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TRIFINERY v. BANQUE PARIBAS

May 2, 1991

TRIFINERY, A TEXAS CO-PARTNERSHIP, PETCOR SERVICES, INC. AND PETROSERVE, LTD., AS CO-PARTNERS, PLAINTIFFS,
v.
BANQUE PARIBAS, DEFENDANT AND THIRD-PARTY PLAINTIFF, V. VITOL, S.A., INC., THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: Sprizzo, District Judge.

MEMORANDUM OPINION AND ORDER

Plaintiffs Trifinery, Petcor Services, Inc., and Petroserve Ltd. (collectively "Trifinery") bring this action against Banque Paribas ("Paribas" or "the Bank") alleging that Paribas wrongfully refused payment on a letter of credit opened by Vitol, S.A., Inc. ("Vitol") in favor of Trifinery. Presently pending before the Court is Paribas' motion for summary judgment.*fn1 For the reasons set forth below, the motion is denied.

BACKGROUND

The Underlying Transaction

This action arises out of a transaction between Trifinery and Vitol involving the sale and processing of oil, which was structured as follows: (1) Vitol agreed to sell to Trifinery 437,000 barrels of 100% Syrian straight run fuel oil of normal export quality shipped on a vessel named the "Bulk Ravenna;" (2) Trifinery was to process that crude oil into component parts known as vacuum gas oil ("VGO"), vacuum tower bottoms ("VTB") and distillate, and was to sell those components back to Vitol;*fn2 and (3) Trifinery was to then repurchase the VTB from Vitol for sale to others as asphalt. See Affidavit of Sanford Brass ("Brass Aff.") at ¶¶ 18-22 & Exs. B-C; Affidavit of Neil E. Kelley ("Kelley Aff.") at ¶¶ 3, 6, 8, 10-14. However, although Trifinery agreed to sell the VTB to Vitol after processing, it was not contemplated that the VTB would ever actually leave Trifinery's tanks, because, as noted above, the VTB would ultimately be sold back to Trifinery. See Brass Aff. at ¶ 81; Kelley Aff. at ¶¶ 10, 14.

The agreement also provided that the parties would secure their respective obligations by opening letters of credit in favor of the other contracting party. Thus, Trifinery caused Bank Indosuez to issue a letter of credit in the amount of $3,175,800.00 to secure its payment obligations to Vitol, whereas in turn Vitol caused Banque Paribas to open the letter of credit at issue in this litigation in the amount of $3,504,447.90 to secure its obligations to Trifinery. See Brass Aff. at ¶¶ 21, 33-34, 37 & Exs. I, L; Kelley Aff. at ¶¶ 7, 9.

Subsequently, when disputes arose regarding the quality of the crude oil aboard the "Bulk Ravenna," see Brass Aff. at ¶¶ 23-26, 41-45, Trifinery and Vitol engaged in extensive negotiations which led to an agreement to reduce the amount of crude oil that Trifinery was obliged to purchase and process and a reduction in the percentages of VGO to VTB expected to be yielded from the crude oil delivered to Trifinery. See Brass Aff. at ¶¶ 25-32 & Exs. G-H. However, when Trifinery concluded that the VTB that it could produce from the crude oil delivered by Vitol could not be sold profitably for asphalt, it notified Vitol that it would not repurchase the VTB from Vitol as agreed, but instead would attempt to market it for Vitol's account. See Brass Aff. at ¶¶ 41-43. Vitol did not consent to Trifinery's proposed sale for Vitol's account, but decided to take no action until the VTB was sold. See id. at ¶¶ 44-46. Toward that end, both parties extended their letters of credit to December 15, 1989. See id. at ¶¶ 47-48.

No agreement was reached. Although Trifinery offered to pay part of the amount due for the disputed VTB and sent a partial payment in December 1989, Vitol continued to insist that Trifinery pay the entire amount due for the VTB. See id. at ¶¶ 53-57. When Trifinery failed to comply with Vitol's demand that that sum be paid by wire transfer, Vitol drew upon and was paid $1,099,834.13 on the Bank Indosuez letter of credit, a sum that did not take into account or recognize Trifinery's rejection of its obligation to repurchase the VTB from Vitol. See Kelley Aff. at ¶¶ 15, 17-26. In response, Trifinery unsuccessfully sought to draw down upon the Banque Paribas letter of credit based upon its contention that Vitol was obligated to pay it for the VTB it agreed to purchase from Trifinery but that Trifinery was not obliged to repurchase that VTB from Vitol.

The Banque Paribas Letter of Credit

The letter of credit issued by Banque Paribas in favor of Trifinery provided as follows:

  We hereby open our irrevocable standby letter of
  credit No. 719430/AR in favor of Trifinery,
  Houston, Texas by order and for account of Vitol
  S.A., Inc., Stamford, Ct available at sight for an
  approximate amount of 3,504,447.90 U.S. Dollars
  against:
  1. Copy(ies) of a signed commercial invoice(s)
  covering approximately 99,540 barrels of vacuum
  gasoil at USD 18.585 per barrel and/or
  approximately 125,610 barrels of vacuum tower
  bottoms at USD 11.25 per barrel and/or
  approximately 11,850 barrels of distillate at USD
  20.37 per barrel F.O.B. basis Corpus Christi,
  Texas delivered during September and/or October
  1989.
  2. Copy of document, purportedly issued or
  cosigned by the independent inspector for
  verification of quantity per shore tank down gauge
  and quality. Shore tank composite quality must
  meet the following contractual specifications:
  [specifications for VGO omitted]
  The specifications for the distillate and vacuum
  tower bottoms should be consistent with the
  production of ...

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