United States v. Guaranty Trust Co.

• Decision Date: 12 March 1934
• Docket Number: No. 117.,117.
• Citation: 69 F.2d 799
• Parties: UNITED STATES v. GUARANTY TRUST CO. OF NEW YORK.
• Court: U.S. Court of Appeals — Second Circuit

69 F.2d 799 (1934)

UNITED STATES v. GUARANTY TRUST CO. OF NEW YORK.

No. 117.

Circuit Court of Appeals, Second Circuit.

March 12, 1934.

Davis, Polk, Wardwell, Gardiner & Reed, of New York City (Russel S. Coutant and Francis W. Phillips, both of New York City, of counsel), for appellant.

Martin Conboy, U. S. Atty., and George B. Schoonmaker, Asst. U. S. Atty., both of New York City.

Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

CHASE, Circuit Judge.

The defendant presented to the Federal Reserve Bank at New York a check drawn on the Treasurer of the United States on October 29, 1921, and payable to the order of Louis Macakanja, 37 Sasava Kot Glina, Z. P. Maja, Jugo-Slavia, and received credit for it. The check then was indorsed in the name of the payee. The Federal Reserve Bank of New York presented the check to the Treasurer of the United States, who paid it by giving the Federal Reserve Bank credit for it in December, 1921.

About April 27, 1926, the plaintiff learned that the payee's indorsement on the check was forged, and thereupon demanded reimbursement from the defendant of the money it paid upon presentment of the check. Upon denial by the defendant of liability, this suit was brought.

The essential facts were stipulated, and are that the indorsement of the payee was forged in Jugo-Slavia where the check was then transferred and delivered to the Merkur Bank which took it without notice of the forgery and for a valuable consideration on or about November 30, 1921. This bank acted in good faith and without negligence. It indorsed and transferred the check to the Slavenska Bank D. D. Zagreb, in Jugo-Slavia, for a valuable consideration. The Slavenska Bank acted in good faith without notice of the forgery and without negligence. This bank indorsed the check in Jugo-Slavia to the order of the defendant on or about December 3, 1921, and forwarded it to the defendant in New York. The defendant received it on or about December 21, 1921, and took it for value in good faith without notice of the forgery and without negligence.

It was stipulated that:

"The law of the Kingdom of Jugo-Slavia in reference to checks and bills of exchange is as follows:

"Upon the negotiation and transfer of a check or bill of exchange each transferee, endorsee, or holder thereof obtains a good title to the instrument and acquires the right to collect and retain the proceeds thereof, even though the endorsement of the payee is forged where

"(a) The instrument purports to bear a chain or series of endorsements from the payee of the instrument to the transferee, holder or endorsee thereof; and

"(b) The said transferee, holder or endorsee gives valuable consideration for the instrument; and

"(c) The said transferee, holder or endorsee takes the instrument without actual notice of any forgery or other defect in the instrument and is not guilty of any fraud or gross negligence in taking the instrument.

"The law of Jugo-Slavia further provides that

"(a) When an endorsement follows a blank endorsement there is a presumption of law that the person who executed the endorsement has acquired title to the instrument under the blank endorsement; and

"(b) The transferee, holder or endorsee of the instrument is under no duty or obligation to investigate the genuineness of prior endorsements.

"Under the law of Jugo-Slavia, an endorser does not guarantee or warrant the genuineness of prior endorsements.

"The law, as above stated, was in 1921 and still is in full force and effect in Jugo-Slavia."

Before the defendant presented the check for payment it stamped its indorsement upon it with the words "Previous endorsements guaranteed."

It is conceded that, if the forged indorsement had been in this country, subsequent holders of the check would have acquired no title and that the plaintiff could have recovered upon the theory that the defendant had no right to receive payment under the law of the District of Columbia where this check was payable and so had been unjustly enriched. But under the law of Jugo-Slavia the Slavenska Bank had a good title even though the payee's indorsement was forged. By transferring that title to the defendant, it put the defendant in the same position to demand and receive payment that the Slavenska Bank was in when it had the check. The decision, accordingly, turns on whether or not the law of Jugo-Slavia controls and is to be given effect.

This question is certainly not without difficult implications. The cases in which it has arisen are surprisingly few. While it may truly be said that in dealing with commercial paper we are concerned primarily with the obligations of parties to it rather than strictly with title as the term is applied to tangible chattels, the obligations of the parties must nevertheless be dependent upon the title which the holder of the paper has acquired. In deciding what title this defendant had when it presented the check for payment we may have regard to the general rule of law relating to the transfer of title to chattels. The analogy in many respects is close. It is clear that the validity of a transfer of title to chattels is governed by the law of the country in which the transfer takes place. Banque de France v. Chase Nat. Bank of City of New York (C. C. A. 2) 60 F.(2d) 703. The rule has been applied to...