WALLACE v. Merrill Lynch & Co., Inc., Defendant.

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Supreme Court, Appellate Division, First Department, New York.

Philip Wedgwood WALLACE, et al., Plaintiffs-Respondents, v. MERRILL LYNCH CAPITAL SERVICES, INC., Defendant-Appellant, Merrill Lynch & Co., Inc., Defendant.

Decided: May 16, 2006

TOM, J.P., ANDRIAS, FRIEDMAN, WILLIAMS, SWEENY, JJ. Kaye Scholer LLP, New York (Madlyn Gleich Primoff and Michael Braff of counsel), for appellant. Jenner & Block LLP, Washington, DC (Elaine Goldenberg, of the District of Columbia Bar, admitted pro hac vice, of counsel), for respondents.

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 A.D.2d 278, 282, 534 N.Y.S.2d 789 [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 A.D.2d 288, 302, 765 N.Y.S.2d 575 [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 N.Y. 111, 119-120, 34 N.E. 768 [1893] ).