Frazier v Foreign Bondholders Protective Council

CourtUnited States State Supreme Court (New York)
Date21 June 1954
United States, Supreme Court of New York, Appellate Division, First Department.
Supreme Court of New York, Special Term, New York County.
Frazier et Al.
Foreign Bondholders Protective Council, Inc., et Al.

Jurisdiction — Immunity from — Action Calling in Question Propriety of Acts of Foreign State — Refusal to Pass Judgment on Acts Done by Foreign Government Within Its Own Territory.

Recognition of Acts of Foreign Governments — Action for Inducing Breach of Contract with Foreign Government — Litigation between Private Persons — Refusal to Adjudicate on Validity of Acts Done by Foreign Government within Its Own Territory.

Leave to appeal was applied for and refused. [Reports: 283 App. Div. 655, 127 N.Y.S. 2d 815]. Thereafter plaintiffs added other counts to the complaint which charged defendants with dereliction in the performance of services on behalf of plaintiffs. The defendants moved for summary judgment.

Held (by the Special Term of the Supreme Court of New York): that the motion must be granted. The action of Peru in determining that the obligation created by its 1947 offer ran to one of two competing classes of bondholders was not contrary to the public policy of New York.

“The Court said: “…. Defendants have established by documents that, as the Appellate Division required, ‘the merits of the plaintiffs' claim will entail passing on the validity of the action of a sovereign acting within the scope of its sovereign competency’ 283 App.Div. at page 49, 125 N.Y.S.2d at page 904, for the challenged act of Peru in issuing scrip to current bondholders was an act of legislation, a copy of the pertinent law having been submitted and unchallenged. The only possible residual issue of fact is ‘whether

in respect of the Peruvian government's action the alleged “repudiation of its obligations by decrees, is contrary to our public policy and shocking to our sense of justice and equity.”’Vladikavkazsky R. Co. v. New York Trust Co.UNKUNKUNK, 263 N.Y. 369, at page 378, 189 N.E, 456, at page 460, 91 A.L.R. 1426. 283 App.Div. at page 49, 125 N.Y.S.2d at page 904; I think not

“Of course, if the challenged act of Peru reaches no property in New York, but only in Peru, serious doubts might arise as to the competency of our courts even to consider the compatibility of that act with our public policy. Dougherty v. Equitable Life Assur, Soc. of United StatesUNKUNK, 266 N.Y. 71, 193 N.E. 897;[1]Salimoff & Co. v. Standard Oil Co.UNKUNKUNK, 262 N.Y. 220, 186 N.E. 679, 89 A.L.R. 345;[2]Oetjen v. Central Leather Co., supra; Banque de France v. Equitable Trust Co., D.C., 33 F.2d 202;[3]Luther v. SagorELR [1921] 1 K.B. 456.[4] Moreover, before a sovereign may be charged with the offense of breaching its contract, ‘the obligation alleged to have been impaired [must] be clearly and unequivocally expressed’, Keefe v. ClarkUNKUNK, 322 U.S. 393, 396, 397, 64 S.Ct. 1072, 88 L.Ed. 1346, and here, at the least, plaintiffs' construction of the contractual obligation incurred by the Peruvian offer of 1947 is considerably less than ‘clearly and unquivocally expressed’. Indeed, as the United States Constitution bars only the states from impairing the obligation of contract, Art. 1, Sec. 10, Cl. 1, and not the federal government, State of New York v. United StatesUNKUNK, 257 U.S. 591, 42 S.Ct. 239, 66 L.Ed. 385; Mitchell v. ClarkUNKUNK, 110 U.S. 633, 4 S.Ct. 170, 28 L.Ed. 279, except to the extent that due process forbids such impairment by the federal government, it is not clear how far any impairment of the obligation of a contract can be deemed ‘shocking’ especially where, as here, it involves, in that view most favorable to plaintiff's position, preferential treatment of a class of creditors which, in appropriate circumstances, is allowable as a matter of due process. United States v. PinkUNKUNK, 315 U.S. 203, 62 S.Ct. 552, 86 L.Ed. 796;[5]The Disconto Gesellschaft v. UmbreitUNKUNK, 208 U.S. 570, 28 S.Ct. 337, 52 L.Ed. 625.

“At bottom, the action of Peru is a determination that the obligation created by its 1947 offer runs to one of two competing classes of bondholders. Assuming a reasonable difference of...

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