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August 26, 1993



The opinion of the court was delivered by: CHARLES H. TENNEY

TENNEY, District Judge:

 The plaintiff Bank of New York ("BNY") brought this action in March of 1990 seeking damages incurred because the defendant, Amoco Oil Company ("Amoco"), allegedly wrongfully refused to turn over certain platinum to BNY. By the time BNY obtained the platinum, it was able to sell the metal only at a reduced price. BNY bases its rights to the platinum on holding certificates issued by Amoco, which were given to BNY as collateral for loans to Drexel Burnham Lambert Trading Corp. ("DBL Trading").

 BNY is a New York corporation with its principal place of business in the state of New York. Amoco is a Maryland corporation with its principal place of business in Illinois. This court has jurisdiction pursuant to 28 U.S.C. ยง 1332(a). John F. Keenan, U.S.D.J., denied the parties' cross-motions for summary judgment. He stated that the case turned upon interpreting Article 7 of the Uniform Commercial Code ("U.C.C."), and delineated the three significant issues for trial:

1. Were the holding certificates documents of title covered by U.C.C. Article 7?
2. If the holding certificates were documents of title, were they negotiable?
3. If the holding certificates were negotiable, did DBL [Trading] duly negotiate the documents to [BNY]?

 Opinion and Order of Judge Keenan, November 5, 1991, at 6-7. The case was tried before this court in June of 1993. *fn1" For the reasons stated below, the plaintiff's request for relief in the form of money damages is granted.


 Amoco uses platinum to prepare catalysts that are used in reactors at Amoco's six refineries around the country. Transcript ("Tr.") 240-41. These catalysts accelerate the refining process in the manufacture of gasoline. Tr. 242. During the refining process, some platinum is lost -- between 2000 and 4000 ounces each year. Although Amoco owns 280,000 ounces of platinum, it must occasionally lease platinum from other sources. Ernest A. Sloss, who was Amoco's Senior Supply Negotiator until 1992, testified that he leased from metal trading companies that delivered platinum to Amoco's catalyst manufacturers. Tr. 242. A particular shipment of platinum, once it is used to prepare catalysts for use in the refining process, can no longer be traced.

Holding Certificate
This is to certify that as of October 6, 1982, Amoco Oil Company holds for the account of Westway Metals Corporation 4,000 troy ounces of platinum sponge, catalytic grade, free of payment, and encumbered.
Amoco will continue to hold this material until such time this Holding Certificate is returned, and Amoco receives shipping instructions.

 Pl. Exh. 23. This holding certificate was signed by Mr. Sloss; however, when plaintiff's attorney asked Mr. Sloss at trial what the language in the document meant, he stated that he did not know. He did not know what the terms "free of payment" or "encumbered" meant. Tr. 284.

 The language of the holding certificates was changed in 1984 to state that the platinum was "free of all liens and encumbrances" and that Amoco was holding it for a particular metal company "or order." These changes were made at the request of Susan Gold, who worked first for Westway Metals and later for DBL Trading. Pl. Exh. 29; Tr. 267, 286-87. Again the documents were issued and signed by Mr. Sloss. When asked what he understood the language "free of all liens and encumbrances" to mean, Mr. Sloss responded, "Frankly . . . I really don't know what it means. It was of very little interest. It was something that Susan Gold requested in the holding certificates and that's why we put it in as an accommodation to her." Tr. 266. All Mr. Sloss knew was that the term "liens" referred to claims on property. Tr. 330.

 Mr. Sloss never consulted with Amoco's in-house counsel, Matthew Gallo, about the significance of the language in the holding certificates. Tr. 266, 268. As a rule, the holding certificate was the only evidence if a lease transaction issued by Amoco. Mr. Sloss recalled that at one point a company sent him a lease form that was a multi-page contract; he stated that he did not accept it, because he "wasn't interested in complicated procedures." Tr. 269.

 When a holding certificate was returned to Amoco at the end of a lease, Mr. Sloss would put a slash through the document to indicate that the lease was over. Many of the holding certificates had endorsements over to banks on the back, some stamped as many as six or seven times. See Pl. Exhs. 25-27. Mr. Sloss stated, "I do recall seeing some [endorsement] stamps, but I paid no notion, primarily because the lease was over with." Tr. 269.

 DBL Trading leased metals to companies such as Amoco in order to improve profitability on its precious metals inventory. Tr. 1227. Metal was also used as collateral by DBL Trading in lending transactions with various banks, including BNY, Chase Manhattan, Citibank, Republic National Bank, and others. Id.

 DBL Trading entered into a lending relationship with BNY in which DBL Trading borrowed on an overnight basis. Frederick Van Den Hogen, who from 1987 to 1990 served as Vice President in the commodities department at BNY, was assigned twenty-five accounts to oversee -- among them DBL Trading. He testified that during that period DBL Trading would collateralize its overnight loans with its precious metal inventory. Tr. 18.

 The amount of the loan made available by BNY was limited to 95% of the daily value of the pledged collateral. As evidence of the collateral, BNY would receive a telex from the depository where the collateral was being held, a warehouse receipt, or a holding certificate. Id. The bank's rights in the collateral were reflected in a General Loan and Security Agreement between BNY and DBL Trading, which had been signed in 1982, Pl. Exh. 2, and a Promissory Note dated May 22, 1987, Pl. Exh. 1.

 BNY accepted holding certificates from companies other than DBL Trading; they were also used as collateral for loans from BNY to Gerald Metals, a precious metal trader, and Cerro Sales, a copper trader. Tr. 20. BNY began accepting holding certificates from DBL Trading upon the request of Judy Murray, a DBL Trading employee, by letter of March 9, 1989, that attached samples of holding certificates. Pl. Exh. 3. Mr. Van Den Hogen testified that at that time, he reviewed the sample holding certificates to see that certain requirements were met:

There are several things that are important on the holding certificates why we accepted them as our collateral. They had to be in negotiable form. That meant that the holding certificates issued by the holder of the metals would have to state that it was held to the order of the party and, that is, the holding certificates could be endorsed to other parties. It would have to state that the material was held free and clear of all liens and encumbrances. And that the material would be released on a surrender of the certificate properly endorsed.

 Tr. 25-26.

 Mr. Van Den Hogen showed the holding certificates to Barbara Hyland, the head of BNY's commodities group. She agreed with his decision that the certificates would constitute proper collateral. He wrote to Ms. Murray at DBL Trading to confirm that BNY would accept the holding certificates, stating that they "should be endorsed to the order of The Bank of New York by DBLTC [DBL Trading] prior to presentation." Pl. Exh. 6. He testified that he required this so that BNY could take possession of the platinum in the event of default Tr. 29.

 Mr. Van Den Hogen's letter also provided, "Financing against these Certificates will only be extended after our physical receipt of the respective Certificates and these Certificates will only be released after repayment has been received or upon simultaneous substitution of Certificates representing materials of sufficient market value to cover our financing." Pl. Exh. 6. He would not accept the holding certificates until BNY had filed U.C.C. financing statements identifying the prospective issuers of the holding certificates. Id.

 Ms. Murray responded with a list of companies to whom DBL Trading leased metal. Although the list attached to her letter is headed by the statement, "Companies Leasing Metal from U.S." *fn4" (emphasis added), her letter states, "Per your request, following is a listing of the companies holding precious metal for [DBL Trading]." Pl. Exh. 7 (emphasis added).

 BNY did in fact file U.C.C. financing statements in all locations provided by DBL Trading before accepting the holding certificates as collateral. Pl. Exh. 10. As stated by Mr. Van Den Hogen, "We insisted on perfecting our lien before accepting collateral in any location." Tr. 34.

 Although BNY as a rule accepted holding certificates from DBL Trading, there were at least three that Mr. Van Den Hogen rejected. Pl. Exh. 11. He rejected one holding certificate issued by Irving Oil, Ltd., because, it did not state that the metal in question was being held to the order of DBL Trading, it did not state that the metal was free of liens and encumbrances, and it did not state that the metals would be released upon presentation of the holding certificate. Tr. 35-36; Pl. Exh. 11. He rejected a holding certificate issued by Lair Petroleum, Inc. because "it states that the material is to be redelivered to DBL Trading's account on January 27th which would restrict the delivery from being immediately available in the event of a presentation of this holding certificate." Tr. 36; Pl. Exh. 11. He rejected a third holding certificate issued by GAF Building Materials Corp., because it was not on letterhead stationery. Tr. 37; Pl. Exh. 11

 Three of the four holding certificates at issue in this litigation were accepted by BNY in December of 1989. Pl. Exh. 12. They conform to previous certificates that BNY had accepted, stating (on Amoco letterhead stationery):

This is to certify that as of [date], we are holding for the account or order of:
Drexel Burnham Lambert Trading Corporation
60 Broad Street
New York, New York 10004
The following material:
5,000 troy ounces of platinum sponge metal 99.95% catalytic grade
This material is free of all liens and encumbrances.
Material is to be released on surrender of this Certificate properly endorsed.
Company Name: Amoco Oil ...

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