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De Cuba v. Chemical Bank New York Trust Co.

decided: August 4, 1981.

BANO NACIONAL DE CUBA, PLAINTIFF-APPELLANT-CROSS-APPELLEE,
v.
CHEMICAL BANK NEW YORK TRUST COMPANY, DEFENDANT-APPELLEE-CROSS-APPELLANT ; BANCO NACIONAL DE CUBA, PLAINTIFF-APPELLANT-CROSS-APPELLEE, V. MANUFACTURERS TRUST COMPANY, DEFENDANT-APPELLEE-CROSS-APPELLANT ; BANCO NACIONAL DE CUBA, PLAINTIFF-APPELLANT-CROSS-APPELLEE, V. IRVING TRUST COMPANY, DEFENDANT-APPELLEE-CROSS-APPELLANT .



Appeals and cross-appeals from final judgments entered in the United States District Court for the Southern District of New York, Charles L. Brieant, Jr., Judge, dismissing plaintiff's claims as successor in interest to nationalized Cuban banks, and allowing plaintiff's claim in its own name against one defendant but dismissing that claim on its merits on the ground that it is offset in full by that defendant's counterclaim arising from nationalization of the defendant's debtor. Vacated and remanded.

Before Lumbard, Van Graafeiland, and Kearse, Circuit Judges.

Author: Kearse

These three unconsolidated appeals, which were briefed and argued together, arise out of the expropriation in 1960 by the Republic of Cuba of a company called Cuban Electric Company, which at the time of the expropriation had outstanding balances on loans from defendants Chemical Bank New York Trust Company ("Chemical"), Manufacturers Trust Company ("Manufacturers"), and Irving Trust Company ("Irving"). The present actions were instituted by Banco Nacional de Cuba ("Banco Nacional"), which sought to recover in its own right a deposit withheld by Chemical, and sought to recover as successor in interest to certain banks nationalized in Cuba in 1960 ("the Private Banks") amounts deposited with each of the defendants by the Private Banks prior to their nationalization. Each of the defendants counterclaimed, seeking dismissal of the complaints, asserting that the debt owed it by Cuban Electric exceeded the amount of Banco Nacional's claims. The United States District Court for the Southern District of New York, Charles L. Brieant, Jr., Judge, dismissed Banco Nacional's claims as successor to the Private Banks on the ground that the expropriations in Cuba were ineffective to transfer title to assets located in the United States. Consequently the court also dismissed the counterclaims of Manufacturers and Irving as moot. The court allowed the claim of Banco Nacional in its own right against Chemical, but allowed Chemical's counterclaim to the extent of Banco Nacional's claim, and hence entered judgment dismissing the claim against Chemical as well.

For the reasons below, we vacate the judgments and remand for further proceedings.

I. THE FACTS

The background of the Cuban revolution has been the subject of extensive discussion in the courts, and we assume familiarity with our decisions today in Banco Para el Comercio Exterior de Cuba v. First National City Bank, No. 80-7297, 658 F.2d 913 (2nd Cir.), ("Citibank"); and Banco Nacional de Cuba v. Chase Manhattan Bank, Nos. 80-7375, -7377, 658 F.2d 875 (2nd Cir.) ("Chase"), and with the cases cited in the margin.*fn1

A. Banco Nacional and its Claims

As set forth in greater detail in our opinions in Chase, supra, and Citibank, supra, Banco Nacional is the central bank of Cuba and it played a leading role in the expropriations of private banks in Cuba. In September 1960, pursuant to Resolution No. 2 under Law No. 851, Banco Nacional acted as the alter ego of the Cuban government in taking over the Cuban branches of three American Banks: First National City Bank ("Citibank"), Chase Manhattan Bank ("Chase"), and First National Bank of Boston ("Boston"). See Banco Nacional de Cuba v. First National City Bank, 478 F.2d 191, 193-94 (2d Cir. 1973).*fn2 On October 13, 1960, pursuant to Law No. 891, the government of Cuba nationalized the Cuban assets and property of virtually all private banks not previously nationalized. Banco Nacional was placed in charge of the nationalized banks:

Article 2: As per the preceding article, all private Cuban banks are nationalized by forcible expropriation and are therefore awarded to the government of Cuba; this includes deposit and credit banks, mortgage banks, development banks, and all their assets, rights and shares of such banks in Cuba, and their bank accounts and deposits abroad.

The reasons given in the preamble to this law show this action to be in the public interest and for the social and National well-being and demonstrate the need for this expropriation.

Article 3: The nationalization and consequent award to the government of Cuba ordered in the preceding article is to be carried out through Banco Nacional de Cuba, as autonomous body in charge of the banking function of the state. Therefore, Banco Nacional de Cuba is declared the legal successor, substitute in lieu and stead of the artificial persons or firms mentioned in article 2 of this law, with regard to the assets, rights, and shares mentioned; to Banco Nac. de Cuba are transferred also all assets and liabilities of the banking institutions affected by this law.

Law No. 891.

On February 23, 1961, further reorganization of the Cuban banking industry was ordered. Law No. 930 reorganized Banco Nacional, and Article 6 of that Law provided as follows:

Article 6. The capital of the National Bank of Cuba shall be ONE HUNDRED MILLIONS OF PESOS ($100,000,000.00), which the State contributes out of the capital accounts, contributions, contingency reserves and profits of the institutions and official banking entities and of the banks nationalized by Resolution No. 2, issued by the President of the Republic and the Prime Minister of the Government on September 17, 1960, in pursuance of Law No. 851, of July 6 of the same year, as well as of the capital accounts, contributions, contingency reserves and earnings of the banking institutions which have also passed, for any reason, to the possession, administration or liquidation by the National Bank of Cuba.

The excess left over and above the capitals assigned, added to the balances of the contingency reserve accounts of the banks nationalized by Law No. 891, of October 13, 1960, excepting those pertaining to the banks referred to in the Second of its Final Provisions shall be used to set up the Contingency Reserve Accounts of the National Bank of Cuba.

The Private Banks as whose successor Banco Nacional sues here were nationalized pursuant to Law No. 891. They were Cuban corporations, domiciled in Cuba, whose shareholders apparently were Cuban. Banco Nacional commenced suit on February 6, 1961. It seeks to recover $428,639 from Manufacturers, $58,460 from Irving, and $238,368 from Chemical as amounts on deposits in the accounts of various of the Private Banks with the respective defendants. In addition, Banco Nacional asserts a claim against Chemical for $84,717,*fn3 to recover an amount deposited by Banco Nacional itself.

B. Cuban Electric and the Counterclaims

Cuban Electric was a United States corporation, organized under Florida law and controlled by United States nationals. It operated an electric utility in Cuba, and substantially all of its assets were located there. In 1958 and 1959 each of the defendants participated in a series of loans to Cuban Electric, the balances of which were due to be paid, with interest, not later than November 23, 1959. The principal amounts to which the defendants were entitled were: Manufacturers $1,100,000, Irving $750,000, and Chemical $750,000. Cuban Electric did not repay the loans on the due date or thereafter.

In 1960, following the deterioration of relations between Cuba and the United States, see generally Chase, supra at Part I.A., the Cuban assets of Cuban Electric, as well as those of many other American companies, were nationalized and expropriated under Resolution No. 1, dated August 6, 1960, pursuant to Law No. 851 of July 6, 1960. Resolution No. 1 stated in part as follows:

WE RESOLVE:

First: There is hereby ordered the nationalization through compulsory expropriation and, consequently, the appropriation in favor of the Cuban State, with absolute right of ownership, of all properties and entities in the national territory and the rights and interests attaching to the operation of said properties and entities, belonging to juridical persons who are nationals of the United States of ...


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