In February and July of 1960 respondent Farr, Whitlock & Co., an American commodity broker, contracted to purchase Cuban sugar free alongside the steamer from a wholly owned subsidiary of Compania Azucarera Vertientes-Camaguey de Cuba (C. A. V.), a Cuban corporation whose capital stock was owned principally by United States residents, with payment to be made in New York upon presentation of shipping documents and a sight draft.
On July 6, 1960, Congress amended the Sugar Act of 1948 to permit reduction of Cuba's sugar quota and President Eisenhower exercised that power the same day. Cuba responded by enacting Law No. 851, which authorized the President and Prime Minister to nationalize by forced expropriation property or enterprises in which American nationals held an interest. Between August 6 and 9 the sugar covered by the Farr, Whitlock contract was loaded onto the S. S. Hornfels at the Cuban port of Jucaro.
On August 6 the Cuban President and Prime Minister issued Executive Power Resolution No. 1 pursuant to Law No. 851, ordering compulsory expropriation of C. A. V. and other listed American-owned companies. To obtain consent for the vessel to sail, Farr, Whitlock on August 11 entered identical contracts with Banco Para el Comercio Exterior de Cuba, an instrumentality of the Cuban government, and the Hornfels sailed for Morocco on August 12.
Banco Exterior assigned the bills of lading to petitioner Banco Nacional de Cuba, another Cuban government instrumentality, which instructed its New York agent to deliver the documents and a sight draft for $175,250.69 to Farr, Whitlock in exchange for payment. Farr, Whitlock refused the initial tender after receiving notice of C. A. V.'s claim to the proceeds, accepted the documents only after C. A. V. agreed to indemnify it, negotiated the bills of lading to its customer, received payment, and refused to remit the proceeds.
The New York Supreme Court appointed respondent Sabbatino temporary receiver of C. A. V.'s New York assets and enjoined Farr, Whitlock from removing the funds from the state. Pursuant to court order Farr, Whitlock transferred the funds to Sabbatino to abide the event of a judicial determination as to their ownership. Petitioner then instituted this action in the Federal District Court for the Southern District of New York. Alleging conversion of the bills of lading, it sought to recover the proceeds thereof from Farr, Whitlock and to enjoin the receiver from exercising any dominion over such proceeds.
The District Court sustained jurisdiction, found the sugar located in Cuba at the time of expropriation, concluded that the expropriation violated international law on three grounds, and granted summary judgment against petitioner. The Court of Appeals affirmed on similar grounds after considering two additional State Department letters, and this Court granted certiorari.