Wallace v. Merrill Lynch Capital Services, Inc.

29 A.D.3d 382, 816 N.Y.S.2d 412

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: May 16, 2006
• Status: Published

Opinion

Order, Supreme Court, New York County (Bernard Fried, J.), entered December 15, 2005, which, in an action for breach of a currency swap contract, denied defendant-appellant’s motion to dismiss the complaint on the basis of documentary evidence, unanimously affirmed, with costs.

The documentary evidence establishes that TXU Europe’s guarantee of the bonds issued by TXU Eastern is contingent upon TXU Eastern’s defaulting on the bond payments, and that defendant’s right under the subject currency swap contract with TXU Europe to set off any obligations, whether mature or unmature, does not include contingent obligations (see Matter of Trojan Hardware Co. v Bonacquisti Constr. Corp., 141 AD2d 278, 282 [1988]). Accordingly, until TXU Eastern has defaulted on the bonds, defendant has no right to set off the approximate $20.5 million face amount of the bonds against the approximate $20.1 million it admittedly owes TXU Europe under the currency swap contract, and the contract claim was properly sustained. The motion court also correctly held that issues of fact exist as to whether defendant’s purchase of the bonds at a steep discount, knowing that TXU Europe would likely file for insolvency, was undertaken for the purpose of avoiding its obligation under the currency swap agreement in violation of the implied covenant of good faith and fair dealing (cf. Richbell Info. Servs. v Jupiter Partners, 309 AD2d 288, 302 [2003]), and whether, as a matter of equity, any right of setoff should be limited to the market value of the bonds (cf. Pond v Harwood, 139 NY 111, 119-120 [1893]). Concur—Tom, J.P., Andrias, Friedman, Williams and Sweeny, JJ. [See 10 Misc 3d 1062(A), 2005 NY Slip Op 52076OJ) (2005).]