United Overseas Bank v. Veneers, Inc.

• Decision Date: 09 May 1974
• Docket Number: Civ. No. 21066-B.
• Citation: 375 F. Supp. 596
• Parties: UNITED OVERSEAS BANK v. VENEERS, INC.
• Court: U.S. District Court — District of Maryland

375 F. Supp. 596

UNITED OVERSEAS BANK v. VENEERS, INC.

Civ. No. 21066-B.

United States District Court, D. Maryland.

October 10, 1973.

On Motion for Summary Judgment May 9, 1974.

COPYRIGHT MATERIAL OMITTED

Michael P. Crocker, Baltimore, Md., for plaintiff.

Nathan Patz, Baltimore, Md., for defendant.

BLAIR, District Judge.

MEMORANDUM AND ORDER

Plaintiff, United Overseas Bank, a Swiss corporation, filed this suit under the diversity jurisdiction of the federal courts, 28 U.S.C. § 1332, seeking to recover from defendant, Veneers, Inc., a Maryland corporation, on a bill of exchange dishonored by Veneers. The case is presently before the court on cross-motions for summary judgment. The facts which are undisputed and are important for consideration of the motions are found in the record and include affidavits by Pierre Jeandin, Director of United Overseas Bank, and Montgomery P. Adams, Operations Officer of Maryland National Bank, as well as answers to interrogatories and responses to requests for admissions of fact by both parties.

On or about May 16, 1968, Madera S. A., a corporation with a banking account in United Overseas Bank, presented to United Overseas Bank for collection a bill of exchange drawn by Madera with Madera as payee and Veneers as payor. As requested by Madera, United Overseas forwarded the bill of exchange to Maryland National Bank in Baltimore for presentation to and acceptance by Veneers. The bill of exchange called for the payment by Veneers to the order of Madera of $42,478.40 on July 21, 1968. Upon its receipt by Maryland National Bank in Baltimore the bill of exchange was presented to Veneers for acceptance. On May 24, 1968, John Williamson, President of Veneers, signed the printed acceptation form on the bill of exchange, signifying that Veneers had accepted it for payment at Maryland National Bank, Baltimore, Maryland, on July 21, 1968.

The accepted bill of exchange remained in the hands of Maryland National Bank which, on May 31, 1968, forwarded a notice to United Overseas that Veneers had accepted it for payment on July 21, 1968. On June 7, 1968, United Overseas, acting on the notice that Veneers had accepted, discounted the bill by making available for Madera's immediate withdrawal $41,853.88. On July 22, 1968, the bill of exchange was presented by Maryland National Bank to Veneers for payment. Veneers, however, refused to honor it, asserting that Madera was indebted to it on a separate account (apparently in the amount of $36,941.72) and that Veneers would not honor the bill of exchange until Madera had settled this account. That same day, July 22, Maryland National Bank protested the nonpayment and had notices of the nonpayment sent to Veneers, United Overseas Bank and Madera. A series of telex interchanges between Maryland National Bank and United Overseas Bank ensued. When it became obvious to United Overseas that Veneers was not going to pay the bill of exchange, it enlisted the aid of its parent, Bank of America, which retained counsel to press the matter in the courts. On July 29, 1969, on the advice of counsel, United Overseas, through its Director, Pierre Jeandin, placed a collection bank endorsement upon the back of the bill of exchange. Until that time, the bill of exchange had upon it no endorsement whatsoever. United Overseas affixed the endorsement in the belief that it, as a collection bank, was entitled to place its depositor's endorsement upon negotiable instruments placed with it for collection. Until sometime before United Overseas affixed the collection endorsement in Switzerland, the bill of exchange had been in the possession of Maryland National Bank in Baltimore, Maryland. It should be noted at this point that the endorsement by United Overseas was placed upon the bill of exchange approximately one year after it had been dishonored by Veneers. At a time shortly after United Overseas received notice of acceptance by Veneers but before it received notice of dishonor, Madera availed itself of the cash credit on hand in United Overseas Bank and withdrew the money. Apparently Madera is bankrupt and there is little hope of collection from Madera of either the amount Veneers alleges is due it or the amount which is in question in this present suit.

Until it received notice of the dishonorment by Veneers, United Overseas had no knowledge of any claim of Veneers against Madera and at the time it made credits available for withdrawal by Madera, it was under the confirmed impression that Madera was a solvent, viable concern. Madera had done banking business with United Overseas for a period of years and the transaction leading to this suit was not a single isolated transaction but was done in the normal course of business with a regular customer of the bank.

I.

The foreign plaintiff, United Overseas, argues that Maryland law governs the resolution of the suit. The domestic defendant, Veneers, maintains that Swiss law is applicable.

Veneers' position, in substance, is that the significant portions of the transaction, and especially those upon which United Overseas relies, have contacts with Switzerland and Swiss law must be looked to by the court. According to an affidavit filed on behalf of Veneers, under the Swiss Code of Obligations, an endorsement to be effective must be made manually and must be signed by the endorser on the reverse side of the negotiable instrument or upon a sheet attached thereto. The affiant, a Swiss attorney, certifies as accurate the following translations of the Swiss Code of Obligations, Article 1003 and Article 1085, in effect in Switzerland in the years 1968 and 1969:¹

Article 1003

The endorsement must be made on the bill of exchange or on a sheet attached to the bill of exchange. It must be signed by the endorser.

The endorsement need not name the endorsee and may simply consist of the signature of the endorser. In this latter case, in order to be valid, the endorsement must be made on the reverse side of the bill of exchange or on the attached sheet.

Article 1085

Contracts on bills of exchange must bear the handwritten signature of their signatories. The handwritten signature cannot be replaced by mechanical facsimiles or marks made by hand, even if legalised or officially attested. The signature of a blind person must be attested.

It is affiant's opinion that the typewritten endorsement, placed by United Overseas upon the bill of exchange on July 29, 1969, was not in conformity with Swiss law and would convey to United Overseas no right, title or interest in the negotiable instrument.

The Swiss plaintiff, conversely, argues that the Uniform Commercial Code of Maryland is the governing law. It contends that under the U.C.C. it does have title to the instrument and is a holder in due course immune from the defenses Veneers could assert against Madera.

Sitting in diversity, this court is bound to apply the law which the state courts would apply when confronted with a choice of law question. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U. S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The applicable conflicts rule is found in the Maryland U.C.C. which states:

Except as provided hereafter in this section, when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties. Failing such agreement this article applies to transactions bearing an appropriate relation to this state. Annotated Code of Maryland, Art. 95B, § 1-105(1).

This court is aware of no Maryland decisions to date interpreting this provision in general or as it applies to negotiable instruments.

The Maryland Court of Appeals, nevertheless, has spoken on negotiable instruments choice of law in John Hancock M.L. Life Ins. Co. v. Fidelity-Balt. Nat. Bank & Trust Co., 212 Md. 506, 129 A. 2d 815 (1957), a pre-U.C.C. case. There, Wright, the manager of the Baltimore office of John Hancock Mutual Life Insurance Company, a Massachusetts company, sent to the home office in Massachusetts fraudulent claims on behalf of non-existent policyholders. John Hancock drew checks in the Massachusetts office payable to the fictitious policyholders and forwarded them to Wright in Maryland for distribution to the claimants. Wright, on receiving the checks, endorsed the fictitious payees' names and cashed them in Baltimore banks. Under Massachusetts law, checks payable to fictitious persons were bearer paper and required no endorsement for transfer but, under Maryland law, such checks were not bearer paper and required a proper endorsement for transfer. Maryland law, therefore, regarded the endorsement of a fictitious payee's name as a forgery and placed liability upon a bank cashing a check bearing a forged endorsement; Massachusetts law exempted the bank cashing the check from liability since the instrument was bearer paper. The court observed that delivery of a check was essential under both Maryland and Massachusetts law before it became a binding contract. It concluded that the checks were not delivered when sent to Wright because, as John Hancock's employee, Wright was subject to its control and John Hancock could have instructed him to withhold any further delivery. The court found that the checks were not delivered until presented to the Baltimore banks and negotiated for value. Because the checks were delivered and negotiated in Maryland, the court held Maryland law governed the transaction.

While § 1-105 may appear at first glance to compel the application of the U.C.C. anytime a transaction has an "appropriate relation" to the forum, even though another state or nation may have a more "appropriate relation", such a restrictive, forum oriented interpretation is not warranted. The comments reveal that

Where a transaction has significant contacts with a state which has enacted the Act and also with other jurisdictions,

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