Upright v. Mercury Business Machines Co.

• Citation: 13 A.D.2d 36,213 N.Y.S.2d 417
• Parties: Walter UPRIGHT, Plaintiff-Appellant, v. MERCURY BUSINESS MACHINES CO., Inc., Defendant-Respondent.
• Decision Date: 11 April 1961
• Court: New York Supreme Court Appellate Division

Page 417

213 N.Y.S.2d 417

13 A.D.2d 36

Walter UPRIGHT, Plaintiff-Appellant, v. MERCURY BUSINESS MACHINES CO., Inc., Defendant-Respondent.

Supreme Court, Appellate Division, First Department.

April 11, 1961.

David W. Kahn, New York City, for plaintiff-appellant.

Kenneth Simon, New York City, of counsel (Taylor, Scoll & Simon, New York City, attorneys), for defendant-respondent.

Before BREITEL, J. P., and RABIN, STEVENS, EAGER and STEUER, JJ.

BREITEL, Justice Presiding.

Plaintiff, an individual, sues as the assignee of a trade acceptance drawn on and accepted by defendant in payment for business typewriters sold and delivered ¹ to it by a foreign corporation. The trade acceptance is in the amount of $27,307.45 and was assigned to plaintiff after dishonor by defendant.

Involved on this appeal is only the legal sufficiency of the first affirmative defense. It alleges that the foreign corporation is the creature of the East German Government, a government not recognized by the United States. It alleges, moreover, that such corporation is an enterprise controlled by and that it is an arm and instrument of such government.

On motion addressed to its sufficiency Special Term sustained the defense. For the reasons that follow the defense should have been stricken as legally insufficient pursuant to rule 109, subd. 6, of the Rules of Civil Practice.

A foreign government, although not recognized by the political arm of the United States Government, may nevertheless have de facto existence which is jurisdically cognizable. The acts of such a de facto government may affect private rights and obligations arising either as a result of activity in, or with persons or corporations within, the territory controlled by such de facto government. This is traditional law (Russian Reinsurance Co. v. Stoddard, 240 N.Y. 149, 147 N.E. 703; M. Salimoff & Co. v. Standard Oil Co., 262 N.Y. 220, 186 N.E. 679, 89 A.L.R. 345; State of Texas v. White, 7 Wall. 700, 733, 74 U.S. 700, 733, 19 L.Ed. 227, overruled in part, Morgan v. United States, 113 U.S. 476, 496, 5 S.Ct. 588, 28 L.Ed. 1044; cf. United States v. Rice, 4 Wheat 246, 17 U.S. 246, 4 L.Ed. 562, involving the effect of enemy occupation of United States territory; 1 Hyde, International Law, [2d rev. ed. 1945] pp. 195-197; 48 C.J.S. International Law, § 5, pp. 8-10).

In the Russian Reinsurance Co. case, Lehman, J., later Chief Judge, summarized the principles:

'The fall of one governmental establishment and the substitution of another governmental establishment which actually governs, which is able to enforce its claims by military force and is obeyed by the people over whom it rules, must profoundly affect all the acts and duties, all the relations of those who live within the territory over which the new establishment exercises rule. Its rule may be without lawful foundation; but lawful or unlawful, its existence is a fact, and that fact cannot be destroyed by juridical concepts. The State Department determines whether it will recognize its existence as lawful, and, until the State Department has recognized the new establishment, the court may not pass upon its legitimacy or ascribe to its decrees all the effect which inheres in the laws or orders of a sovereign. The State Department determines only that question. It cannot determine how far the private rights and obligations of individuals are affected by acts of a body not sovereign, or with which our government will have no dealings. That question does not concern our foreign relations. It is not a political question, but a judicial question. The courts in considering that question assume as a premise that until recognition these acts are not in full sense law. Their conclusion must depend upon whether these have nevertheless had such an actual effect that they may not be disregarded. In such case we deal with result rather than cause. We do not pass upon what such an unrecognized governmental authority may do, or upon the right or wrong of what it has done; we consider the effect upon others of that which has been done, primarily from the pont of view of fact rather than of theory.' 240 N.Y. 158, 147 N.E. 705.

So, too, only limited effect is given to the fact that the political arm has not recognized a foreign government. Realistically, the courts apprehend that political nonrecognition may serve only narrow purposes. While the judicial arm obligates itself to follow the suggestions of the political arm in effecting such narrow purposes, nevertheless, it will not exaggerate or compound the consequences required by such narrow purposes in construing rights and obligations affected by the acts of unrecognized governments (Sokoloff v. National City Bank, 239 N.Y. 158, 145 N.E. 917, 37 A.L.R. 712; M. Salimoff & Co. v. Standard Oil Co., supra). Thus, in Sokoloff v. National City Bank, Cardozo, J., later Chief Judge, said:

'Jurisdically, a government that is unrecognized may be viewed as no government at all, if the power withholding recognition chooses thus to view it. In practice, however, since juridical conceptions are seldom, if ever, carried to the limit of their logic, the equivalence is not absolute, but is subject to self-imposed limitations of common sense and fairness * * *'. 239 N.Y. 165, 145 N.E. 918.

The principles last discussed are the same as those presented by so authoritative a compiler as Hackworth as governing the effect of nonrecognition (1 Hackworth, Digest of International Law, pp. 364 et seq.).

Applying these principles, it is insufficient for defendant merely to allege the nonrecognition of the East German Government and that plaintiff's assignor was organized by and is an arm and instrumentality of such unrecognized East German Government. The lack of jural status for such government or its creature corporation is not determinative of whether transactions with it will be denied enforcement in American courts, so long as the government is not the suitor. ² (Actually, on the present pleadings no issue is raised that plaintiff assignee is that government, or is an arm of that government, or that the assignment to him of the trade acceptance is invalid or does not represent a genuine transfer.)

The extent to which courts will recognize the legal effect of transactions within the territory of an unrecognized government, even where the transaction is materially affected by the action of such government, has been dramatically demonstrated. In M. Salimoff & Co. v. Standard Oil Co., 262 N.Y. 220, 186 N.E. 679, supra, it was held that one who took property by purchase from the unrecognized Russian government which had confiscated such property from its rightful owners nevertheless had good title as against the one-time lawful owners.

Indeed, in the Salimoff case it was said:

'Such conduct [confiscation of property] may lead to governmental refusal to recognize Russia as a country with which the United States may have diplomatic dealings. The confiscation is none the less effective. The government may be objectionable in a political sense. It is not unrecognizable as a real governmental power which can give title to property within its limits.' 262 N.Y. 227, 186 N.E. 682.

Consequently, Luther v. Sagor & Co. [1921] 1 K.B. 456; revd. on other gds., 3 K.B. 532, cited by defendant, was not viewed as authoritative (to the same effect, see, Banque de France v. Equitable Trust Co., D.C., 33 F.2d 202; cf. Sokoloff v. National City Bank, 239 N.Y. 158, 164, 145 N.E. 917, 918, supra). On the contrary, in both the Salimoff and Banque de France cases it was held that confiscatory decrees of an unrecognized Russian government might, in proper circumstances, be deemed valid and effective in altering private rights. A fortiori, the internal acts of the East German Government, insofar as they concern the parties here, should be given effect generally. At least, this is so in the absence of allegation that defendant's property was expropriated by wrongful governmental force, or that for other reasons the transaction in suit or that directly underlying it violates public or national policy.

This case does not involve the issues, tendered by defendant in its argument, of jural status of the East German corporation, or of its incapacity to transfer title, or even of its capacity to sue in our courts. These have been long recognized as issues to be resolved by reference to the actual facts--the realities of life--occurring in the...