Wells Fargo Asia Ltd. v. CITIBANK, NA

• Decision Date: 28 May 1987
• Docket Number: No. 84 Civ. 996 (WK).,84 Civ. 996 (WK).
• Citation: 660 F. Supp. 946
• Parties: WELLS FARGO ASIA LIMITED, Plaintiff, v. CITIBANK, N.A., Defendant.
• Court: U.S. District Court — Southern District of New York

660 F. Supp. 946

WELLS FARGO ASIA LIMITED, Plaintiff, v. CITIBANK, N.A., Defendant.

No. 84 Civ. 996 (WK).

United States District Court, S.D. New York.

May 28, 1987.

Edwin E. McAmis, Skadden, Arps, Slate, Meagher & Flom, New York City (Mitchell C. Sockett, of counsel), and Darryl Snider, Brobeck, Phleger & Harrison, San Francisco, Cal. (Duncan E. Haynes, Jessica M. Hoover and Susan E. Samuels, of counsel), for plaintiff.

John E. Hoffman, Jr., Shearman & Sterling, New York City (Henry Weisburg, Jennifer

Freeman, Robert S. Fischler and Melissa Samet, of counsel), for defendant.

Joyce E. Motylewski, Federal Reserve Bank of New York, Office of General Counsel, and New York Clearinghouse Ass'n, Sullivan & Cromwell, New York City (John L. Warden, H. Rodgin Cohen and Michael Straus, of counsel), for amici curiae.

MEMORANDUM & ORDER

WHITMAN KNAPP, District Judge.

By this action, Wells Fargo Asia Limited ("Wells Fargo") seeks to recover from Citibank, N.A. ("Citibank") the balance concededly due on two one-million dollar time deposits (the "Deposits") with Citibank's Manila branch maturing respectively on December 9 and 10, 1983. Citibank declined payment on the maturity dates because of the existence of a Philippine governmental decree ("MAAB 47" or "the Decree") which forbade the repayment of the principal of certain foreign currency obligations without prior approval of the Central Bank of the Philippines ("Central Bank"). Citibank subsequently obtained approval for partial repayment and remitted to Wells Fargo the sum of $934,000. Citibank has declined any further payment, contending that it is excused by the Decree.

In July 1985 we denied Wells Fargo's motion for summary judgment. Wells Fargo Asia Limited v. Citibank, N.A. (S.D.N.Y.1985) 612 F.Supp. 351. The relevant facts are fully stated in that opinion, familiarity with which is assumed. Citibank resisted the motion for summary judgment by asserting that Philippine law governed the Deposits and that the Decree prohibited them from honoring plaintiff's demand without the permission of the Central Bank, which permission had been impossible to obtain. We concluded that the terms of the parties' agreement were far from clear and that an issue of fact had been presented by Citibank as to whether it could establish — by the proof of custom and usage — an agreed upon though unstated condition making the Deposits subject to Philippine sovereign risk, i.e., the risk that the Philippine government would take action preventing repayment. We decided no legal question.

The case was tried before us without a jury in December 1986. Citibank presented evidence aimed at establishing that Wells Fargo had accepted Philippine sovereign risk and that the Deposits therefore are payable only in Manila and are governed by Philippine law. Citibank again asserted that the Decree excused repayment. Wells Fargo — without abandoning its original contention that Citibank had accepted the risk that it would be liable elsewhere for obligations incurred by its Manila branch — took the position that we need not decide who bears Philippine sovereign risk because the actions of the Philippine government do not excuse honoring the Deposits. In other words, Wells Fargo now contends that it must prevail even if we assume that the Deposits are payable only in Manila and are governed by Philippine law. There being substantial authority for the proposition that the situs of a bank deposit is the branch where the deposit is made and that the depositor's rights are governed by the law of that locality, cf., e.g., Dunn v. Bank of Nova Scotia (5th Cir.1967) 374 F.2d 876, we accept plaintiff's invitation to assume that Philippine law governs this action. We shall further assume that plaintiff can recover only if — and to the extent which — it would have recovered had it instituted this action in an appropriate Philippine tribunal.

Before we delve into Philippine law, a brief digression into banking terminology is necessary. Citibank's receipt of a Eurodollar deposit creates a liability of the bank, since it is equivalent to borrowing. The asset thereby obtained is either loaned out, deposited with another bank or otherwise invested. Although Citibank is an international corporation with worldwide assets and liabilities, it — like most other banks — maintains separate books for each of its branches. In the case of assets carried on the books of its Manila branch, those assets which are invested with entities situated in the Philippines are considered Philippine (or local) assets, while those deposited in banks located outside the Philippines or invested in non-Philippine enterprises are called non-Philippine assets. It is not disputed that the Decree currently prevents Citibank's Manila branch from using its Philippine assets toward repayment of the Deposits. It is further undisputed that Citibank was able to obtain Central Bank permission for its Manila branch to repay foreign depositors to the extent of the non-Philippine assets carried on the books of that branch, which resulted in the partial repayment of $934,000.

The dispute focuses on a third category of assets: assets booked at Citibank's offices outside the Philippines. Citibank concedes that a customer placing a deposit at a foreign branch would be entitled to call upon the bank's worldwide assets should the branch be unable to pay due to illiquidity, theft, fire, or a similar occurrence. It contends, however, that where the law of the country where the branch is located prevents repayment with assets booked at that branch, the depositor may not look elsewhere. As will be developed below, we conclude that Philippine law does not support Citibank's position.

With respect to Philippine law, we are presented with two conflicting affidavits by recognized Philippine authorities: Antonio V. Agcaoili on behalf of the defendant, and Gregorio R. Castillo on behalf of the plaintiff. We find Mr. Castillo's presentation to be far more persuasive and accept his conclusions.

Defendant's expert, Mr. Agcaoili, in an affidavit dated November 28, 1986, states that the Deposits are covered by the Decree, and concludes that the Decree creates a legal impossibility which prohibits Citibank from repaying them without prior Central Bank approval, thus excusing Citibank's performance until the requisite approval is granted (Par. 13). He does not explain how he arrives at these conclusions. He also observes that the Central Bank has not issued any forms or information regarding procedures to be followed in making a request for approval under MAAB 47, and that the lack of such procedures indicates the Central Bank's intention to discourage requests for repayment and not to grant such requests if made (Par. 9).

On the other hand, Mr. Castillo, in his affidavit executed on December 12, 1986, asserts that under Philippine law Citibank is obligated to repay deposits made in its Manila branch with its assets wherever located throughout the world (Par. 4-6), and categorically concludes that the Decree in no way inhibits repayment (in Manila or anywhere else) of the Deposits as long as Citibank uses assets that are carried on the books of its non-Philippine offices. (Conclusion, Par. 17). The reasoning behind these conclusions is spelled out in Paragraphs 2-6:

2. In the case of a deposit booked at the Manila office of a non-Philippine bank such as Citibank, MAAB 47 does not apply to repayment of the deposit with non-Philippine assets. "Non-Philippine assets" are assets that are carried on the books of the bank's non-Philippine offices.

3. Accordingly, under Philippine law, Citibank may repay the Deposits at issue in this case without prior Central Bank approval, as long as it uses non-Philippine assets for that purpose. (Such repayment may be made through Citibank's branch in Manila or anywhere else in the world).

4. Under Philippine law, branches of banks are not separate legal entities apart from the bank as an institution. As stated by the Philippine Supreme Court in National City Bank of New York v. Posadas, 60 Phil 630 (1934), (affirmed by the United States Supreme Court in Posadas v. National City Bank of New York (1936) 296 U.S. 497 56 S.Ct. 349, 80 L.Ed. 351):

"The local branches of the National City Bank of New York have no separate corporate franchise, no separate capital stock, and are controlled directly through officers and managers appointed by the National City Bank of New York ...

A branch is simply an extension of a national bank to foreign countries, and the branch of the National City Bank of New York in Manila is the National City Bank of New York doing business in Manila."

Accordingly, under Philippine law, obligations incurred at a branch are obligations of the bank as a whole. Citibank, the institution, is the legal entity that entered into the Deposit contracts at issue in this case, not its Manila branch.

5. Under ... the Civil Code of the Philippines, the obligation of

...