United States v. Guaranty Trust Co of New York

• Decision Date: 10 December 1934
• Docket Number: No. 120,120
• Citation: 293 U.S. 340,79 L.Ed. 415,95 A.L.R. 651,55 S.Ct. 221
• Parties: UNITED STATES v. GUARANTY TRUST CO. OF NEW YORK
• Court: U.S. Supreme Court

293 U.S. 340

55 S.Ct. 221

79 L.Ed. 415

UNITED STATES

v GUARANTY TRUST CO. OF NEW YORK.

No. 120.

Argued Nov. 13, 14, 1934.

Decided Dec. 10, 1934.

[Syllabus from pages 340-342 intentionally omitted] The Attorney General and Mr. Justin Miller, of Washington, D.C., for the United States.

Mr. Theodore Kiendl, of New York City, for respondent.

Mr. Justice BRANDEIS delivered the opinion of the Court.

On September 5, 1929, the United States brought in the federal court for Southern New York this action to recover from the Guaranty Trust Company $160 with interest. That sum was claimed as damages resulting from the payment to the Trust Company, through the Federal Reserve Bank of New York acting as fiscal agent of the United States, of a check, payable to Louis Macakanja drawn on the Treasury of the United States by the disbursing clerk of the United States Veterans' Bureau. The complaint alleged that the letter containing the check had been mailed to the payee in Yugoslavia, that neither the 'payee of said check nor any one on his behalf had ever received or endorsed the same'; and that 'the letter containing the check was taken or received in Jugoslavia by some person other than the payee thereof, and that thereafter the name of Louis Macakanja was written on the back of the said check by some person other than the payee thereof, and by a person who was not authorized to sign the name of said payee and who had no right, title or interest in and to said check, with pos- session thereof, and no right or authority to receive, endorse or dispose of the same.'

The answer set up as a special defense that the 'check was negotiated and transferred in the Kingdom of Jugo-Slavia'; that under its law 'upon the negotiation and transfer of a check every transferee, if he takes without actual notice of any alleged forgery or other defect, in the absence of fraud or gross negligence, obtains a good title to the instrument, even if the endorsement of the payee is forged, and acquires the right to collect and retain the proceeds'; that 'each of the transferees of the check mentioned in the complaint gave valuable consideration and took without notice of any alleged forgery or other defect, and without fraud or negligence, and thereby obtained a good title to the instrument and acquired the right to collect and retain the proceeds'; and that the 'defendant under the law of Jugo-Slavia, duly obtained title to said check, as aforesaid, and duly collected and retained the proceeds.'¹

The case was tried before a jury. The evidence consisted of an agreement as to facts and the cancelled check. The agreement recited, among other things, that the purported indorsement of the payee was a forgery, made in Yugoslavia; that on or about November 30, 1921, the check was transferred and delivered there to the 'Merkur' Bank; that the 'Merkur' Bank duly indorsed the check and transferred it in Yugoslavia to the 'Slavenska' Bank; that the 'Slavenska' Bank indorsed and transferred the check in Yugoslavia to the Guaranty Trust Company and forwarded it by mail; that each of these banks paid a valuable consideration, received the check in good faith, took it without notice of the forgery or other defect, and was not guilty of any fraud or negligence; that 'the Treasurer of the United States upon receipt of said check paid the same by crediting the Federal Reserve Bank of New York with the amount'; that, in December, 1921, that Bank credited the Trust Company with the amount; that the United States first learned of the forgery on or about April 27, 1926; and that on June 1, 1926, it requested, through the Federal Reserve Bank, reclamation from the defendant, which was denied.

The check, dated October 29, 1921, was payable to the order of 'Louis Macakanja, 37 Sasava Kot Glina, Z. P. Maja, Yugoslavia.' When presented for payment, it bore what purported to be his indorsement made in the presence of two witnesses and a certification by the Municipal Administration of Maja to the effect that 'the holder of the check is identical with the beneficiary thereof' and that the witnesses as well as the receiver of the money had subscribed the instrument. The check bore these further indorsements: "Merkur' Banking and Exchange Business, Stanko Shon, Zagreb'; 'Pay to the order of Guaranty Trust Co. of New York, New York City, N.Y. Slavenska Bank D. D. Zagreb;' also the stamp of the Guaranty Trust Company. 'Previous Endorsements Guaranteed'; and the stamp of the Federal Reserve Bank.

Each party moved for a directed verdict. The District Court directed a verdict for the plaintiff in the sum of $160 with interest from June 1, 1926; and entered judgment for that amount. The Circuit Court of Appeals reversed the judgment, 69 F.(2d) 799. This Court granted certiorari 293 U.S. 538, 55 S.Ct. 81, 79 L.Ed. -.

First. The check was both drawn and payable in the District of Columbia. By the law of the District a forged indorsement of the payee is declared to be wholly inoperative.² Ordinarily, a subsequent bona fide holder for value without notice of the forgery would acquire neither title to the instrument nor the right to enforce payment; and would acquire no right to retain the proceeds if payment were made in ignorance of the forgery. But under settled principles of conflict of laws, adopted by both federal and state courts, the validity of a transfer of a chattel brought into a country by the consent of the owner is governed by its law; and that rule applies to negotiable instruments. Embiricos v. Anglo-Austrian Bank, (1905)1 K.B. 677; Weissman v. Banque De Bruxelles, 254 N.Y. 488, 494, 173 N.E. 835. Compare Direction Der Disconto-Gesellschaft v. United States Steel Corporation, 267 U.S. 22, 28, 45 S.Ct. 207, 69 L.Ed. 495. See Queensboro Nat. Bank of City of New York v. Kelly (C.C.A.) 48 F.(2d) 574, 576. Here, the rule is particularly applicable; for the Government, having made the check payable to one therein described as resident in Yugoslavia and having mailed it to his Yugoslavian address, must be deemed to have intended that it should be negotiated there, according to the law of that country. It was thereby given something of the quality of a foreign bill; although technically the check was delivered within the District when mailed there. Compare Koechlin et cie v. Kestenbaum Brothers, (1927) 1 K.B. 889; see Lorenzon, Conflict of Laws Relating to Bills and Notes (1919) p. 135, n. 267. The law of Yugoslavia provides that the transferee in due course acquires, despite the forgery, not only 'a good title to the instrument,' but also 'the right to collect and retain the proceeds thereof.' As the Government sent the check to Yugoslavia and the forged indorsement and the transfers of the check were made there, its law governs the validity of the transfer; and the banks acquired, at least, a good title to the check.³

Second. The Government contends that although the title to the check may have passed from the payee to the Trust Company, it acquired, as against the drawer, no right either to enforce payment or to retain the proceeds paid. The argument is that, since the check was both drawn and payable within the District, the obligation arising therefrom is governed by its laws; that under the law of the District the drawer agreed to pay the check only on the order of the payee; and that since there was no such order and the payment made was in ignorance of the forgery, the money may be recovered as having been paid under a mistake. The law of the District determines the formal and essential validity of the check, the interpretation of the contract, the incidents of the obligation. But the Trust Company does not attempt to enlarge or modify the obligation of the drawer as determined by the law of the District. The question presented is: Has the Trust Company, by acquiring title to the check, acquired the right to enforce the obligation which it represents? The enforcement does not contravene the public policy of the District. The question relates to the incidents of the transfer of title to a chattel; and, hence, is determined by the law of Yugoslavia. The Trust Company is not confronted with any procedural obstacle, like that presented in some jurisdictions where the transferee of a nonnegotiable cause of action seeks to sue thereon in his own name. Compare Harper v. Butler, 2 Pet. 239, 240, 7 L.Ed. 410. Nor is the Trust Company confronted by a divergent public policy of the forum, which forbids its courts from applying the Yugoslavian law. Compare Bond v. Hume, 243 U.S. 15, 37 S.Ct. 366, 61 L.Ed. 565. Oscanyan v. Arms Co., 103 U.S. 261, 277, 26 L.Ed. 539. Indeed, the courts of New York, where this suit was brought, would doubtless give effect to the rule of the foreign law here relied on. Compare Weissman v. Banque De Bruxelles, 254 N.Y. 488, 494, 173 N.E. 835.

The Government argues that acquisition of the legal title to negotiable paper does not necessarily imply acquisition of a cause of action thereon. It is suggested that even an instrument properly endorsed by the payee so as to transfer the title may fail to confer any right to enforce the obligation of the maker, as where the cause of action had been lost by a discharge in bankruptcy; and that when the title to the instrument is transferred to a bona fide holder for value without an indorsement, or after maturity, the transferee may fail to acquire a right to enforce payment, because such paper is subject to any defense open as against the payee. But those rules have no application here. The discharge in bankruptcy operates upon the obligation represented...