BANQUE ARABE ET INTERN. D'INVESTISSEMENT v. Bulk Oil, 86 CIV 5552 (LBS).

• Citation: 726 F. Supp. 1411
• Decision Date: 12 December 1989
• Docket Number: No. 86 CIV 5552 (LBS).,86 CIV 5552 (LBS).
• Parties: BANQUE ARABE et INTERNATIONALE D'INVESTISSEMENT, Plaintiff, v. BULK OIL (USA) INC., Defendant.
• Court: U.S. District Court — Southern District of New York

726 F. Supp. 1411

BANQUE ARABE et INTERNATIONALE D'INVESTISSEMENT, Plaintiff, v. BULK OIL (USA) INC., Defendant.

No. 86 CIV 5552 (LBS).

United States District Court, S.D. New York.

December 12, 1989.

COPYRIGHT MATERIAL OMITTED

Rogers & Wells, New York City, for plaintiff; Joseph H. Spain, Paul M. Hellegers, and C. Ryan Reetz, of counsel.

John P. McMahon, New York City, for defendant; John P. McMahon, of counsel.

SAND, District Judge.

This diversity action arises from purchase and repurchase agreements between two petroleum dealers and the extension of credit to one of those dealers by a bank. The plaintiff bank asserts claims as a third party beneficiary of the purchase agreement and as an assignee of rights of one dealer under that purchase agreement, and on the grounds of breach of contract, fraud and fraudulent conveyance. Defendant moves for summary judgment on all claims.

I. Background

On December 13, 1985, Will Petroleum Inc. (hereinafter "Will") entered into an agreement to sell 550,000 barrels of regular gasoline to Defendant Bulk Oil (USA), Inc. (hereinafter "BOUSA") at 71 cents per gallon. In a separate agreement executed at the same time, Will arranged to repurchase the same volume of gasoline from BOUSA at 71.3 cents per gallon. The deal was brokered by D. Checki, a petroleum broker employed by Triad Petroleum Inc. (hereinafter "Triad"), and no direct contact took place between Will and BOUSA at the time of the agreements. Both contracts (hereinafter "the BOUSA/Will contracts") provided that the gasoline would be deliverable during the period from December 15, 1985 to January 31, 1986 at BOUSA's barges in New York Harbor or by book transfer. Payment was to be made by "telegraphic transfer ... to seller's designated bank." The only explanation offered by either party for this transaction is that Will essentially agreed to pay BOUSA the difference in price as compensation for accepting the responsibilities of a buyer in the transaction.

On December 13, 1985, Will sent a telex to Plaintiff Banque Arabe et Internationale D'Investissement (hereinafter "BAII") requesting a loan of $12,440,256.04. The telex requested that the money be forwarded to ARCO Petroleum Products Company (hereinafter "ARCO") on December 16, 1985 to pay for 48,344 metric tons of pentane plus condensate which Will had already contracted to buy from ARCO. The pentane plus condensate was evidently intended to be a component of the goods to be sold to and then repurchased from BOUSA. According to plaintiff, the general practice in requests of this kind from Will was for Will to provide a description of the purchase contract needing financing and a description of one or more contracts of sale corresponding in volume to the intended purchase. Will then assigned the contracts to plaintiff in return for the requested financing arrangement. Will's December 13, 1989 telex described the sale of the 550,000 barrels to BOUSA, but did not mention Will's agreement to buy back the same volume from BOUSA. The telex also indicated that BOUSA would issue a purchase/payment confirmation in support of the transaction.

On December 13, 1985, R. Fuchs, the Executive Vice President of BOUSA who negotiated the BOUSA/Will contracts for BOUSA, was apparently unaware that the contracts related in anyway to a transaction between BAII Paris and Will. D. Checki, the Triad petroleum broker who brokered the deal between Will and BOUSA, was apparently unaware of the existence of any arrangement between Will and BAII at the time he negotiated the contracts. At 4:58 New York time on December 13, 1985,¹ Triad confirmed the first Will/BOUSA contract in a telex to Will. At 5:00 pm, Triad quoted to BAII by telex its earlier telex confirming the Will/BOUSA contract. Finally, at 5:21 pm, Triad confirmed the contract in a telex to BOUSA, though the telex did not indicate that a copy had been sent to BAII.

At 9:46 am on December 16, 1985, Will sent a telex to BOUSA requesting that BOUSA transmit a purchase/payment confirmation to BAII with specific wording suggested by Will. Defendant alleges, though plaintiff denies, that the precise wording was composed by Will's treasurer, D. Pirner, and J.R. Finot, the BAII officer in charge of Will's account. The suggested language read:

BOUSA confirms the purchase from Will of 550,000 barrels regular gasoline.... BOUSA agrees to post a letter of credit in favor of Will prior to lifting of this product, and to advise such letter of credit through BAII.

Much of this case turns on the parties' differing interpretations of this language.

At 11:06 am on December 16, BAII informed ARCO by telex that it would credit ARCO's account at Irving Trust New York with the $12,440,256.04 requested by Will. At 12:50 pm BAII instructed its New York correspondent to transfer the money to ARCO. BAII now claims that Will had advised BAII that the written purchase/payment confirmation of the Will/BOUSA contracts from BOUSA could be expected and that it transferred the money in anticipation of receiving the confirmation. At 2:51 pm BOUSA sent a telex to BAII conforming to the language specified by Will. BAII contends that in reliance upon the anticipated security of full payment of the purchase price which BOUSA's letter of credit would have afforded, it carried the pentane loan on its books and extended new credit to Will.

Pursuant to an agreement between BOUSA and Will made on or before January 23, 1986, the Will/BOUSA contracts were performed through a book transfer. BOUSA never actually posted a letter of credit, advised the letter of credit through BAII or paid any of the purchase price for the gasoline to BAII. Instead, after a book transfer of the product, BOUSA "netted out" payment of the contract purchase price against Will's debt under the repurchase agreement.

On January 29, 1986, Will filed a petition under Chapter 11 of the Bankruptcy Code. Will was subsequently unable to repay all of the outstanding loans it had received from BAII. On January 31, 1986 BAII sent a telex to BOUSA advising that BAII was the assignee of and holder of a security interest in the Will/BOUSA contract. The telex concluded by stating: "We would appreciate your response and comments on the above topic ..." A second telex in stronger terms but also suggesting a proposed amicable resolution was sent on March 13, 1986.

On February 13, 1986, with the value of Will's petroleum product inventory declining rapidly in the market conditions prevailing at the time, the Bankruptcy Court entered an order authorizing Will to abandon the inventory and accounts receivable to BAII. BAII completed its sale of Will's inventory by June 26, 1986, but the proceeds were insufficient to satisfy all of Will's debts to BAII. BAII then commenced this action on July 14, 1986, seeking to recover the difference between the unpaid purchase price of the first Will/BOUSA contract and the proceeds from the sale of equivalent amounts of Will's inventory. In a separate count, plaintiff sought the difference between the amount of its extension of credit to Will and the proceeds of the sale of Will's inventory. Defendant filed a motion to dismiss and for summary judgment with respect to this action on November 3, 1987. Without deciding the merits of the motion, the Court then granted plaintiff leave to file an amended complaint. In July 1988, pursuant to a stipulation between the parties, plaintiff filed a second amended complaint containing the counts set forth below. BOUSA now moves for summary judgment on the amended complaint, to strike portions of plaintiff's affidavits and for sanctions.

II. Discussion

Fed.R.Civ.P. 56(c) stipulates that a motion for summary judgment shall be granted if there is "no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Materiality of facts is determined by the applicable substantive law, and a genuine dispute exists over a material fact if a reasonable factfinder viewing the evidence could decide in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1985).

A. Third-Party Beneficiary Claim

In Count I of its complaint, plaintiff alleges that it was a third-party beneficiary of the first BOUSA/Will contract and is therefore entitled to recover damages for BOUSA's failure to make payment to Will's account at BAII. Defendant moves to dismiss Count I, arguing that plaintiff was at most an incidental beneficiary of the BOUSA/Will contract and as such has no third-party beneficiary claim.

Under New York law, only an intended beneficiary of a contract may assert a claim as a third party. Port Chester Elec. Constr. Corp. v. Atlas, 40 N.Y.2d 652, 655, 389 N.Y.S.2d 327, 330, 357 N.E.2d 983, 987 (1976). A beneficiary of a promise is an intended beneficiary if:

recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either

(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or

(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

Septembertide Publishing B.V. v. Stein and Day, Inc., 884 F.2d 675, 679-80 (2d Cir.1989) (quoting Restatement Second of Contracts § 302(1)(a) & (b) (1979)). See Fourth Ocean Putnam Corp. v. Interstate Wrecking Co., Inc., 66 N.Y.2d 38, 45, 495 N.Y.S.2d 1, 5, 485 N.E.2d 208, 213 (1985) (adopting Restatement formulation). It is also established that "the obligation to perform to the third party plaintiff need not necessarily be expressly stated in the contract." United States v. Ogden Technology Laboratories, Inc., 406 F.Supp. 1090, 1092 (E.D.N.Y.1973). See also Strauss v. Belle Realty Co., 98 A.D.2d 424, 469 N.Y. S.2d 948, 950 (2d dep't 1983) (quoting Airco Alloys Div. v. Niagara Mohawk Power Corp., 76 A.D.2d 68, 430...