United States v. Arnhold and S. Bleichroeder, Inc.

• Decision Date: 15 March 1951
• Citation: 96 F. Supp. 240
• Parties: UNITED STATES v. ARNHOLD AND S. BLEICHROEDER, Inc. et al.
• Court: U.S. District Court — Southern District of New York

96 F. Supp. 240

UNITED STATES v. ARNHOLD AND S. BLEICHROEDER, Inc. et al.

United States District Court S. D. New York.

March 15, 1951.

Irving H. Saypol, U. S. Atty., New York City, Ethel S. A. Davidson, Asst. U. S. Atty., New York City, of counsel, for plaintiff.

Van Vorst, Siegel & Smith, New York City, Edgar E. Harrison, New York City, of counsel, for defendants.

WEINFELD, District Judge.

This action was instituted by the United States of America to recover payments made on forty-two forged postal money orders which had been purchased by members of the Armed Forces overseas. The complaint alleges that certain of the money orders were payable to the soldiers themselves and others to payees in the United States; that said money orders were lost by or stolen from the original purchasers; that the signatures of the payees were forged and that the money orders were presented to and paid by Adler & Co. of Zurich, Switzerland, which transmitted them to the defendant Arnhold and S. Bleichroeder, Inc., which then deposited some with the defendant Central Hanover Bank & Trust Company and others with the Chase National Bank; that each of the banks received payment of the amounts of the money orders from the Postmaster at New York upon their presentation bearing endorsements "prior endorsements guaranteed".

The second affirmative defense interposed by the defendant Arnhold and S. Bleichroeder, Inc., alleges that under Swiss law good title passes to a banking house which in the ordinary course of business, in good faith and for substantial value, purchases money orders issued by the United States Post Office Department; that Adler & Co. was such a purchaser and had good title, which in turn transmitted the money orders to defendant Bleichroeder, Inc., which validly collected them for the account of said Adler.

The present motion is by the defendant Bleichroeder, Inc. for the issuance of letters rogatory to take depositions in Switzerland in support of the foregoing defense. The government opposes the motion on the ground that the defense is invalid. No motion was made by it within twenty days after service of the answer containing the defense but the Court is requested on its own motion to strike it as insufficient. Rule 12(f) of Federal Rules of Civil Procedure, 28 U.S.C.A.

The basis of the government's claim of insufficiency of the affirmative defense is (1) postal money orders are issued in the exercise of governmental functions and so they are not negotiable instruments subject to defenses permitted by the law merchant to bona fide purchasers for value; and (2) assuming they are ordinary commercial paper issued by the government, Federal law and not Swiss law applies.

The defendant Bleichroeder, Inc. relies principally upon United States v. Guaranty Trust Co., 293 U.S. 340, 55 S.Ct. 221, 223, 79 L.Ed. 415, as supporting the sufficiency of its defense. In that case a check draw on the Treasurer of the United States had been mailed to the payee in Yugoslavia, where it was transferred under a forged endorsement. The successive steps of the transfer of the instrument leading to its final payment by the government followed the pattern of the instant case. Following payment and upon discovery of the forgery, an action by the government was instituted to recover the payment so made. The defendant interposed a defense substantially similar to that set up herein, that under Yugoslavian law a transferee of a check taking without actual notice of forgery and in the absence of fraud or gross negligence acquired good title. The Court, while it recognized the general rule that under our law a subsequent bona fide holder for value without notice of the forgery would acquire neither title to the instrument nor the right to enforce payment, nevertheless, held: "But under settled principles of conflict of laws, adopted by both federal and state courts, the validity of a transfer of a chattel brought into a country by the consent of the owner is governed by its law; and that rule applies to negotiable instruments. Embiricos v. Anglo-Austrian Bank, (1905) 1 K.B. 677; Weissman v. Banque De Bruxelles, 254 N. Y. 488, 494, 173 N.E. 835. Compare Direction der Disconto-Gesellschaft v. United States Steel Corp., 267 U.S. 22, 28, 45 S.Ct. 207, 69 L.Ed. 495. See Queensboro Nat. Bank v. Kelly 2 Cir., 48 F.2d 574, 576 87 A.L.R. 1172. Here, the rule is particularly applicable; for the Government, having made the check payable to one therein described as resident in Yugoslavia and having mailed it to his Yugoslavia address, must be deemed to have intended that it should be negotiated there, according to the law of that country. It was thereby given something of the quality of a foreign bill; although technically the check was delivered within the District when mailed there. * * * As the Government sent the check to Yugoslavia and the forged indorsement and the transfers of the check were made there, its law governs the validity of the transfer; and the banks acquired, at least, a good title to the check."

It is true, as the government contends, that money orders are not negotiable instruments. United States v. Stockgrowers Nat. Bank, C.C., 30 F. 912; Bolognesi v. United States, 2 Cir., 189 F. 335, 36 L.R. A.,N.S., 143; United States v. Northwestern National Bank & Trust Co., D....