Weston Banking Corp. v. Turkiye Garanti Bankasi, A.S.

• Decision Date: 16 November 1982
• Citation: 456 N.Y.S.2d 684,57 N.Y.2d 315,442 N.E.2d 1195
• Parties: , 442 N.E.2d 1195 WESTON BANKING CORPORATION, Respondent, v. TURKIYE GARANTI BANKASI, A.S., Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 684

456 N.Y.S.2d 684

57 N.Y.2d 315, 442 N.E.2d 1195

WESTON BANKING CORPORATION, Respondent, v. TURKIYE GARANTI BANKASI, A.S., Appellant.

Court of Appeals of New York.

Nov. 16, 1982.

Paul L. Kennedy and Harry G. Barlow, New York City, for appellant.

Julian W. Friedman and Denise G. Shekerjian, New York City, for respondent.

OPINION OF THE COURT

JASEN, Judge.

On this appeal, we are asked to decide whether, in light of the Act of State doctrine and the Bretton Woods Agreement, a Panamanian bank can maintain an action in this State against a Turkish bank on the basis of a promissory note that designates New York as the proper jurisdicti for resolution of any disputes. A secondary issue presented by this appeal is whether there was proper service of process on the defendant.

The promissory note which plaintiff, Weston Banking Corporation, a Panamanian banking corporation, seeks to enforce was signed by representatives of the defendant on July 9, 1976 in Istanbul, Turkey. Pursuant to its terms, defendant bank undertook an obligation to repay plaintiff principal in the amount of 500,000 Swiss francs, plus interest calculated at 9% per annum. The interest was to be paid semiannually and the principal was due on July 9, 1979. The note also provided that: "Payment of principal and interest shall be made at the offices of the CHEMICAL BANK * * * New York City, New York, U.S.A., by means of a cable transfer to Switzerland in Lawful currency of the Swiss Federation." Such payments were to be "made clear of all restrictions of whatsoever nature imposed thereon by, outside of bilateral or multilateral payment agreements or clearing agreements which may exist at the time of payment and free and clear of and witho deductions for any taxes, levies, imposts, deductions * * * imposed * * * by the Republic of Turkey".

Under the terms of the note, the defendant designated Chemical Bank, International Division, New York City, as its legal domicile and accepted the jurisdiction of New York courts "in the event of Judicial or extrajudial [sic] claim or summons of any nature". The holder was also given the option to bring suit against the maker in the Turkish courts. The final paragraph of the note indicates that the note "is issued under communique number 164, published by the Ministry of Finance."

Communique No. 164 amended Decree No. 17 of the Turkish Ministry of Finance. The decrees allow banks in Turkey to open convertible Turkish lira deposit accounts (CTLDs) when the bank obtains foreign currency by borrowing or through deposits. The bank is required under Turkish law to transfer the foreign currency to the Central Bank of Turkey. The Central Bank credits the privately owned bank with the equivalent amount of Turkish lira. These amounts are then available for investment by the banks. This program was apparently designed to encour Turkish banks to seek foreign investments and to help stabilize the Turkish balance of payments by making available to the Turkish government more foreign currency. The banks benefited because the Turkish government covered any costs incurred by a fluctuation in the exchange rates between the currencies.

In July, 1976, the defendant Turkish bank borrowed 500,000 Swiss francs from the plaintiff bank and used these funds to establish a CTLD. As the interest became due, payments were made in Swiss francs at Chemical Bank's International Division in New York City. However, when the note was presented for payment in July, 1979, defendant refused to pay the principal on the ground that the then existing Turkish banking regulations barred it from paying back the loan in Swiss francs.

This action was then commenced in New York by serving a summons on a bank officer at Chemical Bank in New York City; no effort was made to serve the defendant directly. It is not disputed that the summons and accompanying papers were promptly forwarded by Chemical Bank to the defendant.

The plaintiff moved, in lieu of a complaint, for summary judgment on the basis of an instrument for the payment of money only. (CPLR 3213.) The defendant cross-moved for a dismissal of the action, or, in the alternative, for summary judgment on the grounds that: the service of process was improper; the Act of State doctrine barred such a claim; the Bretton Woods Agreement barred New York from entertaining this action involving Turkish monetary regulations; and the existence of another similar action pending in a different jurisdiction barred this action.

Special Term denied the motions, finding that factual questions existed regarding whether Chemical Bank had been designated an agent for service of process; whether the parties agreed to what law would control; and whether nonpayment was occasioned by Turkish banking regulations.

The Appellate Division, 86 A.D.2d 544, 446 N.Y.S.2d 67, modified, on the law, and granted plaintiff's motion for summary judgment. Although Chemical Bank had not been specifically appoin as the defendant's agent for service of process, the court held that such appointment was "implicit in its establishment of defendant's legal domicile at Chemical Bank in New York." That court further held that the Act of State doctrine could not be invoked by one who had entered an agreement which specified both the proper jurisdiction to resolve disputes and indicated that the intention of the parties was to avoid any restrictions which might be imposed by the defendant's home government. Similarly, the court held that the Bretton Woods Agreement was not applicable because the repayment of the note did not involve any use of Turkish currency in violation of Turkish law. Finally, the court noted that the inability of the defendant to pay in Swiss francs went to the enforceability of the judgment and not to whether that judgment should be entered.

We affirm, but on a somewhat different rationale from that used by the Appellate Division.

It is not disputed that the defendant failed to pay the principal amount due plaintiff. Nor is the validity of the underlying note disputed. The heart of the defenses raised is that Turkish monetary regulations enacted subsequent to the date of the note make it legally impossible for the defendant bank to repay the loan in Swiss francs and that plaintiff's only "recourse is to be repaid in Turkish lira." Furthermore, the defendant contends that the promulgation of this regulation is an act of State and as such is beyond the review of New York courts. Similarly, defendant argues that the policy of the United States, as incorporated in the Bretton Woods Agreement (U.S.Code, tit. 22, § 286; 59 U.S.Stat 512; 60 U.S.Stat 1411), is to refrain from any interference with the monetary regulations of signatory countries.

The Act of State doctrine, simply stated, provides that "the courts in the United States will not inquire into the validity of the acts of a foreign government done within its own territory." (French v. Banco Nacional de Cuba, 23 N.Y.2d 46, 52, 295 N.Y.S.2d 433, 242 N.E.2d 704.) The underlying principle of this doctrine is that each sovereign State is " 'bound to respect the independence of every other sovereign State, and the courts of one country will not sit in judgment on the acts of t government of another done within its own territory.' " (French v. Banco Nacional de Cuba, 23 N.Y.2d 46, 52, 295 N.Y.S.2d 433, 242 N.E.2d 704, supra, quoting Underhill v. Hernandez, 168 U.S. 250, 252, 18 S.Ct. 83, 84, 42 L.Ed. 456.) This concept was reaffirmed by the Supreme Court in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 416, 84 S.Ct. 923, 934, 11 L.Ed.2d 804, where that court recognized that the Act of State doctrine has " 'constitutional' underpinnings" arising "out of the basic relationships between branches of government in a system of separation of powers." (Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 423, 84 S.Ct. 923, 937, 11 L.Ed.2d 804, supra.) Thus, the Supreme Court further noted that in order to assure that the individual States did not circumvent the dictates of international law, the Act of State doctrine and "our relationships with other members of the international community must be treated exclusively as an aspect of federal law." (Banco Nacional de Cuba v. Sabbatino, supra, at p. 425, 84 S.Ct. at p. 938.)

Both the Federal and State courts have been called upon to decide the applicability of the doctrine in various factual situations. In French v. Banco Nacional de Cuba, 23 N.Y.2d 46, 295 N.Y.S.2d 433, 242 N.E.2d 704, supra, this court held that the Act of State doctrine was applicable and, thus, a dismissal of the plaintiff's cause of action against the Cuban National Bank was required. The bank, we held, was acting pursuant to Cuban currency regulations and the courts of this State were required, under the Act of State doctrine, to defer to those regulations even though we might have found them to be invalid if review were permissible. Thus, the court concluded that the plaintiff's only recourse to obtain the tax exemption certificates he sought was through diplomatic channels. It should be noted that two preliminary factual conclusions were reached in deciding that the Act of State doctrine was applicable: first, that the new regulation controlled the question before the court; and, second, that plaintiff's claims were based on a contract signed and executed in Cuba and governed by Cuban law.

We have, however, refused to apply the doctrine when the debt sought to be enforced was not located within the State whose acts are said to be dispositive. (Zeevi & Sons v. Grindlays Bank [Uganda], 37 N.Y.2d 220, 228, 371 N.Y.S.2d 892, 333 N.E.2d 168, cert. den. 423 U.S. 866, 96 S.Ct 126, 46 L.Ed.2d 95.) Thus, a change in Ugandan law, which sought to prevent an Israeli company from collecting against lette of credit issued by an Ugandan bank, but payable out of funds held by the defenda bank in New York, was not found to be controlling under the Act of...