Evra Corp. v. Swiss Bank Corp.

• Decision Date: 19 March 1982
• Docket Number: 81-1926,Nos. 81-1925,s. 81-1925
• Citation: 673 F.2d 951
• Parties: 34 UCC Rep.Serv. 227 EVRA CORPORATION, formerly Hyman-Michaels Company, Plaintiff-Appellee and Counterplaintiff-Appellant, v. SWISS BANK CORPORATION, Defendant-Appellant and Third-Party-Plaintiff-Appellant, v. CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO, Third-Party-Defendant-Appellee and Counterdefendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 951

673 F.2d 951

34 UCC Rep.Serv. 227

EVRA CORPORATION, formerly Hyman-Michaels Company, Plaintiff-Appellee and Counterplaintiff-Appellant, v. SWISS BANK CORPORATION, Defendant-Appellant and Third-Party-Plaintiff-Appellant, v. CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF

CHICAGO, Third-Party-Defendant-Appellee and

Counterdefendant-Appellee.

Nos. 81-1925, 81-1926.

United States Court of Appeals Seventh Circuit.

Argued Feb. 17, 1982.

Decided March 19, 1982.

Jeffrey Barist, White & Case, New York City, John L. Conlon, Hopkins & Sutter, Chicago, Ill., for defendant-appellant and third-party-plaintiff-appellant.

Joel J. Sprayregen, Arron, Schimberg, Hess, Rusnak, Deutsch & Gilbert, Alan N. Salpeter, Mayer, Brown & Platt, Chicago, Ill., for third-party-defendant-appellee and counterdefendant-appellee.

Before SWYGERT, Senior Circuit Judge, and WOOD and POSNER, Circuit Judges.

POSNER, Circuit Judge.

The question-one of first impression-in this diversity case is the extent of a bank's liability for failure to make a transfer of funds when requested by wire to do so. The essential facts are undisputed. In 1972 Hyman-Michaels Company, a large Chicago dealer in scrap metal, entered into a two-year contract to supply steel scrap to a Brazilian corporation. Hyman-Michaels chartered a ship, the Pandora, to carry the scrap to Brazil. The charter was for one year, with an option to extend the charter for a second year; specified a fixed daily rate of pay for the hire of the ship during both the initial and the option period, payable semi-monthly "in advance"; and provided that if payment was not made on time the Pandora 's owner could cancel the charter. Payment was to be made by deposit to the owner's account in the Banque de Paris et des Pays-Bas (Suisse) in Geneva, Switzerland.

The usual method by which Hyman-Michaels, in Chicago, got the payments to the Banque de Paris in Geneva was to request the Continental Illinois National Bank and Trust Company of Chicago, where it had an account, to make a wire transfer of funds. Continental would debit Hyman-Michaels' account by the amount of the payment and then send a telex to its London office for retransmission to its correspondent bank in Geneva-Swiss Bank Corporation-asking Swiss Bank to deposit this amount in the Banque de Paris account of the Pandora 's owner. The transaction was completed by the crediting of Swiss Bank's account at Continental by the same amount.

When Hyman-Michaels chartered the Pandora in June 1972, market charter rates were very low, and it was these rates that were fixed in the charter for its entire term-two years if Hyman-Michaels exercised its option. Shortly after the agreement was signed, however, charter rates began to climb and by October 1972 they were much higher than they had been in June. The Pandora 's owners were eager to get out of the charter if they could. At the end of October they thought they had found a way, for the payment that was due in the Banque de Paris on October 26 had not arrived by October 30, and on that day the Pandora 's owner notified Hyman-Michaels that it was canceling the charter because of the breach of the payment term. Hyman-Michaels had mailed a check for the October 26 installment to the Banque de Paris rather than use the wire-transfer method of payment. It had done this in order to have the use of its money for the period that it would take the check to clear, about two weeks. But the check had not been mailed in Chicago until October 25 and of course did not reach Geneva on the twenty-sixth.

When Hyman-Michaels received notification that the charter was being canceled it immediately wired payment to the Banque de Paris, but the Pandora 's owner refused to accept it and insisted that the charter was indeed canceled. The matter was referred to arbitration in accordance with the charter. On December 5, 1972, the arbitration panel ruled in favor of Hyman-Michaels. The panel noted that previous arbitration panels had "shown varying degrees of latitude to Charterers"; "In all cases, a pattern of obligation on Owners' part to protest, complain, or warn of intended withdrawal was expressed as an essential prerequisite to withdrawal, in spite of the clear wording of the operative clause. No such advance notice was given by Owners of M/V Pandora." One of the three members of the panel dissented; he thought the Pandora 's owner was entitled to cancel.

Hyman-Michaels went back to making the charter payments by wire transfer. On the morning of April 25, 1973, it telephoned Continental Bank and requested it to transfer $27,000 to the Banque de Paris account of the Pandora 's owner in payment for the charter hire period from April 27 to May 11, 1973. Since the charter provided for payment "in advance," this payment arguably was due by the close of business on April 26. The requested telex went out to Continental's London office on the afternoon of April 25, which was nighttime in England. Early the next morning a telex operator in Continental's London office dialed, as Continental's Chicago office had instructed him to do, Swiss Bank's general telex number, which rings in the bank's cable department. But that number was busy, and after trying unsuccessfully for an hour to engage it the Continental telex operator dialed another number, that of a machine in Swiss Bank's foreign exchange department which he had used in the past when the general number was engaged. We know this machine received the telexed message because it signaled the sending machine at both the beginning and end of the transmission that the telex was being received. Yet Swiss Bank failed to comply with the payment order, and no transfer of funds was made to the account of the Pandora 's owner in the Banque de Paris.

No one knows exactly what went wrong. One possibility is that the receiving telex machine had simply run out of paper, in which event it would not print the message although it had received it. Another is that whoever took the message out of the machine after it was printed failed to deliver it to the banking department. Unlike the machine in the cable department that the Continental telex operator had originally tried to reach, the machines in the foreign exchange department were operated by junior foreign exchange dealers rather than by professional telex operators, although Swiss Bank knew that messages intended for other departments were sometimes diverted to the telex machines in the foreign exchange department.

At 8:30 a.m. the next day, April 27, Hyman-Michaels in Chicago received a telex from the Pandora 's owner stating that the charter was canceled because payment for the April 27-May 11 charter period had not been made. Hyman-Michaels called over to Continental and told them to keep trying to effect payment through Swiss Bank even if the Pandora 's owner rejected it. This instruction was confirmed in a letter to Continental dated April 28, in which Hyman-Michaels stated: "please instruct your London branch to advise their correspondents to persist in attempting to make this payment. This should be done even in the face of a rejection on the part of Banque de Paris to receive this payment. It is paramount that in order to strengthen our position in an arbitration that these funds continue to be readily available." Hyman-Michaels did not attempt to wire the money directly to the Banque de Paris as it had done on the occasion of its previous default. Days passed while the missing telex message was hunted unsuccessfully. Finally Swiss Bank suggested to Continental that it retransmit the telex message to the machine in the cable department and this was done on May 1. The next day Swiss Bank attempted to deposit the $27,000 in the account of the Pandora 's owner at the Banque de Paris but the payment was refused.

Again the arbitrators were convened and rendered a decision. In it they ruled that Hyman-Michaels had been "blameless" up until the morning of April 27, when it first learned that the Banque de Paris had not received payment on April 26, but that "being faced with this situation," Hyman-Michaels had "failed to do everything in (its) power to remedy it. The action taken was immediate but did not prove to be adequate, in that (Continental) Bank and its correspondent required some 5/6 days to trace and effect the lost instruction to remit. (Hyman-Michaels) could have ordered an immediate duplicate payment-or even sent a Banker's check by hand or special messengers, so that the funds could have reached owner's Bank, not later than April 28th." By failing to do any of these things Hyman-Michaels had "created the opening" that the Pandora 's owner was seeking in order to be able to cancel the charter. It had "acted imprudently." The arbitration panel concluded, reluctantly but unanimously, that this time the Pandora 's owner was entitled to cancel the agreement. The arbitration decision was confirmed by a federal district court in New York.

Hyman-Michaels then brought this diversity action against Swiss Bank, seeking to recover its expenses in the second arbitration proceeding plus the profits that it lost because of the cancellation of the charter. The contract by which Hyman-Michaels had agreed to ship scrap steel to Brazil had been terminated by the buyer in March 1973 and Hyman-Michaels had promptly subchartered the Pandora at market rates, which by April 1973 were double the rates fixed in the charter. Its lost profits are based on the difference between the charter and subcharter rates.

Swiss Bank impleaded Continental Bank as a third-party defendant, asking that if it should be ordered to pay Hyman-Michaels, then Continental should be ordered to indemnify it. Continental filed a cross-claim against Hyman-Michaels seeking to shift back to Hyman-Michaels the cost of any judgment that Swiss Bank might obtain against it, on the ground that any errors by Continental were caused by...