Atwood Vacuum Mach. Co. v. Continental Cas. Co. of Chicago

• Decision Date: 18 March 1969
• Docket Number: Gen. No. 52215
• Citation: 246 N.E.2d 882,107 Ill.App.2d 248
• Parties: ATWOOD VACUUM MACHINE COMPANY, an Illinois corporation, Plaintiff-Appellant, v. CONTINENTAL CASUALTY COMPANY OF CHICAGO, Defendant-Appellee, and The Guild Hall, of London; Muchener Ruckv, of Munich; Reinsurance Corporation, of London; Store Brand, of Oslo; Atlas Reinsurance, of Stockholm; Globo Reinsurance, of Toronto; British National, of London; British & Overseas, of London; the Great Lakes, of Toronto; Northern Assurances Co., of London and the Victory Insurance Co., of London, Defendants.
• Court: United States Appellate Court of Illinois

Page 882

246 N.E.2d 882

107 Ill.App.2d 248

ATWOOD VACUUM MACHINE COMPANY, an Illinois corporationPlaintiff-Appellant, v.CONTINENTAL CASUALTY COMPANY OF CHICAGO, Defendant-Appellee and The Guild Hall, of London; Muchener Ruckv, of MunichReinsurance Corporation, of London; Store Brand, of OsloAtlas Reinsurance, of Stockholm; Globo Reinsurance, of Toronto; British National, of London; British & Overseas, of London; the Great Lakes, of Toronto; Northern Assurances Co., of London and the Victory Insurance Co., of London, Defendants.

Gen. No. 52215.

Appellate Court of Illinois, First District, Second Division.

March 18, 1969.

William T. Kirby, Michael B. Roche, Chicago, for plaintiff-appellant.

Lord, Bissell & Brook, Chicago, for Continental Cas. Co; William H. Hillier, Alex R. Seith, R. R. McMahan, Chicago, of counsel.

BURKE, Justice.

Atwood Vacuum Machine Company brought this action as assignee of nine bills of exchange, after the bills had been presented for payment upon maturity and dishonored, against the twelve named insurance companies which had allegedly joined with an insurance company of Venezuela, Compania Anonima de Seguros Republica (Republica), for the purpose of guaranteeing payment of bills of exchange drawn in Venezuela, among which were the bills at bar.It appears that of the twelve insurance companies named in the original and amended complaints only defendant-appellee, Continental Casualty Company(Continental), was served with summons.Republica was not joined as a defendant.

The original and the first two amended complaints were stricken on motion of Continental and plaintiff was given leave to file a third amended complaint, which was thereafter filed.The trial court deferred action on Continental's motion to strike the third amended complaint pending tender of a fourth amended complaint and a consideration thereof by the court.Leave to file the tendered fourth amended complaint was denied on the ground that none of the four counts therein stated a good cause of action.The court further ordered that plaintiff not be allowed to plead over or amend the third amended complaint, that Continental's motion to strike the third amended complaint, which was still pending, be allowed, and that the litigation with respect to Continental be terminated as a whole with prejudice to plaintiff and costs to this defendant.Judgment was entered for Continental, and plaintiff prosecutes this appeal.

Count I of the tendered fourth amended complaint alleged generally that between the years 1952 and 1959, business institutions in Venezuela were experiencing difficulties in securing working capital due to a rapidly expanding economy.The count alleged that there developed a procedure and common usage in Venezuela whereby capital was secured by Venezuelan businessmen through the cooperation of small Venezuelan insurance companies and large foreign insurance companies.The procedure and usage was alleged to have been as follows:

An individual Venezuelan businessman would draw a bill of exchange on a nominal drawee and, in order for the bill to acquire value and stability in the money market, its payment was guaranteed by a Venezuelan insurance company.The guaranty on the bill appeared as 'bueno por aval'('good for guarantee'), or an equivalent thereof, written on the bill or on an attached paper, followed by the name of the Venezuelan insurance company granting the aval and the signature of the appropriate officer of that company.However, since the guaranty of the Venezuelan insurance company was not of itself acceptable in the money markets, it was necessary that its aval be backed by well known, financially reliable foreign insurance companies.It therefore became the practice that the foreign insurance companies would back the individual Venezuelan insurance company, the latter acting for and on behalf of the former in granting the avals.

Count I further alleged that the Venezuelan insurance company and the foreign insurance companies involved in any particular such association shared premiums and risks in accordance with previously agreed fixed precentages.It was the custom of the brokers and investors in the Venezuelan money markets to inquire of and receive the names of the insurance companies, Venezuelan and foreign alike, which were participating in the guaranty on a particular bill of exchange, as well as the respective percentage interests each participating insurance company had in the guaranty or aval.

The individual Venezuelan businessman would secure repayment of the bill of exchange by depositing securities or executed mortgages with the Venezuelan insurance company granting the aval.A brokerage firm was then engaged to sell the bill to an investor and the proceeds thereof went to the businessman as working capital.When the bill fell due, it would be repaid by the businessman out of funds paid to him by the Venezuelan government for completing his contract as previously agreed.Count I further alleged that all of the defendant companies herein were aware and knew of this custom and procedure, and also knew that those dealing in the Venezuelan money markets would follow this practice.

Count I further alleged that until late 1959, no losses were incurred by any of the insurance companies participating in such ventures in Venezuela.In March 1955 Republica, a small insurance company, was organized to engage in the guaranty operations detailed above.During June 1955, Sterling Offices of Toronto, Canada, organized a group of foreign insurance companies to participate with Republica, under various forms of business associations, in the business of guaranteeing bills of exchange in Venezuela.

In July 1958, Sterling notified Republica of a change in the makeup of the foreign participating insurance companies.Republica was informed that defendants herein were the new participating foreign insurance companies which would act in conjunction with Republica in guaranteeing bills of exchange, and that the premiums and losses would be shared as follows:

Continental Casualty Company  10%
                The Guild Hall                10%
                Munich Reinsurance, A.G.      10%
                Reinsurance Corporation       10%
                Store Brand                   10%
                Republica                     10%
                Atlas Reinsurance              7.5%
                Globo Reinsurance              7.5%
                British National               5%
                British & Overseas             5%
                The Great Lakes                5%
                Northern Assurances Co.        5%
                The Victory Insurance Co.      5%
                

Count I further generally alleged that in 1957, Seth B. Atwood, plaintiff's assignor, traveled to Caracas, Venezuela, and investigated the financing operations detailed above.Atwood and two of his associates conferred with officers of a number of Venezuelan insurance companies, as well as with the manager of a New York bank operating in Caracas.It was alleged that all of those consulted described the Venezuelan financing operations as detailed above.

The count further alleged that on October 27, 1957Seth B. Atwood began to purchase bills of exchange, as guaranteed in the manner set out above.It was alleged that prior to each purchase, Atwood inquired as to the identity of the Venezuelan insurance company granting the aval, and also secured representations as to the participating foreign insurance companies.In the case of the bills of exchange at bar, plaintiff's assignor was advised by Republica that the defendants were the participating foreign insurance companies.Between October 27, 1957 and August 12, 1959 Atwood purchased approximately $2,900,000 worth of bills of exchange, all of which were honored in full at maturity.The bills of exchange at bar, dated August 11, 1958 and thereafter, one of which fell due in October 1959 and the balance of which fell due in August 1960, bore the avals of Republica.The bill which fell due in October 1959 was not honored by the drawer and the acceptor, and the defendants were so notified.

Count I then charged defendants with negligence and specifically alleged that shortly prior to April 15, 1959Pedro Torres, the president of Republica, and other Republica employees acting with Torres, filed with and collected a false claim against the defendant insurance companies, said false claim having been based upon a bill of exchange which was never in fact guaranteed by Republica.It was alleged that the fact of the fraud was announced in the Caracas newspapers on April 15, 1959.It was also alleged that in June 1959defendant learned that Republica had ceased honoring its avals.The bill of exchange involved herein, which fell due in October 1959, was thereafter dishonored by the drawer and the acceptor, and by Republica.It was alleged that in December 1959, Torres approached the defendants with a 'scheme to help the said insurance company defendants avoid payment of the liabilities under their agreement' with Republica, amounting to approximately 40,000,000 Venezuelan Bolivars, by making a cash payment of approximately 6,000,000 Bolivars to Torres for the defaulting Republica.Count I alleged that the defendants knew or should have known that the 6,000,000 Bolivars paid to Torres would not be deposited into the treasury of Republica to be made available to holders such as plaintiff's assignor.Republica was closed by Venezuelan executive order in February 1960.The 6,000,000 Bolivars was never paid into Republica's treasury by Torres, who fled the country.Count I alleged that defendants failed to honor the avals on any of the bills of exchange at bar when the bills were presented to them at maturity, after the bills had been presented to the drawers, the acceptors and Republica.Plaintiff alleged that defendants' act in paying the 6,000,000 Bolivars to Torres was intentional and constituted negligence under the laws of Venezuela since defendants knew that Torres had defrauded them of 400,000 Bolivars approximately eight months previous,...