Article

Note: Empire Imports Group (Applicant/Buyer), a U.S. company, agreed with Jiangsu Jintan Liming Garments Factory (Seller/Beneficiary), a Chinese company, to purchase bulk clothing. The agreement allowed Buyer to inspect the goods prior to shipment and required Applicant/Buyer to open an LC in favor of Seller/Beneficiary if the goods passed inspection. After the issuance of the first LC, questions arose as to the name of the beneficiary, with one name listed on the LC as Jiang Su Jintan Liming Garments, and a different name on the B/L, Jiang Liming Clothing Factory. Applicant/Buyer claimed it was impossible to change the letter of credit to match the B/L and therefore the LC expired without being drawn.

In order to remedy this problem, Applicant/Buyer offered a “guaranty” with regard to the first sales agreement, and promised that within two days of receipt of the shipment, Applicant/Buyer would transmit payment via wire transfer to Seller/Beneficiary. There were to be two wire transfers, USD 50,000 upon receipt of the goods, and the remainder of the purchase price(USD 280,269) within 60 days. The first wire transfer was transmitted before Applicant/Buyer inspected the goods. Upon inspection, Applicant/Buyer claimed that the goods were non-conforming and that some of the goods were missing.

Seller/Beneficiary disputed these claims and sued Applicant/Buyer in New York under the guarantee, alleging breach of the guarantee, account stated, unjust enrichment, conversion, and fraud. After some delay and a change of counsel, Applicant/Buyer moved to amend its Answer and for summary judgement based on the forum selection clause in the sales agreement. Applicant/Buyer moved to dismiss the action. The Supreme Court of New York, New York County, Kornreich, J., granted partial dismissal and partial summary judgement in favor of Seller/Beneficiary.

The Judge granted partial dismissal to Kevin Zhou, the owner of Applicant/Buyer, who claimed that his acts were in his corporate capacity and he was not personally liable. The Judge concluded, however, that Applicant/Buyer had waived the forum selection clause in the underlying contracts, which would have required the dispute to be heard in China, when it did not object to the forum in its response to the initial pleading.

The Judge granted partial summary judgement as to certain claims of Seller/Beneficiary, namely that Applicant/Buyer had breached its sales contract, determining: (1) the USD 50,000 it had received was not unjust enrichment, and (2) Applicant/Buyer did not reject the goods delivered within a reasonable time under U.S.U.C.C. Article 2 (Sales). The Judge also ruled that where a sale of goods contract is breached, absent special circumstances, a tort claim for conversion or a claim for fraud is prima facie not available.

[JK/ARB]

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