First Nat. Bank of Boston (Intern.) v. Banco Nacional de Cuba

• Citation: 658 F.2d 895
• Decision Date: 04 August 1981
• Docket Number: No. 166,D,166
• Parties: The FIRST NATIONAL BANK OF BOSTON (INTERNATIONAL), Plaintiff-Appellee, v. BANCO NACIONAL DE CUBA, Defendant-Appellant. ocket 80-7299.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 895

658 F.2d 895

The FIRST NATIONAL BANK OF BOSTON (INTERNATIONAL), Plaintiff-Appellee, v. BANCO NACIONAL DE CUBA, Defendant-Appellant.

No. 166, Docket 80-7299.

United States Court of Appeals, Second Circuit.

Argued Jan. 26, 1981.

Decided Aug. 4, 1981.

Victor Rabinowitz, New York City (Michael Krinsky, Judith Levin, Ellen Winner, Jules Lobel, Susan Davis (Third Year Law Student), Rabinowitz, Boudin, Standard, Krinsky, & Lieberman, New York City, on the brief), for defendant-appellant.

Robert B. Fiske, Jr., New York City (James W. B. Benkard, James L. Kerr, Davis, Polk & Wardwell, New York City, on the brief), for plaintiff-appellee.

Before LUMBARD, VAN GRAAFEILAND, and KEARSE, Circuit Judges.

KEARSE, Circuit Judge:

This is one of six appeals decided today in cases arising out of expropriations of property of American companies by the Republic of Cuba in 1960. ¹ In the present action, ² plaintiff-appellee First National Bank of Boston (International) ("BBI") brought suit as assignee of First National Bank of Boston ("Boston") against Banco Nacional de Cuba ("Banco Nacional") to recover $1,675,749 for letters of credit paid by Boston for which it was not reimbursed. The letters of credit were issued by Boston's Cuban branches ("Branches") before the Branches were expropriated by Cuba; some were paid by Boston before the expropriation; the bulk were paid afterwards. Banco Nacional denied liability and counterclaimed to recover $58,461 deposited with Boston by Banco Nacional, plus $500 deposited with Boston by a bank to which Banco Nacional is successor, which sums Boston had refused to repay. The United States District Court for the Southern District of New York, Charles L. Brieant, Jr., Judge, rejected all of Banco Nacional's defenses and counterclaims and entered judgment in favor of BBI in the amount requested.

For the reasons below we reverse the judgment insofar as it allowed BBI to recover on its claims, and we affirm insofar as it dismissed Banco Nacional's counterclaim.

I.

The events surrounding the Cuban revolution, which resulted in the installation of the revolutionary government on January 1, 1959, have been much discussed in the courts. We assume familiarity with our decision today in Banco Nacional de Cuba v. Chase Manhattan Bank, Nos. 80-7375,

-7377 658 F.2d 875 (2nd Cir.) ("Chase"), and with the cases cited in the margin. ³

A. The Parties and Their Progenitors

Plaintiff BBI is a wholly-owned Edge Act ⁴ subsidiary of Boston, the assignor of the claims BBI asserts. Boston is a national banking association organized under the laws of the United States; its principal office is in Boston, Massachusetts. In 1923 Boston established a branch in Cuba, and in 1960 it had that branch and five "sub-branches" operating there.

The Branches were organized under 12 U.S.C. § 601 et seq. (1976) as unincorporated foreign branches of Boston and operated under Boston's name; the name on the Cuban offices was simply the Spanish equivalent of "First National Bank of Boston, organized (or founded) in 1789." The Branches were capitalized by Boston's investment of $3,000,000 in the form of United States government bonds, which remained in the name of Boston; the interest earned on them was credited to the Branches. Branches had no president or board of directors. Their day-to-day operations were supervised by a "Management Group," which hired all officers for the Cuban operations. The members of the Management Group were recommended by Boston. Branches kept their own books of record, paid Cuban taxes, and remitted their profits to Boston, which included these profits in their own annual reports and paid United States taxes on them.

Banco Nacional, as set forth in greater detail in Chase, supra, is the central bank of Cuba. It was organized in 1948 by the Republic of Cuba to operate as a separate and autonomous juridical entity. Prior to the revolution one-half of its stock was owned by the Cuban government (which appointed its president and three of its five directors), with the remaining one-half owned, as required by Cuban law, by the private banks operating in Cuba. Since prior to the Cuban revolution Banco Nacional has engaged in domestic and international banking, has been the sole depository of state funds, and has had extensive powers to control and protect the Cuban currency in international trade. Prior to October 13, 1960 it regulated all private commercial banks operating in Cuba. After that date there were no private banks, and Banco Nacional was wholly owned by the Cuban government.

B. The Letter of Credit Transactions

Prior to the expropriations, Branches regularly engaged in the issuance of letters of credit to Cuban importers seeking to purchase foreign goods. The usual letter of credit transaction had several stages. First, a Cuban customer applied to Branches for a letter of credit; accompanying this application would be an application for an import license. If a Branches officer approved the letter of credit application, he would send the import license application to Banco Nacional's foreign exchange control department, where it was reviewed on behalf of the Cuban Currency Stabilization Fund, which controlled foreign payments by Cuban businesses. If Banco Nacional approved the license application, it would send the import license to Branches. Following further review by Branches of the letter of credit application, Branches would send both the license and the letter of credit application to Banco Nacional for a final review. Final approval was given by Banco Nacional in every case in which initial approval had been given, and the papers were At issue in the present action are 324 letters of credit that were issued by Branches, approved by Banco Nacional, and confirmed by Boston prior to September 17, 1960. A small number of these, totaling $177,282, were paid by Boston prior to that date; the great bulk of them, totaling $1,498,466, were paid by Boston between September 17 and November 23, 1960. Between September 17 and November 23, Boston requested, but did not receive, assurances from Banco Nacional that Boston would be reimbursed for these payments. In an effort to ensure reimbursement, Boston withheld from the Cuban buyers the shipping documents that they ordinarily would have needed in order to obtain possession of the goods. This effort was thwarted, however, since Banco Nacional intervened to procure the release of the goods without the usual documentation.

returned to Branches. In most cases the Cuban buyer was required to deposit Cuban pesos with Branches before the letter of credit would issue. When the pesos were deposited, Branches would issue the letter of credit and send it to Boston; Boston would confirm the credit and send the confirmation and the letter of credit to the seller. After the seller had shipped the goods to the Cuban buyer, he would present his confirmed letter of credit, along with the shipping documents, to Boston and receive payment from it in U.S. dollars. On any letter of credit issued by Branches and paid by Boston, Boston charged the amount paid against Branches' account. Branches replenished their account daily by purchasing U.S. dollars from Banco Nacional with pesos received from its Cuban letter of credit customers, and sending the dollars to Boston.

C. The Expropriation

On July 6, 1960, following the deterioration of relations between Cuba and the United States, Cuba enacted Law No. 851 which, inter alia, authorized officials of the Republic to "proceed to nationalize, through forced expropriations, the properties or enterprises owned by physical and corporate persons who are nationals of the United States of North America ...." ⁵ On September 17, 1960, Resolution No. 2 pursuant to Law No. 851 expropriated and nationalized all of Boston's Cuban branches, and placed Banco Nacional in charge. The Resolution read in part as follows:

We Resolve:

First: To order the nationalization, by expropriation, and, consequently, award to the Cuban Government, in absolute ownership, all the assets, rights and shares deriving from the utilization thereof, especially the banks, including all their branches and agencies located in Cuba, which are the property of the following legal persons:

1 The First National City Bank of New York

2 The First National Bank of Boston

3 The Chase Manhattan Bank

Second: Consequently, the Cuban Government is substituted for the legal persons named in the foregoing paragraph as to the aforesaid assets, rights and shares, as well as the assets and liabilities of the aforementioned companies.

Fourth: ... the President of the National Bank of Cuba is assigned to take over, with all the authority inherent in his office, the administration of the assets and banking businesses which are the subject of the action decreed in the present Resolution.

On September 17, 1960, Banco Nacional took physical possession and control of Branches' assets and operations. It has not reimbursed Boston for any of the 324 letter of credit payments.

Following the expropriation Boston collected from various sources a total of $941,470

in the Branches account, representing funds received from Banco Nacional in September 1970, the proceeds of a number of "bought bills" belonging to Branches, and Branches' correspondent balance with other banks.

D. The Present Lawsuit

BBI, as assignee, brought the present lawsuit to recover $1,675,749, the total of Boston's unreimbursed payments on the letters of credit. As BBI's claim progressed from the complaint stage to the trial stage, essentially two supporting theories evolved. First, BBI contended that the Branches were liable to Boston for the letters of credit, and that pursuant to Resolution No. 2 Banco Nacional had assumed all liabilities of Branches. Second, BBI contended that Banco Nacional had breached a contract "implied in fact" on the basis of the prior course of dealings and representations of...