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Wells Fargo Asia Ltd. v. Citibank, N.A. Trinh v. Citibank, N.A. Edelmann v. Chase Manhattan Bank, N.A.

Published online by Cambridge University Press:  27 February 2017

Robert J. Dilworth
Robert J. Dilworth*
Affiliation:
Of the New York Bar
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Extract

In these three breach-of-contract actions, United States federal courts considered the liability of home offices of U.S. banks for obligations of their foreign branches in the event of foreign governmental expropriation or exchange control measures. In each decision the court of appeals did not apply the act of state doctrine and gave no effect to the foreign governmental action, largely on the ground either that the situs of the debt was not within the exclusive jurisdiction of the foreign state carrying out the governmental measure at issue or that the law governing the obligation was not that of the foreign state.

Keywords

Effect of expropriation and exchange controls on U.S. banks’ home office liability for foreign branch obligationsact of statesitus of intangible property
Type
International Decisions
Information
American Journal of International Law , Volume 83 , Issue 3 , July 1989 , pp. 573 - 580
Copyright
Copyright © American Society of International Law 1989

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References

1 852 F.2d 657, 661.

2 850 F.2d 1164, 1172.

3 861 F.2d 1291, 1305.

4 852 F.2d at 659.

5 Id.

6 660 F.Supp. 946, 950 (S.D.N.Y. 1987).

7 852 F.2d at 659 (citing district court’s unpublished order, dated Apr. 22, 1988, at 4, 6).

8 Id. at 659–60.

9 The court departed from the general rule that a deposit is situated at the branch at which it is carried (see, e.g., Vishipco Line v. Chase Manhattan Bank, N.A., 660 F.2d 854, 862 (2d Cir. 1981), cert, denied, 459 U.S. 976 (1982)), finding that this normal limitation on the situs of a banking debt is subject to variation by agreement of the parties and that there was evidence of such an agreement. 852 F.2d at 660.

10 852 F.2d at 661. This policy was motivated by the exemption of foreign branches of U.S. banks from the reserve and deposit insurance requirements applicable to domestic deposits, reducing such branches’ effective costs of funds and permitting them to compete with non-U.S. banks that are free from those restrictions.

11 Id.

12 850 F.2d at 1173.

13 Id.

14 Id. at 1166–67.

15 Id. at 1167.

16 Id. at 1168. The court noted that Citibank was “surely correct in arguing that absent special circumstances, deposits made in branch banks are payable only there,” but ruled that the closing of a branch was one such “special circumstance” which would trigger liability against the home office. Id. at 1168–69.

17 Id. at 1169. The court was not persuaded by Citibank’s claim that the restrictions in the payment terms of the deposit agreement—limiting payments on deposits to Vietnam and Vietnamese piasters—were sufficient to notify depositors that they bore the risk of loss and would have no recourse against the home office in the event the branch closed. For such contract limitations to be effective, the court said, the provisions “must be explicit and must clearly and unmistakably inform depositors that they have no right to proceed against the home office.” Id. at 1170.

18 Id. at 1171.

19 Id. at 1172 (citing Vishipco, 660 F.2d 854, 862 (2d Cir. 1981)).

20 Id. at 1175–79 (Brown, J., dissenting).

21 861 F.2d at 1291–93.

22 668 F.Supp. 99 (D.P.R. 1987).

23 861 F.2d at 1301–02.

24 Id. at 1302.

25 Id. at 1302–03.

26 735 F.2d 645 (2d Cir. 1984).

27 Id. at 651.

28 861 F.2d at 1304–05. In its amended holding, the First Circuit attempted to distinguish Perez v. Chase Manhattan Bank, N.A., 61 N.Y.2d 460, 474 N.Y.S.2d 689, cert. denied, 469 U.S. 966 (1984), a New York Court of Appeals decision on almost identical facts to Garcia and Edelmann. In Perez the Court of Appeals applied the act of state doctrine to defeat the depositor’s claim because the certificates of deposit were also payable within Cuba and thus had a situs there at the time of the expropriation. In Garcia, the First Circuit noted, a jury had found that there was a separate contractual undertaking to ensure the safety of the depositor’s money and the Second Circuit had concluded that the act of state doctrine was thus not implicated. 735 F.2d at 651. The First Circuit then remanded the case for further factual findings. 861 F.2d at 1305.

29 735 F.2d at 649, quoted in Edelmann, 861 F.2d at 335.

30 With respect to the situs of tangible property, “sovereignty is pure fact.” American Banana Co. v. United Fruit Co., 213 U.S. 347, 358 (1909) (Holmes, J.). The situs of an intangible obligation is a legal, not a factual, determination, because the localization of the intangible within a jurisdiction determines the law applicable to it and the extent to which laws of competing jurisdictions are to be given effect.

31 See generally Gruson, The Act of State Doctrine in Contract Cases as a Conflict-of-Laws Rule, U. Ill. L. Rev. 519 (1988); Note, The Act of State Doctrine: Resolving Debt Situs Confusion, 86 Colum. L. Rev. 594, 611–17 (1986); Note, Recent Approaches to Situs of Debt in Act of State Decisions, I Conn. J. Int’l L. 151, 179–83 (1985–86).