First National City Bank v. Compania de Aguaceros, SA

• Decision Date: 27 March 1968
• Docket Number: No. 24137.,24137.
• Parties: FIRST NATIONAL CITY BANK, Appellant, v. COMPANIA de AGUACEROS, S. A., Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

398 F.2d 779 (1968)

FIRST NATIONAL CITY BANK, Appellant, v. COMPANIA de AGUACEROS, S. A., Appellee.

No. 24137.

United States Court of Appeals Fifth Circuit.

March 11, 1968.

Rehearing Denied March 27, 1968.

Richard B. Montgomery, Jr., New Orleans, La., L. S. Carrington, Balboa, Canal Zone, Arnold Y. Claman, New York City, Guillermo Jurado, Republic of Panama, Bigham, Englar, Jones & Houston, New York City, Montgomery, Barnett, Brown & Read, New Orleans, La., for appellant, First National City Bank.

Henry L. Newell, Balboa, Canal Zone, Harry McCall, Jr., Gibbons Burke, Chaffe, McCall, Phillips, Burke, Toler & Hopkins, New Orleans, La., for appellee, Compania de Aguaceros, S.A.

Before RIVES, GOLDBERG and AINSWORTH, Circuit Judges.

GOLDBERG, Circuit Judge:

This case concerns the liability vel non of the First National City Bank of New York (Bank) for having cashed forged checks of the Compania de Aguaceros, S. A., (Depositor). The villainous artful forger, Carlos Echeverria, has clouded the equities between the two protagonists not only by his consummate calligraphic talents but also by his position as the Depositor's agent and auditor in Panama. The district court below discarded a relevant Panamanian statute as being vague and inconclusive, found the proximate cause of Echeverria's success to be the Bank's negligence, and ruled for the Depositor. Compania de Aguaceros, S.A. v. First National City Bank, D.C. C.Z.1966, 256 F.Supp. 658. We find unequivocal and controlling sustance in said statute and reverse.

The Depositor was a Panamanian corporation engaged in the sale of various airlines and aircraft throughout Latin America. Although the Depositor maintained a checking account with the Bank's Panamanian branch, Joseph M. Silverthorne, who was the Depositor's organizer and treasurer, and who was the only executive authorized to sign checks on the Panamanian Bank, resided in Tegucigalpa, Honduras. Panamanian law required the Depositor to maintain a resident agent in Panama, and Silverthorne engaged the auditing firm of Farca, S.A. (Farcasa). In 1962 Echeverria bought out the owner of Farcasa and thus placed himself in the position of trust from which he later gamed his gains.

The nine forged checks on the Depositor's account totaled $44,000 and covered the period from October 11, 1963, to February 25, 1964. Each check was returned by the Bank, with the statement for the month in which it was paid, on or about the first of the following month. However, because Farcasa received the canceled checks and statement, Silverthorne remained an innocent abroad and no protest was made prior to March 20, 1964.

On March 19, 1964, Silverthorne returned to Panama, having been absent since October 29, 1963. He went to the Bank to establish a letter of credit and, while there, discovered that the balance in his company's account was substantially lower than it should have been. Because Echeverria's forgeries were skillfully done, Silverthorne was unable to determine immediately which checks he himself had not signed. With the Bank's help, however, he did trace the forged checks to Echeverria. According to the Bank, Echeverria was less artful at the casino than he was in the auditor's office, and so the two victims of the fraud must contest the ultimate loss.

At trial both parties stipulated the existence of the following three Panamanian statutes:

Article 989 of the Panama Commercial Code:

"Article 989. — Banks are required to furnish their customers their accounts current at least eight days after the end of each quarter or liquidation period agreed upon, requesting their written conformity thereof, and the latter, or any comments that may be in order with respect thereto, must be presented within five days.

"Should a customer fail to reply within said period, his account will be held as admitted and the debit or credit balance shall be definitive as of the date of such account."

Article 23 of the Negotiable Instruments Law of Panama:

"Article 23. — When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party, against whom it is sought to enforce such right, is precluded from setting up the forgery or want of authority."

Article 9 of the Civil Code of Panama:

"Article 9. — When the meaning of the law is clear, its literal content shall not be discarded under pretext of questioning its true spirit or intention. However, for the purpose of interpreting any obscure expression of law it is permissible to have recourse to the intention or spirit clearly manifested in the law itself or in the trustworthy history of its institution."

The trial judge, in his conclusions of law, found: "5. Article 989 is ambiguous and needs interpretation for its exact meaning cannot be determined from its language." 256 F.Supp. at 663. Then, while reviewing the testimony of three expert witnesses, he concluded: "6. The experts are divided on the effect that is given in Panama to the provisions of Article 989 but it seems that the proper interpretation is that it is not peremptory and establishes only a prima facie situation which is subject to rebuttal." 256 F.Supp. at 663. In the remainder of his opinion the trial judge exculpated Silverthorne and placed the determinative blame on the Bank. He awarded to the Depositor the sum of $44,000 plus interest from March 20, 1964.

We will not review the trial court's finding of negligence because we find that Panamanian Article 989 clearly precludes the Depositor's recovery.

I. Panamanian Law, Question of Law or Question of Fact?

This first issue, a procedural one, is brought to light by the Depositor's brief. The first sentence of that brief begins, "This case involves several questions, all of them only of fact * * *" and concludes by quoting the "clearly erroneous" rule of Fed.R.Civ.P. 52(a). Further in the brief the following conclusion is reached:

"We, therefore, submit that the trial court found as a fact the proper interpretation of foreign law — and, of course, it is a fundamental proposition that foreign law is a question of fact in the trial court."

Although we find no direct attack on this "fundamental proposition" in the Bank's brief, we refer both parties to Rule 44.1 of the Federal Rules of Civil Procedure. That Rule reads as follows:

"Rule 44.1 Determination of Foreign Law

A party who intends to raise an issue concerning the law of a foreign country shall give notice in his pleadings or other reasonable written notice. The court, in determining foreign law, may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under Rule 43. The court\'s determination shall be treated as a ruling on a question of law. Added Feb. 28, 1966, eff. July 1, 1966." 28 U.S.C.A. Rule 44.1 (1967 Supp.) (Emphasis added.)

The Notes of Advisory Committee on Rules add:

"Under the third sentence, the court\'s determination of an issue of foreign law is to be treated as a ruling on a question of `law,\' not `fact,\' so that appellate review will not be narrowly confined by the `clearly erroneous\' standard of Rule 52(a). Cf. Uniform Judicial Notice of Foreign Law Act § 3; Note, 72 Harv.L.Rev. 318 (1958)." 28 U.S.C.A. Rule 44.1.

Prior to July 1, 1966, although our Court had accepted the common law classification of foreign law as an issue of fact,¹ we had consistently recognized the hybrid nature of such a classification. Thus, the "clearly erroneous" rule was often ignored on review especially when the relevant foreign statutes were available in English.² Moreover, the responsibility of interpreting foreign statutes at trial was given to the judge rather than to the jury.³ Further reconciliation of the "fact" label with the predominantly "law" application has been made unnecessary by the functional approach of Rule 44.1. Regardless of the special procedures of proof listed in Rule 44.1, without doubt one purpose of the Rule is the relief of foreign law schizophrenia by the recognition of such law as law.

An exhaustive analysis, past and present, of determinations of foreign law can be found in Miller, "Federal Rule 44.1 and the `Fact' Approach to Determining Foreign Law; Death Knell for a DieHard Doctrine," 65 Mich.L.Rev. 613-750 (1967). See also Kaplan, "Continuing Work of the Civil Committee: 1966 Amendments of the Federal Rules of Civil Procedure (II)," 81 Harvard L.Rev. 591, 613-17 (1968).

Litigation in this case began on November 30, 1964, well before the promulgation or the effective date of Rule 44.1. However, the proceedings continued until July 5, 1966, after the Rule's effective date, and the district court's decision was rendered on August 11, 1966. The 1966 amendments to the federal rules provide that all rules taking effect on July 1, 1966, "shall govern all proceedings in actions brought thereafter and also in all further proceedings, in actions then pending, except to the extent that in the opinion of the court their application in a particular action then pending would not be feasible or would work injustice * * *." 28 U.S.C.A. Rule 86. (Emphasis added.) Under the facts of this case, we can hardly see how our acceptance of Rule 44.1 on appeal would work an injustice to either side; moreover, the trial court's decision contained the following recognition of the Rule and the proper procedure thereunder:

"Conclusions of Law

* * * * * *

3. In accordance with Rule 44.1, Federal Rules of Civil Procedure, the laws of Panama as stipulated by the parties are rulings of law and are as follows:

* * * quoting Article 989, Article 23, and Article 9." 256 F.Supp. at 662-663.

II. Article 989 of the Panama Commercial Code

Article 989 imposes obligations on two parties. First,...