Hoff Research & Development Laboratories, Inc. v. Philippine National Bank and Philippine National Bank, New York Agency, 426 F.2d 1023, 2d Cir. (1970)

426 F.
2d 1023
HOFF RESEARCH & DEVELOPMENT LABORATORIES,

INC., Plaintiff-Appellant,
v.
PHILIPPINE NATIONAL BANK and Philippine National
Bank, New
York Agency, Defendants-Appellees.
No. 743, Docket 34587.
United States Court of Appeals, Second Circuit.

Argued April 30, 1970.
Decided June 4, 1970.
Arnold Davis, New York City, for plaintiff-appellant.

Matthew E. McCarthy, New York City, for defendants-appellees.
Before HAYS, ANDERSON and FEINBERG, Circuit Judges.
ANDERSON, Circuit Judge:
In 1961 the Clep Cement Corp., of Manila, Philippines, hired appellant, Hoff
Research & Development Laboratories, Inc., an Ohio corporation, as a
contractor for the construction of a cement plant in the Philippines. Hoff
Research undertook to arrange the purchase of machinery and equipment in the
United States and to supervise construction of the plant. Clep secured financing
for the project from the appellee, Philippine National Bank.
On September 5, 1961, the Philippine bank opened two irrevocable letters of

credit in favor of Hoff Research in the sums of $553,000 and $6,003,506.25,
which the bank's New York Agency or branch subsequently confirmed. The
appellees' obligation to honor documentary drafts under both letters was
conditioned, however, on the deposit to Clep's account of $900,000 with the
bank in the Philippines by October 5, 1961. The appellant Hoff Research, the
intended beneficiary of the letters, made several attempts to obtain this sum to
deposit on Clep's behalf; but the deposit deadline, which was extended to
December 11, 1961, passed before any of these efforts was successful.
3
Some doubt about the status of the letters existed on all sides, however, as a
result of a pre-deadline transaction in which Hoff Research claimed the bank
had made a payment under the smaller of the two letters and thereby waived
any deposit conditions upon the larger one. Negotiations continued between the
bank, Hoff Research, and others during 1962; and the appellant claims that
during this period the bank represented to it that the $6 million credit would
still be available upon deposit of the $900,000. On October 25, 1962, the bank
finally informed Hoff Research that it was taking the position that the larger
letter was inoperative and should be returned for cancellation.
Hoff Research commenced an action in the Supreme Court of New York in

March of 1965, seeking $1,500,000 damages for the bank's failure to honor the
two letters. Its complaint alleged three contractual theories: that the bank
breached its contract with Clep by refusing to open the letters; that it improperly
retained the $553,000 proceeds of the first letter after a November, 1961,
transaction allegedly satisfying the $900,000 deposit condition had taken place;
and that the second letter was properly issued but not honored. The bank's
summary judgment motion was granted March 3, 1966, in an unreported
opinion holding that the $900,000 deposit was not made before the December,
1961, expiration date of the first letter, and that operation of both letters was
conditioned upon this deposit. The decision was affirmed without opinion by
the Appellate Division, 26 A.D.2d 992, 275 N.Y.S.2d 800 (1st Dept. 1966);
leave to appeal was denied, 19 N.Y.2d 582, 279 N.Y.S.2d 1027, 226 N.E.2d
708 (1967); and a petition for certiorari also was denied, 389 U.S. 829, 88 S.Ct.
90, 19 L.Ed.2d 86 (1967).
On March 19, 1969, the appellant began the present diversity suit against the
bank and its New York Agency, seeking $1 million damages based on the
appellees' alleged fraudulent representations that the $900,000 deposit would
still be accepted after the December, 1961, deadline had passed and their
claimed interference with Hoff Research's attempts to raise this sum after that
date. On the appellees' motion to dismiss the complaint, the District Court held
that the portion of the fraud suit seeking recovery of expenses incurred in trying
to secure loans after the expiration date and damages for injury to business
reputation was not barred by any collateral estoppel effect of the prior state
court contract action. It held, however, that the previous judgment did bar the
portion of the current suit seeking a recovery of the appellant's lost profits on its
aborted contract with Clep, since that decision had been based on the same
allegations as those made in the present suit, that the bank had prevented Hoff
Research from fulfilling the $900,000 deposit condition for the letters needed to
finance the contract. In addition, the court held that the present action is barred
in its entirety by the statute of limitations. Because it is based on the assertion
that the appellees' 1962 fraud was timely discovered by Hoff Research in
October or November of 1965, Judge Motley found that the action, begun in
1969, was barred by New York's CPLR 203(f) and 213(9), which require that a
fraud action be commenced within either six years after its accrual or two years
after the fraud's actual or imputed discovery, whichever is later.1
6
On this appeal Hoff Research stresses an aspect of the statute of limitations

issue which was not called to the attention of the District Court. The CPLR
transitional provision, 218, provides:
'(b) Cause of action accrued and not barred at effective date. Where a cause of
action accrued before, and is not barred when this article becomes effective, the
time within which an action must be commenced shall be the time which would
have been applicable apart from the provisions of this article, or the time which
would have been applicable if the provisions of this article had been in effect
when the cause of action accrued, whichever is longer.'
The appellant contends that its fraud cause of action accrued in late 1961 or
early 1962, before the CPLR became effective on September 1, 1963; and it,
therefore, claims the benefits of the former Civil Practice Act, which allowed
suit upon such a cause to be commenced within six years from discovery rather
than two. 2
This argument raises a question of state law not yet passed upon by the courts
of New York and requires a reconciliation of two separate legislative policies
embodied in parallel sections of the CPLR. On the one hand, 218(b) was
enacted to preclude the shortening of pre-1963 limitation periods already
running on numerous causes of action, thereby obviating potential
constitutional difficulties. See, e.g., Hastings v. H. M. Byllesby & Co., 293
N.Y. 413, 57 N.E.2d 737 (1944). On the other hand, 203(f) was drafted to
reduce to two years the interval within which a litigant must act on any cause
with a limitation period which begins to run upon actual or imputed discovery.
The question is which of these principles the legislature intended to govern a
fraud cause of action which accrued under the CPA but was discovered only
after the CPLR became effective.
10
The answer lies in the fact that the CPLR treats actual or imputed discovery as a
triggering event for the running of an alternative period of limitation wholly
independent of periods which run from accrual. In its equitable origins, the idea
that a statute of limitations should not run upon a cause of which the owner is
reasonably unaware bears some similarity to principles under which various
events may toll a statute which has begun to run. See generally 54 C.J.S.
Limitations of Actions 184 (1948). Yet New York has not designated the
undiscovered fraud situation as one in which a limitation period begins to run
for a conceptual instant at accrual of the cause and then is tolled until
discovery. Instead, in a case of undiscovered actual fraud the pre-CPLR law
looked to discovery alone as the relevant event which launched the running of
the statute. See, e.g., Ectore Realty Co. v. Manufacturers Trust Co., 250
App.Div. 314, 294 N.Y.S. 96 (1st Dept. 1937). Thus CPA 48(5) in effect
allowed suit within six years after either accrual or discovery, in the event that
the two were not simultaneous and covered both cases by stating that the cause
was not 'deemed to have accrued' at all until discovery.3 But the draftsmen of
the CPLR concluded that delayed discovery of a previously-accrued cause of
action constituted a unique situation in which especially prompt action by a
litigant is necessary in the interest of fairness.4 CPLR 203(f) accordingly
shortened all periods triggered by discovery to two years, separating them from
periods timed from the accrual of a cause of action and granting litigants the
benefit of the longer alternative. The result, in an actual fraud suit, is two
separately-timed and alternative limitations periods in the case of a delayed
discovery: six years from accrual or two years from discovery, whichever is
longer.5
11
The draftsmen who provided for the preservation of CPA limitations periods
for causes 'accrued and not barred' on September 1, 1963, thus indicated in the
same statute that they did not consider the accrual date of such causes relevant
to the running of the alternative periods triggered by discovery. It does not
appear that they intended the 'preservation' of a six-year-from-discovery period
for causes on which it had not yet begun to run when the CPLR took effect,
since suit could be brought on these within the two-year period the legislature
thought fully adequate for all other hitherto undiscovered causes. Although a
right of action such as the appellant's might have been 'accrued and not barred'
on the relevant date, the preservation of accrual-triggered periods which had
begun to run is all that 218(b) provides for them.6 Cf. Romano v. Romano, 26
A.D.2d 123, 271 N.Y.S.2d 488 (4th Dept. 1966), aff'd, 19 N.Y.2d 444, 280
N.Y.S.2d 570, 227 N.E.2d 389 (1967); McCabe v. Gelfand, 58 Misc.2d 497,
295 N.Y.S.2d 583 (Supp.Ct. Kings Co.1968).
12
Hoff Research, therefore, should have brought its fraud suit within either six
years after its accrual or two years after its discovery. Since for present
purposes the parties assume these dates to be 1962 and 1965, respectively, the
1969 action was barred.
13
Because the statute of limitations is a complete bar, we express no opinion

concerning the appellant's additional argument, which is that no aspect of the
fraud issue was either litigated or adjudicated in the prior contract suit and that
therefore it should be permitted to establish damage in the form of lost profits
not caused by the breach of any contractual requirement that the bank honor the
letters.
14
Affirmed.
213 includes in its list of 'actions which must be commenced within six years'
the following:
'9. an action based upon fraud; the time within which the action must be
commenced shall be computed from the time the plaintiff or the person under
whom he claims discovered the fraud, or could with reasonable diligence have
discovered it.'
203(f), dealing with all time periods computed from discovery, elaborates:
'The action must be commenced within two years after such actual or imputed
discovery or within the period otherwise provided, computed from the time the
cause of action accrued, whichever is longer.'
These sections together have been held to yield, in a somewhat roundabout
fashion, the six years from accrual or two years from discovery rule for actual
fraud actions. See McCabe v. Gelfand, 57 Misc.2d 12, 291 N.Y.S.2d 261,
vacated 58 Misc.2d 497, 295 N.Y.S.2d 583 (Sup.Ct. Kings Co.1968); 1
Weinstein, Korn & Miller, New York Civil Practice P203.35 (1969).
The former CPA provided:

'48. Actions to be commenced within six years. The following actions must be
commenced within six years after the cause of action has accrued:
An action to procure a judgment on the ground of fraud. The cause of action in

such a case is not deemed to have accrued until the discovery by the plaintiff,
or the person under whom he claims, of the facts constituting the fraud.'
See note 2, supra. The appellees argue that a cause not 'deemed to have
accrued' until discovery actually does not accrue until then for any statute of
limitations purpose, or at least that this was the understanding of the draftsmen
of CPLR 218(b). If this were the case, then causes of action 'accrued and not
barred' on September 1, 1963, could include only fraud causes which had been
discovered by then. While this argument is consistent with our interpretation of
the CPLR, infra, its suggestion that the draftsmen incorporated such a
construction of a superseded CPA section in CPLR 218(b) is not as persuasive
as are the implications of what they did in other parts of the CPLR itself
4
The shortening of this time period to two years in 203(f) represents an effort to
balance the interests of plaintiffs and defendants. See generally 1 Weinstein,
Korn & Miller, supra note 2, P203.35, at 2-79, 2-80
The draftsmen also eliminated potential confusion by omitting the conceptually

ambiguous 'deemed to have accrued' language of the CPA, see note 3, supra.
CPLR 213(9), in the phrase 'shall be computed from,' provides simply that
discovery establishes the date of the time within which to bring a fraud action
This case is not one in which a fraud cause of action was discovered as well as
accrued before the CPLR became effective, so it does not raise the question of
whether 218(b) was also intended to preserve discovery-based limitation
periods which had begun to run

Hoff Research & Development Laboratories, Inc. v. Philippine National Bank and Philippine National Bank, New York Agency, 426 F.2d 1023, 2d Cir. (1970)

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426 F.

HOFF RESEARCH & DEVELOPMENT LABORATORIES,

United States Court of Appeals, Second Circuit.

Arnold Davis, New York City, for plaintiff-appellant.

On September 5, 1961, the Philippine bank opened two irrevocable letters of

Hoff Research commenced an action in the Supreme Court of New York in

On this appeal Hoff Research stresses an aspect of the statute of limitations

Because the statute of limitations is a complete bar, we express no opinion

The former CPA provided:

An action to procure a judgment on the ground of fraud. The cause of action in

The draftsmen also eliminated potential confusion by omitting the conceptually

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