Court Opinion

ID: 3602937
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:49:03.586162+00
Date Added: 2024-06-11T13:58:35.988626
License: Public Domain

The defendant issued in Russia policies of insurance payable there. The Soviet government seized the defendant's assets in Russia and compelled it to cease doing business there. Performance of the defendant's contract in Russia has thus been made impossible. The defendant has denied any obligation under its policies. The primary question presented upon this appeal is whether under the law of this jurisdiction the defendant's contractual obligation has been canceled or discharged.
It has not been discharged by performance. It has not been canceled by agreement of the parties. That is conceded. The obligation of the defendant to perform its contracts, or, if performance is frustrated, to make restitution of the consideration paid for which the promised *Page 101 
return has not been given, remains in force, unless, under the law of this jurisdiction, the effect of the decrees of the Russian government is to terminate, cancel or discharge the defendant's obligation.
The problem presented when litigants have resorted to our courts asking for remedy for breach, frustration or repudiation of the obligations of contracts made or to be performed in Russia, or made by Russian corporations, have been varied and difficult. Analogous problems have been presented when rights to property which had a situs in Russia, actual or constructive, have been asserted here. The Soviet government, then a defacto, though unrecognized, government, intended to create a new economic order upon the ruins of the established economic order. It seized the assets of corporations which conducted the business of banking or insurance. It terminated the right of such corporations to do business. It confiscated the deposits in banks. It canceled the obligations of insurance companies. It seized and confiscated other forms of private property. Within well-defined territorial limits its decrees had all the force of law. Outside of those limits, the strong arm of the Soviet government could not extend. Until recognition, its decrees were not the law of Russia in a juridical sense. Disregard of their actual force and effect within Russia might work great injustice (Russian Reinsurance Co. v. Stoddard, 240 N.Y. 149;Petrogradsky M.K. Bank v. National City Bank, 253 N.Y. 23); enforcement of these decrees here, even if foreign law, might offend our own public policy, or be contrary to our own rules of law. (Vladikavkazsky Ry. Co. v. New York Trust Co., 263 N.Y. 369. ) In each case presented to our courts the primary question was the effect which should be given to such decrees.
That question could be determined only under the law of this jurisdiction. No foreign government, de facto or de jure, can change that law. It is, however, a rule *Page 102 
embodied in the law of this jurisdiction that, in some instances, when the subject-matter of an action in our courts is a contractual obligation made or to be enforced in a foreign jurisdiction, or which the parties have agreed shall be governed by the law of a foreign jurisdiction, our courts must ordinarily apply the rules of law of the foreign jurisdiction. Whether our law sanctions the application of rules of law of a foreign jurisdiction in a particular case is a question of domestic law. What are the rules of law of a foreign jurisdiction applicable in such case, is a question of fact. (Hutchinson v. Ross,262 N.Y. 381.) Intricate questions of whether rules of law of a foreign jurisdiction shall be applied, where there is conflict of law, have often been presented to the courts of this and other jurisdictions. Decisions in these cases have resulted in the gradual creation of definite rules generally accepted as in accord with the comity of nations. These rules are based on public policy, and are part of the law of this jurisdiction. They apply, however, only to foreign law in its true sense; that is, to rules made by a sovereign government recognized by our own government. Decrees which offend our own public policy and decrees which are made by a government which we do not recognize lie outside of their scope.
Recognition of the Soviet government was long delayed. The avowed purpose of that government, to destroy private rights of property and cancel private contracts, offended our own public policy. We might refuse to regard these decrees as the law of Russia; until recognition, we might regard them as the fiat of an usurping and illegitimate power. None the less, they were issued by a power which effectually governed Russia. That power could enforce obedience to its fiat there. Within the territory subject to its sway, and upon the persons subject to its might, the decrees of the Soviet government have had, even before recognition, all the force and effect that the law of a recognized government would have. Recognition *Page 103 
of the Soviet government is "retroactive in effect and validates all the actions of the government so recognized from the commencement of its existence." (Salimoff  Co. v. StandardOil Co., 262 N.Y. 220, 223.) A legitimate sovereign rules over Russia, and all its decrees are law.
The contracts of the defendant were made in Russia. The parties stipulated for performance in Russia. The defendant could not engage in the business of insurance in Russia or issue its policies there without the permission of the Russian government. For the grant of such permission the Russian government exacted conditions which form part of the defendant's contracts. These conditions included the deposit in Russia of security for the performance of the defendant's obligations and of reserves, based on actuarial tables, sufficient to enable it to meet its obligations there. The Russian government retained the right to compel the defendant at any time to liquidate its business. For such purposes the defendant's obligation had a situs in Russia and was subject to Russian law. Moreover, the parties understood and agreed that the stipulated performance in Russia should be governed by Russian law.
The Soviet government decreed the "liquidation" of the defendant's business in Russia. It forbade the performance there of its obligations and seized its assets deposited there for the performance there of these obligations. There is evidence that the Russian decrees were not intended to cancel these obligations; that their purpose was only to frustrate performance in Russia. The distinction seems unimportant. The decrees of the Soviet government effectually rendered performance impossible in Russia. We may assume, as the defendant contends, that the intended effect of the decree was cancellation of the obligation, so far as the Soviet government had power to cancel. Even so, the Russian government could not decree cancellation which would be effective *Page 104 
beyond its borders, except in so far as the courts of other jurisdictions choose to give effect to such a decree.
The problem now presented would be simple if the sole situs of the defendant's obligation had been in Russia and resort was had to our courts for remedy of a wrong arising in Russia, or for vindication of property or contractual rights there. (Cf.Salimoff  Co. v. Standard Oil Co., supra.) For some purposes the situs of the defendant's obligation was in Russia; not for all. The defendant is a domestic corporation. Seizure of its assets and termination of its privilege of doing business did not end its contractual obligations. Though with one exception all the assured were residents or subjects of Russia at the time the policies were issued, many of them had ceased to be subjects or residents of that country at the time the Soviet government decreed cancellation of the obligations due to them. We have said in similar circumstances, "The intangible chose in action, at least when it is the result of a deposit in a bank, has for some purposes a situs at the residence or place of business of the debtor, though the creditor be far away." (Sokoloff v.National City Bank, 239 N.Y. 158, 169.) That is true, to at least the same degree, where the intangible chose in action is a promise to pay insurance in a foreign jurisdiction. In this case, indeed, that legal principle is fortified by the express agreement of the defendant that its assets everywhere should constitute a guaranty of the "exact fulfillment" of its obligations in Russia. Thus even though Russia seized and confiscated the defendant's assets in Russia which were intended under Russian law to constitute the fund out of which the defendant's insurance policies payable there should be satisfied, the defendant's other assets could still be used to meet its obligations in Russia, and the defendant did so expressly agree. To that extent at least the defendant's obligation has a situs here. We have already so decided in respect to bank deposits in the Russian branch of a domestic banking *Page 105 
corporation. (Sokoloff v. National City Bank, 239 N.Y. 158;250 N.Y. 69.) We have so decided in respect to the policies of this defendant. (Sliosberg v. New York Life Ins. Co.,244 N.Y. 482.) There we held that the defendant's contractual obligation had its "source and sanction" in the laws of this State, and that, therefore, even this State could not under the Constitution of the United States impair that obligation. Now we are told that under the common law of this State a foreign State may by its decree impair, cancel and destroy the obligation which is situated here and which finds source and sanction in our law. From that conclusion I am constrained to dissent. (See, also,Severnoe Securities Corp. v. London  Lancashire Ins. Co.,255 N.Y. 120; Farmers Loan  Trust Co. v. Minnesota,280 U.S. 204.)
The argument is pressed that those cases have lost force because there the question was the effect of the decrees of a government which had not been recognized, while here the question is the effect of the same decrees after the government has been recognized. The distinction should not carry any practical consequences in this case.
From the outset this court, faced with a new problem created by the decrees of the Soviet government, has attempted to meet that problem realistically. Even before the Soviet government was recognized, where its decrees "have actually attained such effect as to alter the rights and obligations of the parties in a manner we may not in justice disregard," our courts have recognized the practical effect of such decrees "regardless of whether or not they emanate from a lawfully established authority." (RussianReinsurance Co. v. Stoddard, supra, p. 156); Salimoff  Co.
v. Standard Oil Co., supra.) In that case we held that even confiscatory decrees of an unrecognized de facto government result in divestment of title to property which had a situs in the territory subject to the sway of the unrecognized government.
The courts of England have at times reached opposite result. In so far as the case of Luther v. Sagor  Co. *Page 106 
([1921] 3 K.B. 532) indicates that, until recognition, a confiscatory decree of a de facto government cannot be given the effect of divesting the title of the original owner to property within the territory ruled by the de facto government, this court has refused to follow it. (Salimoff  Co. v.Standard Oil Co., supra.) The test which we applied in recognizing or disregarding the effect within Russian territory or upon Russian nationals of the decrees of the Russian government before its recognition was that of justice and public policy. Recognition did give the Soviet government, under our law, an international standing which it did not have before. Even so, we have applied the same test after recognition as before, and have refused to give extraterritorial effect to a Soviet decree of confiscation, though recognition had "validated" its decrees. (Vladikavkazsky Ry. Co. v. New York Trust Co.,supra.) In that case we even pointed out that the basis of previous decisions was not the lack of recognition, but the fact that confiscatory decrees offended our own public policy.
We are told, nevertheless, that even though the defendant's obligation to use its assets here in "exact fulfillment" of the terms of the Russian policies had a situs here, when the law of Russia canceled the obligations embodied in the policies, and which were to be performed in Russia, or made performance there impossible, the result was, necessarily, the complete discharge of the defendant. The argument seems to be that the law of Russia governs performance of the defendant's obligation there; that the Soviet decrees constitute the law of Russia; that under the Russian law the defendant has committed no breach of contract there; and that, therefore, the defendant's obligation under its policies including its obligation to use its assets everywhere in "exact fulfillment" of the terms of the policy is automatically satisfied or discharged. That might be true if the Russian decrees had regulated performance. They did more. *Page 107 
They annulled the agreement. We cannot say that the agreement of the parties contemplated that the contractual obligation might be annulled by Russian law without even equitable restitution of the consideration paid for performance, unless we ignore the actual intent of the parties. We cannot hold that Russian law can relieve the defendant of an obligation for which it has received payment unless we give Russian law an extra-territorial effect which under our own law we are not required to accord to foreign law. The obligation of exact fulfillment remains in force. That obligation has been repudiated or breached. Right to restitution or damages still remains. It has not been discharged by confiscation of the obligation due to the assured, for a confiscatory foreign law offends our public policy and cannot constitute excuse for restitution or performance here. It has not been discharged by confiscation of the assets of the defendant in Russia, for the assured have the right under the policies to look to the assets of the defendant here for fulfillment of the obligation.
Judge CRANE'S conclusion rests, in my opinion, upon premises which are entirely fallacious. A majority of the assured, even though Russian citizens at the time the policies were issued, were not subjects of Russia domiciled there when the decrees were made. The insurer was not a Russian corporation. The obligation of the insurer followed it wherever the insurer could be found. It was, therefore, not intangible property within
Russia and the Russian government did not have the same dominion over it as it had over tangible property situated there. So we decided in Sokoloff v. National City Bank (supra). The circumstance that there the contract was made in New York might be relevant upon questions concerning the validity or interpretation of the contract. It is irrelevant upon the question of the situs of the obligation embodied in such contract. (Sliosberg v. New York Life Ins. Co., supra.) What was said and *Page 108 
decided in Security Sav. Bank v. California (263 U.S. 282) is entirely in accord with such conclusion.
The Soviet did not order the liquidation of the defendant's business in Russia "within the very terms of these policies of insurance." Those terms were that upon order of the Russian government the insurance company "must immediately liquidate its business in Russia and settle its accounts with the assured in the manner that shall be indicated to it by the Russian government." The decree of the Soviet government did not
provide for settlement of the defendant's accounts with the assured. The object of these actions is to obtain such settlement.
The Soviet government did not assume the contractual obligation of the insurance company. It canceled the contract and confiscated the consideration paid to the defendant in return for the defendant's promise. Under the law of this State, extraterritorial effect would not be given to such a decree even if it had been made by the Imperial government of Russia. (Frenkel  Co. v. L'Urbaine Fire Ins. Co., 251 N.Y. 243.) The circumstances that in that case the contract was held by one of our citizens and was to be performed here furnish no ground of distinction; for here too most of the contracts were held by persons not domiciled in Russia, and the defendant's obligation had, at least for some purposes, a situs here. (Cf. Sokoloff v.National City Bank, supra.)
The decrees of the Soviet government did not regulate performance in Russia of the defendant's obligation. They wiped the agreement out and annulled its obligation. No rule of conflict of laws, no agreement of the parties that the contract shall be governed by Russian law, permits us to give effect to such a decree upon an obligation which has a situs here. (Sokoloff v. National City Bank, supra.)
Our earlier decisions, and they are many, refusing to give extraterritorial effect to the decrees of the Soviet *Page 109 
government were not based on lack of recognition. So we expressly said in Vladikavkazsky Ry. Co. v. New York TrustCo., 263 N.Y. 369. Even before recognition, we decided, contrary to the views expressed in Luther v. Sagor  Co. (supra), that a confiscatory decree of the Soviet government of property situated in Russia results in transfer of title. (Salimoff Co. v. Standard Oil Co., 262 N.Y. 220.) Even after recognition, we have decided that they were ineffective to destroy rights to property, tangible or intangible, with a situs elsewhere. Thus every claim that has been urged by the defendant and is sustained in the opinion of Judge CRANE, has been rejected by previous decisions of this court. It has been rejected by the actual decisions. What was said furnishes the ground for what was decided, and no other sound ground for such decisions is suggested. Those decisions lead inevitably to the conclusion that though the confiscatory decrees of the Soviet government are the law of Russia, and may excuse performance of, or divest title to, an obligation in Russia, they have no such effect upon the obligations which have a situs elsewhere or upon persons not subject to Russian law.
Assuming that the plaintiff has a cause of action, the question of how recovery shall be measured still remains. The policies provide for payment of premiums by the plaintiffs to the defendant and of insurance by the defendant to the plaintiffs in rubles. All the currency or treasury notes issued prior to 1924 have become valueless and have been withdrawn from circulation. The only legal tender are rubles issued thereafter, and ruble obligations payable in Russia can be met only by payment of such legal tender. The defendant maintains that the plaintiff's recovery must be measured by the value of the ruble notes which have been retired. The plaintiffs maintain that recovery should be measured by the value of the rubles which are now legal tender.
The plaintiffs are suing for Russian rubles. In the *Page 110 
courts of this State, recovery must be measured by the exchange value of the same rubles on the day upon which each assured was entitled to receive payment. (Parker v. Hoppe, 257 N.Y. 333;258 N.Y. 365.) Fluctuations in the value of a foreign currency between the date when an obligation was incurred and the date when payment in foreign currency must be made, must be disregarded. The problem presented in this case is whether the rubles which now constitute the currency in circulation in Russia are the rubles or currency which under these policies the defendant is obligated to pay to the assured. The mere fact that they are called by the same name is not decisive. The test is whether the defendant was obligated to pay that kind of rubles to meet its obligation. In Matter of People (First Russian Ins.Co.) (255 N.Y. 428) we held, upon the record then presented to us, that the sum due to the assured should be computed upon the basis of the value of the newly-issued rubles.
The question involved is one rather of fact than of law. If the ruble now in circulation is not the same Russian credit value or legal tender paper currency in which, as the referee has found, all life assurance operations were to be effected, but an entirely new currency — or if the insurer still had an option to pay in a depreciated currency — then our decision in the earlier case was erroneous. In reaching that decision we were conscious that in some other case amplification of testimony on such points might result in change of decision, and the decision is coupled with an express caveat in that regard.
The record in the present case is much fuller. True, the picture presented is not very different, but the argument and brief of the appellant in this case sheds clearer light upon the problems involved. In such circumstances, and especially in view of the caveat contained in Judge CARDOZO'S opinion in the earlier case, we should now reconsider the questions which we have previously decided. *Page 111 
The evidence establishes, and the referee has found, that when these policies were issued the decrees of the Imperial Russian government provided that all life insurance operations were to be effected in "Russian credit value," which means "legal tender paper currency Russian rubles, and not gold or silver." During most of the period when the assured paid premiums upon the policies these legal tender rubles had an exchange value of approximately fifty-one cents. After the outbreak of the war the exchange value of these rubles began to decline. Beginning with the fall of the Imperial government in 1917, the decline became precipitate. Successive governments issued new State credit notes which circulated side by side with the credit notes issued by the Imperial government. The printing presses were kept busy, until there were so many rubles in circulation that no ruble had any appreciable value. That was the situation in Russia at the time when, it is alleged, the defendant repudiated obligation under its Russian policies. About that time the Soviet government began the issue of a "new pattern" of notes, but the old treasury note continued to circulate side by side with the "new pattern" note, though in a ratio of equivalence which left them only an infinitesimal value. After 1924 the old treasury notes were no longer in circulation but provision was made for their exchange for new currency at the established ratio of equivalence. The findings set forth in the opinion of Judge CRANE trace the downward course and the steps taken by the Soviet government for the purpose of obtaining a stable currency of the same value, measured in gold, as the pre-war currency. They show that at the time of the beginning of this action Russia again had a currency with an exchange value of approximately fifty-one cents for each ruble.
Where a State substitutes a new currency for a currency which has become depreciated, considerations of economic expediency will ordinarily dictate a provision *Page 112 
for the measurement in the new currency of obligations payable in the old currency. Otherwise a debtor might be saddled with an obligation far greater than was contemplated when the obligation was incurred. The absence of such provision might perhaps indicate that the State did not create a new currency as a substitute for a depreciated currency, but merely rehabilitated the old currency. The economic system of the Russian government is unique among the nations of the world. It does not permit the enforcement of private obligations entered into before 1917, and the field is very limited in which private obligations for the payment of money are now recognized. Thus absence of provision for the liquidation in the new currency of obligations otherwise payable in a depreciated currency has not the usual significance. Counsel has called our attention to the case of Titova v.Agricultural Assn. (Civil Cassation Department of the Supreme Court), in which the court decided that a loan made in 1918, when the ruble still had some value, and coming due in 1921, when the value of the ruble was infinitesimally small, could be discharged only by a payment measured by the value of the loan when made. The problem presented in that case is, however, quite different from the problem presented here, and the diligent search of counsel for the plaintiffs has failed to disclose any case arising in Russia which has any direct bearing on that problem. Indeed, there is little use for currency under the economic system of Russia, except for the purchase of articles intended for enjoyment or consumption. Currency must be spent or saved, and when the Soviet government made a new issue of currency it fixed the ratio of equivalence of the old issues of currency to the new and thus fixed the rights of the holders of the old currency.
The obligation of the defendant at its inception could be discharged by payment of imperial rubles. When new issues of rubles were made, the defendant's debt was *Page 113 
payable either in imperial rubles or in rubles of the new issues. All these rubles depreciated until they were without value. The result was that the obligation to the assured by the insurer, payable in valueless rubles, was also valueless. Then the Soviet government created a new form of currency and exchanged the old currency for the new currency, but at a rate which left to the old currency only an infinitesimal value. That is not a rehabilitation of the old currency. It is a destruction of the old currency and a substitution of a new and different currency. The new currency thus furnishes no measure of the value of the obligation payable in the old currency. That was destroyed when the currency in which it was payable became valueless.
The question is not before us whether the ratio of equivalence fixed by Soviet decree for the exchange of the old ruble, in which defendant's obligation was payable, constitutes the fair measure of the value of defendant's obligation. If that decree arbitrarily destroyed the value of the old currency, its indirect effect would be the cancellation or destruction of the defendant's obligation. The record in this case shows that even before these decrees were issued, the old ruble was for all practical purposes, valueless. That was not the result of a confiscatory decree, but of unrestrained inflation. For loss so sustained our law furnishes no remedy. That was true before the Soviet government was recognized; it is true now.
We can measure the value of the defendant's obligation only upon the basis of the value of the currency in which it was payable. Even if we had power to measure it by some more equitable standard we should have difficulty in fixing such standard. In New York Life Ins. Co. v. Statham (93 U.S. 24,34) the court held that where failure to pay premiums on an insurance policy at the stipulated time would result in a forfeiture of premiums already paid upon the policy, an insured should be relieved *Page 114 
of the forfeiture when the failure is caused by a public war, saying: "The insured has an equitable right to have this amount [the premiums] restored to him, subject to a deduction for the value of the assurance enjoyed by him whilst the policy was in existence; in other words, he is fairly entitled to have the equitable value of his policy." Here the defendant was required to leave such equitable value in Russia. It has been confiscated by the Russian government, but even if it had not been confiscated it would itself have become valueless by reason of the depreciation of the ruble. Thus, even though events have rendered performance of the defendant's obligation valueless, the same events have rendered valueless the consideration received by the defendant.
For these reasons I concur in the reversal of the judgments.
POUND, Ch. J., O'BRIEN, HUBBS and CROUCH, JJ., concur with CRANE, J.; LEHMAN, J., concurs in result in opinion in which LOUGHRAN, J., concurs.
Judgments reversed, etc.