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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2010 LC CASE SUMMARIES 2010 U.S. Dist. LEXIS 107944 (E.D. Mich. Oct. 8, 2010) [U.S.A.] By Jacob A. MANNING*
Topic: Contract to Issue LC
Article
Note: In connection with the intended purchase of 3,600 metric tons of sunflower oil, American Import-Export of Goods, LLC (Buyer) contracted with World of Colors, LLP (Seller) for the purchase which was to be delivered in monthly shipments of 300 metric tons. The contract required payment by "irrevocable, confirmed, twice transferable (FFDLC) fully-funded documentary [commercial] letter of credit payable 100%".
When Buyer was unable to secure the letter of credit given the amount at issue, the parties agreed that a wire transfer would be accepted in lieu of a letter of credit for the first delivery and Buyer delivered to Seller a cashier's check in the amount of US$322,500. Seller then executed a "promissory note" in the same amount stating that: "[I]t was a 'good faith up front payment for 300 [metric tons] of sunflower oil as per [the] signed contract.' ... Under the terms articulated in the Promissory Note, the shipment had to be completed no later than April 15, 2008, or [Buyer] had 'the right to a full refund of $322,500.'" The promissory note included a "guaranty" by which the Seller's President, signing on behalf of Seller, purported to guaranty the repayment of the amount paid to Seller.
No delivery of the sunflower oil was made and no payments were refunded. Buyer and Seller agreed that Seller could ship paint as a substitute, but due to disputes regarding the payment of freight and storage fees, the substitute shipment never reached Buyer. Buyer sued Seller for breach of contract. The U.S. District Court for the Eastern District of Michigan, Battani, J., granted judgment to Buyer for refund of the US$322,500 advance payment.
Buyer's first claim against Seller and its principals was that Seller had breached the contract and was liable to Buyer. The Judge determined, however, that Buyer had first breached the contract by failing to obtain the required letter of credit. As a result of Buyer's breach, there was no longer a contractual obligation on Seller's part to deliver sunflower oil at the agreed-upon price. Thus, Buyer could not hold Seller liable pursuant to the contract.
As an alternative, Buyer asserted that the Seller and its principals were jointly and severally liable for the return of the amount paid pursuant to the promissory note. The Judge agreed that the Seller was liable for the amount paid pursuant to the promissory note, but noted that Seller had failed to register as a limited partnership pursuant to Michigan law. The Judge examined the Seller's principal's acts and agreed that they had formed a de facto partnership under Michigan law and therefore, would be held jointly and several liable for the partnership's obligation.
* Jacob A. MANNING is an Associate at Dinsmore & Shohl LLP.
This summary was submitted by Mr. MANNING. The facts have been reformatted and rearranged by the IIBLP staff to correspond with the formatting used in this volume but the legal analysis and comment are those of the author.
The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.