Petition — Grindlay's Bank (Uganda), Ltd. v. J. Zeevi & Sons, Ltd.

Supreme Court brief1975

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MICHAEL RODAK, JR.,CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM 1975

No.7 5-64 4

GrinpLay’s Bank (Ucanpa) Liurrep,

Petitioner,

J. ZEEv1 anp Sons, Lrp., Gap Zeevi, Rrvka Zeevi, GALILLIA

Pact and En1a Metzner, copartners doing business as

J. ZeEv1 & Sons,

Respondents.

| SS SS SS

PETITION FOR A WRIT OF CERTIORARI

TO THE COURT OF APPEALS FOR

THE STATE OF NEW YORK

Henry Harrietp

Attorney for Petitioner

53 Wall Street

New York, N. Y. 10005

SHEARMAN & STERLING

Herman E. Comprer

Joun J. E. Marxnam, IT

of Counsel

July 10, 1975.

TABLE OF CONTENTS

Citations to Opinions Below ..................0e00:

Td i Bens ie ed ee ee eciekcauses

Se ED £6 So eee ei ees cade ccetedevewss

Constitutional Provisions, Treaty and Statutes In-

SE deucveendeuknénnbee ckdsmiubensonet ieee

PE Reseach avecbeecceuscesenscuaneegessadnes

Reasons for Granting the Writ ....................

I. The State Court Decided Substantial Federal

Questions That Should Be Determined wand By

ee I iad CeCib- ne deceeeecungedeccaiansnase

A. The State Court Was Not Authorized to Ad-

SS ES oo cdc a cndukenvasseenibens

B. In This Case the Use of Judicial Action to

Implement State Policy is Offensive to the

Constitution of the United States ..........

II. The State Court Decided Substantial Federal

Questions In a Way Not in Accord With Ap-

plicable Decisions of This Court ..............

A. Due Process Requires that Ugandan and Not

New York Law Be Applied .................

B. Under the Federal Act of State Doctrine

Petitioner’s Compliance with the Directives

of the Ugandan Government Constitutes a

TD dank cadnncnddbnccescasede

C. The Judgment of the State Court Viclates

a Treaty of the United States ..............

SEITE FORE OF TE OE FE EEE EOE

InpDEXx To APPENDIX

Opinion of the Court of Appeals, State of New York

Order, Judgment and Remittitur of the Court of

DBORD ooo cc ccccvccccssccncvccccvescossccess

Entry of Judgment Upon Remittitur ............--

Memorandum Opinion of Trial Court, New York

CE nnn neck dncanc seehapessacthnceconsnesen

Memorandum Opinion of Trial Court, New York

SE cnccccdenadeucnsdevensesbnweasenuereacs

GENE cde ibe deb dectuciniccdsdcciasccctacese

Letter Request to Open a Letter of Credit ..........

Application for Credit 110/84 ............... tenes

tba GE CS BRIG 6 icc even devedsncsuvccessase

Letter of Collection From Cheniical Bank to First

PRED GN THEE oc cc tvccnccesecunccscivers

Letter from First National City Bank to Chemical

DEE 40n6nb40susd hanwedes 6kd4bKenedetesnayes

PAGE

Al10

TABLE OF CASES AND AUTHORITIES iii

TABLE OF CASES AND AUTHORITIES

Cases: PAGE

American Banana Co. v. United Fruit Co., 213 U.S.

Be ree oe aiennadeatens 22

Auten v. Auten, 308 N.Y. 155 (1954) ............... 19

Banco do Brasil v. Israel Com. Co., 12 N.Y.2d 371

(1963), cert. denied, 376 U.S. 906 (1964) ........ 23, 26

Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398

DEE Susudes dete tdduvulantenes Chengde bs 4aces 22

Bank of America v. Whitney Bank, 261 U.S. 171

te ds ca dideundetéawedanseheenses 14

Burt Randolf Sugar and Wrestling, Inc. v. Curtis

Circulation Co., 377 F.Supp. 1055 (S.D.N.Y.1975) 16

Deutsche Bank v. Humphrey, 272 U.S. 517 (1926) ... 21

Erb v. Banco di Napoli, 243 N.Y. 45, 49 (1926) ...... 15

Fuentes v. Shevin, 407 U.S. 67 (1972) ............. 16

Hanson v. Denckla, 357 U.S. 235 (1958) ............ 13, 15

Harris v. Balk, 198 U.S. 215 (1905) ................ 15

Home Insurance Co. v. Dick, 281 U.S. 397 (1930) .... 20

Huntington v. Atirill, 146 U.S. 657 (1892) .......... 24

International Shoe Co. v. Washington, 326 U.S. 310

Pct icbiathanneumense tekdd wands &koueeeuhe 13, 15

Kolovrat v. Oregon, 366 U.S. 187 (1961) ............ 28

Lauritzen v. Larsen, 345 U.S. 561, 590-91 (1953) .... 20

McGee v. International Life Ins. Co., 355 U.S. 220

SE 3 i ka ubue paneendees ahd shee baekncaewes 13, 15

Menendez v. Saks & Co., 485 F.2d 1355 (2nd Cir.

PE wubbdeneenedsehssbudesssekddeesacnd «kt 24, 25

iv TABLE OF CASES AND AUTHORITIES

PAGE

Mertz v. Mertz, 271 N.Y. 466 (1936) ............... 24

North Georgia Finishing, Inc. v. Di-Chem, Inc., No.

CED ans ok G0sedeuesued ¥eeschasdaees 16

Oetjen v. Central Leather Co., 246 U.S. 297 (1918) .. 21

Salimoff & Co. v. Standard Oil Co., 262 N.Y. 220

Dt < cetettlbdechesuneaheeens sabeneneess 22

Simonson vy. International Bank, 14 N.Y.2d 28 (1964) 15

Underhill v. Hernandez, 168 U.S. 250 (1897) ........ 21, 22

United States v. Ansonia Brass & Copper Co., 218

ARE Sey Stearate ie eg re pr, ie 27

United States vy. Belmont, 301 U.S. 324 (1987) ...... 17, 28

United States v. Pink, 315 U.S. 203 (1942) ...... 17, 27, 28

Vladikavkazsky Railway Co. v. New York Trust Co.,

ro ob bs cucu chenes's cab seneies 24

Constitutional Provisions:

United States Const. Article I, cl. 2 ................ 11, 27

United States Const. Amend. XIV ....... 10, 11, 13, 16, 19

Statute:

Bretton Woods Agreement (60 Stat. 1401 et seq.) ..11, 25,

26, 27

Addresses:

State of the Union Address, by the President of the

United States (H. Doc. R’s 94-3) 121 Cong. Ree.

i Ecc cceawkdeveveceuveeust 18

Miscellaneous:

Nussbaum, Exchange Control and the International

Monetary Fund, 59 Yale L. J. 421 (1950) ...... 26

IN THE

Supreme Court of the United States

OCTOBER TERM 1975

GrinpLay’s Bank (Ucanpa) Limirep,

Petitioner,

Vv.

J. ZeEvi aND Sons, Lrv., Gap Zeevi, Rrvka Zeevi, GALILLIA

Pact and Entra Metzner, copartners doing business as

J. Zeevi & Sons,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE COURT OF APPEALS FOR

THE STATE OF NEW YORK

Petitioner prays that a writ of certiorari issue to review

the order and judgment of the Court of Appeals for the

State of New York entered in the above entitled action on

June 16, 1975 which affirmed a final order and judgment

of the Supreme Court, New York County, granting judg-

ment to the respondents upon their first alleged cause of

action.

Citations to Opinions Below

The opinion of the Court of Appeals (A 1-9)’ of the

State of New York, affirming, is, as yet, not officially re-

1 Numbers in parentheses prefixed by the letter ‘‘A’’ refer to

pages of the appendix to this petition. Numbers in parentheses

prefixed by the letter ‘‘R’’ refer to pages of the record in the

state court.

ported. The two memorandum opinions of the Trial

Court, Supreme Court, New York County (A 12-19) are

not officially reported. The two orders of the Appellate

Division, First Judicial Department, affirming, without

opinion, are reported at 42 A.D.2d 693 (1974) and 44

A.D.2d 914, 355 N.Y.S. 2d 1015 (1974).

Jurisdiction

The order and judgment of the Court of Appeals for

the State of New York (A 10-12) was entered on June 16,

1975. On June 26, 1975, upon remittitur from the Court

of Appeals, the Supreme Court, New York County, entered

final judgment (A 13-14). The jurisdiction of this Court

is invoked under 28 U.S.C. § 1257(3).

Questions Presented

1. In the context of our federal system, in which the

conduct of foreign affairs is the function of the federal

government, may a state court declare, and by judicial

action execute, what it conceives to be the political, social

and economic policies of the state by undertaking to ad-

judicate controversies (a) between alien litigants, none

of whom are citizens, residents or domiciliaries of the

state, and (b) arising out of business transactions occur-

ring outside the United States and having no impact on

the state?

2. Under the Constitution of the United States, is a

state court authorized to adjudicate a controversy between

litigants who are citizens of foreign countries and are

neither resident nor otherwise present within the state,

for the purpose of enforcing a contract that is unenforce-

able in the foreign country where it was made and to be

performed by reason of laws and governmental acts of

such foreign country which the state court believes to be

confiscatory, ethnically discriminatory and repugnant to

state policy?

3. When a state court lacks subject matter jurisdiction

of a controversy arising out of a contract made and to be

performed in a foreign country by citizens of foreign

countries not resident or otherwise present in the state,

does the state court nevertheless have jurisdiction because

of the existence of a coliateral offer of a unilateral con-

tract, made generally to banks not parties to the action

and never accepted, but which would have been perform-

able in the state?

4. May a state court, without prior notice or hearing,

seize a bank account, maintained within the state by a citi-

zen of a foreign country who is not resident or otherwise

present in the state, in order to enforce, for the benefit of

a plaintiff who is neither a citizen nor resident of the state,

a contract that is unenforceable in the foreign country

where it was made and to be performed?

5. In an action in a state court, between foreign na-

tionals who are neither citizens nor residents of the state,

arising out of a contract made and to be performed in a

foreign country and unenforceable under the laws of such

country, is it a denial of due process of law for the state

court to enlarge the liability of the non-resident foreign

defendant by applying the substantive law of the forum

state instead of the law of the country where the contract

was made and to be performed?

6. Are the courts of the State of New York precluded,

by reason of the Bretton Woods Agreement, 60 Stat. 1401

et seq., and by Article VI, Clause 2, of the United States

Constitution, from enforcing an exchange contract which

violates the exchange control regulations of the Republic

of Uganda, a signatory nation to the Bretton Woods

Agreement?

7. Was the decision of the state court contrary to the

act of state doctrine as enunciated in prior decisions of

this Court?

Constitutional Provisions, Treaty and Statutes

Involved

The constitutional provisions, treaty and statutes in-

volved are Article VI, Clause 2, of the United States Con-

stitution, the fourteenth amendment to the United States

Constitution, the Bretton Woods Agreement, 60 Stat. 1401

et seq., New York Business Corperation Law § 1314(b)

(McKinney’s 1971) and the New York Banking Law

§ 200-a(2) (McKinney’s 1971) which are set out at pages

A 23-25 of the Appendix to this petition.

Statement

This petition seeks review of action by the New York

courts which, under the guise of enforcing a foreign con-

tract that is unenforceable where it was made and to be

performed, encroached upon the federal prerogative of

conducting foreign affairs by declaring and executing what

the courts conceived to be a proper political, social and

economic policy.

The action is brought by respondents, Israeli business

entities, against petitioner, a banking corporation organ-

ized and existing under the laws of Uganda, for anticipa-

tory breach of a letter of credit contract. The parties

are non-resident aliens of the United States. Neither

party is found within or does business in the United States,

nor in New York, which is the forum chosen by re-

spondents.

The action was commenced, without prior notice or hear-

ing, by attachment of a bank account maintained by peti-

tioner with a national banking association located in New

York City. The complaint alleges, inter alia, that petition-

er’s breach was the result of ‘‘a new government-in-

augurated and directed policy on forfeiture of foreign-held

assets and property and a new policy of active anti-

Semitism embarked upon by the government of Uganda’’

(R. 24). Annexed to and made a part of the complaint are

inflammatory newspaper accounts and magazine articles

that were calculated to be, and were, prejudicial to peti-

tioner and destructive of its right to a fair hearing.

The uncontroverted facts, as they appear in the record,

emerge in the following chronology.

On or about March 24, 1972, Hiram Zeevi and Co.

(Uganda) Ltd., an affiliate of respondents, located and

doing business in Uganda, made a written request to peti-

tioner to issue an irrevocable letter of credit in favor of

respondents in Israel (A 26-27; R. 163). The request speci-

fied the terms upon which funds (denominated in U. S.

dollars) were to be available to respondents. Pursuant to

that request, and in consideration of a security deposit in

Uganda in Ugandan currency equivalent at that time to

the United States dollars to be available under the credit,

petitioner issued its irrevocable letter of credit, No. 110/84

(A 26-27; R. 54).

The terms of that credit, as specified by Hiram Zeevi

and Co. (Uganda) Ltd., were that petitioner guaranteed to

respondents payments of ten drafts, in the aggregate

amount of U.S. $406,846.80, each draft to be in the amount

of U.S. $40,684.68, to be drawn by respondents on M/s

Hiram Zeevi and Co. (Uganda) Ltd., P. O. Box 719, Kam-

pala, Uganda, payable upon presentation in Kampala,

Uganda, the first such draft being payable on April 15,

1972, and the remainder being payable on the fifteenth day

of successive months. The expiration date was stated as

follows: “This credit is valid until 3lst January, 1973 for

presentation of drafts in Kampala” (A 30; R. 54).

In addition to petitioner’s engagement to respondents,

petitioner undertook gratuitously, as a matter of interna-

tional banking practice and not at the instance of respond-

ents or their Ugandan affiliate, to provide a reimbursement

facility for any bank that might elect to purchase drafts

drawn under the letter of credit. That offer to negotiat-

ing banks, not bargained for by the applicant for the credit,

was contained under the rubric “Special Instructions’’, in

the following terms :*

“The negotiating bank is authorized to claim reim-

bursement for their payments on the due dates listed

above from First National City Bank, 399 Park Avenue,

New York, to the debit of our account with them to-

gether with a certificate to the effect that all terms

of the credit have been complied with and the relative

drafts have been airmailed to us.” (A 30; R. 54-55)

The purpose and effect of the foregoing commitment

was to enable a negotiating bank (which is a bank that

discounts, by purchasing, drafts drawn by the beneficiary

of a credit) to claim reimbursement for the amount of its

outlays; it did not have the effect of enabling the benefi-

ciary itself (respondents) to present drafts in New York

and be paid there* (R. 158, 168).

The letter of credit (No. 110/84) was issued and to be

performed in, and subject to, the laws of Uganda; all obli-

gations of petitioners to respondents were undertaken in

and performable exclusively in Uganda.‘ (R. 158).

* The statement by the state court that the provision for re-

imbursement of a negotiating bank ‘‘was an integral part of that

for which the parties bargained’’ (A 5) is plainly contradicted

by the record. The application for the letter of credit makes no

mention of, or request for, any reimbursement facility in New

York or elsewhere (A 27-28).

*The statement by the state court (A 5) that New York was

the ‘‘site of payment’’ of drafts drawn by respondents under

the credit is plainly contradicted by the record. The letter of

credit at issue expressly provides for payment in Uganda not in

New York (A 29-30).

*Credit No. 110/84 obligated petitioner to see that respond-

ents’ drafts were paid upon presentation in Ugarda. The state

court’s conclusion (A 5) that petitioner’s order countermand-

ing payment of claims by a negotiating bank ‘‘gave rise to a

cause of action’’ in New York is plainly incorrect. It should be

noted that no drafts purporting to be drawn, or other claims, by

a negotiating bank have ever been presented, nor has any claim

of a ‘‘negotiation’’ ever been made by any bank.

On or about April 17, 1972, pursuant to mandate of the

Ugandan government, petitioner was required to and did

cance! its letter of credit No. 110/84; and it so advised

respondents, the advising bank in Haifa, Israel, and First

National City Bank in New York (R. 36, 172).

On or about November 24, 1972, at the instance of re-

spondents, the Sheriff of the City of New York attached

in excess of $700,000 standing to the credit of petitioner

w.th First National City Bank of New York, pursuant to

an order of attachment issued by the Supreme Court of

the State of New York (R. 14-15) upon affidavits (R. 16-18)

and a summons and complaint (R. 19-28) filed by respond-

ents without prior notice to or opportunity for hearing

by petitioners. The complaint was based upon an alleged

anticipatory breach by petitioner of the contract embodied

in its letter of credit No. 110/84 (R. 19-28). The complaint

set forth a second alleged cause of action based upon an-

ticipatory breach of an alleged letter of credit No. 110/85;

that claim has been severed and is not involved in this

petition.

Service of the summons and complaint was purportedly

effected by mail and publication, the only way service could

be made, as petitioner was not present, nor doing business

in New York.

Subsequent to the attachment, on or about December 5,

1972, respondents presented to petitioner, in Kampala,

Uganda, ten drafts purporting to be drawn under and in

accordance with the terms of credit No. 110/84. Said

drafts were transmitted by respondents to Kampala

through Chemical Bank, of New York City, which acted as

collection agent (R. 56). The drafts were dishonored in

Kampala, Uganda, upon presentation there on December

18, 1972, and were returned to the collection agent (R. 56).

On December 28, 1972, more than a month after the at-

tachment, and again on January 11, 1973, Chemical Bank

presented said drafts to First National City Bank, in New

York, as a collection item, and said drafts were returned

unpaid on the ground, inter alia, that First National City

Bank, as a reimbursing bank, was authorized only to pay

a negoti iting bank that had certified that the terms of the

credit had been complied with; First National City Bank

was not authorized to pay drafts presented on behalf of

pe — of the credit (respondents) (R. 56, 58, 168-

On or about January 19, 1973, petitioner timely moved

to dismiss the action and to vacate the attachment for lack

of subject matter jurisdiction pursuant to New York Busi-

ness Corporation Law §1314(b). By order entered

April 11, 1973, the Supreme Court, New York County,

denied that motion. On appeal to the Appellate Division

of the Supreme Court, First Judicial Department, that

order was affirmed without opinion and as the order did

not finally dispose of the action, no further appeal was

available.

Petitioner thereafter served an answer and an amended

answer, raising the federal questions herein sought to be

reviewed.

On August 29, 1973, respondents moved for summary

judgment on the first claim, based upon letter of credit No.

110/84. Petitioner cross-moved, on October 10, 1973, for

summary judgment on both the first and second claims.

The Supreme Court, New York County, by order entered

February 7, 1973, granted summary judgment to respond-

ents on the first claim and severed the second claim. Re-

spondent J. Zeevi and Sons, Ltd. was awarded judgment

against petitioner in the amount of $443,921.28 by judg-

ment entered in the New York County Clerk’s -office on

February 19, 1974. The order and judgment were af-

firmed by the Appellate Division, First Judicial Depart-

ment, without opinion, and by the Court of Appeals for

the State of New York.

The opinion of the Court of Appeals (A 1) explicitly

answered, adversely to petitioner, the federal questions

raised by the defenses; namely, that the assumption of

jurisdiction violated constitutional guaranties; that the ap-

plication of New York law to enforce a contract unenforce-

able under the law of the foreign country where the con-

tract was made and to be performed denied petitioner due

process of law; that the federal act of state doctrine pro-

hibits adjudication by the courts of New York; and that

the contract in suit is unenforceable under a treaty of the

United States.

Execution of judgment was stayed by the Chief Judge

(Breitel) of the Court of Appeals for a period of ninety

days to permit petitioner to seek the relief hereby re-

quested from this Court.

Time and Manner in Which Federal

Questions Were Raised

In its amended answer, petitioner explicitly reserved the

question as to the jurisdiction of the state court, first

raised by its motion to dismiss the complaint and vacate

the attachment. It asserted the following affirmative de-

fenses, inter alia: (1) that its cancellation of letter of

eredit No. 110/84 was effected pursuant to, and under

compulsion of, an act of the sovereign State of Uganda;

(2) that under Ugandan law, performance by petitioner

of the obligation it had undertaken to respondents was

unlawful; that petitioner was not liable for non-perform-

ance compelled by the dictates of Ugandan law; and that

the application of New York law, rather than the law of

Uganda, would deny petitioner the protection guaranteed

to it by the Constitution of the United States; and (3) that

the state court was precluded by the Bretton Woods Agree-

ment from enforcing the contract upon which respondents’

claim is based.

Petitioner renewed its contentions with respect to the

federal questions involved at each stage of the litigation

in the state courts. The opinion of the state court ex-

plicitly recognizes the existence of the federal questions in

the following language: ‘‘Defendant contends that the

complaint must be dismissed because the court lacks sub-

ject matter jurisdiction, that the law of the Republic of

Uganda applies and under it the complaint must be dis-

missed, that the decision under review is contrary to the

act of state doctrine, and that said decision violates the

Bretton Woods Agreement” (A 4).

Reasons for Granting the Writ

This case presents substantial questions arising under

the Constitution of the United States. The New York

Court of Appeals has undertaken to decide them. In so

doing, the state court purported to resolve issues that this

Court has not dealt with in specific terms, but which only

this Court can, and should, determine. Moreover, having

assumed a jurisdiction which, we submit, exceeded its con-

stitutional power, the state court decided the federal ques-

tions in a way that does not accord with applicable deci-

sions of this Court.

More particularly, the state court’s disposition of the

issues before it requires review by this Court for the fol-

lowing reasons. (1) Adjudication of the controversy by

the state court denied petitioner due process of law guar-

anteed by the United States Constitution, in that, both

parties being non-residents, and the petitioner not having

undertaken an obligation to respondents to make any per-

formance in New York’, New York had no jurisdiction

* The contingent obligation undertaken by petitioner toward a

hypothetical (and, in fact, non-existent) negotiating bank never

became actual, and was, in any event, too remote from the con-

troversy between petitioner and respondents to justify judicial

interference by the State of New York. Cancellation of the re-

imbursement facility, but not of the credit in favor of respond-

ents, would have given rise to no claim by respondents, but only

@ claim by a negotiating bank. Such a claim is, of course, wholly

hypothetical, because there was no negotiating bank in this case.

over the cause nor over the person of the petitioner.

(2) The lack of jurisdiction over the cause could not be

cured by attachment of petitioner’s bank account in New

York, and, because the New York court lacked jurisdiction

of the cause, the distraint upon petitioner’s property,

without prior notice or opportunity to be heard, was itself

a taking of property without due process of law. (3) In-

asmuch as petitioner’s obligations to respondents (as dis-

tinct from any contingent obligations undertaken to a hy-

pothetical negotiating bank) were both undertaken and

performable exclusively in Uganda, the contract between

petitioner and respondents was made and to be performed

in accordance with and was governed by the laws of

Uganda. Under the laws of Uganda, that contract was

unenforceable. Performance by petitioner would have

been unlawful. Under controlling decisions of this Court,

the imposition of liability under New York law constituted

a denial of due process guaranteed by the United States

Constitution. (4) In view of the fact that the petitioner’s

cancellation of the letter of credit was effected in Uganda

and notice thereof transmitted from Uganda, in accordance

with an effective mandate of the Government of Uganda,

the federal act of state doctrine provided an absolute de-

fense to petitioner and the state court’s rejection of that

defense denied petitioner due process of law. (5) The

state court exceeded its authority in its construction of

a treaty of the United States, and by enforcing the con-

tract in suit, disregarding the explicit provisions of the

Bretton Woods Agreement, in violation of Article VI,

clause 2 of the United States Constitution.

The State Court Decided Substantial Federal

Questions That Should Be Determined

Only by This Court

When, as in this case, nationals of foreign countries and

international business transactions are involved, the scope

of a state court’s jurisdiction over the subject matter

and the parties raises important federal questions. This

Court has dealt with the scope of state court jurisdiction

in the context of our federal system of government but

we are aware of no determination by this Court that would

support the New York court’s assumption of jurisdiction

in this case.

In cases where no question was raised as to the juris-

diction of a state court over the subject matter and

the parties, this Court has had occasion to declare that the

state court may not shape its judgment on the basis of

state policies that are inconsistent with national foreign

policy. We are aware of no decision of this Court that

would support the power of a state affirmatively to im-

pose its policies with respect to foreign affairs by provid-

ing judicial remedies to foreign nationals, non-residents

of the state, who complain against other foreign nationals,

non-residents of the state, in respect of conduct required

by the laws and policies of a foreign country in which such

conduct occurred.

A. The State Court Was Not Authorized

to Adjudicate This Case.

The New Yc: courts lacked original jurisdiction of

the subject matter and of the parties in this controversy,

which arises out of the alleged breach of a letter of credit

contract made by a Ugandan bank with an Israeli busi-

ness entity. The letter of credit contemplated the drawing

of drafts in Israel, on a company located in Uganda, that

Diner trer rs tote coe ow

were to be presented for payment in Uganda, and pay-

ment of which, in Uganda, was guaranteed by a Ugandan

bank located in Uganda. No original jurisdiction vested

in the New York courts by reason of the fact that the

drafts were denominated in United States dollars nor by

reason of the fact that the Ugandan bank, gratuitously

and not as a term of its agreement with any other con-

tracting party, offered to cause the payment in New York

of claims against it by any bank on condition that such

bank had negotiated drafts under the letter of credit

and certified that its conditions had been met. Indeed,

the leading cases of this Court suggest that any such

assumption of jurisdiction violates due process of law.

Hanson v. Denckla, 357 U.S. 235 (1958). See also, In-

ternational Shoe Co. v. Washington, 326 U.S. 310 (1945) ;

McGee v. International Life Ins. Co., 355 U.S. 220 (1957 ).

This Court has held that a state court may exercise in

personam jurisdiction over a non-domiciliary corporation

where it is “reasonable, in the context of our federal sys-

tem of government, to require the corporation to defend

the particular suit which is brought there.” International

Shoe Co. v. Washington, 326 U.S. 310 (1945) at page 317.

The instant case does not arise in the “context of our

federal system of government”’ and it is not reasonable in

the circumstances of this case to require petitioner to an-

swer in New York the complaint there lodged against it by

respondents. That this controversy lies outside the context

of our federal system of government is self-evident. That

it is unreasonable for the New York courts to assume juris-

diction is apparent for the following reasons.

First, the undisputed evidence establishes that, in issuing

its letter of credit No. 110/84, petitioner did not contem-

plate the application of New York law to the transaction

nor was there any reason for it to anticipate that its under-

taking to respondents would be governed by any law other

than that of Uganda where it issued the letter of credit

and where its performance under the credit was to occur.

Petitioner undertook no obligation to respondents or to

Hiram Zeevi and Co. (Uganda) Ltd. that was perform-

able in New York. Accordingly, petitioner at no time

assumed or owed any duty to account, in a New York

court, for its performance or non-performance of its en-

gagement to respondents.

The fact that petitioner voluntarily offered to nego-

tiating banks a contingent and conditional facility for

reimbursement in New York is insufficient to bring the con-

troversy between petitioner and respondents within the

cognizance of the New York courts. The uncontroverted

evidence in the record establishes that as a matter of gen-

erally accepted banking practice the proposal for re-

imbursement of negotiating banks conferred on respond-

ents no rights against petitioner (R. 158; 168-169). It was

intended to simplify and reduce the paper work and traf-

fic between banks in the course of their transactions in

foreign currencies. It would clearly be unreasonable to

hold that a consequence of this inter-bank arrangement

was to make petitioner accountable to respondents in the

New York courts.

Second, petitioner is a banking corporation organized

and existing under the laws of Uganda. It maintains no

branci., agency, or other establishment in New York and

conducts no activities in New York that would make it

amenable to service of process of the New York courts.

Maintenance of correspondent relationships, including an

account with First National City Bank in New York, did

not constitute activities that subject petitioner to the juris-

diction of the New York courts. Bank of America v. Whit-

ney Bank, 261 U.S. 171 (1923).

Third, the controversy does not involve property in

New York, title to which is in dispute or which is other-

wise available to serve as the basis for tm rem jurisdic-

tion. Even if it be assumed, arguendo, that petitioner had

’

proposed to use its credit balance with First National City

Bank to make a. payment to or for the benefit of respond-

ents, and had so instructed First National City Bank,

prs pro ny would have acquired no rights in respect of

such credit balance. Erb v. Banco di Napoli, 243 N.Y. 45

° (en. t Napoli, N.Y. 45,

Fourth, respondents are not citizens or residents of New

York or otherwise so situated as to claim the protection

of New York law or the assistance of the New York courts

in respect of their claims against non-domiciliaries of New

York. Hanson v. Denckla, International Shoe Co. v. Wash-

ington and McGee v. International Life Ins. Co. (supra).

Fifth, the deficiencies of jurisdiction were not and could

not be remedied through the device of attaching petitioner’s

bank account. A state may not create a jurisdiction it does

yee Aap eigas by seizing property of an absent defendant in

order to create a res. Simonson vy. International Bank, 14

N.Y.2d 28 (1964). In the case at bar there is an:

“. . . absence of those ‘affiliating circumstances’

without which the courts of a State may not enter judg-

ment imposing obligations on persons (jurisdiction in

personam) or affecting interests in property (jurisdic-

tion tm rem or quasi in rem).” Hanson vy. Denckla, 357

U.S. 235 (1958) at page 246.°

_.° The quoted language is not in conflict wi i ’

cision of Harris v. Balk, 198 U.S, 215 (1905). In Harn assume

tion of jurisdiction quasi in rem was allowed where the plaintiff

attaching the debt was a resident of the state assuming jurisdic-

tion by way of attachment; and plaintiff’s residency in the forum

1s an important consideration in determinin, whether assumption

of jurisdiction conforms to due process. See McGee v. Interna-

twnal Life Ins. Co., 355 U.S. 220 (1957), at page 223. In the

yoy A: —- ae nor respondents were, or are, resi-

of New York or have any other i i

otherwise, with the state of ~ =A York. ee

Moreover, the seizure of petitioner’s property without

any prior notice to petitioner or opportunity to be heard

as to the seizure, was itself a denial of due process.

Fuentes v. Shevin, 407 U.S. 67 (1972). Fuentes, however,

need not be exclusively relied upon. In North Georgia

Finishing, Inc. v. Di-Chem, Inc., No. 73-1121 (1975) not offi-

cially reported, this Court held that attachment of property

is offensive to the due process clause where there is no

notice or opportunity to determine the appropriateness of

such an attachment. In North Georgia, where, as in the

case at bar, the seized property involved a bank account of

a corporation, this Court stated:

“Here, a bank account, surely a form of property,

was impounded and, absent a bond, put totally beyond

use, during the pendency of the litigation on the alleged

debt, all by writ of garnishment issued by a court clerk

without notice or opportunity for an early hearing and

without participation by a judicial officer.” 43 Law

Week at page 4194.

North Georgia held unconstitutional a pre-hearing seizure

in an action where there was no dispute as to the state’s

power to assume jurisdiction over the defendant. The

seizure in the case at bar, by a state otherwise having no

jurisdiction over petitioner, is more offensive to due process

than the seizure held unconstitutional in North Georgia.

Indeed, a three-judge district court has recently held the

New York attachment statute, used to seize petitioner’s

property herein, unconstitutional under this Court’s deci-

sion in Fuentes. Burt Randolf Sugar and Wrestling, Inc.

v. Curtis Circulation Co., 377 F.Supp. 1055 (S.D.N.Y. 1975).

I eee it

ee oe

B. In This Case the Use of Judicial Action to Implement

State Policy is Offensive to the Constitution of the

Uniied States.

The opinion of the state court reveals that its judgment

was intended to give effect to the state policies of main-

taining the “preeminent financial position” of New York

and enhancing its claim to be “a financial capital of the

world, serving as an international clearing house and

marketplace for a plethora of international transactions”

(A 67) as well as to give effect to New York’s “sense

of justice and equity as embodied in our public policy”

and “the well-known policy of this State” against acquies-

cence in ‘‘the confiscatory and discriminatory acts of the

Ugandan goverment, . . .” (A 7-8). The explicit allega-

tions of the complaint in this action demonstrate that the

claim for relief is in part based upon charges of politically

and socially unacceptable policies and acts of the Ugandan

government and the complaint embodies newspaper and

magazine articles calculated to emphasize the repugnance

of those Ugandan laws, policies, and acts which con-

strained petitioner to cancel its letter of credit in favor of

respondents. The action of the New York courts consti-

tuted positive response to this instigation of a conflict

between the policies of New York State and the policies

of the Republic of Uganda.

The Constitution of the United States vests exclusively

in the Federal government the right to conduct foreign

affairs. This court has explicitly held that where there

is a conflict between the policies of the Federal government

and the public policy of New York, “the state of New York

does not exist.” United States v. Belmont, 301 U.S. 324

(1937), at page 331; United States v. Pink, 315 U.S. 203

(1941). The state court pretends, however, that “there

being no present policy of the Executive Branch of the

United States Government requiring acquiescence in the

confiscatory and discriminatory acts of the Ugandan gov-

ernment” (A 8), New York is free to declare and im-

pose its own public policy. This contention, we respect-

fully submit, is both sophistical and mischievous.’

In the circumstances of this case, the state court has

done more than to apply its own public policy in the ab-

sence of an explicitly enunciated national policy. In this

case, the state court has not confined itself to withhold-

ing a remedy because of repugnance to the policies of the

party seeking judicial assistance; it has attempted affirma-

tively to impose its own policies by applying sanctions

against a non-resident foreign national which, in its own

country, was constrained to comply with governing law

that is distasteful to the New York court.

In our submission, by so acting, the state court grossly

exceeded the limitations imposed upon it by the Constitu-

tion of the United States. The question so raised, in any

event, is one that can only be answered by this Court and

which, we respectfully submit, most certainly should be

answered.

II.

The State Court Decided Substantial Federal

Questions In a Way Not in Accord With

Applicable Decisions of This Court

This case does not belong in the courts of New York.

That conclusion is strongly supported by the fact that,

"The policies of the Executive Branch need not be, and most

frequently are not, articulated in terms of a broadside support-

ing or attacking the practices of a particular foreign govern-

ment. The fundamental policies of the United States, expressed

in treaties and reflected in jurisprudence (q.v., infra, pp. 21-28),

look to stability of international relations. ‘‘So let there be no

mistake about it: International cooperation is a vital factor in our

lives today. This is not a moment for the American people to turn

inward.’’ The State of the Union Address by the President of the

United States (H. Doc. R’s 94-3), 121 Cong. Rec. No. 2 (Jan.

15, 1975). This is not a moment for a state court to undertake

a role in the formulation of foreign policy.

A AT AA Mie pets titan he

ee ome ee oe ey

RE retin RW WT te ee

| PRE, ett reeds conte SLE ee ln es

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ery

having assumed a jurisdiction they did not possess, the

New York courts so far departed from the principles laid

down in applicable decisions by this Court as to require

review and correction by this Court.

A. Due Process Requires that Ugandan and

Not New York Law Be Applied.

By any test, the transactions out of which this case

arises were so intimately and predominantly related to

Uganda as to require the application of Ugandan law.

The transaction was initiated in Uganda by Hiram Zeevi

and Co. (Uganda) Ltd. (A 23-25). Petitioner is a Ugan-

dan bank (A 12). It was petitioner’s intention and

understanding that the letter of credit “would be sub-

ject to and construed pursuant to the laws of the Repub-

lie of Uganda” (R. 158) and Hiram Zeevi and Co.

(Uganda) Ltd. “affirmatively represented’”’ to petitioner

that isssuance and performance of the letter of credit

would be in accord with Ugandan law and regulations

(R. 156-7). The application and effect of Ugandan law

has been stated in the record by a qualified Ugandan

lawyer who was familiar with the transaction (R. 143-

147), and that evidence stands uncontradicted. The letter

of credit was issued in Uganda (A 29). It contem-

plated presentation of drafts for payment in and ouly in

Uganda (A 29-30). Petitioner undertook no obiigation to

respondents to take action of any sort outside of Uganda.

Inasmuch as Ugandan law governed, the application,

brutum fulmen, of New York law is an unconstitutional

denial of due process of law, that must not be allowed to

*The reimbursement facility was not, as the state court er-

roneously said, ‘‘an integral part of that for which the parties

bargained’’ (A 26-28). Even if it were so treated, for purposes

of conferring jurisdiction, it was not a factor of sufficient weight

to shift the center of gravity from Uganda to New York for pur-

poses of ascertaining what law is to govern. See Auten v. Auten,

308 N.Y. 155 (1954).

a i i ie

stand uncorrected. In Lauritzen v. Larsen, 345 U.S. 571,

590-91 (1953), this Court said:

“We have held it a ‘~nial of due process of law

when a state of the Union attempts to draw into con-

trol of its law otherwise foreign controversies, on

slight connections, because it is a forum state [cita-

tions ].”

In Accord:

Home Insurance Co. y. Dick, 281 U.S. 397 ( 1930).

Moreover, had the court below not incorrectly applied

the law of New York, instead of the law of Uganda (the

jurisdiction with the most significant contacts with the

controversy in question), judgment must have been ren-

dered for petitioner. Because the expenditure of Ugandan

foreign exchange was contemplated and would have been

involved, the letter of credit in controversy was subject

to the Exchange Control Act of Uganda (R. 144). The

expenditure of foreign exchange without currently valid

permission of the Minister of Finance is strictly prohibited

by the Exchange Control Act of Uganda (R. 144). The

Bank of Uganda, acting with the authority of the Minister

of Finance of Uganda (R. 145), notified petitioner that

foreign exchange allocations in favor of the beneficiary of

Credit No. 110/84 had been revoked (R. 145 & 148-59).

Revocation of foreign exchange allocations is specifically

authorized by the Exchange Control Act of Uganda

(R. 145). Because the requisite foreign exchange alloca-

tions were revoked, the Bank of Uganda directed petitioner

not to make the foreign exchange payments contemplated

by the letter of credit (R. 145 & 159). Had petitioner

ignored the directives of the Government of Uganda and

made the foreign exchange payments contemplated by

Credit No. 110/84, petitioner would thereby have com-

mited an unlawful act (R. 145 & 159). Under the law of

Uganda, petitioner incurred no liability for its refusal to

wee 5

commit an unlawful act (R. 143-147). The attempt by

the state court to enlarge petitioner's obligation by im-

posing liability is proscribed by applicable decisions of

this Court. Deutsche Bank v. Humphrey, 272 U.S. 517

(1926) ; see also, Menendez v. Saks & Co., 485 F. 2d 1355

(2nd Cir. 1973).

B. Under the Federal Act of State Doctrine

Petitioner’s Compliance with the Direc-

tives of the Ugandan Government Con-

stitutes a Complete Defense.

The decision of the state court reflects a misapprehension

of the federal act of state doctrine, as enunciated by con-

trolling decisions of this Court, that should not be allowed

to go uncorrected.

The Ugandan government is not a party to this action.

It seeks no relief from a court in the United States. It is

not susceptible to judicial sanctions. A state court should

not be permitted to punish petitioner as a whipping-boy

for the Ugandan government.

From the beginning, this Court has made plain that in a

controversy between private litigants, our courts will not

impose liability upon a defendant who has acted in accord-

ance with the dictates of law or the constraints of govern-

mental authority, even though the laws or constraints are

repugnant to the policies of the forum. In Underhill v.

Hernandez, 168 U.S. 250 (1897), this Court held that a

foreign individual who, in a foreign country, acted in ac-

cordance with the laws and directives there obtaining, could

not be held liable to the plaintiff who was damaged by such

acts. In Oetjen v. Central Leather Co., 246 U.S. 297 (1918),

this Court denied recovery against a defendant who

brought into this country property that had been confis-

cated from plaintiff in Mexico and thereafter acquired by

defendant.

The doctrine has most frequently been articulated in

terms of the impropriety of the courts of one nation ad-

judicating with respect to the governmental acts of an-

other nation; or, as stated in Underhill v. Hernandez:

‘‘Every sovereign State is bound to respect the inde-

pendence of every other sovereign State, and the

courts of one country will not sit in judgment on the

acts of the government of another done within ‘ts own

territory.’’ 168 U.S. at page 252.

In Accord:

American Banana Co. v. United Fruit Co., 213

U.S. 346 (1909) ;

Banco Nacional de Cuba v. Sabbatino, 376 U.S.

398 (1964).

The corollary, in a controversy between private litigants,

is that our courts will not characterize as wrongful, and

impose liability for, acts or omissions of a non-govern-

mental defendant which did not, in effect, reflect the will

or desire of such defendant, but flowed from an exercise

of paramount authority. In this case, therefore, compli-

ance by petitioner in Uganda, with the directives of the

Ugandan government, gave rise to no claim cognizable in

the courts of the United States.

The state court which, in prior decisions, had followed

the dictates of the act of state doctrine, Salimoff & Co. v.

Standard Oil Co., 262 N.Y. 220 (1933), sought to evade its

impact in this case by asserting that the relevant acts of

the Ugandan government were without effect in New York.

This assertion, however, is untenable for the following

reasons.

It is true that the acts of a foreign government have

no extra-territorial effect except insofar as the forum is

moved by comity to accord effect to them. This gloss on

the act of state doctrine is relevant to situations in which

a foreign government seeks to affect tangible or intangible

property that has a situs beyond its borders. In this case,

however, the record is clear that no property, tangible or

intangible, within the State of New York, was affected by

Ugandan law or by petitioner’s cancellation of letter of

credit No. 110/84 in accordance with the dictate of the

Ugandan government. Neither the directives of the

Ugandan government nor the acts of petitioner in compli-

ance therewith altered or purported to alter title or other

interests in any property, tangible or intangible, in New

York.

The establishment of letter of credit No. 110/84, by

its terms, contains no engagement by petitioner to transfer

or pay to respondents in New York any money or other

property there situated. The offer (never accepted) to

negotiating banks contained in the reimbursement clause

was not a transfer or commitment to transfer any prop-

erty in New York; it was, at most, a conditional payment

order which conferred no enforceable rights against peti-

tioner’s correspondent, First National City Bank, or in

any credit balance that petitioner may have maintained

with First Nationai City Bank. Erb v. Banco di Napoli,

supra. The only property that petitioner had in New

York was a debt owed to it, and to no one else (see New

York Banking Law Section 134(4) and (5)). The letter of

credit arrangement gave respondents no rights in rem or

otherwise, with respect to that debt. The establishment

of the letter of credit did not create a debt from petitioner

to respondents, in New York or elsewhere, and its cancel-

lation did not create a debt with a situs in New York.

Even if, as respondents contend, the cancellation of the

credit was wrongful, the consequence was at most the crea-

tion of a liability on the part of petitioner, and not the

creation of a debt that could be localized as property in

New York.

Accordingly, the decisions cited by the state court® are

quite beside the point, as, indeed, are those decisions of the

federal courts which establish the extra-territorial invalidity

of foreign governmental acts.

The inescapable fact is that the Ugandan governmental

action was not intended ‘to and did not affect property or

rights existing outside Uganda; those acts were intended

to be, and were, fully executed and effective within the

territory of the Ugandan government; and those acts had

the effect of prohibiting petitioner from performing the

contractual engagements it had made, and was to perform,

in Uganda. The applicable decisions of this Court, con-

sequently, proscribe the imposition of liability upon peti-

tioner because: (1) petitioner has no liability cognizable

in our courts flowing from its compliance in Uganda with

the dictates of the Ugandan government; and (2) entry

of judgment against petitioner predicated upon a liability

imposed under New York law would deny to petitioner

that due process of law guaranteed by the Constitution of

the United States.

In this case, the obligation undertaken by petitioner to

respondents was undertaken in Uganda. It was an obli-

gation both governed and measured by Ugandan law. The

pronouncement of Circuit Judge Mansfield, in Menendez

v. Saks, 485 F.2d 1355 (2nd Cir. 1973), a case relied upon

by the Court below (A 8), should be dispositive of this

point:

“

. . In such eases the obligation may not be ‘en-

larged by the fact that the creditor happens to

be able to catch his debtor here,’ Deutsche Bank v.

* TTuntington v. Attrill, M6 U.S. 657 (1892); Mertz v. Mertz,

271 N.Y. 466 (1936). In Vladikavkazsky Railway Co. v. New

York Trust Co., 263 N.Y. 369 (1934), the defendant was a New

York bank that admittedly owed a debt payable only in New York;

the issue was whether the Russian decrees could transfer that debt

from the original depositor to its successor by nationalization.

sa is ei.

Humphrey, 272 U.S. 517, 47 S.Ct. 166, 71 L.Ed. 383

(1926); Hartford Accident & Indemnity Co, v. Delta

& Pine Land Co., 292 U.S. 143, 54 S. Ct. 634, 78 L. Ed.

1178 (1934), since an enlargement of the obligation

would be tantamount to a denial of due process. See

Home Insurance Co. v. Dick, 281 U.S. 397, 50 S.Ct.

338, 74 L. Ed. 926 (1930); Confederation Life Ass’n.

v. Ugalde, 151 So.2d 315 (Fla. App. 1963), rev’d in

part, 164 So.2d 1 (Fla. 1964) ; Tillman v. Russo Asiatic

Bank, 51 F.2d 1023 (2d Cir.), cert. denied, 285 U.S.

539, 52 S. Ct. 312, 76 L. Ed. 932 (1931); Holderness

v. Hamilton, Fire Ins. Co. of New York, 54 F. Supp.

145 (S.D. Fla. 1944).’? 485 Fed.2d at 1367.

C. The Judgment of the State Court Violates

a Treaty of the United States.

Throughout the course of this litigation, the respondents

have insisted that the object of the transactions was to

exchange Ugandan shillings for United States dollars.”

The method chosen was to authorize respondents to draw

dollar drafts on Hiram Zeevi and Co. (Uganda) Ltd.

Under Ugandan law prevailing and in effect since 1964,

an exchange of Ugandan currency for foreign currency was

prohibited except in accordance with the exchange control

regulations of the Ugandan government (R. 144-145).

Accordingly, upon the representation by Hiram Zeevi

and Co. (Uganda) Ltd. that all necessary Ugandan gov-

ernment approvals had been obtained (R. 156-7), peti-

tioner established its letter of credit No. 110/84 author-

izing respondents to draw dollar drafts on Hiram

Zeevi and Co. (Uganda) Ltd. and guaranteeing that such

1° This is initially apparent in the complaint (R. 20-28). Re-

spondents further argued that their goal was to effect the ex-

change of Ugandan shillings in Kampala, Uganda, for United

States dollars in New York, but their pleadings contain no such

allegation, nor did they offer any proof in support of the as-

sertion.

dollar drafts would be paid on presentation in Kampala,

Uganda; at the same time, Hiram Zeevi and Co. (Uganda)

Ltd. placed with petitioner, in Uganda as ‘‘margin”, an

amount of shillings equivalent at the then rate of exchange,

to the dollar amount of the drafts. The arrangement was

admittedly contractual and explicitly involved Ugandan

currency which, respondents allege, was ‘‘deposited’’ with

petitioner in anticipation of its exchange for dollars (R.

20-21).

Article VIII, Section 2(b) of the Bretton Woods Agree-

ment (60 Stat. 1401 et seqg.), provides in relevant part:

‘*Exchange contracts which involve the currency of

any member and which are contrary to the exchange

control regulations of that member maintained or im-

posed consistently with this Agreement shall be un-

enforceable in the territories of any member.’’ (60

Stat. 1411).

The provisions of Article VIII, Section 2(b) have the force

of law in the United States pursuant to 22 U.S.C. Section

286h.

Credit No. 110/84, upon which respondents’ claim is

based, is an exchange contract involving the currency of

Uganda; and, because the requisite permission for expen-

diture of foreign exchange was revoked, performance by

petitioner would have been contrary to the Exchange Con-

trol Act of Uganda (R. 143-157; and see, generally: Nuss-

baum, Exchange Control and the International Monetary

Fund, 59 Yale L.J. 421 (1950)).

In Banco do Brasil v. Israel Com. Co., 12 N.Y.2d 371

(1963), cert. denied 376 U.S. 906 (1964), the New York

Court of Appeals said of Article VIII, Section 2(b) of the

Bretton Woods Agreement:

“The sanction provided in subdivision (b) of Sec-

tion 2 is that contracts covered thereby are to be ‘un-

enforceable’ in the territory of any member. The

ON ee

clear import of this provision is to insure the avoid-

ance of the affront inherent in any attempt by the

courts of one member to render a judgment that

would put the losing party in the position of either

complying with the judgment and violating the ex-

change controls of another member or complying with

such controls and refusing obedience to the judgment.

A further reasonable inference to be drawn from the

provision is that the courts of no member should

award any recovery for breach of an agreement in vio-

lation of the exchange controls of another member.”

(12 N.Y. 2d at 376).

In Banco do Brasil, the state court was asked, not to

enforce an unenforceable exchange contract, but to

impose liability after the event on a United States na-

tional for entering into and performing a contract that

violated the currency laws of Brazil. By a divided vote,

the New York court declined to extrapolate the mandate

of the treaty, and this Court denied certiorari. That

situation is a far cry from the present case. In Banco do

Brasil, the state court properly aeclined to alter a treaty

of the United States by construing it expansively; here

it improperly refused to give effect to the plain mandate

of the treaty.”

The United States is a signatory to the Bretton Woods

Agreement which is a treaty and “the supreme law of the

1 The bald assertion that ‘‘said letter of credit is not an ex-

change contract’’ (A 9) is unsupported by authority or rea-

son and, in the light of the uncontroverted evidence, such asser-

tion is untenable. Where, as here, a treaty of the United States

is involved, it is the practice of this Court not to rely on conclusions

of the state court, but rather to ‘‘review or independently deter-

mine all questions on which a federal right is necessarily depend-

ent.’’ United States v. Pink, 315 U.S. 203 (1941) at page 217. See

also United States v. Ansonia Brass & Copper Co., 218 U.S. 452

(1910).

land” within the meaning of the Supremacy Clause of the

United States Constitution (Art. VI, Cl. 2). To avoid

interference with the foreign policy of the United States,

state law and state policy must yield to treaties of the

United States. United States v. Belmont, 301 U.S. 324

(1937); United States v. Pink, 315 U.S. 203 (1942); Kol-

ovrat v. Oregon, 366 U.S. 187 (1961). In Kolovrat, this

Court specifically stated that a state court is required to

give effect to the results mandated by the Bretton Woods

Agreement, even if those results are not satisfactory to the

state’s own policy:

‘Doubtless these agreements may fall short of that

goal. But our National Government’s powers have

been exercised so far as deemed desirable and feasible

toward that end, and the power to make policy with

regard to such matters is a national one from the

compulsion of both necessity and our Constitution.

After the proper governmental agencies have selected

the policy of foreign exchange for the country as a

whole, Oregon of course cannot refuse to give foreign

nationals their treaty rights because of fear that valid

international agreements might possibly not work com-

pletely to the satisfaction of state authorities.” 366

U.S. at page 19.

The decision of the state court is inconsistent with prior

decisions of this Court, as well as in flagrant disregard of

obligations imposed by a treaty of the United States. It

requires review and reversal by this Court.

CONCLUSION

This petition for a writ of certiorari should be

granted.

Respectfully submitted,

Henry Harrretp

Attorney for Petitioner

53 Wall Street

New York, N. Y. 10005

SHEARMAN & STERLING

Herman E. Comprer

Joun J. E. Marxnam, IT

of Counsel

July 10, 1975.

—_———__——_

APPENDIX

Opinion of the Court of Appeals, State of New York

STATE OF NEW YORK

Court or APPEALS

No, 250

J. Zeevi and Sons, Ltd., &ors., copartners &c.,

Respondents,

Vs.

Grindlays Bank (Uganda) Limited,

Appellant.

OPINION

[This opinion is uncorrected and subject to revision

before publication in the New York Reports.]

Cooke, J.

Defendant appeals from an order of the Appellate Divi-

sion, First Department, which unanimously affirmed an

order of the Supreme Court, New York County, granting

the motion of plaintiff J. Zeevi and Sons, Ltd., for partial

summary judgment on the first cause of action in the com-

plaint, denying defendant’s cross motion for summary

judgment on both causes of action in said pleading, direct-

ing entry of judgment in favor of said plaintiff on said

first cause of action and severing and continuing the re-

maining cause, as well as from the judgment entered

thereon.

Opinion of the Court of Appeals, State of New ¥ ork.

The first cause of action in the complaint involves an

irrevocable letter of credit, dated March 24, 1972, num-

bered 110/84 and in the sum of $406,846.80. The second

cause contains allegations regarding the deposit of a check

with defendant on March 24, 1972 and the opening on the

next day by defendant of an irrevocable letter of credit

numbered 110/85 for $203,423.40. Allegedly, each letter

of credit was drawn to plaintiff partnership. Plaintiffs as-

sert that there are issues of fact warranting trial in re-

spect to the latter transaction.

The pertinent factual picture unfolds without dispute.

On March 24, 1972, Hiram Zeevi & Company (Uganda)

Ltd., an Israeli corporation deposited with defendant,

Grindlays Bank (Uganda) Ltd., local currency valued at

approximately $406,846.80, for the purpose of establishing

a fund upon which plaintiff J. Zeevi and Sons, an Israeli

copartnership, could draw money. On the same date, de-

fendant opened its irrevocable credit No. 110/84 for

$406,846.80 in favor of said partnership and issued a letter

of credit acknowledging that it had opened the irrevocable

credit for “$406,846.80 (U. S. dollars four hundred and

six thousand eight hundred and forty six cents eighty)”,

and provided that the credit amount be available against

clean drafts drawn on the depositor in equal amounts of

$40,684.68 commencing April 15, 1972 and monthly there-

after. It stated “[t]his credit is valid until 3lst January,

1973 for presentation of drafts in Kampala.” The letter

concluded with these provisions:

We guarantee the payment of drafts drawn in con-

formity with the terms and conditions stated. The

negotiating bank must send drafts direct to us by

air-mail.

The negotiating bank is authorised to claim reim-

bursement for their payments on the due dates listed

above from First National City Bank, 399 Park

Al PON ED

Opinion of the Court of Appeals, State of New York.

Avenue, New York to the debit of our account with

them together with a certificate to the effect that all

terms of the credit have been complied with and the

relative drafts have been airmailed to us.

By directives dated March 28, 30 and April 13, 1972,

officials of the Bank of Uganda, acting with the authority

of the Minister of Finance under the Exchange Control Act

of Uganda, notified defendant that foreign exchange allo-

cations in favor of Israeli companies and nationals should

be cancelled and, accordingly, ordered it to make no fereign

exchange payments pursuant to credit number 110/84.

While, on April 4, 1972, defendant had informed its New

York agent, First National City Bank (hereinafter Citi-

bank), of the issuance of the letter of credit for “credit

No. 110/84”, defendant advised said agent, by cable dated

and received April 14, 1972 and by letter of April 17, 1972,

that the Government of Uganda had instructed it to can-

cel the letter of credit numbered 110/84 and directed said

agent not to “effect paymeut against drawing US $40684-68

due to be paid on or afcer 15th April 1972”’. A cable and

letter bearing the same respective dates and a correspond-

ing message were forwarded by defendant to said part-

nership. A letter dated May 5, 1972 from defendant stated:

“In the circumstances we have had no option but to in-

struct our agents in New York not to effect reimbursement

of the drawing due to be made on 15.5.1972 without further

reference to us.”

On December 28, 1972 Chemical Bank (‘*Chemical’’)

presented to Citibank for reimbursement ten drafts each

for $40,684.68, totalling $406,846.80, drawn under letter of

credit 110/84, and on January 11, 1973 Chemical wrote to

Citibank that ‘‘we are again presenting our domestic col-

lection R92049 in the amount of $406,846.80 under irrevo-

eable letter of credit 110/84, reimbursable on your good

Opinion of the Court of Appeals, State of New York.

selves and ask for reimbursement as per the terms and

conditions thereof.’ On January 19, 1973 Citibank re-

turned the subject drafts unpaid to Chemical.

This action by the partnership, the beneficiary of the two

letters of credit, and J. Zeevi and Sons, Ltd., the assignee

of said partnership, was commenced by an order of attach-

ment on November 24, 1972, whereby the funds of defend-

ant on deposit with Citibank were attached and defendant

was served by publication. Supreme Court denied defend-

ant’s motions to dismiss for lack of jurisdiction and to

increase the amount of plaintiff’s bond on the attachment

and to reduce the amount of the attachment, both of which

orders were affirmed by the Appellate Division.

Defendant contends that the complaint must be dismissed

because the court lacks subject matter jurisdiction, that

the law of the Republic of Uganda applies and under it

the complaint must be dismissed, that the decision under

review is contrary to the act of state doctrine, and that

said decision violates the Bretton Woods Agreement.

Subdivision 2 of section 200-b of the Banking Law, en-

titled ‘‘Actions maintained against foreign banking cor-

poration; residents; foreign corporations, foreign banking

corporations as nonresidents,’’ provides in part:

2. Except as otherwise provided in this chapter, an

action * * * against a foreign banking corporation

may be maintained by another foreign corporation or

foreign banking corporation or by a nonresident in

the following cases only:

Subdivision (b) of section 1314 of the Business Corpora-

tion Law contains almost identicai language.

Pete en tame he OE eS ln at

Opinion of the Court of Appeals, State of New York.

A letter of credit, a well-known instrumentality of com-

merce (Kingdom of Sweden v. New York Trust Co., 197

Misc. 431, 441), is governed by the same general principles

of law as are all other contracts in writing (Moss v. Old

Colony Trust Co., 246 Mass. 139, 151; Bank of United

States v. Seltzer, 233 App. Div. 225, 229). It is either

revocable or irrevocable and, once the latter has been es-

tablished, the consent of all parties, particularly the bene-

ficiary, is necessary in order to modify the original terms

and conditions of the credit (Lamborn v. National Park

Bank of New York, 240 N. Y. 520, 525; Dulien Steel Prod-

ucts of Wash. v. Bankers Trust Co., 189 F. Supp. 922, 927,

affd. 298 F. 2d 836 [C.C.A. 2, 1962]).

The first cause of the complaint alleges and the facts

establish a cause of action occurring within New York. In

the irrevocable letter of credit 110/84 under scrutiny, de-

fendant contracted to pay upon compliance with its terms

(Lamborn v. National Park Bank of New York, supra, at

p. 525) and defendant’s order countermanding payment

by cable and letter took effect upon receipt by Citibank in

New York and then gave rise to a cause of action here

(Gonzalez v. Industrial Bank [of Cuba], 12 N Y 2d 33, 38).

Citing Hibernia Nat. Bank v. Lacombe (84 N. Y. 367), this

court stated in Gonzalez that ‘‘a cause of action arises

where that is done which should not be done.’’ In this

instance, New York was the locus of repudiation, whereas

it should have been a site of payment. The provision

respecting reimbursement in New York was an integral

part of that for which the parties bargained, it was not a

discrete obligation. The separate character of defend-

ant’s undertakings is negated by its guarantee of payment

of drafts. The value to those in commerce of having a

place at a financial capital where funds can be obtained on

a simple letter of credit, away from a relatively small

bank in an undeveloped country of uncertain political sta-

Opinion of the Court of Appeals, State of New York.

bility, is obvious. The reimbursement provision is quite

essential, economically, to the total arrangement since a

promisee would be unwilling to present a draft based on a

letter of credit, in dollar terms, to a commercial house in

the United States and then be required to wait a relatively

inordinate time for the money to come from a remote

source.

When defendant, the issuer, repudiated the letter of

credit before presentment of the draft and before expira-

tion of the letter, it was guilty of an anticipatory breach

of contract and became liable for damages caused the

beneficiary (Foglino & Co. v. Webster, 217 App. Div. 282,

297-298, mod. on other grounds 244 N. Y. 516; Doelger v.

Battery Park National Bank, 201 App. Div. 515, 521-522;

Mendelson v. Wechsler, 203 N.Y.S 197; 34 N Y Jur, Let-

ters of Credit, § 38; see Uniform Commercial Code, § 5-115).

We come now to the question of the choice of law.

“T]he rule which has evolved clearly in our most re-

cent decisions is that the law of the jurisdiction having

the greatest interest in the litigation will be applied and

that the facts or contacts which obtain significance in de-

fining State interests are those which relate to the pur-

pose of the particular law in conflict’” (Intercontinental

Planning v. Daystrom, 24 N Y 2d 372, 382). New York has

an overriding and paramount interest in the outcome of this

litigation. It is a financial capital of the world, serving as

an international clearinghouse and market place for a

plethora of international transactions, such as to be so

recognized by our decisional law (Intercontinental Plan-

ning v. Daystrom, supra, at pp. 383-384). A vast amount

of international letter of credit business is customarily

handled by certain New York banks whose facilities and

foreign connections are particularly adaptable to this field

of operation (34 N Y Jur, Letters of Credit, $10, p. 427).

The parties, by listing United States dollars as the form

Opinion of the Court of Appeals, State of New York.

of payment, impliedly accepted these facts and set up pro-

cedures to implement their trust in our policies. In order

to maintain its preeminent financial position, it is impor-

tant that the justified expectations of the parties to the

contract be protected (cf. Kossick v. United Fruit Co.,

365 U. S. 731, 741). Since New York has the greatest in-

terest and is most intimately concerned with the outcome

of this litigation, its laws should be accorded paramount

control over the legal issues presented (cf. Auten v. Auten,

308 N. Y. 155, 161).

As typified by strong anti-Israel and anti-semitic sug-

gestions made by Uganda’s President to the Secretary

General of the United Nations, the Bank of Uganda, by

message dated March 28, 1972 and marked ‘‘Top Secret”,

directed defendant that “all payments to Israel companies

and their agents, and to the Government of Israel whether

by cheques, * * * or by letters of credit, should not be

processed until clearance has been obtained from the under-

signed.” Sixteen days later in a message marked “Con-

FIDENTIAL” and to which was attached references to letters

of credit 110/84 and 110/85, defendant was informed that

“Tt]here can never be any basis for the expenditure of

foreign exchange unless value in the form of goods has

been received in Uganda” and that “no foreign exchange

payment should be effected on any of the allocations al-

ready advised to you on behalf of any Israel company.”

Defendant contends that these revocations or cancellations

of foreign exchange allocations in favor of the beneficiary

of credit number 110/84 were authorized by the Exchange

Control Act of Uganda.

Laws of foreign governments have extraterritorial juris-

diction only by comity (Huntington v. Attrill, 146 U. S.

657, 669; Mertz v. Mertz, 271 N. Y. 466, 470). The prin-

ciple which determines whether we shall give effect to

foreign legislation is that-of public policy and, where there

is a conflict between our public policy and application of

Opinion of the Court of Appeals, State of New York,

comity, our own sense of justice and equity as embodied

in our public policy must prevail (Vladikavkazsky Ry. Co.

v. New York Trust Co., 263 N. Y. 369, 378). It is clear,

that no attempted confiscatory or discriminatory act of the

Ugandan government, enforced or enacted aftcr the issu-

ance of letter of credit 110/84 could diminish the benefi-

ficiary’s rights in respect to reimbursement and defend-

ant’s funds located in New York (see N. Y. Const., art. 1,

§§ 6, 11). There being no present policy of the executive

branch of the United States Government requiring ac-

quiescence in the confiscatory and discriminatory acts of

the Ugandan government, the well-known policy of this

State against such acquiescence is operative (Gonzalez v.

Industrial Bank [of Cuba], 12 N Y 2d 33, supra, at p. 39).

Although the letter of credit when made was valid under

the laws of Uganda, by virtue of subsequent governmental

action the contract became unenforceable in that country.

This action, however, was of no force in New York and

the doctrine of impossibility of performance lends no com-

fort to defendant.

Neither does the federal act of state doctrine apply. The

essence of this legal principle is that the courts of this

country cannot question an act of a recognized foreign

nation committed within its own territory, no matter how

grossly that sovereign has transgressed its own law (see

Banco Nacional de Cuba v. Sabbatino, 376 U. S. 398, 416;

French v. Banco Nacional de Cuba, 23 N Y 2d 46,52). The

doctrine is not applicable here since a debt is not “located’’

within a foreign state unless that state has the power to

enforce or collect it (Menendez v. Saks & Co., 485 F. 2d

1355, 1364, cert. den. U.S. ——, 94 S. Ct. 2382).

Defendant urges that enforcement of the letter of credit

contract would violate the foreign exchange laws of

Uganda in disregard of a treaty Uganda and the United

States are signatories to the Bretton Woods Agreement

aes a a

Opinion of the Court of Appeals, State of New York.

(60 Stat. 1401 et seg.) which, in relevant part under section

2 (b) of article VITI, provides:

Exchange contracts which involve the currency of

any member and which are contrary to the exchange

control regulations of that member maintained or im-

posed consistently with this Agreement shall be unen-

forceable in the territories of any member.

Contrary to defendants’ position, the Agreement, even

when read in its broadest sense, fails to bring the letter of

credit within its scope, since said letter of credit is not

an exchange contract. In Banco Do Brasil, S. A. v. Isreal

Commodity Co. (12 N Y 2d 371), this Court frowned on

an interpretation of said provision of the Bretton Woods

Agreement which “sweeps in all contracts affecting any

members’ exchange resources as doing considerable vio-

lence to the text of the section” (pp. 375-376).

The order of the Appellate Division should be affirmed

with costs.

e 6 oe > e s

Order affirmed, with costs. Opinion by Cooke, J. All con-

eur.

Decided June 16, 1975.

A10

Order, Judgment and Remittitur of the

Court of Appeals.

COURT OF APPEALS

State or New York, ss:

PLEAS in the Court of Appeals held

at Court of Appeals Hall, in the

City of Albany, on the 6th day of

May in the year of our Lord

one thousand nine hundred and

seventy-five, before the Judges of

said Court.

WITNESS,

The Hon. Cuarzes D. Breiret,

Chief Judge, Presiding.

JosEPH W. Betuacosa, Clerk.

Remittitur June 16, 1975

dé.

1 No. 74

J. Zeevi and Sons, Ltd., &ors., copartners &c.,

Respondents,

Vs.

Grindlays Bank (Uganda) Limited,

Appellant.

—

Be ir RemMemsBereD, That on the 13th day of September

in the year of our Lord one thousand nine hundred and

All

Order, Judgment cnd Remittitur of the Court of Appeals.

seventy four, Grindlays Bank (Uganda) Limited, the ap-

pellant in this cause, came here unto the Court of Appeals,

by Shearman & Sterling, its attorneys, and filed in the said

Court a Notice of Appeal and return thereto from the

Order of the Appellate Division of the Supreme Court in

and for the First Judicial Department And J. Zeevi and

Sons, Ltd., &ors., copartners, the respondents in said

cause, afterwards appeared said Court of Appeals by

Harry H Lipsig and Pamfil A Riposanu, its attorneys

Which said Notice of Appeal aud the return thereto

filed as aforesaid, are hereunto annexed.

Wuerevpon, The said Court ef Appeals having heard

this cause argued by Mr. Henry Harfield, of counsel for

the appellant- , and by Mr. Edmund B. Hennefeld, of

counsel for respondents, brief filed amicus curiae for New

York Clearing House Association, and after due delibera-

tion had thereon, did order and adjudge that the order of

the Appellate Division of the Supreme Court appealed

from herein be and the same hereby is affirmed, with costs.

Opinion by Cooke, J.

All concur.

And it was also further ordered, that the records afore-

said, and the proceedings in this Court, be remitted to the

Supreme Court of the State of New York, there to be pro-

ceeded upon according to law.

THEREFORE, it is considered that the said order is affirmed,

&e., as aforesaid.

And hereupon, as well the Notice of Appeal and return

thereto aforesaid as the judgment of the Court of Appeals

aforesaid, by it given in the premises, are by the said

Court of Appeals remitted into the Supreme Court of the

Al12

Order, Judgment and Remittitur of the Court of Appeals.

State of New York before the Justices thereof, according

to the form of the statute in such case made and provided,

to be enforced according to law, and which record now

remains in the said Supreme Court, before the justices

thereof, &e.

JosEPH W. BELLacosa,

Clerk of the Court of Appeals

of the State of New York.

Court or Appeats, CLERK’s OFFICE, )

Albany, June 16, 1975 ‘

(Sea)

I Heresy Certiry, that the preceding record contains a

correct transcript.of the proceedings in said cause in the

Court of Appeals with the papers originally filed therein,

attached thereto.

JosepH W. Be.iacosa,

Clerk.

Al3

Entry of Judgment Upon Remittitur.

SUPREME COURT OF THE STATE OF NEW YORK

County or New Yorx

Index No. 24,330/1972

sé.

J. Zeevi anv Sons, Lrv., Gap Zeevi, Rivka Zeevi, GaLILLa

Pact and Enis Mewzer, copartners doing business as J.

ZEEVI AND Sons, a copartnership,

Plaintiffs,

against

GrinpLays Bank (Ucanpa) Limirtep,

Defendant.

The above-named defendant, Grindlays Bank (Uganda)

Limited, having appealed to the Court of Appeals from

an order of the Appellate Division of the Supreme Court,

First Judicial Department, entered in this action on the

16th day of May, 1974, affirming the order of the Supreme

Court, New York County, entered on February 7, 1974,

which granted plaintiffs’ motion for partial summary

judgment on the first cause of action, and denied defend-

ant’s cross-motion for summary judgment on both causes

of action, and from the judgment of the Supreme Court,

New York County, entered thereon, dated on or about

February 19, 1974, and the Court of Appeals having heard

said appeal and ordered and adjudged that the order so

appealed from be affirmed, with costs, and the remittitur

from the Court of Appeals having been filed in the Office

of the Clerk of the County of New York,

Now, on motion of Harry H. Lipsig and Pamfil A.

Riposanu, Esqs., atterneys for the plaintiffs, it is

Al4

Entry of Judgment Upon Remittitur.

Apsupcep that the Order of the Appellate Division of

the Supreme Court appealed from herein be and the same

hereby is affirmed, and that the plaintiff, J. Zeevi and

Sons, Ltd., recover of the defendant, Grindlays Bank

(Uganda) Limited, the costs and disbursements of this

action as taxed, amounting to $1,411.12, making in all a

total of One Thousand Four Hundred and Eleven and

12/100 ($1,411.12) Dollars, and that the plaintiff, J. Zeevi

and Sons, Ltd., have execution therefor.

Judgment signed this 26th day of June, 1975.

Norman GoopMan

Clerk

GrinDLays Bank

45 Kampala Road

Kampala, Uganda

FIED

June 26, 1975

New York

Co. CLERK’s OFFICE

J. Zeevi & Sons

c/o Pamfil A. Riposanu

375 Park Ave.

Al5

Memorandum Opinion of Trial Court,

New York County.

SUPREME COURT

New York County

InpivipvaL CaLENDAR—Part XIII

(SAME TITLE]

WaLTEMaADE, J.:

This motion by defendant for an order dismissing the

complaint and vacating the order of attachment upon the

grounds that this Court lacks jurisdiction over the parties

in this action is denied.

Plaintiff J. Zeevi and Sons, Ltd. and J. Zeevi and Sons,

respectively, are a foreign corporation and a foreign co-

partnership duly organized and existing under the laws

of the State of Israel. Defendant Grindlays Bank

(Uganda) Limited is a foreign corporation duly organized

under the laws of the Country of Uganda.

Hiram Zeevi & Company (Uganda) Ltd. desiring to

transfer certain funds from Uganda to plaintiffs in New

York deposited the funds with the defendant. In con-

sideration thereof defendant issued its irrevocable letter

of credit in favor of the Zeevi copartnership amounting

to $610,270.20. In accordance with the terms and conditions

of the letter of credit the bank negotiating the drafts was

authorized to claim reimbursement for the payments on

the respective due dates from First National City Bank,

399 Park Ave., New York in which the defendant had

funds on deposit.

It is alleged that, on or about April 14, 1972 defendant

breached the contracts by cancelling the letters of credit

A16

Memorandum Opinion of Trial Court,

New York County.

and instructing First National City Bank not to pay on

the drafts as they become due.

Plaintiffs have secured in rem jurisdiction by an order

of attachment levying upon the assets of the defendant

bank in the hands of First National City Bank, New York

City in the sum of $710,270.20.

Defendant moves to dismiss the complaint and vacate

the order of attachment on the ground that this Court

lacks jurisdiction pursuant to Section 1314 of the Busi-

ness Corporation Law. Such a claim is without merit as

a careful examination of all the papers submitted reveals

this case to be included as one of the types of action which

may be brought under B.C.L. 1314.

B.C.L. 1314(b) states,

“Except as otherwise provided in this article, an action

or special proceeding against a foreign corporation

may be maintained by another foreign corporation of

any type or kind or by a non resident in the follow.

ing cases only:

(3) where the cause of action arose withi. this state,

except where the object of the action or special pro-

ceeding is to affect the title to real property situated

outside this state.”

It is alleged that the whole purpose of the transaction

was to transfer funds from Uganda to New York.

There is no doubt that a cause of action arose in New

York when the defendant after issuing its irrevocable

letters of credit payable in United States currency, and

after guaranteeing the payment of the drafts, instructed

First National City Bank, its agent in New York, where

it kept funds on deposit for such purposes, not to honor

the drafts drawn on such letters of credit.

Al7

Memorandum Opinion of Trial Court,

New York County.

It is the opinion of this Court that based upon the docu-

mentary evidence submitted and pursuant to B.C.L. 1314

there is sufficient ties with the State of New York to en-

able this Court to retain in rem jurisdiction over the par-

ties in this case.

Dated: Apr. 10, 1973.

W. A. W.,

J.S.C.

Memorandum Opinion of Trial Court,

New York County.

SUPREME COURT

New York County

InprvipvaL CaLENDAR—P art 13

Index No. 24330/72

J. Zezvi anv Sons, Lrp., Gap Zeevi, Rivka Zeevi, GALILLA

Pact and Ena Mewzer, copartners doing business as

J. Zeevi1 anv Sons, a copartnership,

Plaintiffs,

against

GrinpLays Bank (Ucanpa) Lim irtep,

Defendant.

Watrtemang, J.:

In this action by the beneficiary and assignees of two

letters of credit to recover funds deposited in the defend-

A18

Memorandum Opinion of Trial Court,

New York County.

ant bank, the complaint states two causes of action, each

based upon one of the letters of credit, to which the de-

fendant has interposed various defenses. The plaintiff,

J. Zeevi and Sons, Ltd., moves for partial summary judg-

ment on the first cause of action and the defendant cross-

moves for summary judgment dismissing the complaint.

Except as to certain matters in the second cause of

action, the operative facts are undisputed. On March 24,

1972, Hiram Zeevi & Company, an Israeli corporation de-

posited with defendant, Grindlays Bank Limited, in

Uganda, local currency valued at approximately $406,846.80

for the purpose of establishing a fund upon which the

plaintiff, J. Zeevi & Sons, an Israeli co-partnership, could

draw money. The bank issued an irrevocable letter of credit

numbered 110/84 to plaintiff, evidenced by cable and con-

firmation letter, both dated March 24, 1972. The letter of

credit provided that the bank would guaranty payment of

draft drawn against the depositor’s account in Kampala,

Uganda, in equal amounts of $40,684.68, commencing April

15, 1972, and monthly thereafter. The confirmatory let-

ter provided that the bank negotiating the drafts for the

beneficiary plaintiff, should seek reimbursement for its

payments at the First National City Bank, 390 Park

Avenue, New York, to the debit of the account which the

defendant bank maintained therein. On March 24, 1972,

Hiram Zeevi & Company also deposited for collection with

the defendant a check of same date drawn on the Govern-

ment of Uganda which was intended to establish funds for

a second letter of credit numbered 110/85. Defendant’s

bank stamp shows that the check was cleared and paid

on March 25, 1972; however, a later notation thereon

dated March 27, 1972, shows that the Bank of Uganda, act-

ing on behalf of the Government of Uganda, directed that

payment of the check be stopped. It remains factually un-

clear whether the defendant in the interim issued a bind-

—— aaa annem emma.

A19

Memorandum Opinion of Trial Court,

New York County.

ing second letter of credit in reliance upon this further

transaction. This uncertainty has given rise to the second

cause of action upon which the remaining plaintiffs are

assignees of the claim thereunder.

Thereafter, by directives dated March 28, 30, and April

13, 1972, various officials of the Bank of Uganda, acting

with the authority of the Uganda Minister of Finance

under the Exchange Control Act of Uganda, notified the

defendant that foreign exchange allocations in favor of

Israeli companies and nationals such as the respective

parties hereto should be cancelled. The submitted papers

which are well documented without controversion, demon-

strate clearly that the Government of Uganda executed

these directives solely to implement political policy.

On April 4, 1972, the defendant advised its New York

agent, First National City Bank, of the issuance of the

letter of credit numbered 110/84. Later, by telegram

dated April 14, 1972, and confirmatory letter dated April

17, 1972, the defendant advised its New York agent that

the credit was cancelled because of the Uganda Govern-

ment directives. On May 5, 1972, defendant notified the

plaintiff of the cancellation. _

On January 11, 1973, Chemical Bank, as plaintiff's

negotiating bank, was refused payment by First National

City, of the first drafts drawn pursuant to the letters of

credit. No part of the moneys has been returned or paid.

. The defendant contends that it is justified in refusing

payment of the funds on deposit, of which a like sum, upon

commencement of this action, has already been attached

against assets defendant possessed in New York. Defend-

ant reasons that it is acting under lawful authority of the

Republic of Uganda, and that the law of that country

must be applied to determine the rights of the parties. The

plaintiff urges that a conflict of laws exists which must

yield in favor of New York law.

A20

Memorandum Opinion of Trial Court,

New York County.

In an earlier motion to dismiss the complaint and vacate

the order of attachment, the defendant argued that this

Court lacked jurisdiction. In denying the request, the

Court found that “the whole purpose of the transaction

between the parties was to transfer funds from Uganda

to New York’’, and that ‘‘There is no doubt that a cause

of action arose in New York when the defendant, after

issuing its irrevocable letters of credit payable in United

States currency and after guaranteeing the payment of

the drafts, instructed First National City Bank, its agent

in New York, where it kept funds on deposit for such

purposes, not to honor the drafts on such letters of credit.”

The Court also found that based upon the documentary

evidence submitted there are sufficient ties with the State

of New York to enable this Court to retain in rem juris-

diction over the parties. This decision was unanimously

affirmed by the Appellate Division without opinion. (J.

Zeevi & Sons, Ltd. v. Grindlays Bank [Uganda] Ltd., 42

A D 2d 698.) To this decision, the Court now adds that

in determining which of two conflicting laws should be

applied to establish a claim, the modern concept of “group-

ing of contacts’’, or ‘“‘center of gravity” is the determina-

tive factor (Babcock v. Jackson, 12 N Y 2d 473). Under

Babcock v. Jackson, the law of the jurisdiction having the

greatest interest in the litigation will be applied and that

the facts or contacts which obtain significance in defining

State interest are those which relate the purpose of the

particular law in conflict (Intercontinental Planning v.

Daystrom, 24 N Y 2d 372, 382). The policy of the juris-

diction most intimately concerned with the outcome of the

particular litigation is paramount (Auten v. Auten, 308

N.Y. 155, 161; ef. Babeock v. Jackson, supra).

There is no disagreement that the directives: of the Re-

public of Uganda are clearly confiscatory. As a conse-

quence, the well-known policy of this State against ac-

A21

Memorandum Opinion of Trial Court,

New York County.

quiescence to confiscation is operative (Gonzalez v. Indus-

trial Bank of Cuba, 12 N Y 2d 33, 39; Viadikavkazky Ry.

Co. v. N.Y. Trust Co., 263 N.Y. 369). In Vladikavkazky,

under somewhat analogous facts, the Court viewed the

issue as a practical question of whether the law shall com-

pel a debtor in this State to pay its debt or permit it to

hold the property of its creditor indefinitely by reason of

foreign legislation. Vladikavkazky narrowed the issue

upon the principle that if the legislation is a confiscatory

decree where, as here, it repudiates an otherwise sound

obligation, it becomes contrary to our public policy and

shocks our sense of justice and equity (id. p. 378). How-

ever, what is most relevant is that the funds are located

and payable in this State (Moscow Fire Ins. Co. v. Bank

of New York, 280 N.Y. 286).

From all of the foregoing, it is clear that New York

has the paramount interest in the application of its law

when the contacts which the Republic of Uganda and this

State have with the instant controversy are examined in

relation to the policies and purposes to be vindicated by the

conflicting laws. The manifest purpose of New York law

is to protect mercantile trade and enforce the performance

of a binding contract. The Uganda law appears to abro-

gate that agreement by martial decree to enforce a purely

political policy and to confiscate funds without due com-

pensation. It is clear which of the two policies is palatable.

It is also clear that the instant dispute has sufficient con-

tacts with New York to give our State a substantial inter-

est in applying its own policy. The principal debtor, its

agent, its funds, and the place of performance, viz., New

York, represent a sufficient grouping of contacts to gravi-

tate a paramount concern to this forum.

The Court is mindful of the contention of the defendant

that under Uganda law, performance by the bank might be

unlawful and a complete defense. However, for reasons

A22

Memorandum Opinion of Trial Court,

New York County.

already stated, this Court is hardly constrained to lend

support to that law. Finally, the defendant has wholly

failed to demonstrate that the terms of the Bretton Woods

Agreement militate a different determination.

Accordingly, upon all of the foregoing, the motion for

partial summary judgment upon the first cause of action is

granted and the cross motion by the defendant for sum-

mary judgment is denied.

Settle order.

Dated: December 18, 1973.

A23

Statutes Involved.

United States Constitution Amendment XIV, Section 1

Section 1, All persons born or naturalized in the United

States, and subject to the jurisdiction thereof, are citizens

of the United States and of the State wherein they reside.

No State shall make c~ enforce any law which shall abridge

the privileges or immunities of citizens of the United

States; nor shall any State deprive any person of life,

liberty, or property, without due process of law; nor deny

to any person within its jurisdiction the equal protection

of the laws.

United States Constitution, Article VI, Clause 2

Clause 2. Supreme Law of Land

This Constitution, and the Laws of the United States

which shall be made in Pursuance thereof; and all Treaties

made, or which shall be made, under the Authority of the

United States, shall be the supreme Law of the Land; and

the Judges in every State shall be bound thereby, any

Thing in the Constitution or Laws of any State to the

Contrary notwithstanding.

Article VIII, Section 2(b) of the Bretton Woods

Agreement, 60 Stat. 1411.

‘*Exchange contracts which involve the currency of any

member and which are contrary to the exchange control

regulations of that member maintained or imposed con-

sistently with this Agreement shall be unenforceable in the

territories of any member.’’

errr" Ee

A24

Statutes Involved.

New York Banking Law § 200-b(2).

2. Except as otherwise provided in this chapter, an ac-

tion or special proceeding against a foreign banking cor-

poration may be maintained by another foreign corpora-

tion or foreign banking corporation or by a nonresident

in the following cases only:

(a) where the action is brought to recover damages for

the breach of a contract made or to be performed within

this state, or relatig to property situated within this state

at the time of the making of the contract;

(b) where the subject matter of the litigation is sit-

uated within this state;

except where the object of the action or special proceeding

is to affect the title of real property situated outside this

state;

(d) where the action or special proceeding is based on a

liability for acts done within this state by a foreign bank-

ing corporation;

(e) where the defendant is a foreign banking corpora-

tion doing business in this state.

Business Corporation Law § 1314(b).

(b) Except as otherwise provided in this article, an ac-

tion or special proceeding against a foreign corporation

may be maintained by another foreign corporation of any

type or kind by a nonresident in the following cases only:

(1) Where it is brought to recover damages for the

breach of a contract made or to be performed within this

state, or relating to property situated within this state at

the time of the making of the contract.

A25

Statutes Involved.

(2) Where the subject matter of the litigation is sit-

uated within this state.

(3) Where the cause of action arose within this state,

except where the object of the action or special proceeding

is to affect the title of real property situated outside this

state.

(4) Where, in any case not included in the preceding

subparagraphs, a non-domiciliary would be subject to the

personal jurisdiction of the courts of this state under sec-

tion 302 of the civil practice law and rules.

(5) Where the defendant is a foreign corporation doing

business or authorized to do business in this state.

A26

Letter Request to Open a Letter of Credit.

P. O. Box 719

Phone 59373/59374

Cable: Heza Kampala

Kampala Uganda

Our ref: 218/700

23rd March 1972.

The Manager,

Grindlays Bank (U) Ltd.,

P.O Box 7131,

Kampala.

Dear Sir:

We hereby request to open a letter of credit to the amount

of U.Shs: 4.380.885-60 in respect of 15 payments for equip-

ment authorised by the Bank of Uganda, and to be paid

in equal monthly rates for a period of 15 months, to

Workers Bank Haifa, in favour of J. Zeevi & Sons, Haifa,

in U.S. Dollars.

We shall thank you to act immediately to cover equip-

ment purchased for Ministry of Defence work. Please in-

form Workers Bank Haifa, of the opening of the letter of

credit by cable.

Yours faithfully,

Y. Ravex

Y. Raveh,

Chief Accountant.

J. VeREeD-WEIss,

J. Vered-Weiss,

General Agent.

A27

Application for Credit 110/84.

24th March, 1972.

The Manager,

Grindlays Bank (Uganda) Ltd.,

P.O. Box 7131,

Kampala.

Dear Sir:

Please open an irrevocable credit No. 110/84 on our be-

half under which you are authorized to pay to J. Zeevi and

Sons, P.O. Box 10104, Haifa, Israel the sum of US.

$406,846.80 (U.S. dollars four hundred and six thousand

eight hundred and forty six cents eighty).

This credit amount is available, as under, against clean

drafts drawn on ourselves:

1. $40,684.68 payable on 15th April, 1972

2. $40,684.68 15th May, 1972

6. $40,684.68 “« — 15th September, 1972

7. $40,684.68 “ —“ 15th October, 1972

8. $40,684.68 “ — ** 15th November, 1972

9. $40,684.68 “« — 15th December, 1972

Drawings under this credit must be made as above and

are payable only on or after the dates shown.

This credit is valid until 3lst January, 1973 for presen-

tation of drafts in Kampala.

Special Instructions :—All charges for the handling of this

credit and negotiation of drafts thereunder are payable by

the opener.

A28

Application for Credit 110/84.

All drafts must be enfaced ‘‘Drawn under Grindlays

Bank (Uganda) Ltd., Kampala Credit No. 110/84 dated

24th March, 1972.”

It is understood that the Bank is not responsible for the

genuineness or accuracy of such shipping documents if

apparently in order. In consideration of such drafts or

documents being purchased or negotiated by your Branch

or Agent we hereby agree duly to accept and pay them at

maturity, together with interest at % from the date of

each draft to the date of arrival of the return remittance

provided such draft or drafts shall not exceed in the whole

the amount of the Credit provided they be so negotiated

before the expiry thereof, and even although the Customs

Authorities may subsequently refuse to permit the entry

of the goods into Uganda consequent upon restrictions

being placed on their import.

It is understood that on no account shall any claim be

made against the Bank after the drafts are retired.

Yours faithfully,

For Hiram Zeevi and Co. (Uganda) Ltd.

A29

Letter of Credit 110/84.

GRINDLAYS BANK (UGANDA) LIMITED

(Incorporated in Uganda)

45 Kampata Roap

P. O. Box 7131

Kampa.a, UGANDA

Telegrams National Kampala

Telex 61010

Telephone 55011

‘**Bills Dept.’’

In confirmation of our cable dated

24th March, 1972.

J. Zeevi and Sons,

P.O. Box 10104,

Haifa,

Israel,

This Credit is advised to

you through the Medium of,

. Workers Bank, Haifa, Israel.

Dear Sirs,

We hereby open our irrevocable credit No. 110/84 for

$406,846.80 (U.S. dollars four hundred and six thousand

eight hundred and forty six cents eighty) favouring your-

selves.

This credit amount is available, as under, against clean

drafts drawn on M/s. Hiram Zeevi and Company

(Uganda) Ltd., P.O. Box 719, Kampala :—

1. $40,684.68 payable on 15th April, 1972

2. $40,684.68 ‘ ‘ 15th May, 1972

3. $40,684.68 “ ‘ 15th June, 1972

A30

Letter of Credit 110/84.

4. $40,684.68 oe ** 15th July, 1972

5. $40,684.68 os ** 15th August, 1972

6. $40,684.68 oe ‘* 15th September, 1972

7. $40,684.68 oe ** 15th October, 1972

8. $40,684.68 oe ** 15th November, 1972

9. $40,684.68 ee ** 15th December, 1972

10. $40,684.68 es ** 15th January, 1973

Drawings under this credit must be made as above and

are payable only on or after the dates shown.

This credit is valid until 31st January, 1973 for presen-

tation of drafts in Kampala.

Special Instructions:— All charges for the handling of

this credit and negotiation of drafts thereunder are pay-

able by the opener.

All drafts must be enfaced ‘‘Drawn under Grindlays

Bank (Uganda) Ltd., Kampala Credit No. 110/84 dated

24th March, 1972.’

We guarantee the payment of drafts drawn in conform-

ity with the terms and conditions stated. The negotiating

bank must send drafts direct to us by air-mail.

The negotiating bank is authorized to claim reimburse-

ment for their payments on the due dates listed above

from First National City Bank, 399 Park Avenue, New

York to the debit of our account with them together with

a certificate to the effect that all terms of the credit have

been complied with and the relative drafts have been air-

mailed to us.

Yours faithfully,

For Grindlays Bank (Uganda) Ltd.

I. J. MircHery J.H.G. Henprie

I. J. MitcHe.yi J.H.G. Henpriz

pro. Accountant, M.26 Manager H.16

A31

Letter of Collection From Chemical Bank to

First National City Bank.

CHEMICAL

20 Pine Street, New York, NY 10005

Tel.: (212) 770-2327

Robert C. Schlosser

Assistant Vice President

January 11, 1973

First National City Bank

Foreign Collection Department

111 Wall Street

New York, N. Y.

Gentlemen:

On December 28, 1972 we forwarded you our domestic

collection R92049 $406,846.80 for reimbursement under

Grindlays Bank (Uganda) Limited, Kampala, Uganda L/C

110/84 and R92049 $203,433.40 for reimbursement under

Grindlays Bank, (Uganda) Limited, Kampala, Uganda

L/C 110/85.

On December 8, 1972 your Mr. Varecka (telephone 825-

5709) informed our Ms. Vigorita that “if you received

from Chemical Bank a certificate of compliance that all

terms under the letter of credit have been complied with

you would honor our collections.”

On December 5, 1972 under our FC291413 we forwarded

10 drafts totalling $406,846.80 as required under letter of

credit 110/84 issued by Grindlays Bank (Uganda) Limited,

Kampala, Uganda directly to them asking them to honor

immediately the 8 drafts and to honor the remaining 2

drafts on their maturities. On December 18, 1972 we were

informed by cable that payment of these drafts was pro-

hibited by Bank of Uganda and being returned to Chemi-

cal Bank.

A32

Letter of Collection From Chemical Bank to

First National City Bank.

We also sent on December 15 under our FC291415, 5

drafts totalling $203,423.40, under their letter of credit

110/85. However, these drafts only became due and pay-

able February 15, 1973 monthly through June 15, 1973.

Their cable advice informed us they never opened this

letter of credit and that Hiram Zeevi & Co., Ltd., was no

longer operating in Uganda and that they were returning

the drafts by airmail to Chemical Bank. Our domestic

collection R92050, sent to you, included a copy of a cable

to the Israel Discount Bank, Haifa, stating L/C 110-85 was

opened and details would be forwarded by airmail.

A33

Letter From First National City Bank.

First Nationat Crry Bank

111 Wall Street, New York, N Y 10015

In Reply Please Quote

January 19, 1973

Chemical Bank

20 Pine Street

New York, New York 10005

Attn: Robert C. Schlosser, AVP

Gentlemen:

We have your domestic collection, delivered to us on

January 12, 1973, which we herewith return.

It is our understandiny that, in December, 1972, as col-

lection agent for the beneficiary of two letters of credit

claimed to have been issued by Grindlays Bank (Uganda)

Limited, Kampala, Uganda, you presented to the issuer,

in Uganda, drafts drawn pursuant to L/C 110/84 and

L/C 110/85. Apparentiy, the drafts under both credits

were returned to you unpaid by the issuer for the reasons

that the first letter of credit was cancelled, by order of the

Ugandan Government, and notification of cancellation had

been given to the beneficiaries, and because the second

credit had never been issued.

After this rejection, you recently presented the same

collection, under L/C 110/84, to us, with ten drafts, each

in the amount of $40,684.68, totalling $406,846.30. Upon re-

ceipt of same, we cabled the issuer for instructions, and

the issuer confirmed that the credit had been cancelled, in

April, 1972. The issuer has also indicated that, in view

of its previous return of this collection to you in December,

1972, with the reason written on the face of each bill, it

A34

Letter From First National City Bank.

could not understand your attempt to obtain payment

through us.

As you know, we were simply a reimbursing bank in this

matter, and have no authority or liability to pay these

drafts.

Very truly yours,

(Illegible)

Authorized Signature

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.