Thank You For Submiting Feedback!
Consequential damages will not be awarded unless defendant was put on notice of the special circumstances giving rise to them.
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. On the morning of April 25, 1973, Hyman-Michaels 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. Swiss Bank appealed an order of the district court finding it liable to Hyman-Michaels by its failure to transfer funds.
Did the district court err in finding Swiss Bank liable to Hyman-Michaels for its failure to transfer funds?
The appeals court reversed the district court's findings, holding that Swiss Bank could not be liable for consequential damages unless the bank was put on notice of the special circumstances giving rise to them. The appeals court applied Illinois law and held that the company did not have a cause of action. The appeals court held that under Ill. Rev. Stat. ch. 26 § 4-103(5), the bank could not be held liable because it did not act in bad faith and because the provision at issue did not apply to electronic transfers. The appeals court then held that under common-law principles, the bank could not be held liable for consequential damages unless it was put on notice of the special circumstances giving rise to them.