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July 15, 1985


The opinion of the court was delivered by: LASKER


Buckeye Cellulose Corporation ("Buckeye") moves for summary judgment to establish that its insurance contract with defendant Atlantic Mutual Insurance Company ("Atlantic") applies to a lost cargo claim based upon fraudulent conversion. Atlantic cross-moves for summary judgment to dismiss the complaint on the ground that the contract in question is ambiguous and should be construed against Buckeye. In the alternative, Atlantic argues that questions of fact preclude awarding Buckeye summary judgment. For the reasons set forth below, both motions are denied.


 The Transaction1

 Buckeye, a subsidiary of the Proctor & Gamble Company ("Proctor & Gamble"), entered into three contracts in late December 1978 and early January 1979 to sell to the Thomas P. Gonzalez Corporation ("TPGC"), 3,500 metric tons of cottonseed oil valued at over $2.5 million. TPGC in turn had contracted to sell the oil to an agency of the Egyptian Government. Financing for these transactions were to be accomplished through inter-connecting letters of credit.

 In accordance with the terms of the Buckeye-TPGC contracts, TPGC opened three irrevocable letters of credit at the Credit Lyonnais Bank in Los Angeles for the contract price of $2.5 million. The letters of credit provided that Credit Lyonnais would pay Buckeye by honoring sight drafts presented on Buckeye's behalf once Buckeye's bank, Central Trust of Cincinnati, presented to Credit Lyonnaise various documents verifying that the cargo of oil had been completely loaded in good order and condition on the vessel M/V GLOBE VENUS. That ship had been chartered by TPGC to load cottonseed oil at Bayport, Texas, Houston and New Orleans and to carry the cargo to Alexandria, Egypt. *fn2"

 The conditions of the letters of credit of particular importance to this case specified that Credit Lyonnais was to receive clean negotiable mates receipts on or before the amended expiration date for the letters of February 16, 1979. The mates receipts were the sole documents of title for the cargo and stated on their face that negotiable bills of lading for the oil would be issued to take the place of the receipts only if the receipts were surrendered by their holder.

 After these arrangements had been made, Buckeye contracted with its suppliers to transfer 3,500 tons of cottonseed oil to the tanks of the GLOBE VENUS. The oil was loaded in the three Gulf Coast ports between January 31 and February 2, 1979, and Buckeye received from its suppliers, in return for payment to them in early February, the documents specified in the Credit Lyonnais letters of credit, including the negotiable mates receipts.

 As set forth in Buckeye's Memorandum of Law in support of its motion, had the transaction between Buckeye and TPGC proceeded in a regular fashion, Buckeye would have gathered and presented the specified letters of credit documents to its bank, Central Trust, which in turn would have presented the documents together with sight drafts for $2.5 million to Credit Lyonnais. Credit Lyonnais would then have paid Buckeye the $2.5 million and would have delivered the mates receipts to TPGC, which would then have surrendered the receipts to the agent for the GLOBE VENUS, Universal Transport Corporation ("Universal"), in exchange for negotiable bills of lading. With the bills of lading in hand, TPGC would have settled up with the Egyptian government agency that had contracted to purchase the cottonseed oil for payment for the oil in exchange for the bills.

 In the final step of this hypothetical series of transactions, designed to maintain cargo ownership in the hands of the holder of the negotiable documents issued by the carrier, the Egyptian purchaser would have presented the bills of lading to the GLOBE VENUS in order to take delivery of the cargo. *fn3"

 In fact, to accomplish the penultimate step of obtaining bills of lading in exchange for payment, the Egyptian purchaser actually opened a letter of credit in favor of TPGC with the Wells Fargo Bank in Los Angeles which specified, inter alia, that TPGC had to present negotiable bills of lading as a condition of payment.

 The Cargo Loss

 The reader may by now have anticipated that all did not work out according to plan. On February 2, 1979 TPGC managed to obtain from Universal signed bills of lading for the cargo of cottonseed oil without surrendering the negotiable mates receipts. No explanation as to how this occurred is in the record. On that date, the receipts were in fact still in the hands of Buckeye's suppliers who had not yet received payment from Buckeye for the oil. TPGC nonetheless proceeded to obtain payment from the Egyptian purchaser. On February 5, 1979, TPGC presented to Credit Lyonnais the bills of lading, and other documents specified in the Wells Fargo letter of credit, and Credit Lyonnais, acting on behalf of TPGC, presented these materials to Wells Fargo for payment under the terms of the letter of credit. Wells Fargo paid Credit Lyonnais and on February 8 Credit Lyonnais applied this money against outstanding debts owed by TPGC to the bank.

 In the meantime, Buckeye, ignorant of this state of affairs, proceeded to pay its suppliers for the cottonseed oil transferred to the GLOBE VENUS and in return obtained the mates receipts for the cargo from the suppliers. Buckeye had collected all the receipts by February 16 and forwarded them to Central Trust. Central Trust, in turn, mailed the receipts, and the other documents specified in the Credit Lyonnais letters of credit by registered mail to Credit Lyonnais in Los Angeles for payment of the $2.5 million owed to Buckeye by TPGC in accordance with their contracts. The ...

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