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A.I. TRADE FIN. v. CENTRO INTL. HANDELSBANK AG

May 9, 1996

A.I. TRADE FINANCE, INC., Plaintiff, against CENTRO INTERNATIONALE HANDELSBANK AG, Defendant.


The opinion of the court was delivered by: SCHWARTZ

 ALLEN G. SCHWARTZ, DISTRICT JUDGE:

 Plaintiff A.I. Trade Finance ("AITF") brings this action pursuant to Title 28, United States Code, Section 2201 seeking a declaratory judgment relating to its sale of negotiable instruments to defendant Centro Internationale Handelsbank AG ("Centro"). Defendant asserts eight counterclaims for relief. This matter is currently before the Court on plaintiff's motion to dismiss for lack of subject matter jurisdiction or, in the alternative, for summary judgment, and defendant's cross-motion to strike a foreign judgment from the record as impermissible hearsay. *fn1" For the reasons stated below, plaintiff's motion to dismiss the action for lack of subject matter jurisdiction is denied; plaintiff's motion for summary judgment is granted in part and denied in part; and defendant's motion to strike the foreign judgment from the record is denied.

 The Court exercises jurisdiction over this action pursuant to Title 28, United States Code, Section 1332 (alienage).

 BACKGROUND

 I. The Transactions

 This action concerns a "forfaiting" transaction, in which Centro purchased three promissory notes (the "Notes") from AITF, each having a face value of $ 2.5 million. In a back to back transaction, Centro sold the Notes to Amro Handelsbank AG ("Amro") on terms similar to those between AITF and Centro. The facts as alleged by the parties, or as otherwise reflected in the record, are as follows. *fn2"

 In January 1989, the Notes were executed in favor of Welfin S.A. ("Welfin"), a Swiss investment bank, by a Greek entity called Nissilios Shipping Co. ("Nissilios"), ostensibly in order to finance the purchase of electronic equipment to be used in the construction of the vessel M.V. NISSILIOS. The Notes had maturities of October 1989 and January 1990, and were each backed by the "guarantee per aval" of Petra Bank ("Petra") of Jordan. The domicile of payment of the Notes was stated to be Irving Trust Company in New York.

 "Forfaiting or a forfait" financing is described by Centro as follows. Forfaiting generally involves the discounting of a negotiable instrument issued to finance the importation of goods or services, for the most part to lesser developed countries. In such forfaiting transactions, where the importer requires financing terms and the exporter of the goods is unwilling to finance the purchase itself, the exporter may arrange to receive payment in the form of a negotiable instrument with a short to medium term tenor, and to sell the instrument (of which it is payee) at a discount from face value to a "primary forfaiting" company. The primary forfaiter may either hold the instrument to maturity and receive full face value, or sell the instrument on the secondary forfaiting market at a lesser discount "without recourse" to the seller. Generally, the instrument will be irrevocably and unconditionally guaranteed by the importer's bank, which puts its endorsement on the face of the instrument along with the notation "per aval". With its aval, the bank becomes the principal obligor on the instrument, and forfaiters in the primary and secondary forfaiting markets rely primarily on the bank's aval rather than the issuer in considering the notes. Often, a forfaiting company will agree to purchase an avalized instrument from another forfaiter "under reserve". This means that the purchaser has committed to purchase the instrument, subject to one or more conditions that must be satisfied before payment is made, or, if payment has already been made, before the seller is entitled to retain the transferred funds.

 On January 11 and 12, 1989, AITF agreed to purchase the Notes, plus three additional promissory notes issued by Nissilios, from Welfin subject to a reserve relating to the receipt of "satisfactory documentation." On January 23, 1989, AITF transferred funds in payment for the Notes to Welfin under reserve, and nine days later lifted the reserve, completing the transaction. On or about January 12, 1989, the same day AITF conditionally agreed to purchase the Notes from Welfin, AITF offered to sell the Notes to Centro. AITF represented that the Notes had been issued by Nissilios and were unconditionally and irrevocably guaranteed by Petra per aval. AITF also represented that the underlying transaction was "trade-related", specifically, to "the purchase of various electronics and other components required for the completion of the vessel M.V. NISSILIOS." Plaintiff's Supplemental Rule 3(g) Statement, Ex. F.

 The record reflects that on January 23, 1989, Centro sent a telex to AITF stating that it was pleased to confirm its purchase of the Notes from AITF, "subject to satisfactory documentation -- without recourse to yourselves or previous beneficiaries." Plaintiff's Ex. E. On January 24, 1989, AITF telecopied a letter to Centro, together with copies of the Notes and a conformed copy of a January 19, 1989 telex from Petra to AITF confirming various points. AITF stated that the signatures of Welfin and Petra agreed with those in their files, and that the signature of Nissilios was confirmed by Petra. AITF further stated, "we shall require notice of any specific reserves you may wish to place on your payment, and we reserve the right not to accept any particular point." Plaintiff's Ex. F.

 Centro alleges that on or about January 27, 1989, AITF responded to questions Centro had raised pertaining to the underlying transaction by representing to Centro that "we know the Principals of Nissilios Shipping Company and have worked with them actively." Answer and Counterclaims P 23.

 On or about January 31, 1989, Centro requested copies of invoices concerning the underlying commercial transaction for which financing was sought. AITF states that it informed Centro that the bulk of the anticipated purchases was not yet consummated, as the financing was intended to underwrite an ongoing acquisition program, but it offered to assist Centro in obtaining copies of invoices as they were generated. AITF further claims that Centro did not request, and AITF did not agree, that delivery of actual invoices was a condition of Centro's payment or a limitation on AITF's right to retain payment. Centro, on the other hand, claims that its payment to AITF was subject to its receiving the requested invoices.

 On February 2, 1989, prior to Centro's transmitting payment to AITF, Amro confirmed to Centro its payment of $ 6,771,368.63 "at 2/3/89" to Centro's account at the Irving Trust Company in New York in consideration of the Notes. Amro stated that this transfer of funds was made to Centro

 
"on condition that Petra Bank, Amman, verify to us that
 
a) Payment will be made as per the guaranteed promissory notes even if the underlying transaction does not succeed;
 
b) All transfer approvals do exist;
 
c) The signatures of the drawer on the bills of exchange are legally binding.

 Plaintiff's Ex. G.

 On February 3, 1989, Centro confirmed to AITF by telex that it had transferred $ 6,740,989.59 to AITF's account with Chemical Bank in New York on that day, in consideration of the Notes. Centro stated in this telex:

 
this transfer has be [sic] made subject to receipt of a confirmation from petrabank, amman, that
 
-- payment of the resp. promissory notes will be effected on the respective maturity dates, even if the underlying contract does not materialize
 
-- all authorizations and registrations necessary in jordan and greece for payment of funds upon maturity in effective usd have been obtained respectively filed.
 
-- the signatures of the issuer of the promissory notes are legally and valid for and constituting an obligation of nissilios shipping company, piraeus.
 
as agreed you will submit copies of the resp. invoices to us.

 Plaintiff's Ex. H.

 By letter dated February 10, 1989, Amro confirmed to Petra that it had purchased the Notes from Centro without recourse to the seller or previous holders. Amro stated that the Notes had been endorsed from Welfin to the order of AITF, from AITF to Centro, and finally from Centro to Amro. Amro informed Petra that it would present the Notes upon maturity at Irving Trust Company, New York, and that it "would be grateful to receive" Petra's confirmation that (1) it acknowledged Amro as the bona fide holder of the Notes; (2) the Notes were duly issued and legally binding on Nissilios; (3) Petra's aval represented its irrevocable and unconditional guarantee to pay the Notes upon maturity regardless of the underlying transaction; (4) the aval signatures were supplied by persons at Petra authorized to do so; and (5) the aval was given in conformity with the official exchange regulations of Jordan "and all necessary authorizations have been obtained for the free transfer of funds together with a copy in writing of the acknowledgement of the Central Bank of Jordan, that they are aware of the issuance of your aval. " Plaintiff's Ex. I (emphasis supplied). It appears that this was the first time that Amro, or any other party to the transactions, asked to receive a document containing the acknowledgement of the Central Bank of Jordan that it was aware of Petra's aval on the Notes. Petra responded to Amro on February 20, 1989 by confirming the five points noted above, including that Amro was the bona fide holder of the Notes, and that Petra was permitted to enter into this type of transaction and had the authority under existing regulations to pay the Notes upon maturity and to transfer the funds freely to Amro. However, Petra further stated that, "it is not our policy to give copies of correspondence between ourselves and any regulating authorities to third parties. This transaction was not booked on the first place with any specific request for any such copies." Plaintiff's Ex. J.

 Centro claims that on February 28, 1989, AITF sent to Centro pro forma invoices, *fn3" most of which were dated several months prior to the issuance of the Notes. AITF requested that Centro acknowledge receipt of the invoices and confirm that they satisfied Centro's request for invoices concerning the underlying ...


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