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NEWPORT INDUS. NORTH AMERICA v. BERLINER HANDELS U

April 9, 1996

NEWPORT INDUSTRIES NORTH AMERICA, INC., Plaintiff, against BERLINER HANDELS UND FRANKFURTER BANK A/K/A BHF-BANK, Defendant.


The opinion of the court was delivered by: KAPLAN

 LEWIS A. KAPLAN, District Judge.

 Plaintiff Newport Industries North America, Inc. ("Newport") sought to arrange a back-to-back purchase and sale of a large quantity of sugar. It structured the transaction so as to keep the buyer and the seller unaware of their respective identities lest they cut Newport out of the deal. Both the buyer and the seller put up earnest money and sought the same from Newport. Newport, however, sought to use the letters of credit posted by the buyer and the seller to avoid putting any of its own funds at risk. The plan did not work, ultimately because Newport refused to put up less than $ 8,000 of its own money to close this $ 3.45 million transaction, and the deal collapsed. So Newport now seeks to hold the defendant, Berliner Handels and Frankfurter Bank ("BHF-Bank"), liable for the profit it claims it would have earned. BHF-Bank moves to dismiss the complaint.

 Facts

 Although this is a motion to dismiss the complaint, Newport has submitted a long, rambling and repetitious affidavit filled both with legal argument and facts de hors the complaint. The affidavit seeks leave to amend in the event the motion to dismiss is granted, although no proposed amended complaint is annexed. In all the circumstances, the Court treats the complaint as having been amended to embrace the factual assertions contained in the opposing affidavit and the motion as being directed to the complaint thus amended.

 The Punjab Letter of Credit

 The story fundamentally is a simple one. In or about July 1994, Newport contracted to sell a large quantity of sugar to Oswal Sugars Limited ("Oswal") of Ludhiana, India, for $ 3,450,000. As the contract subsequently was amended, shipment was to be made by October 31, 1994. *fn1" Oswal thereupon opened a letter of credit in favor of Newport, as beneficiary, with Punjab National Bank (the "Punjab LC") in the full amount. Although the full text of the Punjab LC is not before the Court, it appears that Newport would have had the right to draw on it assuming (1) the Punjab LC had been made operative, and (2) bills of lading and other required documents relating to the shipment had been presented. (See Cpt Ex. 1) On or about August 8, 1994, BHF-Bank, at the request of Punjab National Bank, advised and confirmed the Punjab LC to Newport.

 The Punjab LC was to become operative "only upon receipt of Performance Bond/Standby Letter of Credit" for $ 50,000 by Midlantic National Bank NA ("Midlantic") "on account of the beneficiary [Newport] and acceptable to the openers." (Cpt Exs. 1, 2) As Newport acknowledges, the purpose of Oswal insisting on this condition was "to assure itself that the plaintiff was capable, serious and motivated to consummate the transaction" by subjecting itself to the risk that Newport would lose $ 50,000 to Oswal if the sugar was not shipped in accordance with the contract. (Jacobs Aff. P 20)

 Newport of course could have made the Punjab LC operative immediately by opening its own letter of credit or performance bond by Midlantic in the amount of $ 50,000. As events unfolded, however, it elected not to do so in the hope of putting someone else's money at risk instead of its own.

 The Mannah Letter of Credit

 Newport did not have the sugar it contracted to sell to Oswal when it entered into the Oswal contract. (Jacobs Aff. P 17) On or about August 26, 1994, Newport contracted to purchase the necessary sugar from Mannah Corp. ("Mannah") for $ 3,152,500, with shipment to be made by October 31, 1994. (Cpt PP 7-8) Thus, if everything went according to plan, Newport would have made the difference between the price it paid Mannah and the price at which it sold to Oswal, or $ 297,500. But that is not how things turned out.

 Newport evidently found Mannah to be a motivated seller, so it persuaded Mannah to cause Midlantic, Mannah's bank, to issue a standby letter of credit in the amount of $ 62,000 (the "Mannah LC"), naming Newport as beneficiary. *fn2" (Jacobs Aff. PP 17, 21-22; Cpt Exs. 3, 4) The Mannah LC provided, inter alia, that Newport as beneficiary could draw on the letter of credit in the event Mannah did not ship the sugar by October 31, 1994. (Cpt Exs. 3-4) The Mannah LC, however, like the Punjab LC, was inoperative. It provided also in pertinent part that:

 
"It is a condition of this letter of credit that it shall become operative upon receipt of a tested telex from BHF Bank, New York branch to Midlantic Bank (telex no. 825648) stating:
 
"'(1) A credit confirmed by BHF Bank has been transferred to (or partial proceeds thereof assigned to) Mannah Corporation in the amount of USD $ 3,152,500.00. Said credit shall provide for a shipment date through October 31, 1994 and shall allow for presentation of documents required by said credit within 21 days following the date ...

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