985 F.2d 685 (2d Cir. 1993)
In July 1986, BAII Banking Corporation and its affiliate Banque Arabe et Internationale d'Investissement filed a diversity action in the United States District Court for the Southern District of New York against UPG, Incorporated and Internorth, Incorporated.1 The suit arose from four agreements entered in December 1985 and January 1986 between UPG Falco, a division of UPG and subsidiary of Internorth, and Will Petroleum, Incorporated.2 Two agreements concerned the sale of Rumanian blendstock gasoline that BAII had financed for Will, while the other two were buy-sell transactions for gasoline.3
The Dodsland Agreement required Will to sell Falco 80,000 metric tons of Rumanian unleaded blendstock for delivery on the East Coast between January 26 and February 10, 1986.4 The Konpolis Agreement called for the sale of approximately 100,000 barrels for delivery to Riverhead, New York between January 21 and 25, 1986.5 For both transactions, Falco sent purchase confirmations to BAII directing that payment be remitted to Chemical Bank for credit to a BAII account and further credit to Will Petroleum.6
By mid-January 1986, rumors had resurfaced concerning Will’s financial difficulties.7 On January 23, Falco sent Will a telex demanding adequate assurances of performance by 3:00 p.m. Central Standard Time on January 24 with respect to the Rumanian blendstock agreements and the buy-sell agreements.8 Will did not respond to the demand.9 On the evening of January 24, Falco sent Will a telex canceling all unfulfilled contracts.10 Will filed a voluntary petition for bankruptcy on January 29, 1986, after which BAII obtained from the bankruptcy court an assignment of Will’s rights under the agreements.11
Trial commenced before Judge Louis L. Stanton on March 12, 1991.12 BAII Paris withdrew its claims on the buy-sell agreements shortly after opening statements, leaving only BAII’s claims on the two Rumanian blendstock agreements.13 The jury returned a verdict in favor of the defendants on April 8, 1991.14 BAII moved for judgment notwithstanding the verdict or a new trial; the district court denied the motion in an order filed September 20, 1991, and BAII appealed.15
During late 1985 through mid-1986 the market price for petroleum products declined, and Falco stood to gain financially if the agreements were not performed.16 Evidence at trial showed that the vessel Konpolis arrived at the pilot station near Riverhead on January 23, 1986, prepared a notice of readiness, but was instructed not to berth after receiving a call from the terminal operators acting on instructions from the cargo receiver.17 The Dodsland discharged its cargo at Riverhead in early February 1986.18
Whether BAII was entitled to receive notice of Falco’s demand for adequate assurances under N.Y.U.C.C. § 2-609?19
Under N.Y.U.C.C. § 1-201(29), a party is a person who has engaged in a transaction or made an agreement within Article 2. Section 2-609 applies only to contracts for the sale of goods between parties to those contracts.20 An assignee of a security interest in proceeds receives no right to notice of a demand for assurances. Such an assignment transfers only the right to payment upon performance and leaves the assignor subject to all defenses under N.Y.U.C.C. § 9-318.
No. The Dodsland and Konpolis Agreements were formed solely between Will and Falco.2122 BAII received purchase confirmations directing payment to its account but obtained only a security interest in the resulting receivable.23 Haswell testified that Will assigned the proceeds as collateral.24 No evidence showed that Will assigned the contracts themselves or delegated duties to BAII.25 Therefore BAII never became a party entitled to notice under § 2-609.26
BAII was not entitled to receive notice of the demand.27
Whether the district court’s jury instructions adequately addressed BAII’s claims based on assignment, third-party beneficiary status, direct contract with Falco, and promissory estoppel?28
A litigant is entitled to jury instructions on claims and theories supported by the evidence.29 When the charge given is correct and covers the essential issues, reversal is not required even if additional instructions were requested.30 Third-party beneficiaries and assignees of security interests stand in the shoes of the promisee or assignor and remain subject to the same defenses.31
Yes. The district court instructed the jury that BAII could recover only if Will was ready, willing, and able to perform and that Falco could prevail on its affirmative defenses.32 These instructions correctly captured the limits on BAII’s rights whether viewed as assignee of proceeds, third-party beneficiary, or holder of rights under the purchase confirmations.33 The purchase confirmations conditioned payment on amounts becoming due, which required performance by Will absent a valid defense by Falco.34
The jury instructions adequately addressed BAII’s claims.35
Whether sufficient evidence supported submission to the jury of Falco’s affirmative defense that the agreements were voidable due to the broker Triad’s owner having an undisclosed interest in Will?36
A broker owes a fiduciary duty of full disclosure to its principal.37 When a broker has an undisclosed ownership interest in the counterparty, the principal may avoid the contract if the dual interest was not laid bare without ambiguity.38 The issue may be submitted to the jury when the evidence permits a finding that the broker acted with discretion and the principal relied on the broker’s judgment.39
Yes. Brunett testified that Falco relied on DiMauro to obtain the best price and treated Triad as its broker.40 Ettelman described the trust arrangement giving DiMauro beneficial ownership of Will while Ettelman’s firm held legal title.41 Three Falco employees believed Willis owned Will, and Sinclair’s testimony showed only a belief rather than knowledge of the connection.42 This evidence permitted the jury to find that the dual interest was not fully disclosed.
Sufficient evidence supported submission of the broker defense to the jury.43
Whether the district court properly submitted to the jury Falco’s affirmative defense that Will repudiated the agreements by failing to provide adequate assurances of performance?44
Under N.Y.U.C.C. § 2-609 a party may demand adequate assurances only when reasonable grounds for insecurity arise.45 Between merchants the reasonableness of those grounds is measured by commercial standards.46 A party cannot manufacture insecurity by its own conduct that prevents performance, and a demand that ignores the counterparty’s actual tender of performance is unreasonable as a matter of law.47
No. The evidence established that on January 23 the Konpolis arrived at the pilot station near Riverhead, prepared a notice of readiness, and was prepared to discharge its cargo within the contract delivery period.48 Terminal operators, acting on instructions from Falco as the cargo receiver, refused to allow berthing at approximately 2:30 p.m.49 Only ninety minutes later, Falco sent its demand for assurances that required a response by 3:00 p.m. the following day.50 The Dodsland similarly arrived and discharged its cargo in early February 1986.51 Because Falco itself prevented performance and stood to gain from non-performance due to the declining market, no reasonable jury could conclude that Falco had reasonable grounds for insecurity under N.Y.U.C.C.
§ 2-609.52
The district court erred in submitting the § 2-609 defense to the jury.53