Weston Banking Corp. v. Turkiye Garanti Bankasi, A.S., 57 N.Y.2d 315 (1982)

Under the Bretton Woods Agreement, contracts involving the currency of a member nation that violate the exchange control regulations of that member, maintained consistently with the agreement, are unenforceable in the territories of other member nations.

Summary

Weston Banking Corp. sued Turkiye Garanti Bankasi to enforce a promissory note. The note was issued under a Turkish communique regarding the protection of Turkish currency. The defendant argued that Turkish law forbade payment in Swiss francs, the currency specified in the note, and that the Bretton Woods Agreement made the note unenforceable. The New York Court of Appeals held that because the note was an “exchange contract” involving Turkish currency and violating Turkish exchange control regulations maintained consistently with the Bretton Woods Agreement, it was unenforceable in New York. This decision highlights the importance of international monetary agreements and their impact on contract enforcement.

Facts

Weston Banking Corp. made deposits in Swiss francs with a Swiss bank, understanding that these deposits were subject to Turkish regulations and would be paid to the Central Bank of Turkey. Turkiye Garanti Bankasi issued promissory notes to Weston Banking Corp. under Communique No. 164, a Turkish regulation regarding the protection of Turkish currency. The notes stipulated payment in Swiss francs. When Weston sought repayment, Turkiye Garanti Bankasi claimed that Turkish law forbade payment in Swiss francs due to currency restrictions imposed by the Turkish government.

Procedural History

The trial court initially granted summary judgment to Weston Banking Corp. The Appellate Division reversed, holding that the Act of State doctrine did not apply, but the intention of the parties to free the transaction from Turkish regulation was controlling. The Court of Appeals granted leave to appeal. The Court of Appeals reversed the Appellate Division, holding the note unenforceable under the Bretton Woods Agreement.

Issue(s)

Whether a promissory note, issued under a Turkish communique regarding the protection of Turkish currency and designating payment in Swiss francs, is enforceable in New York, given Turkish regulations forbidding such payment and the Bretton Woods Agreement?

Holding

No, because the note constitutes an “exchange contract” involving Turkish currency, violating Turkish exchange control regulations maintained consistently with the Bretton Woods Agreement, rendering it unenforceable under the Agreement.

Court’s Reasoning

The Court of Appeals reasoned that the Bretton Woods Agreement, to which both the United States and Turkey are signatories, mandates that contracts violating the exchange control regulations of a member nation, when those regulations are maintained consistently with the Agreement, are unenforceable in the territories of other member nations. The Court considered CPLR 4511(b), which requires judicial notice of foreign laws when sufficient information is provided. The court found that Turkish regulations, including Law No. 1567 and Decree No. 17, established a comprehensive exchange control system. Even though Communique No. 164 did not explicitly impose conditions on repayment, the broader Turkish regulatory system did. The court emphasized the involvement of Turkish currency, noting that the note was issued under a communique protecting Turkish currency, and the Swiss francs were originally destined for the Turkish Central Bank. The most challenging issue was whether the note qualified as an “exchange contract” under the Agreement. While prior New York cases had narrowly interpreted this term, the court adopted a broader view, consistent with other jurisdictions and commentators, encompassing transactions that involve exchange or affect a member nation’s balance of payments or exchange resources. The court stated that the note was “governed by Turkish regulations and the Bretton Woods Agreement and the Bretton Woods Agreements Act proscribe enforcement of the note by the courts of this State in contravention of those regulations.” The dissenting opinion argued for a more rigorous application of the Bretton Woods Agreement, emphasizing the supremacy of federal law and the need to protect the integrity of international monetary controls.