Spring 2001

Group 3 Project

Members:  Dan Nickel, Denise Williams, Mark Brookstein, Will Worster

Special Exercise Hypo – the Greek Shipping Company that Sunk

            In 1989, three Greek-American citizens, Odysseus, Agamemnon, and Achilles, joined with two Greek citizens, Menelaus and Meriones -- both of whom were experienced in the shipping industry -- to form a cargo shipping company, Pegasus Line.  The Line was incorporated and had headquarters in New York City.  The line was intended to service ports in the United States and the Mediterranean and Black Seas.  The shares were divided accordingly:

                                    Odysseus:         30%

                                    Agamemnon:    20%

                                    Achilles:            17%

                                    Menelaus:         17%

                                    Meriones:         16%   


            The Greek citizens, Menelaus and Meriones, live with their families in Greece.  The other three shareholders, Odysseus, Agamemnon, and Achilles, have homes in both Greece and New York.  Regarding the latter three shareholders, each lives only three months in NY and about nine months out of the year in Greece.  Also, their children and parents however live in NY, and most of their cash assets and bank accounts are in NY.

            In 1990, Pegasus set out to purchase two ships to service the line.  Agreements were entered into and down payments placed on two ships, the Pride and the Spirit ($410,000 and $387,000 respectively).  Afterwards, Pegasus sought financing for the two ships.  Because the ships were over twenty years old and needed repair, financing was difficult to obtain.  Eventually, however, Pegasus found Zeus Bank, a Greek bank that did not have any restrictions against loaning money for older ships.  Pegasus was able to secure a loan for $5,700,000 to finance the purchase of the two vessels.  The loan, however, was procured through a bribe.

             Menelaus took Agamemnon to meet with Thersites, who, although not an employee of the Bank, was able to arrange a meeting between them and Teucer, the manager of the Bank’s shipping loan department.  Within thirty minutes, the loan was approved.  After Teucer left the room, Thersites told the directors that in order to obtain the loan, five percent of the face value of the loan, $285,000, would have to be paid to he and Teucer to “facilitate” the loan.  After the bribe was paid, Teucer approved the Loan to Pegasus.

That same day, Zeus Bank issued a Commitment Letter to fund the $5.7 million loan, conditioned on the personal guarantees of the shareholders of the owning companies.  Odysseus, Agamemnon, and Achilles executed the guarantees; Menelaus and Meriones did not.  The Commitment letter also required an owner’s inspection report for each vessel and two official valuations, one being from a major broking house based in London.  No such inspection occurred before the closing of the deal.  Two separate subsidiaries of Pegasus were formed to purchase the ships:  Paralos Maritime was dispersed $2,850,000 to purchase the Pride, and Pelagic Shipping was dispersed the other $2,850,000 to purchase the Spirit.       

             In October of 1990, Pegasus defaulted on its loan payment.  The ships were not adequate to generate the revenue needed to make the business profitable, or even to cover the loan payments.  Although the Bank restructured the payment schedule in April of 1991, Pegasus again defaulted two months later.  After Pegasus was unable to make a $250,000 payment demanded by the Bank before the end of March, the Bank informed Pegasus that it would arrest the two vessels.  In June of 1992, the Pride was in arrested in Pireaus, Greece, and the Spirit was arrested in Elefsina, Greece.  Both were sold at a judicial public auction.  Because the proceeds from the sale failed to satisfy the entire debt, Zeus Bank has sued Odysseus, Agamemnon, and Achilles to recover the full amount due under the personal guarantees. 

Law of forums – Substantive & Choice of Law

New York

Ch L re: contract:  Apply the law of the place of the contract was made/formed.

Sub L re: K (duty to disclose):  If the contracting parties have a fiduciary relationship, the party (here, the loaner/bank) had a duty to disclose information if that party has superior knowledge not readily available.

Ch L re: Tort:  Apply the law of the Place where tort occurred (the place of the harm)

Policy:  protect lenders (banks)

Sub L re Domiciliary:  Place where you spend more than 180 days throughout the year is one’s domiciliary


Ch L re: loans with foreign domiciliaries:  Apply the law of the place of domicile

Sub L re: K (duty to disclose):  If lender specializes in a particular type of venture, lender has obligation to disclose relevant information related to the venture.

Ch L re: Tort:  Apply the law of the Place of tortious conduct.

Policy:  protect lendees

Sub L re Domiciliary:  Greek law regards this as matter of family law.  If an issue arises about a party’s domiciliary, the place where the party’s children resides is controlling.

Plaintiff, Zeus Bank, sues in NY state Ct to enforce guarantees against three parties, A, A, & O