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April 21, 1992

MUTUAL EXPORT CORP., Plaintiff against WESTPAC BANKING CORP., Defendant.

The opinion of the court was delivered by: WHITMAN KNAPP



 Plaintiff Mutual Export Corp. comes before us with a tale of woe from Downunder, seeking reformation of a letter of credit that terminated too early as a result of blunder. The parties, agreeing that the facts are for the most part undisputed, have cross moved for summary judgment. For the reasons that follow, plaintiff's motion is granted and defendant's denied.

 FACTS *fn1"

 In June, 1985, Reefer Express Lines Pty. Ltd. ("Reefer") divided the capital stock of its wholly owned subsidiary Refrigerated Express Lines (A/Asia) Pty. Ltd. ("Refrigerated") into halves, and sold one half to a group (known as Bapopo) that was controlled by Refrigerated's local Australian managers and the other half to a quasi-governmental New Guinea group (known as Bodecas). *fn2" Defendant knew well before June 1985 that Reefer was seeking to sell Refrigerated, and to whom. During this period, Reefer, Refrigerated, and plaintiff, which is also a wholly owned subsidiary of Reefer, were involved in a series of "back-to-back" charter parties by which Reefer chartered two container ships (the "Kumul" and "Lakatoi") from their Japanese owners and in turn chartered them to plaintiff, who chartered them to Refrigerated, who operated the ships. Defendant knew that the charter parties extended well past June 30, 1986, and that the back-to-back arrangement was to remain in place after completion of the sale. Def. 3(g) at PP3-4, Pl. 3(g) at PP1-3.

 A necessary element of the sale of Refrigerated was its procurement of an irrevocable standby letter of credit for the benefit of plaintiff for $ 500,000 to secure aproximately one month's payment on the charter parties of the two ships. Pl. 3(g) and Def. Response to Pl. 3(g) at P10. Moreover, defendant knew that the letter of credit was intended to run for the term of the charter parties, and why. For example, Roy Roach, Manager of defendant's George Street branch in Sydney, who had signed the letter of credit on defendant's behalf, testified that since he had signed the letter of credit knowing that it was intended "in support of charter fees," he had been surprised when he subsequently learned that its term was not coextensive with the charter parties. Roach Dep. at 164. Roach also wrote in an internal memorandum to defendant's regional manager that the "guarantee is essential for charter of [Refrigerated's] vessels, without guarantee company would be unable to charter ships." Pl. Dep. Exh. 3 at 92, 94.

 To that end, sometime on or prior to June, 26, 1985, defendant was requested to issue such a letter of credit, and Reefer forwarded to them a draft version of the letter they desired. Def. 3(g) at PP5-6. That draft included the following duration term: "This letter of credit expires [45 days after the later of the last possible day on which Kumul Express or Lakatoi Express charter may terminate]." Def. Resp. to Pl. 3(g) at P9 (brackets in original). Refrigerated had made the need for the letter known to defendant before June 26, and why it was necessary. However, the request for the letter was apparently first formally made in the course of a June 26 meeting between branch manager Roach and another bank employee on the one hand, and James Horn, vice-president of both plaintiff and Reefer, and Andrew Consentino, counsel representing both plaintiff and Reefer at the closing of the sale of Refrigerated, on the other. Consentino and Horn informed defendant at the meeting that the letter of credit was required on or before June 28, when the the half of the closing involving the Bapopo group was to take place. They were in turn informed that because of administrative necessities, the actual letter of credit could not be issued by that time. *fn3" Def. Resp. to Pl. 3(g) at P12, Pl. Resp. to Def. 3(g) at P5.

 Accordingly, no actual letter of credit being available for the June 28 closing of the sale of half of Refrigerated to the Bapopo group, a letter signed by Roy Roach on behalf of defendant was that day delivered to Horn and Consentino, who were acting on behalf of plaintiff and Reefer. This letter ("June 28 letter"), addressed to Reefer, read as follows:

 The Bank has approved at the request of Refrigerated Express Lines (A/Asia) Pty Ltd, the establishment of an Irrevocable Credit for USD $ 500,000 in favour of Mutual Export Corporation.

 The Bank hereby undertakes to issue the credit in the draft form provided by your company, or as mutually agreed upon between your company and the Bank.

 Labov Aff. Exh. I (emphasis added).

 While defendant contends that Roach did not have the authority to approve the issuance of the requested letter of credit -- which approval had apparently been given by defendant's regional manager that same day -- it conceded at oral argument that he did have the authority to write and deliver the June 28 letter.

 That same day Roach sent a report to defendant's regional manager requesting approval of the letter of credit, along with a modified version of the draft letter of credit plaintiff had provided to defendant. However, unbeknownst to plaintiff, the duration clause setting the letter of credit's expiration at "[45 days after the later of the last possible day on which Kumul Express or Lakotoi Express charter may terminate]" had been crossed out and a termination date of "June 30, 1986" inscribed by hand above it. *fn4" The latter termination date was then utilized in the letter of credit signed by Roach and issued on July 5, 1985. Labov Aff. Exhs. G, J. One Gary Pagotto, an assistant to Roach, made the handwritten change to plaintiff's draft version, but when deposed in June 1991, was unable to recall who, if anyone, instructed him do so, or why. Pagotto Dep. at p. 9. It is clear, however, that Roach did not order the change, since, until he saw the June 30, 1986 termination date sometime in December 1988, he "assumed that the standby letter of credit was still current." Roach Dep. at 164.

 The letter of credit is otherwise in all respects identical to the draft version supplied by plaintiff, including: addressing it to plaintiff care of Reefer; writing out the sum in capitals and small letters ("FIVE HUNDRED THOUSAND AND no/100 United States dollars"); underlining it's number and date of issuance in conformance with the underlined blanks in the draft that signalled where those terms should be inserted; and reproducing the phrase "(specify "KUMUL EXPRESS" OR "LAKATOI EXPRESS")" exactly as it appeared in the draft, complete with parantheses, underlining, and capitalization of and quote marks around the ships' names. Compare Labov Aff. Exh. G with Labov Aff. Exh. J. Even the letter of credit's closing -- "Very truly yours" -- is drawn from plaintiff's draft version, and stands out in contrast with the "Yours faithfully" closing that Roach uniformly used in the others of his letters in the record. Compare Labov Aff. Exh. G with Labov Aff. Exhs. I, P, S and Pl. Dep. Exh. 7.

 Defendant telexed a copy of the letter of credit to plaintiff, which received it by July 12, 1985; plaintiff also received a copy of the original on or before August 5, 1985. Def. 3(g) at P16. Consentino read the letter of credit and questioned the new termination date in a July 11 memorandum marked "re: Reefer sale of Refrigerated" addressed to Virginia Pearce, Refrigerated's Australian counsel, pointing out that:

 because the Letter of Credit must be in force without interruption until some time after the charters have terminated, either the Letter of Credit must be for a longer period or . . . the Addendum [to the charter party] must be revised to require renewals not less than forty-five days prior to each expiration.

 Labov Aff. Exh. M (at p. 149).

 Pearce, in a July 12 fax to Consentino responded "I understand that a final signed form of the Letter of Credit complete with missing language has been forwarded to [Refrigerated] by Westpac. Please let me know if any language remains missing." Def. Dep. Exh. 10 (at p. 137). *fn5" So far as we are aware there were no further communications with respect to this termination date between Refrigerated and Reefer or plaintiff, or between either of those entities and defendant. Consentino discussed the letter of credit with Horn and Dan Valvano, another officer of both plaintiff and Reefer but neither of them recalls reading it at that time, or in fact anything else about it ...

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