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June 23, 1990


The opinion of the court was delivered by: Leisure, District Judge.


This is a diversity breach of contract action, with jurisdiction alternatively based on 12 U.S.C. § 632. Plaintiff Bank of America National Trust and Savings Association ("Bank of America") is suing to recover over $3 million plus interest and costs allegedly due and owing from defendants under a loan restructuring agreement dated September 15, 1988 (the "Restructuring Agreement"). Plaintiff contends that defendants have defaulted on their repayment obligation, and is demanding immediate repayment of the total amount due under the Restructuring Agreement, plus interest. Plaintiff has now moved for summary judgment on the Restructuring Agreement. Defendants oppose plaintiffs' motion on a number of grounds, asserting that they have stated legally sufficient defenses about which there are genuine issues of material fact in dispute, and arguing that, counter to the assertion of plaintiff, New York law does not control the ultimate determination of this action. For the reasons stated below, plaintiff's motion is granted in its entirety.


Between 1978 and 1983, plaintiff Bank of America made a series of loans to defendant Envases Venezolanos, S.A. ("Envases"). By 1988, Envases owed $3,238,937.70 on those loans. On or about September 15, 1988, Envases and Bank of America entered into the Restructuring Agreement, which called for Envases to pay its remaining debt, plus interest, in 25 quarterly payments, beginning November 28, 1988, and ending in November 1994.*fn1 The Restructuring Agreement allowed Envases to take advantage of a favorable foreign exchange arrangement, available through the Banco Central de Venezuela ("Central Bank"). That exchange arrangement in essence provided for Central Bank subsidization of Venezuelan companies with foreign currency obligations. Each company desiring to take advantage of the favorable exchange rates was required to enter into a private agreement with the Central Bank. Under the agreement between the Central Bank and Envases, entered into on May 26, 1987, Envases was to deliver Venezuelan Bolivares to the Central Bank, and the Central Bank, using a preferential exchange rate, would then forward dollars to the foreign lender.

Envases' first payment to Bank of America under the Restructuring Agreement, on November 28, 1988, utilized this favorable exchange system through the Central Bank. Shortly after this payment, the Central Bank ceased to honor the exchange agreement with Envases, and thus refused to grant any favorable exchange rate for the repayments under the Restructuring Agreement. This refusal by the Central Bank to honor the exchange arrangement was formalized by the President of Venezuela in a decree issued on June 15, 1989. See Defendants' Exh. G. Because the Central Bank has refused to provide favorable exchange rates since December 1988, Envases has failed to make any of the subsequent repayments under the Restructuring Agreement. Envases claims that it would cost five times the number of Bolivares to meet its obligations under the Restructuring Agreement, if it is forced to buy dollars on the open market, than it would have cost under the Central Bank exchange arrangement. Envases does not deny that it is able to purchase dollars through normal exchange channels, though at a substantially higher cost.

On September 7, 1989, after sending a demand letter, Bank of America noticed Envases' default under the Restructuring Agreement and demanded payment in full, plus interest and costs, on the entire amount covered by the agreement. See Affidavit of Steven D. Munter, sworn to on January 4, 1990, Exh. F. When defendants failed to respond to that notice of default with payment, plaintiff instituted the instant action. Plaintiff alleges that payment in full is required under the explicit terms of the Restructuring Agreement. Defendants do not deny their default, but challenge the enforcement of the Restructuring Agreement, asserting the contract defenses of frustration of purpose, impossibility, and unconscionability. Specifically, defendants claim that the sole purpose of the Restructuring Agreement was to allow Envases to take advantage of the favorable exchange rates available through the Central Bank. When those rates were no longer available, the purpose of the Restructuring Agreement was frustrated. Further, given the substantial cost of obtaining dollars through regular exchange channels, it is impossible for defendants to perform under the Restructuring Agreement. Finally, defendants allege that terms in the Restructuring Agreement that provide for a continuing obligation on the part of Envases, regardless of the fate of the Central Bank exchange arrangement, are unconscionable as they were the result of unfair bargaining power on the part of Bank of America. Plaintiff contends that none of these defenses are effective against the Restructuring Agreement.


A) Standard for Summary Judgment

Rule 56(c) provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." "'Summary judgment is appropriate when, after drawing all reasonable inferences in favor of the party against whom summary judgment is sought, no reasonable trier of fact could find in favor of the non-moving party.'" Horn & Hardart Co. v. Pillsbury Co., 888 F.2d 8, 10 (2d Cir. 1989), quoting Murray v. National Broadcasting Co., 844 F.2d 988, 992 (2d Cir.), cert. denied, 488 U.S. 955, 109 S.Ct. 391, 102 L.Ed.2d 380 (1988).

The substantive law governing the case will identify those facts which are material, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will probably preclude the entry of summary judgment. . . . While the materiality determination rests on the substantive law, it is the substantive law's identification of which facts are crucial and which facts are irrelevant that governs." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). "[T]he judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there does indeed exist a genuine issue for trial." Id. at 249, 106 S.Ct. at 2511; see also R. C. Bigelow, Inc. v. Unilever N. V., 867 F.2d 102, 107 (2d Cir.), cert. denied sub nom. Thomas J. Lipton, Inc. v. R.C. Bigelow, Inc., ___ U.S. ___, 110 S.Ct. 64, 107 L.Ed.2d 31 (1989). The party seeking summary judgment "always bears the initial responsibility of informing the district court of the basis for its motion" and identifying which materials it believes "demonstrates the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); see also Trebor Sportswear Co. v. Limited Stores, Inc., 865 F.2d 506, 511 (2d Cir. 1989). "[T]he burden on the moving party may be discharged by 'showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Celotex, supra, 477 U.S. at 325, 106 S.Ct. at 2553.

Indeed, once a motion for summary judgment is properly made, the burden then shifts to the nonmoving party, which "must set forth facts showing that there is a genuine issue for trial." Anderson, supra, 477 U.S. at 250, 106 S.Ct. at 2511. The nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (citations omitted).

B) Choice of Law

As a threshold matter, the Court is faced with a dispute regarding the applicable law in this action. It is undisputed that the Restructuring Agreement contains choice of forum and choice of law provisions. Restructuring Agreement, Defendants' Exhibit A, §§ 11.04, 11.05. Defendants assert, however, that the Court should not give effect to those provisions, and that, additionally, this action is controlled by 12 U.S.C. § 632, and not by state common law.

In 1984, New York State amended its General Obligations Law to indicate a strong policy in favor of choice of law and choice of forum provisions. See N.Y. Gen. Oblig.Law ...

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