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December 27, 1993

A.I. TRADE FINANCE, INC., Plaintiff,

The opinion of the court was delivered by: MICHAEL B. MUKASEY


 Plaintiff A.I. Trade Finance, Inc. ("AITF") sues for payment on promissory notes issued by defendant Laminaciones de Lesaca, S.A ("Laminaciones"), and guaranteed by defendant Altos Hornos de Vizcaya, S.A. ("Altos Hornos"). Plaintiff claims to be a holder in due course and moves for summary judgment. Defendants cross-move for summary judgment, contending that the court lacks personal jurisdiction over them, that plaintiff is not a holder in due course, and that plaintiff is subject to their defenses under U.C.C. § 3-305(2) even if the court finds that plaintiff is a holder in due course. For the reasons set forth below, plaintiff's motion for summary judgment is granted.


 In 1990, Delta Brands Inc. ("Delta"), a Texas-based corporation, agreed to supply and install a line of equipment at defendants' plant in Lesaca, Spain. The plant was operated by Altos Hornos, which is the corporate parent of Laminaciones. (Def. 3(g) Stmt P 2) Delta invited plaintiff AITF to participate in financing the transaction, and plaintiff agreed to do so. (Def. 3(g) Stmt P 3) Plaintiff is a trade finance company specializing in the financing of international transactions. (Pl. 3(g) Stmt P 1)

 A representative of AITF, Richard Tull, travelled to Spain to meet with representatives of Delta, Laminaciones, and Altos Hornos. Tull actively took part in negotiating the financing terms for the transaction. (Pl. 3(g) Stmt P 8; Def. 3(g) Stmt P 5)

 The financing terms were as follows: AITF was to finance 85% of the purchase price (ECU 2,514,207), payable semi-annually over five years, at an annual interest rate of 12 percent on the outstanding balance. Laminaciones was to issue ten promissory notes, in the form provided by AITF, to evidence the debt. The notes were to be guaranteed by Altos Hornos, and were to become payable to Delta six months after the date of Delta's shipment of the equipment. (Pl. 3(g) Stmt PP 10(a), 10(b); Def. 3(g) Stmt P 9(a), 9(b))

 In accordance with the agreement, Laminaciones issued a series of ten promissory notes on January 16, 1991. Altos Hornos guaranteed the notes by signing as "Guarantor: per aval" on the face of each note. As the parties had agreed, the maturity dates were left blank and were to be set after the equipment was shipped by Delta. (Pl. 3(g) Stmt P 12; Def. 3(g) Stmt P 10) on February 18, 1991, Laminaciones forwarded the notes to its New York Bank, Banco Bilbao Vizcaya, with irrevocable instructions to insert the maturity date on each note and deliver the notes to Delta upon Delta's delivery to the bank of shipping documents evidencing delivery of the equipment. (Pl. 3(g) Stmt P 13; Def. 3(b) Stmt P 11)

 On or about April 1, 1991, Delta delivered to the bank a bill of lading showing shipment, and an invoice from Delta to Laminaciones. The amount due on the invoice was ECU 2,514,207, the entire balance owed on the contract. Based on the bill of lading, the bank calculated the maturity dates for the notes from April 1, 1991, and delivered the notes to Delta. (Pl. 3(g) Stmt P 14; Def. 3(g) Stmt P 13)

 On April 9, 1991, as previously agreed, Delta sold and endorsed the ten notes to AITF for the discounted price of U.S. $ 3,081,438.68. (Pl. Ex. 13) The first note matured on September 30, 1991. AITF presented the note for payment and was paid by defendants.

 It is undisputed that Delta had not shipped all of the equipment under the contract at the time it presented the shipping documentation and received the promissory notes. (Pl. 3(g) Stmt P 19; Def. 3(g) Stmt PP 16, 17) When the second promissory note matured on April 1, 1992, defendants failed to pay, informing plaintiff that "due to a temporary break on the part of Delta Brands Inc. in complying with its obligations, payment of the due promissory note number 2/10 has been suspended as a precaution." (Pl. Ex. 14) Defendants contend that Delta breached the contract and caused defendants to incur damages in the amount of $ 2.2 million. (Def. Ex. 19) Defendants argue that their defense of breach of contract may be asserted against AITF. (Def. Mem. at 16)

 Since AITF's commencement of this action, the third and fourth promissory notes have also matured and remain unpaid. (Pl. 3(g) Stmt 22, 23) AITF previously amended its Complaint to include the third promissory note, and now moves to amend the Complaint to include the fourth promissory note. The motion is granted, and this opinion and order will apply to all three overdue notes.


 Defendants claim that their contacts with this forum are insufficient to sustain personal jurisdiction. (Def. Mem. at 35) However, plaintiff has submitted a letter, signed by representatives of both defendants, stating that "the undersigned consent to the financial obligation being governed by New York law and the place of non-exclusive jurisdiction being the state and federal courts located therein." (Pl. Ex. 6) Defendants do not deny signing this letter, but argue that it is not enforceable because "AITF is presumably contending that this letter cannot be a circumstance where it dealt with Laminaciones and Altos Hornos." (Def. Mem. at 36-37) The issue of "dealing" within the meaning of U.C.C. § 3-305(2), which is discussed ...

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