Fertico Belgium S.A. v. Phosphate Chemicals Export Ass'n, Inc.

• Decision Date: 06 March 1984
• Citation: 473 N.Y.S.2d 403,100 A.D.2d 165
• Parties: FERTICO BELGIUM S.A., Plaintiff-Respondent, v. PHOSPHATE CHEMICALS EXPORT ASSOCIATION, INC., Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 403

473 N.Y.S.2d 403

100 A.D.2d 165

FERTICO BELGIUM S.A., Plaintiff-Respondent, v. PHOSPHATE CHEMICALS EXPORT ASSOCIATION, INC., Defendant-Appellant.

Supreme Court, Appellate Division First Department.

March 6, 1984.

Michael L. Anania, New York City, of counsel (John J. Witmeyer III, New York City, with him on the brief; Ford, Marrin, Esposito & Witmeyer, New York City, attorneys), for plaintiff-respondent.

Charles H. Critchlow, New York City, of counsel (Norman H. Seidler and Douglas F. Broder, New York City, with him on the brief; Lord, Day & Lord, New York City, attorneys), for defendant-appellant.

Before KUPFERMAN, J.P., and SULLIVAN, CARRO, MILONAS and KASSAL, JJ.

SULLIVAN, Justice.

On October 18, 1978 Phosphate Chemicals Export Association, Inc. (PhosChem), an American exporter of fertilizer products, agreed to sell 35,000 metric tons of phosphate fertilizer to Fertico Belgium S.A., a Belgium-domiciled, international trader of various commodities, including fertilizer. The fertilizer was to be shipped to Antwerp, C. & F., and delivered in two installments--15,000 metric tons between November 1 and 15, 1978 and the balance by November 30, 1978. Although the contract did not specify a date for the fertilizer's arrival in Antwerp, time was allegedly of the essence since Fertico was contractually obligated to ship 12,000 metric tons to Baghdad by November 25th. Fertico was required to open a confirmed irrevocable letter of credit in PhosChem's favor through a reputable United States bank no later than October 30, 1978. Shipment was to be within 15 days after receipt of the letter of credit.

On November 2, 1978, Fertico's bank, The Banque de Paris et des Pays-Bas Belgique S.A. (Paribas), notified the Irving Trust Company by telex that an irrevocable documentary credit in the amount of $1,725,000 was being opened in PhosChem's behalf. Irving Trust, in turn, advised PhosChem of the credit and the conditions thereof on November 6, 1978. Fertico, through Paribas, subsequently amended the conditions of the letter of credit and advised Irving Trust that no written confirmation would follow. On November 10, 1978, Irving Trust notified PhosChem of the amendments and confirmed the credit.

Irving Trust's confirmation specified shipment from an "East or Gulf U.S. Port" to Antwerp C & F, and provided for payment against presentation to it of various documents including, "[f]ull set clean onboard ocean bills of lading ... dated onboard not later than November 8, 1978" and "[c]opy of your telex sent to Fertico Belgium S A advising name of ship, sailing date, weight and Eta Antwerp, the same date as end of loading, and certified true." Irving Trust's confirmation, as well as its original advice, further advised that the credit was subject to the Uniform Customs and Practice for Documentary Credits [1974 Revision], International Chamber of Commerce Publication 290 (UCP). ^* Thus, since the letter of credit was subject to the UCP, Article 5 of the Uniform Commercial Code--Letters of Credit--does not apply. (Uniform Commercial Code, § 5-102[4].) The UCP, however, is by definition a recording of practice rather than a statement of legal rules. (Harfield, Practice Commentary, McKinney's Consolidated Laws of New York, Book 62 1/2, Uniform Commercial Code, § 5-114.)

After receiving Irving Trust's advice that an irrevocable credit had been issued in its favor, PhosChem chartered a cargo ship, the Scanspruce, and arranged for 15,000 metric tons of fertilizer to be promptly delivered onboard. Loading was completed by November 8th and onboard bills of lading, the accuracy of which is not in dispute, were issued bearing that date. That same day, PhosChem sent the following telex to Fertico:

The M/V Scanspruce sailed from Tampa, Florida on November 8, 1978 carrying a total of 14805.580 metric tons granular triple superphosphate and is due to arrive in Antwerp on December 4, 1978.

We certify the above to be true and correct.

In fact, the Scanspruce took on other cargo and did not leave port until November 11th. PhosChem so advised Fertico, both orally and in writing, on November 16th.

Earlier, however, on November 3rd, Fertico, on learning that the Scanspruce was not due in Antwerp until December 4th, had complained to PhosChem that the fertilizer would arrive too late to complete the resale transaction to which it was committed. On November 13, 1978 Fertico reiterated this complaint and advised PhosChem that it was sending a representative to Baghdad in an effort to renegotiate the resale.

Notwithstanding its concern Fertico did not advise Irving Trust or Paribas of any problem with respect to the transaction; nor did it request either bank to withhold payment on the credit. PhosChem did not present its draft and the various documents required by the letter of credit to Irving Trust until November 17th. Payment was made on or about November 21st. Among the documents presented was PhosChem's November 8th telex to Fertico certifying a November 8, 1978 sailing. The Scanspruce did not arrive in Antwerp until December 17, 1978. Unloading of the fertilizer was undertaken on December 20, 1978. Fertico took possession of the goods, held them, and resold them to a customer in Antwerp at a gross profit of approximately $400,000.

Almost three years later, in October 1981, Fertico commenced an action against PhosChem, asserting, inter alia, causes of action in breach of contract and fraud and conversion. ^d In the contract action, in which damages of $1,250,000 were sought, Fertico alleged that "[t]imely delivery by PhosChem of the [fertilizer] to plaintiff was essential, and was known to PhosChem to be essential to plaintiff, for it to fulfill its contractual obligations ...." Specifically, Fertico contends that PhosChem was contractually obliged to assure that the Scanspruce would arrive in Antwerp by a certain date and, as part of this obligation, agreed that it would set sail by November 8, 1978 and proceed directly to Antwerp. Instead, the Scanspruce made a stop at Hamburg before proceeding to Antwerp.

The fraud and conversion cause of action incorporated the contract allegations. Additionally, Fertico contends that PhosChem's November 8th telex contained fraudulent misrepresentations and that in reliance thereon it "[a]llowed Irving Trust Company to pay to PhosChem in excess of $1.7 million, to which PhosChem was not entitled." Thus, Fertico alleged that PhosChem's drawing on the letter of credit constituted actionable fraud and conversion.

PhosChem moved to dismiss the fraud and conversion cause of action for failure to state a cause of action (CPLR 3211(a)[7] ). Fertico cross-moved for partial summary judgment on the same cause of action on the issue of liability. While agreeing with PhosChem that "the alleged fraud is not an independent transaction but rather an integral part of defendant's alleged failure to timely perform the contract", Special Term nevertheless refused to dismiss the conversion claim, finding that "[t]he letter of credit is property of its maker plaintiff, Fertico, separate and apart from the underlying transaction...." Reasoning that the terms of the letter of credit were not met because "the sailing occurred after November 8th, and was not direct to Antwerp", Special Term concluded that "under such circumstances, [PhosChem] did not at the time of encashment have any entitlement to the funds", and awarded Fertico partial summary judgment on its conversion claim. An assessment of damages was directed.

Even assuming, arguendo, that a cause of action for either fraud or conversion is stated, the grant of summary judgment in Fertico's favor on the conversion claim was clearly erroneous since the factual premises underlying Special Term's determination either do not find support in the record or are, at the very least, in issue.

Special Term found that PhosChem did not comply with the terms of the letter of credit in two respects, one of which, direct shipment to Antwerp, was not even a specified condition. The letter simply specified "shipment from East or Gulf U.S. Port to Antwerpen C & F Antwerpen." Only transhipment, i.e., the transfer of goods from one ship to another, was prohibited, and only the Scanspruce transported Fertico's cargo.

In a C & F contract, such as is involved here, the seller "must put the goods in the possession of ... a carrier and make such a contract for their transportation as may be reasonable ..." unless otherwise agreed. (Uniform Commercial Code, § 2-504[a].) The reasonableness of particular transportation arrangements turns on a review of the "circumstances of the case." (Uniform Commercial Code, § 2-504[a].) Although Fertico is obviously challenging the propriety of PhosChem's shipping arrangements, the letter of credit did not require that the vessel carry Fertico's cargo alone, that it proceed by any particular route or that Fertico's cargo be given any priority in unloading. These are matters totally extraneous to the text of the letter of credit and irrelevant to its interpretation.

A letter of credit is a commitment by a bank to pay under the terms of the credit upon presentation of specified documents, not upon occurrence of the events purportedly represented by the documents. (United Bank v. Cambridge Sporting Goods Corp., 41 N.Y.2d 254, 258-259, 392 N.Y.S.2d 265, 360 N.E.2d 943; UCP, General Provisions and Definitions [c] and Article 9.) An issuing or confirming bank presented with a demand for payment is concerned only with whether the description of the documents listed in the letter of credit has been met. Thus, Irving Trust was not obliged to look beyond the letter's specified conditions to check the particulars of shipping arrangements. (See O'Meara Co. v. National Park Bank of N.Y., 239 N.Y. 386, 146 N.E. 636, reh. den. 240 N.Y. 607, 148 N.E. 725.)

Special Term also found that PhosChem failed to comply with the letter of credit because "the...