Sokoloff v. Nat'l City Bank of New York

Citation145 N.E. 917,239 N.Y. 158
PartiesSOKOLOFF v. NATIONAL CITY BANK OF NEW YORK.
Decision Date19 December 1924
CourtNew York Court of Appeals
OPINION TEXT STARTS HERE

Action by Boris N. Sokoloff against the National City Bank of New York. From an order of the Appellate Division (208 App. Div. 627, 204 N. Y. S. 69) reversing an order of Special Term (199 N. Y. S. 355), which denied a motion to strike out defenses in amended answer, and granting such motion, defendant appeals by permission.

Order affirmed, and certified questions answered.

See, also, 204 N. Y. S. 949,196 N. Y. S. 364.

The following questions were certified:

(1) Is the first separate defense contained in the second amended answer herein sufficient in law?

(2) Is the second separate defense contained in the second amended answer herein sufficient in law?’

Lehman, J., dissenting in part.

Appeal from Supreme Court, Appellate Division, First Department.

John A. Garver and Carl A. Mead, both of New York City, for appellant.

Morris Hillquit, of New York City, for respondent.

CARDOZO, J.

The case is here upon the pleadings. In June, 1917, the plaintiff paid to the defendant, the National City Bandk in the city of New York, $30,225 upon its promise to open an account in favor of the plaintiff in its Petrograd branch, and to repay him this sum in rubles at the rate of 23 1/4 cents per ruble, or a total of 130,000 rubles, at such times and in such amounts as he by his written orders might demand. The plaintiff, after stating this agreement alleges that the account was opened; that the plaintiff from time to time drew against it till the balance was reduced to $28,365 or 122,000 rubles; and that thereafter, in November, 1917, and again in February, 1918, checks for the balance were presented and dishonored.

The questions certified to us for answer are directed to two defenses.

The first defense states that there was a revolution in Russia in November, 1917, which resulted in the formation of the Russian Socialist Federated Soviet Republic; that in the same month the said government decreed the nationalization of all private joint-stock banks organized under the laws of Russia or operating therein; that it took possession of said banks by force of arms, and decreed that they be merged in the State Bank of Russia; that all the assets and liabilities of the liquidated banks were taken over by the State Bank acting for the Soviet government; that by force of said decree the government assumed the liability, if any, then owing to the plaintiff; that the defendant's Russian assets consisted of money on deposit in other banks, Russian state obligations, securities held in custody for clients, and certain other assets, of the value of over 240,000,000 rubles; that the liabilities of the said branch to its depositors were over 240,000,000 rubles; that the government following the seizure proceeded to the liquidation of the banks whose activities it had ended; and that by a subsequent decree all deposit accounts were confiscated and were credited to the account of a revolutionary tax. The recital of these happenings is followed by an averment that the plaintiff was fully aware of the probability of future political and governmental changes, and that it was intended by the parties that the agreement should be performed in Russia, and that the performance thereof should be governed by the laws of Russia and by any orders or decrees of any government which might exercise authority therein. By reason of these facts the plaintiff's deposit account is said to have been seized, his title thereto divested, and the defendant's liability discharged.

The second defense is the same as the first, except that it pleads the facts as a partial defense rather than a complete one.

The government of the United States refuses recognition of the Soviet Republic as the government of Russia. Problems not easy to solve have followed in the wake of the refusal. We have had occasion to deal with some of them in cases recently before us. Wulfsohn v. Russian Socialist Federated Soviet Republic, 234 N. Y. 372, 138 N. E. 24, decided that the government of Russia, though unrecognized, was immune from suit in its corporate capacity at the instance of a plaintiff who asserted its existence as a government and sought to hold it to account for governmental acts within its territorial jurisdiction. Russian Socialist Federated Soviet Republic v. Cibrario, 235 N. Y. 255, 139 N. E. 259, decided that the same government had no standing to sue as plaintiff in our courts till recognition was accorded. These judgments are not decisive of the case before us now. The Russian government is not here either as plaintiff or as defendant. A domestic corporation pleads the acts and mandates of that government to excuse a default and discharge an obligation.

Courts of high repute have held that confiscation by a government to which recognition has been refused has no other effect in law than seizure by bandits or by other lawless bodies. Russian Commercial & Industrial Bank v. Comptoir D'Escompte de Mulhouse, [1923] 2 K. B. 630, 638; S. C., H. of L., 40 T. L. R. 837; Banque Internationale v. Goukassow, [1923] 2 K. B. 682; A. M. Luther v. James Sagor & Co., [1921] 1 K. B. 456; s. c., [1921] 3 % k. b. 532. c/f. White, Child & Beney, Ltd., v. Simmons, [1922] 127 L. T. 571. It would be hazardous, none the less, to say that a rule so comprehensive and so drastic is not subject to exceptions under pressure of some insistent claim of policy or justice. In our own country, Oetjen v. Central Leather Co., 246 U. S. 297, 38 S. Ct. 309, 62 L. Ed. 726, and Ricaud v. American Metal Co., Ltd., 246 U. S. 304, 38 S. Ct. 312, 62 L. Ed. 733, are cited sometimes as pronouncements of equal generality, but in truth the point involved was narrower. 31 Yale L. J. 535. Property in Mexico, hides and bullion, had been seized under requisitions by Villa and Pereyra, generals of Carranza. The ruling was that title had been thus divested, since, following the seizure, the Carranza government had been recognized as the lawful government of Mexico. There was no occasion to determine whether, in default of recognition, a like effect would have been ascribed to a levy of contributions by a commander in the field. O'Neill & Oetjen v. Central Leather Co., 87 N. J. Law, 552, 94 A. 789, L. R. A. 1917A, 276;Ford v. Surget, 97 U. S. 594, 605, 606, 24 L. Ed. 1018. We think the case at hand is not so governed by authority but that it may be dealt with upon principle.

[1] Juridically, 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, as we learned in litigations following our Civil War. In those litigations acts or decrees of the rebellious governments, which, of course, had not been recognized as governments de facto, were held to be nullities when they worked injustice to citizens of the Union, or were in conflict with its public policy. Williams v. Bruffy, 96 U. S. 176, 187, 24 L. Ed. 716. On the other hand, acts or decrees that were just in operation and consistent with public policy were sustained not infrequently to the same extent as if the governments were lawful. U. S. v. Insurance Companies, 22 Wall. 99, 22 L. Ed. 816;Sprott v. U. S., 20 Wall. 459, 22 L. Ed. 371;Texas v. White, 7 Wall. 700, 733, 19 L. Ed. 227;Mauran v. Ins. Co., 6 Wall. 1, 18 L. Ed. 836;Baldy v. Hunter, 171 U. S. 388, 18 S. Ct. 890, 43 L. Ed. 208. Cf. Dickinson, Unrecognized Governments, 22 Mich. L. R. 29, 42. These analogies suggest the thought that, subject to like restrictions, effect may at times be due to the ordinances of foreign governments which, though formally unrecognized, have notoriously an existence as governments de facto. Consequences appropriate enough when recognition is withheld on the ground that rival factions are still contending for the mastery may be in need of readjustment before they can be fitted to the practice, now a growing one, of withholding recognition whenever it is thought that a government, functioning unhampered, is unworthy of a place in the society of nations. Limitations upon the general rule may be appropriate for the protection of one who has been the victim of spoliation, though they would be refused to the spoliator or to others claiming under him. We leave these questions open. At the utmost, they suggest the possibility that a body or group which has vindicated by the course of events its pretensions to sovereign power, but which has forfeited by its conduct the privileges or immunities of sovereignty, may gain for its acts and decrees a validity quasi governmental, if violence to fundamental principles of justice or to our own public policy might otherwise be done.

[2] We think the defendant, though we were to assume the existence of such exceptions to the need of recognition, has not brought itself within them. There is room for debate whether relief from liability would follow if the acts set up in its answer were those of a government de jure. Whether that is so or not, we find no such injustice or impolicy in enforcing liability as to necessitate an exception to the rule that acts or decrees, to be ranked as governmental, must proceed from some authority recognized as a government de facto. The defendant is not a bailee for the plaintiff, nor were any of its assets earmarked to the plaintiff's use. If that were its position, there would be other tests of liability. Surrender to overwhelming force would excuse the loss or destruction of the subject of a bailment whether the force that overwhelmed was legitimate or lawless. That is not the case before us. The res belonging to the plaintiff was not a physical object committed to...

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