Andina Coffee, Inc. v. National Westminster Bank, USA

• Decision Date: 09 August 1990
• Citation: 560 N.Y.S.2d 1,160 A.D.2d 104
• Parties: , 12 UCC Rep.Serv.2d 788 ANDINA COFFEE, INC., Plaintiff, v. NATIONAL WESTMINSTER BANK USA, Defendant-Appellant, and Banco Credito y Commercio, Defendant-Respondent, and Gonchecol, Ltda., Defendant. ANDINA COFFEE, INC., Plaintiff, v. COOPERATIEVE CENTRALE RAIFFEISENBOERENLEENBANK B.A., "Rabobank Nederland", New York Branch, Defendant-Appellant, and Banco Credito y Commercio, Defendant-Respondent, and Banco Occidente, Goncheco, Ltd., and Goncheverri Ltda., Defendants.
• Court: New York Supreme Court — Appellate Division

Page 1

560 N.Y.S.2d 1

160 A.D.2d 104, 12 UCC Rep.Serv.2d 788

ANDINA COFFEE, INC., Plaintiff, v. NATIONAL WESTMINSTER BANK USA, Defendant-Appellant and Banco Credito y Commercio, Defendant-Respondent and Gonchecol, Ltda., Defendant.

ANDINA COFFEE, INC., Plaintiff, v. COOPERATIEVE CENTRALE RAIFFEISENBOERENLEENBANK B.A "Rabobank Nederland", New York Branch, Defendant-Appellant and Banco Credito y Commercio, Defendant-Respondent, and Banco Occidente, Goncheco, Ltd., and Goncheverri Ltda., Defendants.

Supreme Court, Appellate Division, First Department.

Aug. 9, 1990.

Edward N. Meyer, of counsel (Anthony J. D'Auria and Robert S. Fischler with him on the brief; Winston & Strawn, New York City, attorneys) for defendants-appellants.

Dorothea W. Regal, of counsel (Thomas J. O'Sullivan and A. Grant McCrea, with her on the brief; White & Case, New York City, attorneys), defendant-respondent.

Before MURPHY, P.J., and CARRO, MILONAS, ASCH and WALLACH, JJ.

MILONAS, Justice.

Plaintiff Andina Coffee, Inc., a New York corporation, was engaged in the importation of coffee from defendant Gonchecol, Ltda., at one time a major Colombian exporter of coffee. To pay for its purchases, Andina delivered to Gonchecol letters of credit which it obtained from a number of commercial banks in New York, including defendants National Westminster Bank USA (NatWest) and Cooperatieve Centrale Raiffeisenboerenleenbank B.A. (Rabobank). As the beneficiary of the letters of credit, Gonchecol apparently used all or some of the funds to borrow money from defendant Banco Credito y Commercio de Colombia (BCCC) and other Colombian banks in order to finance its business operations. In June of 1986, BCCC advanced $2,100,000 to Gonchecol in exchange for which it was to be reimbursed through a $2,100,000 check drawn on a Panamanian Bank. However Gonchecol's check bounced, and BCCC was left with an unpaid $2,100,000 loan. According to NatWest and Rabobank, this event could only have served to confirm what BCCC had already learned from its own sources; that is, that Gonchecol had already lost millions of dollars and was experiencing severe financial difficulties. As was the situation with most of the moneys made available by BCCC to Gonchecol, the source of repayment would have to be proceeds from the letters of credit provided to Gonchecol from the issuing banks.

Beginning in May of 1986, coffee financed under the various letters of credit, which were to be paid on the presentation of interior truck bills of lading, failed to materialize. Consequently, representatives of the New York banks were dispatched to Colombia in August of 1986 when it was discovered that Gonchecol had caused fraudulent truck bills of lading to be furnished for large quantities of coffee which were, in fact, never shipped, thereby resulting in substantial financial losses to New York banks. The four letters of credit involved here are the last outstanding instruments which were not drawn against prior to the disclosure of the exporter's dishonest practices. In that regard, NatWest and Rabobank had each supplied two of the letters of credit, one for $2,104,000 and the other three in the amount of $1,000,000, pursuant to which they agreed to make payment upon the presentation within a specified period of time of drafts and certain documents, among which were to be the "original railroad and/or truck bill of lading". The bill of lading was supposed to show that the coffee was actually in existence, that it had left the control of the growers and that it was in the hands of the shipper and en route from the interior of Colombia to a seaport.

On July 9, 1986, fifteen days after BCCC had already advanced $2,100,000 to Gonchecol against the latter's bad check, it received from NatWest a letter of credit in the amount of $2,104,000. The following day, almost six weeks before the earliest possible date for presentment under that instrument, BCCC accepted from Gonchecol its draft and accompanying documents. These documents included truck bills of lading which were dated August 22, 1986, almost six weeks after the date submitted to BCCC, and purported to show that 8,000 bags of coffee had been delivered to a trucking company for transport to a Colombian port. BCCC sent the draft and documents to NatWest with a cover letter dated July 15, 1986. By telex dated July 22, 1986, NatWest advised BCCC that it would not pay under the letter of credit because of four enumerated discrepancies in the documents, including the fact that the draft and documents were presented prior to the earliest date mentioned in the letter of credit and that the truck bills of lading were post-dated.

BCCC thereupon requested that the bills of lading and other documents be returned to it by mail. It then reviewed the documents received under the other three letters of credit and perceived that the bills of lading in those instances were similarly post-dated. Consequently, it sent all of the bills of lading back to Gonchecol so that the exporter could revise the dates to comply with the letters of credit. Indeed, some of the changes were made twice in an attempt to bring the documents into conformity with both the form and date mandates of the letters of credit. Thus, it appears that the documents were designed more to effect payment under the letters of credit than to reflect accurately the business transactions that they were intended to evince. In any event, by the time that the documents had been altered and re-altered, the full extent of Gonchecol's fraud had been detected, and payment was rejected by NatWest and Rabobank on the ground that, in part, the bills of lading were post-dated and fraudulent.

The instant appeal concerns respective motions and cross-motions for summary judgment with respect to the letters of credit. The Supreme Court, in granting BCCC's cross-motion for summary judgment and denying the motions of NatWest and Rabobank for the same relief, was persuaded that BCCC took the drafts for value, in good faith and without any knowledge of any fraud defenses and was, therefore, a holder in due course entitled to payment under the letters of credit. In the view of the court, there is no evidence to support the assertions by NatWest and Rabobank that BCCC possessed actual knowledge of Gonchecol's fraud and that it did not accept the drafts in good faith. Finally, the court concluded that the "transactions involved in this case must be considered against a background of haphazard permissive and careless negotiations and payment of prior letters of credit by the issuing banks over a year and a half period. First of all, it is not denied that the same discrepancies alleged in the documents submitted by BCCC were the same one [sic] which the banks had accepted for the aforementioned period.... Secondly, it cannot be denied that the letters of credit involved are not based upon underlying arms-length transactions." The court proceeded to criticize the issuing banks for assuming a high risk by merely demanding trucking bills of lading rather than on-board bills of lading, since it "appears that the port forwarder and the trucking company were all part of Gonchecol's enterprises and that the importer, Andina Coffee, Inc., although a separate corporate entity, belonged to the same overall organization as the exporter."

Yet, notwithstanding the questionable nature of the financing arrangement undertaken by NatWest and Rabobank, and, certainly, the record is replete with indications of dubious business judgment by the various issuing banks, the soundness of the lenders' financial practices is not at issue here. What is crucial is whether BCCC accepted drafts drawn upon letters of credit "under circumstances that would make it a holder in due course" (Uniform Commercial Code 5-114[2][a]. As this court observed in Barclay Knitwear Co., Inc. v. King'swear Enterprises Ltd., 141 A.D.2d 241, 245, 533 N.Y.S.2d 724, app. den. 74 N.Y.2d 605, 543 N.Y.S.2d 398, 541 N.E.2d 427:

Section 5-114(2)(a) of the Uniform Commercial Code provides that "when documents appear on their face to comply with the terms of a credit but a required document * * * is forged or fraudulent or there is fraud in the transaction * * * the issuer must honor the draft or demand for payment if honor is demanded by a negotiating bank * * * which has taken the draft or demand under the credit and under circumstances which would make it a holder in due course". Finally, it should be noted, disputes involving letters of credit "are well suited to determination by motion for summary judgment because they normally present solely...