447 F.2d 175 (2nd Cir. 1971), 464, Johansen v. Confederation Life Ass'n

Docket Nº:464, 35074.
Citation:447 F.2d 175
Party Name:Harry T. JOHANSEN, Jr., individually and as Executor of the Last Will and Testament of Gladys Johansen, and Hortens( Justiz de Turull, Plaintiffs-Appellants, v. CONFEDERATION LIFE ASSOCIATION, Defendant-Appellee.
Case Date:June 17, 1971
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 175

447 F.2d 175 (2nd Cir. 1971)

Harry T. JOHANSEN, Jr., individually and as Executor of the Last Will and Testament of Gladys Johansen, and Hortens( Justiz de Turull, Plaintiffs-Appellants,

v.

CONFEDERATION LIFE ASSOCIATION, Defendant-Appellee.

No. 464, 35074.

United States Court of Appeals, Second Circuit.

June 17, 1971

Argued Feb. 17, 1971.

Page 176

David F. Dobbins, New York City (Royall, Koegel & Wells, and James M. Pape, New York City, on the brief), for appellants.

Walter C. Lundgren, New York City (Lovejoy, Wasson, Lundgren & Ashton, and Douglas Foster, New York City, on the brief), for appellee.

Before LUMBARD, SMITH and FEINBERG, Circuit Judges.

LUMBARD, Chief Judge:

Plaintiffs appeal from a final judgment entered against them on May 7, 1970 in the Southern District of New York after trial before Judge McLean without a jury. The suit was brought initially in the Supreme Court of New York County, but was removed by the defendant insurance company to the federal district court on the ground of diversity of citizenship.

Plaintiffs' complaint has two counts. The first seeks recovery in United States dollars of amounts allegedly payable by defendant upon two $25,000 life insurance policies issued by it in 1937 and 1939 to Thomas Francis Turull y Belling who died in 1961. Turull's widow, Hortense Justiz de Turull, was the beneficiary of one of these policies. Turull's daughter, Gladys Turull Johansen, was the beneficiary of the other; and because she has since died, her executor claims the $25,000. The second count is asserted by Harry T. Johansen, Jr., the owner of an outstanding insurance policy issued in 1946; he seeks a declaration that the defendant is obligated to accept premium payments from him in United States dollars and to pay the proceeds of the policy upon his death in United States dollars. The life insurance contracts were made while Turull and Johansen lived in Cuba, and the company wants to pay the policies in Cuban pesos.

Judge McLean held that the defendant-company's obligation under these policies is governed by Cuban law and hence that it is to pay plaintiffs in pesos, rather than in United States dollars. Judge McLean's opinion is reported at 312 F.Supp. 1056 (S.D.N.Y.1970). The action is regarded by the parties, particularly by the defendant, as a test case, since defendant issued many similar policies in Cuba and this is the first case which has been fully tried on the merits. We affirm the district court's decision.

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I.

Defendant is a Canadian life insurance company with its head office in Toronto. It does business not only in Canada and in the United States, but also in twenty-two other countries including Cuba. Since 1909 it has had a branch office in Cuba; and from 1909 to 1959, when Castro took over, it issued policies to residents of Cuba. Its operations in that country have always been subject to Cuban laws and to the supervision of the Cuban government.

Turull, who was the insured of the two policies upon which plaintiffs now seek to recover, moved from his birthplace, Brooklyn, New York, to Cuba when he was a young man. He married a Cuban and had a substantial export-import business in Havana. In 1937 and 1939, he took out the two policies in question here with the defendant's Cuban office, his wife being the beneficiary of the first and his daughter the beneficiary of the second. He moved back to New York only after Castro came into power and died in New York in 1961.

Johansen, also a United States citizen born in New York, married Turull's daughter in New York in 1941 and thereafter went to work for his father-in-law in Cuba. In 1946, he took out a policy with defendant's Cuban office, and he remained in Cuba until Castro took over. Afterwards, he moved back to New York where he now resides. He seeks a declaration that defendant is obligated to accept premium payments from him in United States dollars, to make policy loans in United States dollars, and to pay proceeds upon his death in United States dollars.

Each of the three policies stated that 'all sums payable or (receivable) under the policy shall be paid at * * * Havana, Republic of Cuba.' Further, with respect to currency, each provided that 'all sums payable or (receivable) under this policy shall be paid in lawful currency of the United States of America.'

Although the latter provision might seem at first glance to solve the problem of this case, it does not do so because of the effect of the Cuban currency laws throughout the years. From 1914 to 1939, two currencies were legal tender in Cuba, the peso and the United States dollar. Theoretically they were of equal value and creditors could demand payment in whichever currency they chose. By 1939, however, the peso was actually worth less than the dollar. In an effort to bolster the peso, the Cuban government enacted a law in 1939 making the dollar and the peso interchangeable on a one-for-one basis. Each continued to be legal tender, but they could be used interchangeably, and debtors were now given the option as to which currency they wished to use in payment of their debts. Creditors were required to accept pesos in extinguishment of an obligation expressed in dollars and vice versa. Thus, it is evident that when the policies in question here stated that United States currency was to be paid, it was referring to a legal Cuban tender which after 1939 could be paid in either dollars or pesos.

In 1951, however, there was a significant change in the Cuban law. The new decree provided that henceforth pesos would be the only legal tender. United States dollars ceased to be legal tender and all obligations had to be expressed and paid in pesos. Obligations previously contracted in dollars had to be discharged in pesos at the rate of one peso for one dollar. Athough a person could still own dollars in Cuba, he could not use them to pay debts. Thus, this Cuban law in effect changed the insurance contracts in questions here from dollar contracts to peso contracts. The 1951 law was widely published in Cuba and defendant notified all its Cuban policyholders that all payments under policies which referred to United States currency would henceforth be payable in pesos. Neither Turull nor Johansen objected to this and both paid their premiums in pesos after 1951 as they were required to do. Indeed, even before 1951 Johansen had paid in pesos, although Turull had paid in dollars.

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In 1959, when Castro took over, a new Cuban law made it a criminal offense to hold dollars and required owners of dollars to turn them in for pesos on a one-for-one Since that time the peso has diminished in value in relation to dollars and today is substantially worthless in terms of dollars. This fact causes the dilemma of the instant case.

Although defendant is willing to pay plaintiffs the amounts due them in pesos and in Havana, plaintiffs seek payment of dollars in New York, because pesos are worthless to them here and they are forbidden by United States law to travel to Cuba. Defendant wants to pay in pesos because throughout the years it has invested the insurance proceeds from its Cuban policyholders in Cuban assets precisely in order to meet the obligations in pesos to those policyholders. Now, since it is forbidden by Cuban law to transfer those funds out of Cuba and since pesos are as worthless to it as to plaintiffs in terms of dollars, it has no present use for the funds which it invested in Cuba other than to pay off the Cuban policies. Hence, to require defendant to pay plaintiffs in New York dollars out of its general assets would leave it with worthless reserves of pesos on its hands.

II.

The first question arising here is one of conflict of laws, i.e., whether the applicable law governing the disposition of this case is Cuban law, New York law, or Canadian law. On that question, both parties agree that in this diversity case, a federal court sitting in New York must apply the New York conflicts rules. Klaxon Co. v. Stentor Electrical Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). They disagree, however, as to what those rules are and as to what the result should be under them.

Judge McLean held that a New York court would apply Cuban law 'both under traditional theories of conflicts exemplified by Dougherty v. Equitable Life Assurance Society of the United States, 266 N.Y. 71, 193 N.E. 897 (1934), and under the modern 'center of gravity' or 'grouping of contacts' theory of Auten v. Auten, 308 N.Y. 155, 124 N.E.2d 99 (1954).' 312 F.Supp. at 1063. To support this conclusion, he stated:

'The contracts were made in Cuba. According the their terms they were to be performed in Cuba. Substantially all the contacts are Cuban. Turull and Johansen were Cuban residents and domiciliaries. They paid their premiums in Cuba. The policies were enrolled on defendant's Cuban register. Defendant's reserves on these policies were maintained in Cuba. The policies were never transferred to New York, as they might have been if the insureds had requested it. * * * Neither Turull nor Johansen had any dealings with defendant in New York. Their dealings with defendant were in Cuba. Their late change of residence, in my opinion, is purely fortuitous and has no importance. * * * But for acts which occurred in Cuba, the notarial authentication of the policies necessary under Cuban law, the payment by the insured of the first premium, and the agreements of the insureds to terms more onerous than they had requested, the policies never would have been issued and the contracts sued on here would never have come into being.' 312 F.Supp. at 1063.

The defendant agrees, relying especially on the express provision that all payments were to be...

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