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European Asian Bank v. Crohn

decided: July 31, 1985.

EUROPEAN ASIAN BANK, A.G., PLAINTIFF-APPELLEE,
v.
G. CROHN & COMPANY, DEFENDANT-APPELLANT; G. CROHN & COMPANY, THIRD PARTY PLAINTIFF, V. H. KHEMCHAND KUNDAMAL ENTERPRISES (HK), LTD. AND H. KHEMCHAND KUNDAMAL BROS. (USA), INC., THIRD-PARTY DEFENDANTS



Appeal from a judgment of the District Court for the Southern District of New York, Charles L. Brieant, J., for plaintiff bank for $292,445.42 plus interest, on a bill of exchange.

Lumbard, Oakes, and Meskill, Circuit Judges.

Author: Lumbard

LUMBARD, Circuit Judge:

In this diversity case, G. Crohn & Company ("Crohn")*fn1 appeals from a March 26, 1985 judgment of the Southern District of New York, after a bench trial before Charles L. Brieant, J., granting plaintiff bank recovery of $292,445.42 plus interest on a bill of exchange. Crohn claims 1) that the district court erred in finding that European Asian Bank, A.G. ("Eurasbank")*fn2 had become a holder in due course when it purchased a bill of exchange from third-party defendant H. Khemchand Kundamal Enterprises (HK), Ltd. ("Kundamal");*fn3 and 2) that Crohn had received no valid consideration when it accepted the bill, or, in the alternative, that Crohn should have been relieved of liability anyway due to Kundamal's breach of promised performance. The parties agree that New York law governs this case.

Because we believe that Judge Brieant's finding that Eurasbank gave credit to Kundamal when it purchased the bill of exchange was not clearly erroneous, see Fed. R. Civ. P. 52(a), we agree that Eurasbank became a holder in due course, and thereby was entitled to payment on the bill of exchange regardless of any defenses Crohn might have derived from its agreement with Kundamal. Consequently, we affirm the judgment.

I.

Shlomo Sulimani, Crohn's chief executive officer, had engaged in the diamond business for 46 years, and, since 1962, had traded in Indian diamonds. The Kundamal family, which he had known for 25 years, had purchased some 100 shipments of diamonds from Crohn. In July 1983, in a telephone conversation with Hiro Panjabi, a member of the Kundamal family in Hong Kong, Sulimani agreed to purchase from Kundamal a shipment of full cut and single cut polished Indian diamonds. Kundamal would ship the diamonds from Bombay to New York. At the same time, Panjabi would send Crohn an invoice and a bill of exchange for 645,290 Swiss francs payable to Eurasbank, Kundamal's Hong Kong bank. Sulimani agreed to sign and accept the bill once it arrived and thereby to obligate Crohn to pay Eurasbank the specified amount 180 days after acceptance.

Eurasbank purchased the bill of exchange from Kundamal on July 13, 1983. A Collection Order form from Eurasbank, dated July 13, 1983, shows that Kundamal instructed Eurasbank to apply the amount of the bill to certain "trust receipts" that Kundamal owed to Eurasbank and which the district court found to be antecedent debts. According to these instructions, the bank would give credit to Kundamal's account and retire Kundamal's outstanding debts.

The bank's accounting treatment of the credit given to Kundamal is less than crystal clear. Eurasbank produced as evidence a page from a monthly statement used to report movements in an account. This exhibit indicates that, on July 13, 1983, Eurasbank credited Kundamal's account by 645,270 Swiss francs, the full amount of the bill of exchange. An exhibit introduced by Crohn, which shows a similar page from a second monthly statement, indicates that on the same date, Eurasbank debited a second Kundamal account in the same amount. Hans Kaebe, manager of the bank's bills department, described this entry as a "bookkeeping requirement."

Six days later, on July 19, 1983, the bank made additional debits, totalling the full 645,270 Swiss francs, this time to the "trust receipts" as Kundamal had instructed on the Collection Order form. These debits appear on the monthly statement exhibit introduced into evidence by Eurasbank. However, the "bookkeeping requirement" for these additional debits is not shown in the record. No corresponding credit appears on the second account, and Kaebe testified that the debit in that account has continued through the present.

The diamonds arrived in New York before the invoice and the bill of exchange. Kundamal instructed Eurasbank to direct its New York correspondent bank, Algemene Bank Nederland ("ABN"), to release the diamonds to Crohn upon receipt of the latter's written undertaking to accept later the bill of exchange.

On July 18, 1983, Sulimani, on Crohn's behalf, signed a promissory note payable to ABN in Swiss francs for the same amount as the bill of exchange. This note was intended to serve as a temporary substitute for the bill. Sulimani gave the note to ABN, which released the diamonds.

Two days later, on July 20, 1983, the day after Eurasbank had entered the additional debits in Kundamal's "trust receipt" accounts, Crohn received the diamonds and the invoice. Sulimani inspected the diamonds and immediately rejected them as non-conforming goods. The district court found that the diamonds had half the value that Sulimani had expected.

Sulimani telephoned Hiro Panjabi in Hong Kong. They agreed that Sulimani would return the diamonds to Hiro's brother, Anoop Panjabi, who headed the Kundamal operation in New York. Hiro ...


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