Summary
noting that "New York has the right to say as a matter of public policy whether it will apply its own rules to property in New York of foreigners who choose to place it here for custody or investment"
Summary of this case from Vilhena v. HSBC Bank U.S.Opinion
Argued May 17, 1965
Decided October 21, 1965
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, OWEN McGIVERN, J.
William Piel, Jr., and Samuel W. Ingram, Jr., for appellant. Chester Bordeau for respondent.
The Duke and Duchess of Arion were nationals and domiciliaries of Spain. Neither of them had ever been in New York, but through a long period of political uncertainty in Spain, from 1919 to the end of the Civil War, they sent cash and securities to New York for safekeeping and investment.
Under the law of Spain this was the community property of the spouses. Substantial parts of it were placed with the New York custodians in joint accounts. In establishing or in continuing these accounts, the husband and wife either expressly agreed in writing that the New York law of survivorship would apply or agreed to a written form of survivorship account conformable to New York law.
The husband died in November, 1957; the wife in March, 1959. After the husband's death the wife took control of the property in New York and undertook to dispose of it by a will executed according to New York law and affecting property in New York (Decedent Estate Law, § 47). Some additional property in joint account in England was transferred by the wife to New York after the husband's death which had not been placed by either spouse in New York during the husband's life.
This action is by plaintiff as an ancillary administrator in New York of the husband against defendant as executor of the wife's will to establish a claim of title to one half of the property which at the time of the husband's death was held in custody accounts under sole or joint names of the spouses by banks in New York and London.
The total value of the property in New York is about $2,275,000, of which about $370,000 was transferred by the wife after the husband's death from the London accounts to New York. Plaintiff also seeks an accounting and damages for conversion.
The main issue in the case is whether the law of Spain should be applied to the property placed in New York during the lives of the spouses, in which event only half of the property would have gone to the wife at her husband's death, or the law of New York, in which event all of such jointly held property would have gone to her as survivor. (Banking Law, § 134, former subd. 3.)
The banks which were custodians of the property are protected from liability, of course, by the form of survivorship agreement in making the transfer of the jointly held property in their custody to the wife (Banking Law, § 134, former subd. 3). The controversy here is not with the custodians, but between the representatives of the owners of the property, and is to be governed by the legal capacity of the husband and wife, as citizens and domiciliaries of Spain, to make an agreement as to their community property inconsistent with Spanish law.
The agreements giving full title to the survivor in the joint accounts were executed either in Spain, or if not there at least not in New York, and were, in any event, executed by persons who were domiciliaries and citizens of Spain. Usually rights flowing from this kind of legal act are governed by the law of the domiciliary jurisdiction ( Matter of Mesa y Hernandez, 172 App. Div. 467, affd. 219 N.Y. 566; Matter of Majot, 199 N.Y. 29, 32; Hendricks v. Isaacs, 46 Hun 239).
It is abundantly established in the record that the law of Spain would have prevented either spouse in the circumstances shown here from agreeing that community property go entirely to the survivor on the death of either; but half would go to the survivor and at least two thirds of the remaining half would pass to the heirs of the deceased spouse.
Dispositions of property in violation of this prohibition are shown to be void according to Spanish law. It is provided that all the assets of a marriage shall be deemed to be community property until it is proved they belong privately to either (Spanish Civ. Code, art. 1407). A gift from one to the other, except minor personal gifts, is void and the spouses are without capacity to renounce by contract or otherwise their rights and obligations concerning community property (arts. 1334, 1394).
But New York has the right to say as a matter of public policy whether it will apply its own rules to property in New York of foreigners who choose to place it here for custody or investment, and to honor or not the formal agreements or suggestions of such owners by which New York law would apply to the property they place here. (Cf. Decedent Estate Law, § 47; Personal Property Law, § 12-a.)
It seems preferable that as to property which foreign owners are able to get here physically, and concerning which they request New York law to apply to their respective rights, when it actually gets here, that we should recognize their physical and legal submission of the property to our laws, even though under the laws of their own country a different method of fixing such rights would be pursued.
Thus we would at once honor their intentional resort to the protection of our laws and their recognition of the general stability of our Government which may well be deemed inter-related things.
Such a law conflicts choice seems to be suggested by Hutchison v. Ross ( 262 N.Y. 381) although there are some differences between that case and this. There a husband who, with his wife, was domiciled in Quebec, established a trust of personal property for the benefit of the wife in New York with a New York trustee and with the expressed intention the trust should be governed by New York law.
Its validity was determined according to New York law even though by the law of Quebec it would have been decided differently. Of course, the New York trustee had there acquired legal title of the property and here the banks were mere bailees in relation to the property in their possession.
Still the case suggests a direction to our present public policy and, in the course of an examination of great depth into the conflicts problem, Judge LEHMAN noted: "Physical presence in one jurisdiction is a fact, the maxim [ mobilia sequuntur personam] is only a juristic formula which cannot destroy the fact. * * * When the owner of personal property authorizes its removal from his domicile or acquires property elsewhere, he must be deemed to know that his property comes under the protection of, and subject to the laws of the jurisdiction to which it has been removed, and that appeal may be made to the courts of that jurisdiction for the determination of conflicting rights in such property" ( supra, pp. 388-389).
The Special Term in the case before us found for the defendant largely on the basis of Ross and the Appellate Division affirmed without opinion. We agree that this disposition is the correct one as to property placed in New York during the husband's lifetime.
This effect would include, too, those accounts which had formerly been joint accounts but which during the lifetime of the husband were transferred to the wife's sole name. One of these, for example, was a joint account in the Guaranty Trust Company which in 1936 was transferred to a new account in the wife's name. There were additional assets in this bank in the sole name of the wife which had not been in joint account and which were recognized by the husband as her separate property.
The assent of the husband to arrangements in respect of joint property transferred to the sole account of the wife with the legal consequence of sole ownership to be anticipated from the effect of New York law would lead us to treat the property as the property of the wife and to be controlled by the same principle applicable to joint accounts (cf. Walsh v. Keenan, 293 N.Y. 573).
We would treat the wife's own separate property similarly where, during the lifetime of her husband and apparently with his recognition and assent, she was able to transfer the separate property to New York and keep it here in her own name.
But the property in the value of about $370,000 transferred from London to New York by the wife after the husband's death raises a somewhat different question. Adjudication of its title requires further factual exploration. At the time of the husband's death this property and other property were held in three-name custody accounts by London depositories. The accounts were in the names of the husband, the wife and their daughter Hilda, who had no proprietary interest.
One of the accounts, it is asserted, was a "safe custody account" opened under simple letters of instruction. The other accounts seem not to have been governed by any formal documents.
The reasons grounded on New York policy and affected by the physical transfer of the property to New York during the lifetime of the spouses and by their directions relating to it do not necessarily apply to property of Spanish nationals placed in a third country during their lifetime.
If the local law of the third country would deem title to have passed to the wife on the death of the husband, we would treat this property as we now treat that placed in New York during their lives.
But if the third country would have applied the Spanish community property law or, if it is not demonstrated what rule would be applied by the third country and the subject is open or equivocal, we would, under general principles, feel bound to apply the law of Spain to the title of property owned by these Spanish nationals.
The facts necessary to decide this question were not resolved at Special Term, largely because this was not an issue on which attention was focused at trial. One question for resolution would be the precise form of instruction or agreement pursuant to which the property was placed in custody accounts in London; the other question would be how, on those facts as found, the title would be regarded in English law. If upon such further inquiry it be found the wife did not succeed to full title to the property in London an accounting for the portion not belonging to her would be indicated.
The order should be modified to direct the remission to Special Term to determine the rights of parties in respect of the property transferred by the wife from London to New York after the husband's death in accordance with this opinion and, as modified, affirmed, without costs.
Resolution of the dispute as to this property (or any part of it) by any law other than that of Spain, the matrimonial domicile, is utterly incompatible with historic and settled conflict of laws principles and is not justifiable on any ground. No policy ground exists for upsetting the uniform rules and no precedent commands such a result.
"Conflict of Laws" (or, more aptly, "Private International Law") rules involve no actual conflict or collision between the laws of separate jurisdictions but are the accepted methods of accommodation and comity between sovereign States, worked out consensually over the centuries, not arbitrarily or from mere politeness but as expressing reason and justice. Thus, as to real property the applicable law is always that of the State wherein the land is situated since it is an attribute of every sovereign to control his own actual territory. Movables, on the other hand, are considered to be incidental to their owner's person and so to be governed as to title by the laws of his domicile. These are not ad hoc holdings subject to the moment or the mode or to the conveniences of a particular case but are part of the generally acknowledged fundamentals of international comity. The twentieth century with its shrinking distances and enlarging wars is a poor time to make sudden and uncalled for changes particularly when the changes are urged on us not because the old rules are outdated or proven to be unjust but, apparently, because in this particular case there appears in the record a small and unconvincing indication that this husband and his wife may have intended a result inconsistent with that which would result from application of the law of their domicile, Spain.
The majority of this court is throwing overboard not one but three of the oldest and strongest conflict rules: first, that with exceptions not pertinent here the law of the domicile of the owner governs as to the devolution of personal property ( Cross v. United States Trust Co., 131 N.Y. 330); second, that the law of the matrimonial domicile controls as to the property and contract rights of husband and wife inter sese ( Bonati v. Welsch, 24 N.Y. 157; Hendicks v. Isaacs, 46 Hun 239); and, third, that whether such personalty is separate or community property is determined by the law of the matrimonial domicile ( Poe v. Seaborn, 282 U.S. 101, 110).
For no reason of law that we know of but on the authority of one decision of slight or no relevance ( Hutchison v. Ross, 262 N.Y. 381) the majority chooses to turn its back on these rules and to destroy the community status, fixed as such by the laws of Spain, of personalty owned during marriage by Spanish nationals always domiciled in Spain and neither of whom was ever in New York State.
Completely applicable here is the Spanish Civil Code which subjects to the statutory regime of community property all marriages of Spanish nationals in Spain, which applies to property outside as well as within Spain and which makes all property acquired by the married couple or either of them during marriage community property, and forbids the alteration of such community property either unilaterally or by mutual consent, to the extent even of voiding a gift from one party to another or renunciation by either spouse of any right or obligation in respect to the community property (Spanish Civ. Code, arts. 9, 1315, 1334, 1394, 1401). The only exception to all this arises when an antenuptial contract has been made. There is no proof or claim of any such contract here. The Spanish statutes are clear and no one disputes their meaning. The Duke and Duchess of Arion were Spanish nationals, were married in Spain and always had their domicile there as had their ancestors for generations or centuries. Neither was ever in New York. New York State's only contact with this property was that for purposes of convenience or safety the husband and wife left valuable property in the custody of New York banks for safekeeping only. The banks were mere bailees without other title or interest. To say that setting up of joint accounts of personalty in New York subjected that personalty to New York law rather than to the law of the matrimonial domicile is to refuse to follow one of the most basic of Conflict of Laws rules (Story, Conflict of Laws [7th ed.], §§ 158-159; Leflar, Community Property and Conflict of Laws, 21 Calif. L. Rev. 221).
The oldest relevant case in this court ( Bonati v. Welsch, 24 N.Y. 157, 162, supra) holds that the incidents of marriage, and contracts and property rights in relation to marriage are to be governed by the law of the matrimonial domicile. The directly controlling case in this court is Matter of Mesa y Hernandez ( 172 App. Div. 467, affd. 219 N.Y. 566). In Mesa the New York courts, in a transfer tax proceeding, had to adjudicate the claim of the widow to a half ownership under the laws of Cuba, the matrimonial domicile (which has a community or property law like that of Spain), of personalty in custody of New York banks. A unanimous Appellate Division, affirmed without opinion by this court, held that "the law of matrimonial domicile governed not only as to all the rights of the parties to their property in that place, but also as to all personal property everywhere, upon the principle that movables have no situs, or rather that they accompany the person everywhere, while as to immovable property the law rei sitae prevails" ( 172 App. Div., p. 477). Respondent notes the Appellate Division's statement in its Mesa opinion that "Concededly there was no express contract between the parties" and that, therefore, the law of the marital domicile governed. We think it clear that this reference was to the fact that, as in our case, the parties had not made an antenuptial agreement. The Mesa case has never been overruled, it expresses the accepted rule and should be applied here. The Restatement, Conflict of Laws, says in section 290: "Interests of one spouse in movables acquired by the other during the marriage are determined by the law of the domicil of the parties when the movables are acquired" and in section 292: "Movables held by spouses in community continue to be held in community when taken into a state which does not create community interests." No one doubts that in Spain as in the eight American States which follow community law, any effort during marriage to change the nature or devolution of community property is void ( Commissioner of Internal Revenue v. Chase Manhattan Bank, 259 F.2d 231, 239, cert. den. 359 U.S. 913; Garrosi v. Gonzales, 8 P.R. Fed. 571; Kelly v. Kelly, 131 La. 1024; Smith v. Smith, 239 La. 688, 695).
Research has not turned up any other decision similar to the one now being made. For the proposition that New York law applies because joint accounts were created or attempted to be created in this State, the trial court and respondent put their whole reliance on Hutchison v. Ross ( 262 N.Y. 381, supra) and the conclusion there stated (p. 395) that "The validity of a trust of personal property must be determined by the law of this State, when the property is situated here and the parties intended that it should be administered here in accordance with the laws of this State." The differences between our case and Hutchison are of substance and not detail. First, let it be noted that the transaction upheld in Hutchison v. Ross was a gift from a husband to his wife and children of a life interest carried out by making them the life beneficiaries of an inter vivos trust with a New York bank as trustee. The bank took title as such trustee. The marital domicile was in Quebec which has a civil law provision calling for community of property between spouses but allowing for antenuptial agreements. Ross and his prospective wife had made an antenuptial agreement providing that the property of each should be separate and that he would create a trust fund of $125,000 for his future wife and children. Several years after the marriage the husband, who had inherited a large estate from his father, concluded that the $125,000 trust provision was insufficient, agreed with his wife to revoke it and made a new trust with the same New York bank as trustee in which the principal amount was now $1,000,000. Years later the husband, having lost most of his inherited estate, secured the consent of his wife and children to a revocation of the second trust and brought the action (his trustee in bankruptcy later became the substitute of plaintiff) to set aside the trust as being void under the Quebec community property law which forbids the abrogation, modification or enlargement of an antenuptial agreement or a transfer during marriage by husband to wife of any substantial property. A divided New York Court of Appeals, applying New York law, decided that the $1,000,000 trust was valid despite the Quebec statute. The Court of Appeals stated that the decisive consideration was as to the legality of the second trust — that is, whether we were "to apply the law of another jurisdiction to the conveyance of property situated here" (p. 399). Our court held that the attempted renunciation by the wife of her benefits under the original matrimonial settlement had to be determined by the laws of Quebec. On the other question, that is as to the validity of the second trust, the basic holding in our court was (262 N.Y., beginning at bottom of p. 396, supra): "There is, nevertheless, no rule of law which would preclude the courts of this State from determining in accordance with the rules of law of this jurisdiction, the validity of a conveyance of real or personal property contained in a bilateral agreement, even though the remainder of the agreement be governed by, and is void under, the law of another jurisdiction, provided the conveyance be separable from the other parts of the contract. Concededly that would be true if the conveyance were of real estate here. It is equally true of personal property situated within the jurisdiction of our courts. Here we are free to apply our law rather than the law of another jurisdiction" (pp. 396-397). The Hutchison-Ross holding is in terms of trusts and conveyances, and can be read only as such (2 Beale, Conflict of Laws, pp. 1018-1019).
Thus we see that Hutchison v. Ross ( supra) has only the most superficial resemblance to the situation now being examined. Among other differences, the Hutchison case dealt with the validity of a conveyance whereas here there was the merest deposit of property for safekeeping in New York — that is, a bailment without change of title. As respondent in his answer in this cause admits, the New York banks acted in a "solely * * * ministerial capacity as custodian and depositary". Hutchison v. Ross involved a situation where not only title had passed to a trustee but application of the foreign law would have destroyed rights of third parties created and acquired in good faith and which merited protection. Not only did Hutchison v. Ross not overrule the Mesa decision ( supra) but it stands apart and on its own facts.
If the intent of the parties to apply New York law is to control, there was undisputed proof in the Hutchison case ( supra) of such intent, whereas in ours there is no real proof at all. The signing by the Duke and Duchess in Spain of routine joint-account-for-custody agreements on forms supplied by the New York banks is not substantial proof that these people (who had no apparent reason for so doing) were attempting to abrogate as to these items of property the ancient community laws of their country. There is no other proof of such an intent to substitute New York law and a much more reasonable explanation of the documents exacted by the banks is that they operated and were intended merely to release the banks on payment to one spouse or the other. It is to be emphasized that here, unlike the Hutchison case, no rights of third persons are involved or in need of protection. The court below mentioned the difficulties which New York banks would encounter if they had to comply with the laws of other jurisdictions. Such inconvenience there may be, but surely it does not justify repeal of the basic rules without any felt necessity for such abrogation and with no real proof that even the parties themselves ever intended such a result. Most extraordinary would be the results of a holding that any temporary deposit for emergency safekeeping of personal property in New York vaults puts the property under New York law for all purposes regardless of the ancient maxims, regardless of the law of the domicile and regardless of the intent of the parties.
We would reverse and grant judgment as demanded in the complaint, with costs in all courts.
Judges DYE, FULD, and BURKE concur with Judge BERGAN; Chief Judge DESMOND dissents in an opinion in which Judges VAN VOORHIS and SCILEPPI concur.
Order modified and, as so modified, affirmed, without costs, and matter remitted to Special Term for further proceedings in accordance with the opinion herein.