Southwestern Shipping Corp. v. National City Bank of New York

• Decision Date: 08 July 1959
• Citation: 6 N.Y.2d 454,160 N.E.2d 836,190 N.Y.S.2d 352
• Parties: , 160 N.E.2d 836 SOUTHWESTERN SHIPPING CORPORATION, Appellant, v. NATIONAL CITY BANK OF NEW YORK, Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 352

190 N.Y.S.2d 352

6 N.Y.2d 454, 160 N.E.2d 836

SOUTHWESTERN SHIPPING CORPORATION, Appellant, v. NATIONAL CITY BANK OF NEW YORK, Respondent.

Court of Appeals of New York.

July 8, 1959.

Lloyd I. Isler, New York City, for appellant.

Charles C. Parlin, Jr., and Chauncey B. Garver, New York City, for respondent.

FROESSEL, Judge.

Plaintiff, a New York corporation, was an export brokerage firm which acted as purchasing agent for several foreign importers, chiefly in Italy. In September, 1951 one of plaintiff's principal Italian customers, a business entity named Garmoja, placed an order with it for 300 tons of fatty acid at a price of 37,222 American dollars. At this time the Italian foreign exchange regulations required that an importer have a permit license to pay dollars for the particular product it desired to purchase in the United States, but Garmoja had never obtained such a license. In order, therefore, to make dollars available to plaintiff in New York to enable it to purchase the fatty acids, Garmoja entered into a contract with Sicca Danti Corti (hereinafter called Corti), another Italian concern, which had obtained a permit license to pay dollars to an American named Anlyan for rags to be imported from the United States.

The contract provided that Garmoja would pay lire to an Italian bank, Credito Lombardo, for the account of Corti, and the Italian bank would transmit a credit for the dollar equivalent, $37,222, to defendant National City Bank of New York 'in favor of' Anlyan; Anlyan, in advance of this transfer of credit, would execute an assignment of the dollars to plaintiff, which had an account with defendant at its 26 Broadway branch. Anlyan never had an account with defendant in his own name. The transaction, in substance, contemplated the purchase of American dollars in Italy and the transfer from Corti to Garmoja of the license granted to Corti to transmit dollars to the United States for a specific import.

To carry out this arrangement, Corti obtained from Anlyan a letter addressed to defendant, instructing it to pay plaintiff the $37,222 it was to receive from Credito Lombardo for Anlyan's 'account'. The letter stated defendant should treat the instruction to pay plaintiff 'as irrevocable and without recourse whatsoever from any part' (emphasis in original). Corti delivered this letter of assignment to Garmoja, which in turn forwarded it to plaintiff to have Anlyan's signature verified and to obtain assurance from defendant that it would pay the amount to plaintiff.

Plaintiff thereupon wrote a letter to defendant 'Confirming the call made by our representative at your Foreign Teller's Office' with which it enclosed a copy of Anlyan's letter of assignment. Plaintiff's letter requested defendant to authenticate Anlyan's signature and transfer the money to its account. A memorandum was then dispatched by defendant to the 'Signature Control Department' of its Canal Street branch stating that 'It is extremely important to our customer, Southwestern Shipping Corporation * * * that you inform us immediately if Mr. Armand Anlyan's signature on the attached letter is authentic.' By reply letter, defendant confirmed the authenticity of Anlyan's signature and, according to the uncontradicted testimony of one of plaintiff's officers, promised to credit plaintiff's account when the money arrived.

Plaintiff then advised Garmoja that defendant had authenticated the signature and 'further notified us that it will credit our account with the total amount of the remittance and, therefore, it is understood that we are indebted to you for the amount of $37,222.00.' Garmoja paid 23,310,000 lire (the equivalent of $37,222) to Credito Lombardo for Corti's account, and the latter requested Banca d'Italia (the official bank of Italy which must pass upon all transfers of money) to transfer $37,222 by cable to defendant to be paid to Anlyan.

On October 16, 1951 defendant received a cable in Italian from the Bank of Italy instructing it to pay Anlyan $37,222. In translating the payment instructions in this cable, however, defendant's officials did not understand it to be the 'credit' referred to in Anlyan's assignment to plaintiff. Accordingly, defendant, though admittedly aware that the cable presented a problem and that the funds referred to might be those to which the assignment related, nevertheless paid the money to Anlyan, and informed him that if these were the funds he had assigned to plaintiff, he could indorse the check and turn it over. Anlyan then absconded and, after defendant refused to pay plaintiff upon demand, plaintiff instituted this action to recover the sum.

The complaint alleged nine causes of action, sounding in money had and received, contract, and tort. The answer consisted of specific denials plus an affirmative defense alleging that each of the causes of action 'arose out of or is based upon' a transaction which was illegal under the laws of Italy and hence 'contrary to the public policy of the United States of America and the State of New York and unenforceable in the Courts of either.' In its charge, the trial court instructed the jury to completely disregard the affirmative defense, since it was 'purely a matter of law', and to consider only whether defendant had expressly or impliedly contracted with plaintiff to pay it the $37,222, and whether defendant negligently paid to a third party money which was due plaintiff.

The jury returned a verdict for plaintiff 'on the charge of breach of contract in the first instance and negligence on the part of the bank in the second'. The trial court, in later setting aside the verdict on the basis of the affirmative defense, found: (1) that the agreement between Garmoja and Corti, as well as the Anlyan assignment, was illegal under Italian law, since the purchase, sale and transfer of foreign exchange was prohibited unless duly licensed by the Foreign Exchange Control Authorities of Italy; and (2) that plaintiff 'was acting as agent for Garmoja in this transaction' and by virtue of substantially common stock ownership and control 'was nothing more than an alter ego subsidiary for Garmoja'. Accordingly, the court held that the suit was barred both by our common law and by article VIII (§ 2, subd. (b)) of the Bretton Woods International Monetary Agreement (60 U.S.Stat.1411; U.S.Code, tit. 22, § 286h). The Appellate Division unanimously affirmed, without opinion.

It is well settled in this State 'that a party to an illegal contract cannot ask a court of law to help him carry out his illegal object, nor can such a person plead or prove in any court a case in which he, as a basis for his claim, must show forth his illegal purpose'. Stone v. Freeman, 298 N.Y. 268, 271, 82 N.E.2d 571, 572, 8 A.L.R.2d 304. To this well-established principle of law, however, there is an equally well-established exception. If a party to an illegal transaction turns over money or property to a third person for the use of the other party to the transaction, the latter can enforce the express or implied promise or trust of the third party to turn over the money or property, notwithstanding the fact that he could not have enforced payment or delivery by the party who voluntarily made the payment or deposit. A mere agent or depository of the proceeds of an illegal transaction will not be permitted to assert the defense of illegality in an action to recover the proceeds by a party to the illegal transaction (Murray v. Vanderbilt, 39 Barb. 140, 152-153; Merritt v. Millard,

Page 43

N.Y. 208, 213-214, 4 Keyes 208, 213-214; Woodworth v. Bennett, 43 N.Y. 273, 276; Leonard v. Poole, 114 N.Y. 371, 379, 21 N.E. 707, 709, 4 L.R.A. 728; Sheary v. O'Brien, 75 App.Div. 121, 77 N.Y.S. 378, affirmed 184 N.Y. 544, 76 N.E. 1108; Stone v. Freeman, 298 N.Y. 268, 271, 82 N.E.2d 571, 572, supra; 1 Clark, New York Law of Contracts (1922), § 654; 6 Corbin, Contracts (1951), § 1531).

Assuming, then, the illegality of the Garmoja-Corti agreement and the Anlyan assignment under Italian law, and hence under article VIII (§ 2, subd. (b)) of the Bretton Woods International Monetary Agreement, and assuming further that plaintiff was the alter ego of Garmoja, the defendant, as a mere depository or transmittal agent of the proceeds of the arrangement, had no status to assert the illegality of those transactions.

The case of Stone v. Freeman (supra), relied upon by the trial court, is not authority to the contrary. There, a clothing jobber advanced money to a broker to be illegally used to bribe purchasing agents. Although we reversed a judgment for the jobber against the broker for the amount advanced, we were careful to note: 'we are passing on the precise question here involved, and no other. This is not a case where a mere agent or depository, receiving money for his principal, refuses to pay it over, on the ground that it was the fruit of an illegal contract between his principal and another. See Murray v. Vanderbilt, 39 Barb. 140, 152; Merritt v. Millard,

Page 43

N.Y. 208, 4 Keyes 208; Woodworth v. Bennett, 43 N.Y. 273, 276; and the reference to such a situation, by way of dictum, in Leonard v. Poole, supra, 114 N.Y. at page 379, 21 N.E. at page 709.' 298 N.Y. at page 271, 82 N.E.2d at page 573. (Emphasis supplied.)

In the instant case, defendant was merely a conduit through which dollars were to pass from one principal, Corti, to plaintiff, as alter ego of the other principal, Garmoja. It had no beneficial interest in or claim to the $37,222, and its position was that of a depository into whose hands moneys were delivered for payment to another (see Sayer v. Wynkoop, 248 N.Y. 54, 57-60, 161 N.E. 417, 419). Had Corti, after receiving lire from Garmoja, refused to transfer the dollar equivalent as agreed, it could not have been compelled by law to do so. Corti, however, elected to waive any defense of illegality by having the money transferred to defendant, and its...