Summary
In Zhejiang Tongxiang Import Export Corp. v. Asia Bank, N.A., 98 Civ. 8288, 2001 U.S. Dist. LEXIS 623, *5-*9 (S.D.N.Y. Jan. 25, 2001), the defendant attempted to rebut the presumption of receipt by demonstrating that its regular procedures relating to the receipt of packages were not followed, thereby suggesting that the package at issue was not in fact delivered.
Summary of this case from MURRAY v. TXU CORP.Opinion
98 Civ. 8288 (JSM)
January 25, 2001
For Plaintiff, Jerry B. Edmonds Williams, Kastner Gibbs PLLC Seattle, Washington 98111-3926
For Defendants, Joel M. Markowitz Lamb Barnosky LLP Melville, New York 11747-9034
MEMORANDUM OPINION AND ORDER
Zhejiang Tongxiang Import Export Corporation ("Plaintiff") brings this diversity action against Asia Bank, N.A. ("Defendant") to recover the full amount of a documentary draft, on the grounds that Defendant breached its duty of care as a collecting bank under the New York Uniform Commercial Code ("NYUCC"). This case is currently before the Court on cross motions for summary judgment. For the reasons set forth below, Plaintiff's motion is granted on the issue of liability and Defendant's motion is denied.
BACKGROUND
In April 1996, Plaintiff, a Chinese import/export firm, contracted to sell textile products to TDS International Marking Corp. ("TDS"). After the textile products were inspected by TDS, the freight forwarder loaded the goods on board a vessel and issued three original bills of lading to Plaintiff. On June 10, 1996, the goods were shipped to New York.
1 Defendant disputes that the package containing Plaintiff's documents is the same package allegedly delivered to Defendant in records, however, do not reflect that the package was ever received by Defendant. On or about August 5, 1996, Plaintiff and BOC contacted Defendant about the documents and the status of the collection. After learning that Defendant had no record of receiving the documents, Plaintiff and BOC contacted UPS. According to UPS records, a package with that tracking number was delivered to Defendant at 9:38 a.m. on June 13, 1996. The signature on the UPS records for the package appears to belong to one of Defendant's employees, Chih Fei Lin, who admits that the signature looks like hers but has never admitted definitively that the signature belongs to her. (Chin Dep. ¶ 17.) Someone purporting to be an agent of TDS presented one of the bills of lading to the freight forwarder in New York and took possession of the goods without paying for them. Plaintiff has been unable to collect the amount owed for this transaction because TDS and its principals have disappeared. Plaintiff alleges that Defendant, acting as collecting bank in the transaction, either intentionally or negligently delivered the documents to TDS without first obtaining payment, as a result of which TDS took possession of the goods without paying the purchase price to Plaintiff. Defendant claims that it did not receive the documents, never undertook the obligations of a collecting bank or otherwise accepted any responsibility for the transaction between Plaintiff and TDS, and never delivered the documents to TDS or anyone else. Because the record indicates that Defendant received the documents, Defendant breached its duty of care and is liable to Plaintiff.
Plaintiff elected to use a documentary collection transaction called "Documents Against Payment" or "D/P" transaction. In a D/P transaction, the exporter draws a draft on the buyer for the amount of the sale through the collecting bank that has received the collection instructions and documents of title from the remitting bank. When the collecting bank receives payment, it releases the documents of title to the buyer. Plaintiff used Bank of China ("BOC") as its remitting bank, and TDS designated Defendant as the collecting bank. Plaintiff's employee took the three original bills of lading issued by the freight forwarder to Plaintiff's local BOC branch for inclusion with the collection instructions to be prepared by BOC for Defendant. BOC prepared a draft in the amount of $518,130, naming Plaintiff as the drawer and TDS as the drawee. The collection instruments provided that the documents were only to be released upon payment. The set of drafts, the three original bills of lading, and other associated documents were assembled together with the standard form collection instructions, sealed in an envelope and addressed to Defendant.
Because BOC's messenger had already left the BOC office on the day the package was prepared, Plaintiff's employee brought the package to a UPS agent in Jianxing on June 11, 1996, where it was assigned the UPS tracking number 39370120596.1 Defendant's New York because UPS records indicate that the package bearing the tracking number 39370120596 originated in Shanghai, not with the UPS agent in Jiaxing, on June 11, 1996 at 6:00 p.m. However, Plaintiff filed a supplemental affidavit from an employee of UPS in China stating that packages received at the UPS agent in Jiaxing at that time were not scanned into the UPS computer system until they reached Shanghai Gateway.
DISCUSSION
I. Receipt of the Package
The crucial question here is how someone ended up with the bills of lading without paying for them. Unfortunately, there is no clear answer to this question. Defendant denies that it ever received the package containing the bills of lading. Plaintiff argues that under New York law, a package that is properly addressed and sent is presumed received by the addressee. See Bronia Inc., v. Ho, 873 F. Supp. 854, 859 (S.D.N.Y. 1995). Defendant contends that the presumption of delivery is only recognized when a package is deposited with the United States Postal service because "the presumption is `founded upon the probability that the officers of government will do their duty.'" News Syndicate Co., Inc. v. Gatti Paper Stock Corp., 176 N.E. 169, 170 (1931). In Bronia, however, the presumption was applied to a Federal Express package. It is reasonable to extend the presumption of delivery to UPS and its global tracking system.
The Bronia Court also held that the defendant's denial of receipt of the delivered package "does not defeat the presumption absent evidence that the regular office practice was not followed or was so carelessly executed that the presumption . . . becomes unreasonable." Bronia, 873 F. Supp. at 859. Defendant argues that the regular BOC office procedure was not followed here because the package was brought to the UPS agent by Plaintiff's employee rather than a BOC employee. However, according to BOC, this was not a complete departure from regular office policy. The fact that the same person carried the package from Plaintiff's office to BOC and then to the UPS agent does not make the presumption of delivery in this case unreasonable. Defendant further argues that the presumption of delivery may be rebutted by evidence of non-delivery based on the alleged recipient's office policies. See Vita v. Heller, 467 N.Y.S.2d 652, 653 (App.Div. 1983). In Vita, an affidavit of service was contradicted by the recipient's secretary's affidavit describing the usual office practices regarding the receipt of legal papers and stating that there was no evidence that the document in question was ever received, thereby creating a triable issue of fact. Id. at 653. Defendant offers depositions and affidavits from several employees to establish its regular office policy for the receipt of deliveries. According to Defendant's evidence, all deliveries are logged into its "Register in Record" (a Mead Marble notebook) by the receptionist. There are entries in the Register for June 13, 1996, but there is no entry for the package at issue. Defendant also has no record of following any of the procedures that it normally follows upon receiving a D/P, such as sending written acknowledgment to the sender, forwarding forms regarding payment, or requesting instructions in the event of non-payment. This case is distinguishable from Vita, however, because there is additional evidence to strengthen the presumption of delivery. UPS records and UPS employee affidavits indicate that the package was delivered to Defendant and signed for by someone. Moreover, the fact that the UPS receipt bears a signature in the name of one of Defendant's employees who would be expected to sign for such a package in the normal course of business is strong evidence that the UPS records are correct and that the package was delivered. It strains the bounds of credulity to suggest that the package was stolen before it reached the bank by a thief who happened to know the identity of the employee who would sign for it and also had the ability to duplicate her signature so well that she could not say for sure that the signature was not hers. In the face of this overpowering evidence that the package was delivered to Defendant, Ms. Lin's inability to confirm that the signature is hers and the absence of a record of the package in the Mead notebook fail to raise a genuine issue of material fact to preclude a finding that the documents were delivered to Defendant. There is no credible evidence to suggest that Plaintiff did not mail the package as it has claimed, or that the UPS records are false, or that someone posed as Defendant's employee in order to sign for the documents and steal them from Defendant. Although all reasonable inferences must be drawn in favor of the party opposing summary judgment, an issue can not proceed to trial on the basis of mere speculation. See, e.g., Darnet Realty Assocs., LLC v. 136 E. 56th St. Owners, Inc., 153 F.3d 21, 23 (2d Cir. 1998).
II. Defendant's Duties Under the New York Uniform Commercial Code
Plaintiff contends that Defendant became a collecting bank under the New York Uniform Commercial Code ("NYUCC") when it received the documents from UPS. See NYUCC § 4-105(d). The NYUCC provides that: "[u]nless a contrary intent clearly appears and prior to the time that a settlement given by a collecting bank for an item is or becomes final . . . the bank is an agent or sub-agent of the owner of the item." NYUCC § 4-201. Defendant disputes its status as both a collecting bank and an agent of Plaintiff. Defendant contends that even if it received the D/P documents, the mere receipt of a documentary draft is not enough to impose all of the duties of a collecting bank. Furthermore, Defendant argues that a bank only assumes the obligations of a collecting bank when it "assents to agency" by "tak[ing] the [instrument] for collection." Henderson v. Lincoln Rochester Trust Co., 100 N.E.2d 117, 120 (1951). However, this argument does not answer the question of what it means to "take" the instrument for collection.
Defendant claims that because it had no relationship with either the buyer or the seller, it would not have assented to be the collecting bank for the transaction. Plaintiff responds that Defendant and BOC had a corresponding banking relationship, but there is a dispute as to whether that relationship extended to the branches involved in this transaction. Plaintiff further argues that the NYUCC does not require that a bank elect to become a collecting bank, but rather designates "every bank in the collection chain except the payor bank" to be a collecting bank. NYUCC § 4-105; see also Northpark Nat'l Bank v. Banker's Trust Co., 572 F. Supp. 524, 528 (S.D.N.Y. 1983). For instance, under New York law, when a draft is made payable through a bank, that bank becomes a collecting bank. See Lawyers' Fund for Client Prot. v. Bank Leumi Trust Co., 682 N.Y.S.2d 470, 471 (App.Div. 199 8). Furthermore, possession of an item, which is established here, is a crucial factor in the determination of whether a bank is a collecting bank. See In re Singer Prods. Co., 102 B.R. 912, 930-32 (Bankr.E.D.N.Y. 1989).
Although Defendant now argues that it did not have a corresponding banking relationship with BOC, the evidence is to the contrary. A BOC employee swore that Asia Bank was listed in BOC's official manual as a correspondent bank. More significantly, Kathy Huang, Executive Vice-President of Defendant in New York, testified at her deposition as follows:
Q. Has Asia Bank dealt with the Bank of China before on D/P transactions?
A. Yes.
Q. Has that happened several times?
A. Yes, several times, yes, from time to time, yes.
Q. Does Asia Bank have a correspondent banking relationship with the Bank of China?
A. Yes, we do.
Q. Who established that?
A. That's since the bank opened. I think I believe it's in 1985 or `86. In the very beginning we established the relationship with them.
(Huang Dep. at 20.)
Thus, the BOC employee in China who processed the transaction for Plaintiff had every right to expect that Defendant's branch in New York would act as collecting agent for BOC's customer. It would clearly jeopardize the free flow of international commerce to hold that a commercial bank, which receives a draft sent to it in good faith for collection through a bank with whom it has a correspondent relationship has no duty to exercise the care of a collecting bank in handling the draft, at least until it notifies the sender that it declines to act in the transaction and returns the item. Plaintiff had every reason to believe that Defendant would act as a collecting bank for this D/P transaction. Defendant possessed the documents, however briefly, and was supposed to be the most important link in the collection chain. Under these circumstances Defendant was a collecting bank when it received the documents from Plaintiff. A collecting bank must exercise ordinary care in effecting the collection of a documentary draft. See NYUCC §§ 4-103, 4-202. In this case, the documentary draft was payable at sight and thus Defendant was required to release the documents of title only after payment. See NYUCC § 4-503(a). The wrongful surrender of the bills of lading, whether negligently or intentionally, constitutes conversion. See R.L. Rothstein Corp. v. Kerr S.S. Co., 251 N.Y.S.2d 81, 86 (App.Div. 1964). Defendant was supposed to hold the original bills of lading until TDS made the payment. The bills of lading were released before payment and therefore Defendant breached its duty of care as a collecting bank. Summary judgment is granted for Plaintiff on the issue of liability. III. Damages
Plaintiff argues that it is entitled to damages equal to the face value of the documentary draft, reduced only by the amount "which could not have been realized by the use of ordinary care." NYUCC § 4-103(5). More than six weeks elapsed between the mailing of the documents and the parties' discovery that the shipments had been taken. Defendant asserts that, if Plaintiff had made any reasonable inquiry at all about the proper delivery of the bills of lading, Plaintiff would have learned sooner that Defendant did not have the documents and could have sought to protect the goods. Defendant relies on several cases in support of the proposition that a party cannot recover for any loss that could reasonably have been prevented or mitigated. See Ellerman Lines, Ltd. v. The Steamship President Harding, 228 F.2d 288, 290 (2d Cir. 1961), Lund v. Chemical Bank, 797 F. Supp. 259, 271 (S.D.N.Y. 1992); AMF, Inc. v. Cattalani, 430 N.Y.S.2d 731, 733 (App.Div. 1980). However, Defendant carries the burden of showing that "[P]laintiff unreasonably failed to minimize damages." Fed. Ins. Co. v. Sabine Towing Transp. Co., Inc., 783 F.2d 347, 350 (2d Cir. 1986).
Plaintiff asserts that Defendant has submitted no evidence that the amount of time that elapsed before the inquiry was unreasonable, and that it is not clear that anything could have been done to protect the goods once the bills of lading were released. However, there is evidence that BOC offered to contact Defendant on July 16, 1996, to inquire about the transaction because the funds had not yet been collected. Since the goods were picked up from the freight forwarder in New York on July 16, 1996 and July 22, 1996 (Ming Aff. ¶ 3), it is possible that one or both of the pick-ups could have been prevented had inquiry been made at that time. Each party claims that industry practice supports its position on the issue of how long a seller should wait before inquiring about the delivery of D/P documents. Thus, questions of fact exist regarding whether Plaintiff failed to exercise ordinary care in failing to make an earlier inquiry about the status of the D/P transaction and whether an earlier inquiry might have prevented the theft of either or both of the missing shipments.
CONCLUSION
For the reasons set forth above, summary judgment is granted for Plaintiff on the issue of liability but denied on the issue of damages. Defendant's motion for summary judgment is denied.
SO ORDERED.