to FABC three bills of lading with a stated value of $824,000 as a pledge of security for the $650,000 which was advanced on January 3, 1983. The three bills of lading proved to be fictitious.

 On January 13, 1983, officials from FABC and Colombian met. Colombian informed plaintiff that on January 14, 1983, it would be paying the $1.8 million secured by bills of lading which had been pledged to FABC in November. (On January 14, 1983, such a payment was made). Colombian also indicated that the $2 million advanced in mid-November would be paid on January 17, 1983. Colombian, however, requested new financing that would enable it to continue its business to facilitate the January 17 repayment. Accordingly, plaintiff agreed tentatively to extend to Colombian $3 million against receipt of new bills of lading which would then be exchanged for trust receipts. Ultimately, however, the ten bills of lading covering coffee with a value of $3,193,000 were never exchanged for trust receipts. The ten bills of lading covered shipments to Europe and Japan but Colombian agreed to replace them with bills of lading covering shipments to the United States within fifteen days. The ten bills of lading pledged by Colombian on January 17, 1983 turned out to be fictitious.

 On January 17, Colombian delivered to FABC a $2 million check drawn by General Coffee and made payable to Colombian to be applied to the mid-November $2 million loan. However, as there were insufficient funds in General Coffee's account, FABC, on January 18, 1983, applied $2 million of the $3 million it had agreed to extend to pay off the November loan. Following the ...


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