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Yale Law School Faculty Scholarship
1-1-1949
Judicial Construction of the Trading with the
Enemy Act
Joseph Bishop
Yale Law School
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HARVARD
HARVARD
LAW REVIEW
VOL. 62
MARCH, 1949
No.
No.55
JUDICIAL
CONSTRUCTION OF THE TRADING
JUDICIAL CONSTRUCTION
WITH THE ENEMY ACT-t
ACT t
Joseph
Bishop, Jr.*
Jr.*
Joseph W. Bishop,
T HE Trading with the Enemy Act has in modern economic
T
warfare two basic objectives: to keep an enemy from using
HE Trading with the Enemy Act has in modern economic
warfare two basic objectives: to keep an enemy from using
for his own purposes
property which he owns or controls,
controls,
purposes any property
located
property
located within the United States; and to make that same property
available
available for the purposes of the United States. Essentially
simple
simple as are these purposes, the Act - perhaps because
because loosely
and hastily drafted - has presented
to
the
judiciary
collection
presented
judiciary a collection
of knotty problems
problems which are probably
probably not surpassed by those
arising under any other statute of its size and weight. It
It is the
aim of this article to discuss some of
o_f those problems.
The first purpose, essentially
accomplished
essentially defensive,
defensive, has been accomplished
"freezing" controls. Freezing, unlike vesting, did
principally by "freezing"
not change
change the ownership of the property affected,
affected, but simply
prohibited
and
declared
void
transfers
not
licensed
by the Treasprohibited
transfers
ury.'
nullification
constitutionality of such prohibition
prohibition and nullification
ury.l The constitutionality
tt In addition
addition to the usual warning that the opinions e.,pressed
expressed herein are not
necessarily
Department of Justice, the author cautions readers
that
necessarily those of the Department
readers that
he has been
disbeen largely responsible for the appellate litigation of some
some of
~f the cases disClark v. Manufacturers
cussed herein, particularly
Matter of Herter,
Herter,
Manufacturers Trust
Tmst Co. and Matter
particularly Clark
and so has a certain, perhaps
perhaps inevitable, bias.
of
This article
article avoids, insofar as possible, detailed discussion of the history of
the Trading
excellent symposium on this and allied topics
Trading with the Enemy Act. An excellent
is contained
(1945).
contained in IiiI LAW
LAW &
& CONTEMP. PROB.
PROB. 1-199 (1945).
* Attorney,
Office of
of Alien
Alien Property,
Property, Department
of Justice.
Justice.
Attorney, Office
Department of
'The basic statutory authority for these controls is § 5(b) of the Trading
1 The basic statutory authority for these controls is § 5 (b) of the Trading
with the Enemy Act, 40 STAT.
5o U. S. C. App.
STAT. 415
415 (1917),
(1917), as amended,
amended, 50
App. § 5(b)
(X946). The basic Executive Order, frequently amended to extend the controls, is
(1946).
*
HeinOnline -- 62 Harv. L. Rev. 721 1948-1949
722
HARVARD LAW
LAW REVIEW
HARVARD
[Vol. 62
62 ."
of transfers of foreign-owned
foreign-owned property
property is no longer open to question, and in general the courts have accorded to freezing orders
legislative and executive branches
the full effect intended by the legislative
22
of the Government. The freezing program, by subjecting to
transactions affecting
licensing and consequent
consequent strict scrutiny transactions
property
property in the United States in which foreign countries (allied
(allied
and neutral as well as enemy) or their nationals had an interest,
not only prevented
prevented the Axis from using its own property in the
United States as
as,aa means of obtaining
obtaining credit and foreign exchange
but, more important, seriously interfered with its plans for the
looting- of conquered
looting.
conquered countries. Without the freezing controls,
controls,
utilization of dollar assets belonging
either
to
the
Axis,
its nabelonging
tionals, or its victims would have presented few difficulties to the
Devisenabteilung of the
acute financial intellects in the German
German Devisenabteilung
Reich Economics Ministry
Ministry and their Japanese
Japanese opposite
opposite numbers.
numbers.
The imposition
of
"occupation
costs"
or
the
simple
pointing
imposition
"occupation costs"
pointing of a
gun could secure the transfer of interests in American
American property
property
ownership" so obtained could easily
to the Axis; "evidences
"evidences of ownership"
easily
have been exchanged
exchanged in neutral countries for "hard
"hard money."
money." As
ownership
it was, few neutrals cared to speculate in evidences of ownership
which American
American law declared null and void.
At its peak, the program affected property
property valued at nearly
eight billion dollars;'
dollars;3 but it is being terminated as rapidly as
possible, the general policy being either
either to unfreeze
unfreeze the assets
altogether
altogether or, if they have a genuine enemy
enemy taint, to vest them in
REos. 645 (Cum.
(Cum. Supp.
1943) (issued April io,
Exec. Order No. 8389,
8389, 33 CODE FED.
FED. REGS.
Supp. 1943)
10,
1940). For a comprehensive collection of Executive Orders, General Rulings, Gen1940)'
General Licenses
Licenses and other
other regulations
regulations under the freezing
freezing program
program see DocUarxNTS
DOCUMENTS
PERTAINING TO
TO FOREIGN
FuNDs CONTROL
CONTROL (U.
1946).
PERTAINING
FOREIGN FUNDS
(U. S. Treas. Dep't 1946).
Silesian-American Corp. v. Clark, 332 U. S. 469 ('947)
E.g., Silesian-American
(1947);; United
United States v.
v.
22 Bg.,
Von Clemm,
1943), cert. denied,
320 U. S.
Clemm, 136 F.2d 968 (2d Cir. 1943),
denied, 320
S. 769 (1943);
(1943);
Clark v. Propper, 169 F.2d 324 (2d
(2d Cir. 1948).
1948). Some question has arisen in the
courts of New
York as to the effect
effect of these regulations
regulations on transfers
transfers by judicial
judicial
New York
Cf. Singer v. Yokoprocess, such as attachment or the appointment of a receiver. Ct.
Yokohama Specie Bank, 293 N. Y. 542,
542, 58 N. E.2d 726 (z944).
(1944). The Singer
Singer case has
commentators, see Berger and Bittker, Freezing
The
been criticized by commentators,
Freezing Controls:
Controls: The
Effects 0/
of an Unlicensed
Unlicensed Transaction,
Transaction, 47 COL.
Rzv. 398 (1947),
COL. L. REv.
(1947), and rejected
rejected
by the Court of Appeals
Appeals for the Second
Second Circuit. Clark v. Propper, supra.
supra. See
See
1, 1948.
also Clark v. Chase
Chase Nat. Bank, S. D. N. Y., Oct. I,
1948. The
The Supreme Court has
granted
Propper case, and it is possible that such
such conflict as there
granted certiorari in the Propper
is between
between the federal courts and those of New
New York may be resolved.
resolved.
3
REPORT, OFFICE
OSTICE OF ALIEN
ALIEN PROPERTY CUSTODIAN,
CUSTODIAN, FIscAL
3 See ANNUAL
ANNUAL REpORT,
FISCAL YEAR
ENDING
1944, 14;
I4; H. R. REp.
REP. No. :£507,
1507, 77th
ist Sess.
(1941).
1).
ENDING JUNE
JUNE 30, 1944,
77th Cong.,
Cong., 1st
Sess. 2-3 (194
HeinOnline -- 62 Harv. L. Rev. 722 1948-1949
1949]
TRADING WITH THE ENEMY ACT
ACT
Custodian.'4 With the end of shooting war
the Alien Property Custodian.
war
condi~
and the gradual return of more or less normal economic condisignificance of the freezing program
tions, the practical significance
program to the
consequently not be included within
decreases, and it will consequently
within
lawyer decreases,
article.55
the scope of this article.
The vesting of property by the Alien Property Custodian
Custodian
sense), purpose
achieves the second, or offensive
offensive (in the military
m:ilitary sense),
utilization
of the Trading
Trading with the Enemy
Enemy Act - the seizure and utilization
property "in the interest of and for the benefit of the
of enemy property
States." It
It accomplishes this sweeping objective by transUnited States."
ferring the ownership of the property to the United
United States, there
to remain unless the former owner can fit himself into one of the
It will be noted
sections of the Act which provide
provide for return. It
considerably
power
is
that the scope of the vesting
vesting power
considerably narrower
narrower
than that of the regulatory
regulatory power, for the latter covers any
property
property in which a foreign national has any interest, while
6 and, in
in
the former extends only to the foreign interest
interest itself 6
interests.
practice, only to enemy iJ?terests.
The value of the property
property directly affected
affected by the vesting procomparison to the sums frozen, can hardly
gram, while small by comparison
1947, the Custodian
Custodian had
be described as piddling. As of June 30, 1947,
valued
at
$266,oI7,000
vested German
and
Japanese
property
$266,017,000
German
property
and had estimated the value of such property not yet vested to be
somewhere between
between $88,500,000
$88,500,000 and $io3,5oo,ooo.5
$103,5°0,000.7 These figof
deceptively
low,
for
they take no account of
ures are, however,
however,
thousands of copyrights
copyrights and patents
patents - as, for example, the basic
Secretary of the Treas4' This policy was expressed in detail in a letter from the Secretary
Treasury to the Chairman of the Senate Committee
Committee on Foreign
Foreign Affairs. See N. Y. Times,
(1948)
z, col.
col. 6. By Exec. Order No. 9989, 13 FED.
Feb. 3, 1948,
1948, p. I,
FED. REG. 4891 (1948)
transferred
hdministration of the freezing program was transferred
20, 1948),
1948), administration
(issued August 20,
to the Attorney
Attorney General, as successor
successor to the Alien Property Custodian.
5a For a general survey of the wartime operation
operation of the freezing program, see
see
Treasury, ii
LAW &
&
Foreign Funds
Reeves, The Control
Control of Foreign
Funds by the United States Treasury,
II LAW
Reeves,
CONTEMP.
PROB. 17 (1945).
(1945).
CONTEMP. PROB.
6'See
See Clark v. Edmunds, 73 F. Supp. 390 (W. D. Va. 1947); cf. Clark v.
infra.
S. 480 (1947),
(1947), discussed
Uebersee Finanz-Korporation,
Finanz-Korporation, 332 U. S.
discussed pp. 749-So
749-50 infra.
OF ALn:N
ALIEN PROPERTY,
PROPERTY, DEPARTMENT
DEPARTUEMNT OF
FiscAL
7"7ANNUAL
ANNUAL REPORT,
REpORT, OFFICE
OFFICE OF
OF JUSTICE,
JUSTICE, FISCAL
1947, 3.
3. The value of vested Italian property never exYR
ENDING
YEAR
ENDING JUNE 30, 1947,
exId., at
at
$18,ooo,ooo, and its return has now been authorized
ceeded $18,000,000,
authorized by Congress. ld.,
5, 1947).
1947). Bulgarian, Hungarian,
37o, 8oth
ist Sess. (Aug. 5,
8-9; Pub. L. No. 370,
80th Cong., 1st
$5,ooo,ooo. ANNuAL
ANuAL REPORT,
and Rumanian property
property vested totaled only about $5,000,000.
supra
I8.
supra at 18.
HeinOnline -- 62 Harv. L. Rev. 723 1948-1949
HARVARD
HARVARD LAW
LAW REVIEW
[Vol. 62
62
[Vol.
I. G. Farben in the synthetic rubber industry
patents of I.
industry 88 - the
dollar value of which the Custodian
Custodian has preferred
preferred not to estimate,
9
but which is undoubtedly
undoubtedly substantial.
substantiaJ.9
Having
Having said so much by way of preface, we may now examine
in more detail some of the more
more important
important and vexing problems
problems
which have
arisen
out
of
the
Custodian's
exercise
of
the
vesting
have
exercise
powers conferred on him by the Trading with the Enemy
Enemy Act and
0
by the executive
It will be convenient
executive orders issued thereunder."
thereunder. lO
It
convenient
to divide this treatment into two major sections, one dealing with
the nature
nature of the Custodian's
Custodian's administrative
administrative powers,
powers, the other,
with the rights of property-holders
property-holders affected
by
the exercise
exercise of
of
affected
those powers.
powers.
I.
I.
THE NATURE
NATURE OF THE CUSTODIAN'S
CUSTODIAN'S POWER
The urgency of war and the political
political impotence of enemy
enemy aliens
rather unusual liberality in the Conconduced to a gorgeous and rather
gressional
5 (b), as exgressional grant of power to the Custodian.
Custodian. Section 5(b),
panded by Title III of the First War Powers
Act
of
1941,
Powers
1941, pro"any property
vides that "any
property or interest of any foreign country or
or
directed
national thereof shall vest, when, as, and upon the terms, directed
by the President
11 There were
President . . . ." 11
were reasons for making Section 5(b) broad. For one thing, it expanded and ratified the
freezing controls
controls which were already
already in effect. For another, the
8I For a description
description of these patents, see Standard Oil Co. v. Markham, 64 F.
Supp.
656 (S.
(S. D. N. Y. 1945),
i945), affd,
1947), cert. denied,
Supp.656
afJ'd, 163
163 F.2d 917 (2d Cir. 1947),
denied, 333
333
U. S.
(1948).
S. 873 (1948).
3, 57,
57, 69.
99 ANNxAL
ANNuAL REPORT,
REPORT, supra
supra note
note 7 at 3,
69.
'9The
10
The Office
Office of Alien Property Custodian
Custodian was created
created and authority
authority to exercise
exercise
powers under the Trading with
with the Enemy
Enemy Act was conferred upon
upon the Custodian
Custodian
by Exec. Order No. 9095,
9095, 7 FED. REo.
1942), later
REG. ig7i
1971 (1942)
(1942) (issued
(issued March
March ii,
II, 1942),
later
(1942) (issued July 6, 1942),
1942),
9193, 77 FED.
FED. REG. 5205
5205 (1942)
amended by Exec. Order No. 9193,
io FED. REG. 6917 (1945)
(i945) (issued
and Exec. Order
Order No. 9567,
9567, 10
(issued June 8, 1945).
1945). By
By
Exec. Order
(1946) (issued October
14, 1946),
1946), the
Order No. 9788,
9788, iII FED. REG.
REG. Ixg8i
II98I (1946)
October 14,
Property CustoCustopowers and duties of the Alien Property
Attorney General succeeded
succeeded to the powers
"Custodian" will
dian. In this article the term
term "Custodian"
will be employed to describe both the
Alien Property Custodian and the Attorney
Attorney General as his successor.
"1Some idea
11
idea of the sense of urgency
urgency which spurred the Congress
Congress on as it
i8,
amended § 5(b)
5(b) may be gathered from the bare statement that on December 18,
1941, precisely one week after the original
:1:941,
original bills were introduced in the House and
Senate, it had shot through committees,
signed
committees, been debated
debated and passed, and been signed
by
the President.
87 CONGo
CONG. REc.
REc. 9704,
9837-46,
by the
President. 87
9704, 9706,
9706, 9753,
9753, 9789,
9789, 98oI,
9801, 9828,
9828, 9837-46,
9855-68,
9893-95, 9946-47
841 (1941),
(194i), 50 U. S.
S. C. Alp.
621
9855-68, 9893--95,
9946-47 ('94r)
(:1:941);; --555 STAT.
STAT. 84:1:
APP. § 621
(1946).
(1946).
HeinOnline -- 62 Harv. L. Rev. 724 1948-1949
1949]
1949]
THE ENEMY
TRADING WITH THE
ENEMY ACT
ACT
legislative
legislative mind was in a state of great vagueness as to whether
whether
the World War I Trading
Trading with the Enemy Act was alive, dead,
or half-dead 122 and many legislators undoubtedly regarded
regarded the
amended
Enemy Act,
amended Section 5(b)
5 (b) as a capsule Trading with the Enemy
conferring
powers which might have lapsed
conferring anew any of the old powers
and adding some new ones.
In practice the question
question of the extent
extent of the survival of the
old Act has not proved embarrassing. It
It seems to have been asadministrators and courts that the
sumed from the first by both administrators
World War I provisions (except
(except such of them as in terms were
applicable
applicable only to that war) had not been dead but only sleeping,
and that they automatically
outbreak
automatically became effective upon the outbreak
II. The President
President transferred
transferred to the new Custodian
of World War -II.
the powers and functions exercised
counterpart during the
exercised by his counterpart
3 the Custodian carefully avoided any implicafirst World War;'
War; 13
carefully
tion in his vesting orders and other pronunciamentos
pronunciamentos that he was
limiting himself
himself to Section 5(b);
5 (b); the lower courts persistently
cited the sections of the old Act and cases construing it;
it;'144 and at
length the Supreme Court made it official by holding that the new
Section
Section 5(b) and the holdover sections
sections of the Act were "parts
of an integrated whole"
whole" and that the old sections were to be
treated
treated as operative, so far as that could be done without defeating the purpose of the later enactment. 15 Consequently, it is clear
clear
that Section 7(c),
7(c),16
after
16 as construed by the courts during and after
Section
World War I, is still in force. While not so simple as Section
expressly provides
provides that the
5(b), it is rather more explicit, for it expressly
Custodian's
administrative
determination
shall
be
conclusive
Custodian's administrative
conclusive for
for
purposes of an initial transfer of possession: "Any money or other
other
property including (but not thereby
thereby limiting the generality
generality of
of
""Title
III of
of the
the bill
bill deals
deals with
the Trading
Trading with
with the
the Enemy
Act, which
which
"Title III
with the
Enemy Act,
originally
6, 1917,
1917, during the last war. Some sections
sections of
originally became
became law on October 6,
12
that Act are still in effect. Some sections have terminated, and there is doubt as to
sections." H. R. REP. No. 1507,
1507, 77th Cong.,
ist Sess.
the effectiveness of other sections."
Cong., 1st
2-3
2-3 (1941).
(1941).
"3Exec.
13
4
1943).
Order No. 9142,
9142,33 CODE FED.
FED. REGs.
REGs. 1148 (Cum.
(Cum. Supp. 1943).
E.g.,
1942) ;; Draeger
E.g., The Pietro Campanella, 47 F. Supp.
SUPP. 374 (D. Md. 1942)
Draeger Ship(S.D. N. Y. 1943)
i943);; The Aussa, 52 F. Supp.
ping Co. v. Crowley, 49 F. Supp. 215 (S.
927 (D.
(D. N. J. 1943)
1943);; Stem
Stem v.
v. Newton, 180
ISo Misc.
Misc. 241,
39 N. Y.
Y. S.2d 593 (Sup.
(Sup. Ct.
927
241, 39
14
1943).
1943).
15 Markham v. Cabell, 326
15 Markham v. Cabell, 326
140 STAT. 416 (1917), as
16 40 STAT. 416 (1917), as
§§ 7(c) (1946).
(1946).
U. S. 404, 411 (1945).
U. S. 404, 4II (1945).
amended, 40 STAT. 1020 (izx8), 5o U. S. C. App.
amended, 40 STAT. 1020 (1918), 50 U. S. C. APP.
HeinOnline -- 62 Harv. L. Rev. 725 1948-1949
HARVARD
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[Vol.
[Vol. 62
the above)
above) . . . choses in action, and rights and claims of every
every
belonging to or held for, by,
. character
character and description owing or belonging
on account of, or on behalf of, or for the benefit of, an enemy or
ally of enemy
investigation shall
enemy .. .. .. which the President
President after investigation
determine is so owing or so belongs or is so held, shall be conveyed, transferred, assigned, delivered, or paid over to the Alien
Alien
Property Custodian, or the same may be seized by the Alien Property Custodian .. . .. .""
A.
Power of Summary Seizure
Seizure
A. The Power
World War I Custodian took
The Supreme Court, when the WorId
17
to the courts to enforce his summary demands for possession,
possession,17
showed no disposition
disposition to be niggardly
niggardly in honoring this grant of
power, for it held in substance that the Custodian's suit to enforce
" and
his demand was tantamount to taking with a strong hand 18
cnot to
to be
be defeated
defeated or
or delayed
defenses, its
condition
"not
delayed by
by defenses,
its only condition
•. .
. ..being
being the determination
determination by the Alien Property Custodian
that it was enemy property."
property." 19
19 The lower courts gave equally
short shrift to attempts to resist or delay compliance
compliance with the
20
Custodian's
Custodian's demands.20
Permissible
In the light of this legislative
Permissible Defenses. - In
legislative and judicial language, it might at first blush be supposed that resistance
to the Custodian's
Custodian's summary
summary demand for property which he determines to be owned
owned by or owing to an enemy would be a waste
of time and counsel fees. In practice, however, some holders
holders of
such property --especially
banks
and
large
commercial
especially
commercial organizations - seem to have a deep-rooted, probably instinctive,
instinctive,
.- aversion to the handing over of large sums of money upon the
naked demand of a Government
Government agency. In fact, the tenacity
imaginations of their
of holders of vested
vested property
property and the fertile imaginations
counsel have succeeded
succeeded at least in casting doubt upon the Cus"
17
Section 17 of the Act gives the federal district
district courts jurisdiction to enforce
enforce
the
STAT. 425
(1917), 50 U. S.
S. C. App.
(1946).
425 (1917),50
App. §§ 17 (1946).
the provisions
provisions of the Act.
Act. 40 STAT.
"sMr.
Mr. Justice Holmes in Central
Central Trust
Trust Co. v. Garvan, 254 U. S. 554, 566,
566,
18
568-69 (1921).
(1921).
568-69
"oMr. Justice McKenna in Commercial
S. 51, 56
56
19
Commercial Trust Co. v. Miller, 262 U. S.
(1923).
also Stoehrv.
Stoehr v. Wallace,
Wallace, 255 U. S.
(1921).
(1923). See
See also
S. 239 (1921).
"0E.g.,
American Exchange
Exchange Nat.
Nat. Bank
v. Garvan,
Fed. 43
(2d Cir.
Cir. 1921),
1921),
20
E.g., American
Bank v.
Garvan, 273
273 Fed.
43 (2d
aff'd,
S. 7o6
( 5 th
afJ'd, 26o
260 U. S.
706 (1922); Columbia
Columbia Brewing
Brewing Co. v. Miller, 281 Fed. 289 (5th
Cir. 1922);
1922); Hicks v. Baltimore
io F.2d 606
6o6 (D. Md. 1926),
1926), aff'd
& Ohio R. R., 10
afJ'd
Cir.
Baltimore &
norn. Baltimore &
56o (4th
( 4 th Cir.
Cir. 1927).
1927).
sub nom.
& Ohio R. R. v. Sutherland, 18 F.2d 560
HeinOnline -- 62 Harv. L. Rev. 726 1948-1949
1949]
1949]
TRADING WITH THE ENEMY ACT
ACT.
todian's
todian's power of summary seizure
seizure in two rather
rather common situationstions - where the holder disputes
disputes the Custodian's
Custodian's finding of the
holder
where the holder
existence of an indebtedness
indebtedness to an enemy, and where
asserts
asserts a possessory lien on the enemy's property.
Both these questions
questions were presented
presented to the Court of Appeals
Appeals
2
Clark v.
'lJ. Manufacturers
Manufacturers Trust Co.,
CO.,21
for the Second Circuit in Clark
recently decided. The Custodian had found the Trust Company
Company
to be indebted
indebted to the Deutsche Reichsbank
Reichsbank in the amount of
$25,ooo
$25,000 and had demanded
demanded that that sum be paid over. The Trust
Company refused
refused to comply, asserting first, that it was not indebted in any amount, because its obligation
obligation to the German
German bank
against that bank; and second,
was more than set off by a claim against
"banker's lien" on the Reichsbank's
Reichsbank's
that this obligation created
created a "banker's
deposit, by virtue of which the Trust Company was entitled
entitled to
22
Act.22
the Act.
of
8(a)
Section
under
money,
the
of
retain possession
possession
money, under Section 8(a) of the
The district court had, without opinion, ordered the Trust Comcent
pany to pay over the sum demanded, with interest at 6 per cent
from the date of the demand.
presented
The court of appeals, remarking that the appeal presented
"several interesting
"several
interesting questions
questions upon
upon which there is surprisingly
surprisingly
authority," itself created but little new authority on
on
little direct authority,"
the two principal questions. By holding that a setoff is "tech"techindependent of and unconnected
nically .. .. ..aa money demand independent
unconnected
23 the Court felt able to fall
with the plaintiff's cause
cause of action,"
action," 23
back on the well settled proposition
proposition that a debtor must pay to the
24
Custodian an undisputed debt.24
But, by way of dictum, the court
court
"hesitate" to hold that the Custodian's
power
Custodian's power
said that it would "hesitate"
to seize money which he determines
determines to be owing to an enemy
enemy
21 x69 F.2d 932 (2d Cir. 1948), cert. denied, 335 U. S. 910 (1949).
169 F.2d 932 (2d Cir. 1948), cert. denied, 335 U. S. 910 (1949).
21
2240 STAT. 418 (1917), 50 U. S. C. APP. § 8(a) (1946).
2240 STAT. 418 (1917), 50 u. S. C. APP. § 8(a) (1946).
2 Clark v. Manufacturers Trust Co., 169 F.2d 932, 934, 935 (2d Cir. 1948),
23 Clark v. Manufacturers Trust Co., 169 F.2d 932, 934, 935 (2d Cir. 1948),
denied, 335 U. S.
S. 910
910 (1949).
(1949). The court
cert. denied,
court distinguished
distinguished New York cases which
had stated that where
where a bank asserts a setoff against a depositor's
depositor's claim, "it is
only the balance which is the real or just sum owing .
Trust
. .. .. ."
." Long Beach Trust
v. Warshaw, 264 N.
N. Y. 331,
66o (i934);
Co. v.
331, 334, i9o
190 N.
N. E. 659,
659, 660
(1934); Kress v.
v. Central
Trust Co., 246 App.
App. Div. 76,
76, 79, 283 N. Y. Supp.
Supp. 467, 471 (4th Dep't 1935),
I935) ,
aff'd,
N. Y. 629, 55 N. E.2d 365 (I936),
(1936), on the ground that "this
"this language
afJ'd, 272 N.
language is
appropriate to the cases where
where it was used but would seem to have little bearing
appropriate
on the question now before us." Clark v. Manufacturers
Manufacturers Trust Co., supra
supra at 935.
935.
"'American
Exchange Nat. Bank
Garvan, 273 Fed. 43 (2d
aff'd,
24
American Exchange
Bank v. Garvan,
(2d Cir. X921),
1921), afJ'd,
260
7o6 (1922);
& Josef Kohn, 264 Fed. 253
260 U. S. 706
(I922); Kohn v. Jacob &
253 (S. D.
D. N. Y.
1920).
1920).
HeinOnline -- 62 Harv. L. Rev. 727 1948-1949
HARVARD LAW
LAW REVIEW
HARVARD
[Vol.
62
[Vol. 62
extends
extends to a debt the validity or extent of which the debtor does
not acknowledge.
acknowledge.255 What seemed to stick in the judicial craw
consequences which such a power
were the "exceedingly
"exceedingly drastic"
drastic" consequences
power
might entail, and specifically
specifically the possibility that one who was in
fact not indebted might be compelled
compelled hastily to liquidate property
thereby
in order to satisfy the Custodian's
Custodian's demand and might thereby
suffer damage for which the Act provides no remedy. All
All this may
be conceded, but there are certain factors - aside from the rather
"I-which
which may make the Custoplain language of the statute 26
dian's position morally as well as legally tenable. In the first
place, it must be assumed that the Custodian will, as he has in
the past, exercise reasonably the sweeping discretion which Congress has given him. After
all - as a judge of the second
second circuit
circuit
After all"capture
once pointed out -he
- he could, if he were so minded, "capture
sergeant and file or otherwise
enemy property with a sergeant
otherwise vi et
et
enemy
on
27 although
although in practice the Custodian has never called
called on
armis," 21
recalcitrants. Neither would
would
the Military Police to reason with recalcitrants.
he be likely to compel
compel a small debtor to sell his home in order to
5(b) or 7(c)
7(c). .
comply with a summary demand under Section 5(b)
Trust Co. case,
And indeed, in the Manufacturers
Manufacturers Trust
case, it is reasonable
to assume that the Trust Company
Company was in a position to raise
$25,000 without recourse to the auction block.
$25,000
More important from the Custodian's
Custodian's standpoint
standpoint is the consideration that the creationsideration
creation - or even the adumbrationadumbration - of a
(2d Cir.
Cir. 1948),
1948),
v. Manufacturers
Manufacturers Trust
Trust Co.,
I69 F.2d
F.2d 932,
See Clark
Clark v.
Co., 169
932, 935
935 (2d
(1949). The United States District Court for Hawaii
cert. denied,
denied, 335 U. S.
S. 910 (1949).
eeft.
Hawaii
has recently followed this dictum, holding that the Custodian
Custodian could not summarily
su=arily
collect
collect the amount of a debt which he determined to be owing to an enemy, when
the respondent
respondent flatly denied the existence
existence of any debt whatsoever. Clark v. Nii,
finds support
i9, 1948. This judicial
Civil No. 837, D. Hawaii,
Hawaii, Nov. 19,
judicial reluctance
reluctance :finds
support
in some World War I dicta by Judge Learned
Learned Hand. See
See Simon v. Miller, 298
judge Hand did not have to face
Fed. 520,
520, 523 (S.
(S. D. N. Y. 1923).
1923). However,
However, Judge
the problem squarely in the Simon case,
case, for the Custodian
Custodian had in fact gotten pospossession of the disputed property
property and the suit was one which the claimant
claimant could
could
infra.
clearly
maintain to recover it, under § 9(a) of the Act. See pp. 749-58 infra.
26
"Any money
. . . owing
owing ..•
. . . to
to .•.
. . . an
an enemy
enemy ...
. . . which the President
President
26 "Any
money .••
the
after investigation shall
shall determine
determine is so owing . •. . shall be . . . paid over to the
seized by the Alien Property CusAlien Property Custodian,
Custodian, or the same may be sei2ed
." 40 STAT.
STAT. 416 (1917),
(z917), as amended, 40
50 U. S. C.
todian .. .. .. ."
40 STAT. 1020 (1918),
(1918),50
C.
APP.27 §§ 7(c) (1946).
App.
(1946).
Hough, J., concurring in American
v. Garvan,
Garvan, 273
27 Hough, J., concurring in
American Exchange
Exchange Nat.
Nat. Bank.
Bank. v.
273 Fed.
43,
1921), afJ'd,
aff'd, 260
26o U. S. 706
7o6 (1922).
(1922). See also Garvan v. $20,000
$20,000
43, 48 (2d Cir. 1921),'
i92o), aff'd
sub nom.
noin. Central
Bonds, 265 Fed. 477, 478 (2d
(2d Cir. 1920),
afJ'd sub
Central Trust Co.
Co. v.
(1921).
Garvan, 254 U. S.
S. 554
554 (1921).
2"See
25
HeinOnline -- 62 Harv. L. Rev. 728 1948-1949
19491
1949]
ENEMY ACT
ACT
TRADING WITH THE
THE ENEMY
to
ground on which to resist his demand for possession threatens
threatens to
"entangle this
incidental litigations"
litigations" and thereby hinder
"entangle
this power
power in
in incidental
hinder
the purpose of this part of the Act, which is to "accomplish
"accomplish a swift,
certain, and final reduction
of
reduction to possession of vast quantities of
property involved in incredible
complication of ownership
incredible complication
ownership and
interest"; 2" for the grounds on which a debt may be disputed are
interest";28
many and complex. It
It may be anticipated
anticipated that counsel of ordinary ingenuity will not be at a loss for grounds on which to deny
indebtednesses which the Custodian has found to exist.
indebtednesses
Moreover, while the power is drastic, it is far from the most
most
drastic of the war powers exercised by Congress.
Congress. A bank comwould
plaining of the severity
severity of the Trading
Trading with the Enemy Act would
probably receive little sympathy from an individual compelled
compelled
to "comply
"comply with the immensely
immensely more grievous
grievous demand for the
sacrifice of life and limb."
limb." 229 Perhaps
Perhaps for reasons such as
possible sacrifice
these, two federal courts which have squarely faced the problem
statutory language
have taken the statutory
language at face value and ordered the
30
protesting debtor to pay over.30
Manufacturers Trust
Trust Co. case,
The second
second circuit, also in the Manufacturers
left equally
equally unsettled
unsettled the question presented
presented by Section 8 of the
substance that any nonenemy
"holding a
nonenemy "holding
Act, which provides
provides in substance
lawful mortgage, pledge, or lien, or other right in the nature of
of
security in property
said
security
property of an enemy . . . may.
may. continue
continue to hold said
." The Custodian
Custodian took the position that this secproperty .. • .. ."
tion was designed not to protect
protect lienors from the temporary
temporary dispossession to which all property holders
holders are subject, but to ensure
that an American holder of a possessory
possessory lien might, in a suit under Section 9 (a)
(a) of the Act, recover not merely the value of his
2The quotations, like so many other lapidary phrases in current legal writing,
28
The quotations, like so many other lapidary phrases in current legal writing,
are borrowed
borrowed from Judge Learned Hand. See Kahn v. Garvan, 263 Fed. 909,
909,
916-17
1920). Although
916-17 (S. D. N. Y. 1920).
Although written
written in another context, they are not easy
easy
to reconcile with the reluctance to recognize
power
recogni2e this aspect of the Custodian's
Custodian's power
which that eminent jurist displayed in Simon v. Miller, 298 Fed. 520,
520, 523
523 (S.
(S. D.
N. Y. 1923).
1923).
2
in Silesian-American
Silesian-American Corp.
Corp. v.
v. Markham,
Markham, 156
z56 F.2d
F.2d
291Judge
Judge Learned
Learned Hand
Hand in
793,
798
(2d
Cir.
1946),
aff'd
sub
norm.
Silesian-American
Corp.
v.
Clark,
332
793,
1946), ajj'd
nom. Silesian-American
332
U. S.
S. 469 (1947).
(1947).
'o Camp. v. Miller, 286 Fed. 525 (5th Cir. 1923);
1923) ; Clark v. E. J.
J. Lavino
& Co.,
30
Lavino &
72
F. Supp.
cf. Miller v. Rouse, 276 Fed. 715
(S. D. N. Y.
72 F.
Supp. 497 (E. D. Pa. X947);
1947); ct.
715 (S.
1921) (refusal
(refusal to consider executor's
I92I)
executor's contention that sum determined to be owed
owed
to an enemy and demanded by Custodian
rather
Custodian was really an unexecuted gift rather
than a debt).
debt).
HeinOnline -- 62 Harv. L. Rev. 729 1948-1949
73°
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[Vol. 62
equity in the property, but actual possession of the whole of the
property3 1 In avoiding the question of the right of a lienor to
to
property.31
court
resist the Custodian's
Custodian's summary demand for possession, the court
"banker's lien"
was clearly on firm ground, for a "banker's
lien" is not in fact a
lien, but merely a right to setoff,32
setoff, 32 and, a fortiori,
fortiori, could not be an
interest in property of an enemy, given the elementary
elementary proposition that funds deposited in a bank cease to be the property of
the depositor the moment they are deposited, so that the relationship is that of creditor and debtor rather than that of bailor and
Nevertheless, it is to be regretted
bailee. Nevertheless,
regretted that the problem was
not squarely
holder
squarely presented, for the question of the right of a holder
of enemy property to plead a possessory
possessory lien as a defense to a
suit by the Custodian to enforce a demand for possession is left
left
in almost total darkness. Almost total, but not quite: a dissenting
opinion in the Court of Appeals for the First Circuit contains
dicta to the effect that even holders of liens within the scope of
Section 8(a) must comply with the Custodian's
Custodian's demand for possession, their remedy being a suit to regain possession under
under
33
Section
9(a);;33
unqualified language of Mr. Justice
Section 9(a)
and the unqualified
Central Trust
Trust Co. 'V.
v. Garvan
Garvan34
" was employed in the
Holmes in Central
face of vigorous
vigorous argument that the appellants
appellants were within the
class of lienors protected
protected by Section 8 and hence
hence entitled to raise
a defense against the Custodian's possessory action. Holmes
ignored dicta in the unreported opinion
opinion of Judge Augustus
Augustus Hand
in the District Court which seemed to35 favor the proposition
proposition that
that
order.
vesting
the
resist
could
lienor
a
vesting order.35
The question is one which is bound, sooner or later, to be presented in such form that decision is inescapable. The court to
to
See
v. Manufacturers
169 F.2d
F.2d 932,
932, 936
936 (2d
(2d Cir.
Cir. 1948),
1948), cert.
cert.
See Clark
Clark v.
Manufacturers Trust
Trust Co.,
Co., 169
denied,
denied, 335 U. S. 910 (1949). The right to liquidate the security may
may in itself
be important, for the lienor, being presumably
presumably more familiar with the business,
be'in
may be
'in a better position than the Custodian to obtain the full value of the \
(ist Cir. 1922).
1922). Of
Of
hypothecated property. See Mayer v. Garvan, 278 Fed. 27,
27, 35
35 (1st
course, upon liquidation of the security the lienor would be obliged
obliged to pay over
over
against
to the Custodian any surplus remaining after the satisfaction
satisfaction of his claim against
the enemy.
12 Furber
Furber v.
Dane, 203
oS, xi7-18,
(1909). See
32
v. Dane,
203 Mass.
Mass. 108,
II7-I8, 89 N. E. 227, 230 (19°9).
See Note,
38 HARv.
HARv. L.
L. REv.
REV. 8oo
800 (1925).
(1925).
" See Anderson,
33
Anderson, J., dissenting on other grounds
grounds in Mayer v. Garvan, 278 Fed.
1922).
27, 35 (ist
(1st Cir. 1922).
24 254 U. S. 554, 566, 568-69 (I92I) ; see p. 726 supra.
34 254 U. S. 554, 566, 568-69 (1921) j see p. 726 supra.
22 See Brief for Plaintiffs in Error, Marshall, Rosen and Metz, p. r38, Central
35 See Brief for Plaintiffs in Error, Marshall, Rosen and Metz, p. 138, Central
31
31
Trust Co.
v. Garvan,
Garvan, 254
S.554
(1921).
Trust
Co. v.
254 U.
U. S.
554 (1921).
HeinOnline -- 62 Harv. L. Rev. 730 1948-1949
19491
THE ENEMY
TRADING WITH THE
ENEMY ACT
ACT
73 I
approaching
which this happens
happens may well find itself in something approaching
import
a quandary. On the one hand, it is a strain on the normal
normal import
of the phrase
"continue
to
hold"
to
say
that
it
means
to
surrender,
means
phrase "continue hold"
and thereafter recover, possession; on the other, a Congressional
Congressional
intent to confer
temporary
confer on a mere lienor an immunity
immunity from temporary
dispossession,
owner
outright owner
dispossession, an immunity which is denied to an outright
of property, would be, to say the least, capricious.
Lacking
concapricious.
trolling precedent, a court might well be required
required to delve into
the legislative history of the section. The provision seems to have
Transfer
been added at the instigation of the New York Stock Transfer
Association, which feared that otherwise
the
Act
might
be open
open
otherwise
to a construction
construction permitting the permanent
permanent destruction of possessory
holders."36 Such a purpose imsessory rights of American
American security holders.
plies a recognition
recognition that the Act does require an initial surrender
surrender
of possession
at
the
Custodian's
demand.
possession
Custodian's
Interest
Funds.- The practical
Interest on Vested Funds.
practical significance of these
questions depends
depends in part upon the answer to another disputed
point:
point: is the Custodian entitled to recover
recover interest on a sum demanded by him, from the date of his demand, if the holder refuses
to comply until ordered to do so by a court? If the X Bank,
holding
$35o,ooo deposit in the name
holding a $350,000
name of Hans Schmidt of Berlin,
Custodian's demand and
and
knows that there is no defense to the Custodian's
knows also that the demand will bear interest
at
the
rate
of
six
per
interest
per
3
7
cent 37 from the date of service, it may reasonably
supposed
reasonably be supposed
directive will be obeyed with gratifythat the Custodian's
Custodian's turnover
turnover directive
are permissible
permissible deing promptitude. If, on the other hand, there are
fenses, and if it costs nothing
to
try
them,
tle
nothing
the directors of X
Bank may be expected to postpone, by the most protracted
protracted litiga36 See
See Hearings
Subcommitee on
on Commerce
on H.
H. R.
R. 4960,
4960, 65th
65th
Hearings before
before Senate
Senate Subcommitee
Commerce on
36
Cong., 1St
rst Sess. 59,
59, 160
x6o (1917);
(1917) ; H. R. REP.
ist Sess. 33 (1917);
(19,7) ;
REp. No. 85,
85, 65th Cong.,
Cong., 1St
SEN. REp.
REP. No. lI3,
113, 65th Cong., ist
(1917). The hypercaution
SEN.
1St Sess. 8 (1917).
hypercaution of the stockbrokers
brokers may have been founded on the somewhat
somewhat loose generality that a possessory
possessory
lien does not survive surrender
RESTATEMENT, SECURITY
SECURIT §§ II,
x,
surrender of possession.
possession. See REsTATEMENT,
So
& COLLATERAL
COLLATERAL SECURITIES
SECURITIES §§
34, 40 (2d
(2d ed. 1901).
igo).
80 (1941); JoNES,
JONES, PLEDGES &
§§ 23,
23,34,40
11
37 Since the obligation to comply with the Custodian's
Custodian's demand is created
created by
federal law, the rate of interest
interest provided
provided by
by state law would not be controlling.
controlling.
Board of Comm'rs v. United States, 308 U. S.
S. 343 (1939); Royal Indemnity Co.
Co. v.
United States,
S. 289
It is, however, a handy yardstick of fairness
289 (1941).
(1941). It
States, 313 U. S.
Ibid.; Massachusetts Bonding
Bonding
of which the federal courts
courts may avail themselves. Ibid.;
& Ins. Co.
&
Co. v. United States, 97 F.2d 879 (9th Cir. 1938).
1938). In most states, the legal
370;
rate of interest is in the neighborhood
neighborhood of 6%. E.g., N. Y. GEN.
GEN. Bus. LAW § 370;
ANN. tit. 41,
(1930).
PA. STAT. Mm.
41, § 3 (1930).
HeinOnline -- 62 Harv. L. Rev. 731 1948-1949
73 2
HARVARD
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LAW REVIEW
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[Vol. 62
tion possible, the loss of the revenue from the $35°,000.
$350,000. A majority of the second
Manufacturers Trust
Trust case
second circuit in the Manufacturers
(Judge
(Judge Clark dissenting) reversed the district court and resolved
resolved
this question against the Custodian, principally on the grounds
that the Act does not provide for the payment of interest "or
"or any
other penalty"
noncompliance with the Custodian's
penalty" in the event of noncompliance
Custodian's
demand and that "the
procedure provided by Section
17
"the summary procedure
Section 17
enables the Custodian, without delay if he immediately
immediately invokes
it, to obtain an order directing compliance."
compliance." 38
38
Congressional failure to provide for interest
interest
On the other hand, Congressional
in a statute
statute creating an
an' obligation
obligation has been held not to preclude
preclude
the courts from awarding interest on the obligation, pursuant
pursuant
to "the historic judicial principle
principle that one for whose financial adobligation was assumed
assumed or imposed, and who has
vantage an obligation
suffered actual money damages
damages by another's
another's breach of that obligation, should be fairly compensated
compensated for the loss thereby
thereby sustained." 39
" The Supreme Court, where Congress is silent on the
tlie
tained."
interest question, in effect appraises the Congressional
purpose
Congressional
to see whether the main purpose of the statute creating the obligapenalize the obligor. The courts
tion was to enrich the obligee or penalize
40 nor
criminal fines,
impose interest on criminal
fines,4°
even on nonwill not impose
criminal penalties
such
as
those imposed under the Agricultural
penalties
Adjustment Act.4411 They will allow interest where the obligation
obligation
42
created as
United States has been created
as aa revenue
revenue measure
measure.42
to the United
Alien
The obligation to turn over
over property
property demanded
demanded by the Alien
Property Custodian is obviously not in the nature of a fine or
penalty. The Act may, in fact, be analogized
analogized to a revenue
revenue measure if one recalls its purpose to compel
compel the use of certain
certain property
property
in the best interests
interests of the United States, and recalls, further, that
the most recent Congressional amendment in substance provides
property shall
that the proceeds
proceeds of vested German and Japanese
Japanese property
Treasury 4433 and that the former owners shall
be covered into the Treasury
property nor compensation therefor.
therefor. The
recover neither
neither their property
38169 F.2d 932, 936 (1948).
169 F.2d 932, 936 (1948).
See Rodgers
'332 U.
Rodgers v. United States, '332
U. S.
S. 371, 373 (1947)
(1947);; cf.
cf. United States v.
S. 261
U. S. Fidelity Co., 236 U. S. 512 (1915); Billings v. United States, 232
232 U.
U. S.
261
(1914); Royal Indemnity Co.
Co. v. United
United States, 313 U. S.
S. 289
289 (1941).
(1941).
"'Pierce
S. 398, 405-o6
(1921).
40
Pierce v. United
United Sates, 255 U. S.
405-06 (1921).
41 Rodgers
Rodgers v.
v. United
United States,
States, 332
332 U.
S. 371
(1947).
41
U. S.
371 (1947).
"2Billings v. United States, 232 U. S. 261 (1914).
(1914).
42
43
" 62 STAT.
5o U. S.
2011 (Supp.
STAT. 1246 (1948),
(1948), 50
S. C. A. App. § 20n
(Supp. 1949).
1949).
38
3
311
HeinOnline -- 62 Harv. L. Rev. 732 1948-1949
1949]
1949]
WITH THE
TRADING WITH
THE ENEMY
ENEMY ACT
ACT
733
44
morals of
of this
this confiscation will be discussed
discussed below; 44
sufficient
it is sufficient
the present discussion that seizures of enemy property under
for the
the Trading with the Enemy Act do, under the existing legislative
"financial advantage"
advantage" of the United
policy, redound to the "financial
States.
States.
This reasoning is not affected by the fact that the Custodian's
Custodian's
determination may be wrong and the nonenemy possessor of the
property may be enabled to recover it in a suit under Section 9 (a)
of the Act. The same thing is true of tax procedure, where the
taxpayer is frequently required to pay first and litigate his rights
45 In
In this procedure the government is given the right
right
thereafter.45
to possess and use the money during the interim between the
administrative demand for it and the ultimate judicial review of
administrative
the administrative determination.4466 Extension of the analogy from
tax procedure,
procedure, however, might lead to the result that if the government
seized
ernment were ultimately proved wrong, the holder of the seized
property would in his turn be entitled to interest from the time
of payment. While the point has never been decided
decided-- and obwhether
viously cannot be until the courts dispose of the question whether
the Custodian is entitled to interest in the first place
place - it might
be held that a nonenemy
nonenemy who has paid over property to the Custodian, with interest, and who has thereafter established
established his right
right
to the property, should recover not only the property
property itself but
but
also at least the interest
interest which he paid.4477
Seizure
B. Vesting without Summary Seizure
So far, we have considered
considered only the most summary
summary type of
of
exercise of the Custodian's vesting
vesting power
power - a demand
demand for specific
specific
" See p. 744 infra.
infra.
4 Phillips
v. Commissioner,
Commissioner, 283
283 U.
U. S.
(1931). Cf.
Phillips v.
S. 589,
589, 595
595 (1931).
Cf. Yakus v. United
(1944).
States, 321 U. S.
S. 414, 442-43
44 2-43 (1944).
a"See Salamandra
46
Salamandra Ins. Co.
Co. v. New York Life
Life Ins. & Trust Co., 254 Fed. 852,
86o-6i (S.
i918), which analogizes
procedures.
860-61
(S. D. N. Y. 1918),
analogizes the two procedures.
47 The Supreme Court has
held that
that an
47 The Supreme Court
has held
an American
American whose
whose property
property was seized
seized
determination that itit was
not
under an erroneous determination
was enemy property
property could recover
recover not
only the
the proceeds
proceeds of the sale
sale of such property, but also
also whatever
whatever interest
interest was
actually earned
earned on the
the proceeds
proceeds while
while they were in the possession
possession of the GovernGovernment.
ment. Henkels v. Sutherland, 271
271 U. S.
S. 298
298 (1926).
(1926). If
If the
the property
property is considered
considered
Government from the
to have been in
in the constructive
constructive possession
possession of the Government
the moment
moment
Aschersleben Aktien-Gesellschaft,
of the Custodian's demand,
demand, Miller
Miller v. Kaliwerke
Kaliwerke Aschersleben
Aktien-Gesellschaft,
283
Fed. 746,
1922) ;; Application
Miller, 288
283 Fed.
746, 752
752 (2d
(2d Cir.
Cir. 1922)
Application of
of Miller,
288 Fed.
Fed. 76o,
760, 767 (2d
(2d Cir.
1923),
1923), the
the interest
interest awarded to the Custodian
Custodian might well
well be
be regarded
regarded as "earnings"
"earnings"
within the
of the
within
the rule
rule of
the Henkels
Henkels case.
case.
44
45
HeinOnline -- 62 Harv. L. Rev. 733 1948-1949
734
HARVARD
LAW REVIEW
HARVARD LAW
[Vol. 62
62
"res-vesting order,"
order," or a
property, which may take the form of a "res-vesting
"turnover directive,"
directive," issued subsequent
order vesting right,
"turnover
subsequent to an order
title, and interest. When
it
When the Custodian issues such an order, it
means that he has determined
that
a
particular
determined
particular thing is enemy
enemy
immediate possession of that
that
property; and for the purposes of immediate
48
wrong," 48
or wrong,"
right or
"whether right
determination is conclusive, "whether
thing his determination
subject
qualifications indicated in the preceding parasubject only to the qualifications
graphs. The practical
practical effect of this is that the Custodian has the
use of the property during the interim between his administrative
determination of its enemy character
determination
character and ultimate judicial
judicial review
of the correctness
correctness of that determination,
determination, every argument
argument about
about
the
existence
or
extent
of
enemy
interest
in
the
property
property being
being
'the existence
deferred until suit is brought against the Custodian under Secdeferred
49
tion 9(a) of the Act.49
Where, however, there is no urgent need
need for an immediate
transfer
of
possession,
the
Custodian
usually
follows a course
transfer
course
calculated
to
minimize
the dislocation of local
calculated
local judicial
judicial proceedings
proceedings
and business, vesting in himself simply
simply the "right,
"right, title and
interest"
enemy in and to the property. Under such an
interest" of the enemy
order, if there be any controversy
controversy concerning
extent
concerning the nature or extent
of the enemy's interest in the property, the Custodian finds himself
himself
in much the same
same position that the enemy
enemy himself would
would have occupied --he he is a litigant. As such, he participates
participates in numbers
numbers
occupied
of lawsuits
lawsuits differing widely from those ordinarily engaged in by
the Federal
Federal Government, for they may
may and often do turn on quesquesunsupported
tions of chemically
chemically pure state
state law. The Custodian, unsupported
hypothetical sergeant and file, has about the same
by his hypothetical
same rights
and duties as any other suitor.
To this last generalization,
qualification
generalization, however, an important
important qualification
must be appended:
appended: the Custodian
choose
Custodian can, in theory at least, choose
his own time and - as between state and federal court - his own
It has, in fact, been
[disbeen flatly stated that "neither
"neither the ,[disforum. It
trict] court nor any other tribunal in or of the United
States
United
[has] jurisdiction
court
jurisdiction to compel
compel the Custodian
Custodian to come into court
and .. .. .. litigate or forego his demand .. . ..
. . He can use his
50
in limine." 50
own method of procedure;
procedure; courts cannot coerce
coerce him in
" Central Trust
Trust Co. v. Garvan, 254
254 u.
U. S.
(1921).
S. 554,
554, 566
566 (1921).
48
49
(1921). See
See pp. 749-58
infra.
E.g., Stoehr v. Wallace, 255 U. S.
S. 239
239 (1921).
749-58 infra.
Hough,
concurring in
in American
American Exchange
Nat. Bank
Bank v.
Garvan, 273
273
Hough, J.,
J., concurring
Exchange Nat.
v. Garvan,
Fed. 43, 48
48 (2d
(2d Cir. 1921).
1921).
49
5
50
HeinOnline -- 62 Harv. L. Rev. 734 1948-1949
19491
1949]
TRADING WITH THE ENEMY
ENEJ4Y ACT
ACT
735
Since a suit against the Custodian
Custodian is a suit against the United
States,5 any action against him must be brought
States,51
brought within the terms
2
52
of Congressional
Section 9(a) of the Act does not
Congressional consent.
Section
not
authorize suit unless and until the Custodian has taken possession
possession
authorize
of the property
property in which the nonenemy seeks to establish
establish an interand
est.5533 Thus, where the Custodian has vested the right, title and
interest of an enemy in a piece of property, one who asserts an
cannot
interest adverse
adverse to the enemy's in that piece
piece of property
property cannot
9(a).11 Consequently, he must wait for the
sue under Section 9(a).54
Custodian to initiate litigation.
The Custodian's
Custodian's possession of the initiative may not be complete, however.
I7 of the Act gives to federal district
district
however. Section 17
"to enforce the provisions of this Act,"
Act,"
courts plenary
plenary jurisdiction
jurisdiction "to
and in at least one case this grant has been held (by Judge
Learned
"sauce-for-the-gander" basis)
to
Learned Hand, reasoning on a "sauce-for-the-gander"
basis) to
empower the court to entertain
entertain a trustee's
trustee's suit to determine the
beneficial
beneficial interests
interests in the trust, where the Custodian had vested
unascertained interest of some of the beneficiaries,
not
the unascertained
beneficiaries, but not
55
55
the trust res itself. Moreover,
Moreover, many proceedings
proceedings in state courts
affecting property in which the Custodian has vested an interest,
notably probate proceedings,
proceedings, are in rem. Since a decree in such a
suit is binding upon all the world, including
including persons not within
could
reach of the court's process, the fact that the state court could
not compel the appearance of the Custodian 56
6 loses some of its
considerations will compel him to come
significance, for practical
practical considerations
come
57
has vested.
he has
into court and make the most of the interest which
which he
vested.57
51 Banco Mexicano v. Deutsche Bank, 263 U. S. 591 (1924); Cummings v.
51 Banco Mexicano v. Deutsche Bank, 263 U. S. 591 (1924); Cummings v.
Deutsche
Deutsche Bank, 3o0
300 U. S.
S. ii5
II5 (i937).
(1937). See Cummings v. Societe
Societe Suisse
Suisse pour
pour
Valeurs de Metaux,
1936), cert. denied,
S. 631
(D. C. Cir. 1936),
denied, 306 U. S.
Metaux, 85 F.2d 287, 289 (D.
(1939).
(1939)·
v. Schwalby,
Schwalby, 162 U. S.
S. 255,
522 Stanley
Stanley v.
255, 269 (1896);
(1896); United States
States v. Alabama,
(194).
313 U. S.
S. 274,
274, 282 (1941).
" Sigg-Fehr
Sigg-Fehr v. White, 285 Fed. 949,
1923);; c/.
cf. Hunter
53
949, 954 (D. C.
C. Cir. 1923)
Hunter v. Central
174 (S.
1926); Koehler
Union Trust Co., i7
17 F.2d 174
(S. D. N. Y. 1926);
Koehler v. Clark, 17o
170 F.2d i79
179
(9th Cir. 1948).
1948).
54
Ibid.
54 Ibid.
" Kahn
9o9 (S.
(S. D. N. Y. 1920).
1920). It
55
Kahn v. Garvan, 263 Fed. 909
It should be noted, however, that the trustee himself asserted no interest
interest adverse to the Custodian,
Custodian, for he
paid the money into court and simply requested
requested instructions
instructions as to its disposition.
"6Cf.
89o, 62 N. Y. S.2d
Dep't
56
C/. Propper
Propper v. Taylor, 27o
270 App. Div. 8go,
S.2d 6ox
601 (1st Dep't
1946),
reversing pro tanto
72, 58 N. Y. S.2d 821 (Sup.
1945).
1946), reversing
tanto 186 Misc. 72,
(Sup. Ct. 1945).
" See, e.g., Von Hennig v. Clark, Igl
I1 Misc. 261, 76 N. Y. S.2d
S.2d 35o
57
350 (Sup. Ct.
1948),
IMer., 274 App. Div. 759, 80 N. Y. S.2d 727 (1st
(ist Dep't 1948).
1948). The
1948), aff'd
afJ'd mem.,
HeinOnline -- 62 Harv. L. Rev. 735 1948-1949
HARVARD
HARVARD LAW
LAW REVIEW
[Vol. 62
Supreme Court has finally placed
The Supreme
placed beyond question the right
right
of the Custodian, at least at any time prior to an adjudication
quiet
in rem by a state tribunal, to resort to the federal courts to quiet
58 For
his title against other claimants.58
example, in a recent
recent proceeding under Section i7,
I 7, a federal court determined
determined that property in administration in a state surrogate's court was impressed
with a constructive
interest
constructive trust in favor of an enemy to whose interest
the Custodian had succeeded.5599 Such an exercise of federal jurisdiction requires neither control over the property
property nor interference
with the local tribunal's possession thereof; yet the state court is
0°
bound to recognize
recognize the right adjudicated by the federal court. 60
Even in his role as private litigant, therefore, the Custodian may,
if he so desires, avail himself of certain legal advantages accorded
to the sovereign.
sovereign.
C. Interests
Interests Subject to the Vesting Power
Adequate
consideration of the limits upon the types of enemy
Adequate consideration
interests
which
are capable
interests
capable of being vested-by the Custodian
Custodian entails an appraisal of the purposes of the Act. If an interest is not
not
within the scope of the Trading with the Enemy Act, a court in
which the Custodian seeks to assert it may not recognize
recognize his title;
or, if he vests by summary process the res to which the interest
attaches, he cannot retain it.
it is in the possession
Custodian is authorized
authorized to seize property even if it
po~ession of a court.
Section
Cf. In
In re Miller's
Section 2(f),
2 (f), Exec. Order
Order No. 9193,
9193, 77 FED.
FED. REG. 5205 (1942).
(1942). Ct.
Miller's
(948)
Estate, 193 P.2d 539 (1948)
(holding that the Custodian's vesting
vesting order divested a
subject matter of the vesting order).
order).
state probate court of jurisdiction
jurisdiction over the subject
But cf.
1924), appeal
dismissed, 269
ct. Miller
Miller v. Clausen, 299
299 Fed. 723 (8th Cir. 1924),
appeal dismissed,
269
(1925).
It must be borne
U. S. 595 (1925).
It
borne in mind that the Custodian
Custodian may be able to
to
foreclose litigation
litigation in the state
state court
court by the somewhat draconic method of adminadministratively
istratively determining
determining the extent
extent of the enemy's interest
interest in the property and
"res-vesting"
If he
thus gains
gains possession
"res-vesting" that
that amount.
amount. If
he thus
possession of the bone of contention,
persons asserting
asserting interests adverse
adverse to the enemy's are relegated
relegated to suit in a federal
court, under § 9(a) of the Trading with the Enemy Act, to establish
establish those
interests.
58
(1946). Specifically, the decision affirmed
affirmed
58 Markham
Markham v. Allen, 326 U. S. 490 (1946).
federal
federal jurisdiction
jurisdiction over a suit by the Custodian to determine
determine the extent
extent of the
rights which he had vested
vested in a decedent's estate in administration
administration before a state
1948).
court. Cf.
Ct. Clark v. Propper, 169
169 F.2d 324
324 (2d
(2d Cir. 1948).
" Clark v. Tibbetts, 167 F.2d 397 (2d Cir. 1948).
59 Clark v. Tibbetts, 167 F.2d 397 (2d Cir. 1948).
'o
Markham v. Allen, 326 U. S. 490, 494 (1946). Cf. Commonwealth Co. v.
60 Markham v. Allen, 326 U. S. 490, 494 (1946). Ct. Commonwealth Co. v.
(1936) (affirming
receiver
Bradford, 297 U. S.
S. 613 (1936)
(affirming federal
federal jurisdiction
jurisdiction over
over suit by receiver
administered by state court
of national bank to establish interest in
in mortgage
mortgage pool administered
court
trustee).
trustee).
HeinOnline -- 62 Harv. L. Rev. 736 1948-1949
19491
TRADING WITH THE ENEMY ACT
ACT
737
6' graphically
Matter of Herter,
A recent New York decision, Matter
Herter,61
graphically
presents the problem. An enemy
enemy owned
owned property in New York.
it, the enemy died,
Before the Custodian got around to vesting it,
leaving a widow, also an enemy
enemy national, and a will. The will
left to the widow a sum much less than the share she would have
taken in the event of intestacy, and the bulk of the property to
to
circumstances,
certain nonenemy cousins of the testator. In these circumstances,
to a widow a "personal"
"personal" right to elect to
New York law gives to.
to
62
62
of
the
will.
The
Custotake her intestate share, in derogation
derogation
all. the right, title and interest of the widow
dian promptly vested all
specifically
in the New York estate of her husband, including specifically
her right of election.
election.1633 The surrogate
surrogate held, in substance, that since
"personal" to the widow, it could not
not
the right of election was "personal"
"acting
be vested or exercised by the Custodian, or by any person "acting
in hostility" to her, and that the action of the Custodian was in
consequence
consequence a nullity.
The decision presents certain difficulties. The Act, as we have
seen, gives to the Custodian the broadest imaginable powers
powers with
respect to enemy property
speaks of "any property or interproperty - it speaks
"choses in action, and rights and claims of every
every charest" 64 and "choses
some
very
pretty
questions
acter and description."
description." 65
65 Of course,
(Suppose, for example, a
might be posed as to what is "property."
"property." (Suppose,
of
German film company
company had contracted
contracted for the exclusive services of
advantageous terms,
a talented and glamorous actress, on very advantageous
for a period of years: could the Custodian vest the enemy's right
to performance?
performance? So far, to the regret of his legal staff, that official
encountered no such intriguing questions.)
has encountered
questions.) But no such questhe
nature
tion can rationally
be
raised
as
to
rationally
nature of the right of election
election
62 193 Misc. 602, 83 N. Y. S.2d 36 (Surr. Ct. 1948), aff'd, 84 N. Y. S.2d 913
61
193 Misc. 602, 83 N. Y. S.2d 36 (Surr. Ct. 1948), afj'd, 84 N. Y. S.2d 913
ist
1948).
(App.
6 2 Div. 1St Dep't 1948).
N. Y.
LAW § i8.
62 N.
Y. DEc.
DEC. EST.
EST. LAW § 18.
12 FED.
12 FED. REG.
1828 (1947),
(1947), as amended,
" Vesting Order
63
Order No. 8407, 12
REG. 1828
amended, 12
FED. REG.
REG.
2966
2966 (1947).
(1947).
6455 STAT.
(94), 50 U.
APP. §§ 5(b)
64
839 (1941),5°
U. S. C.
C. App.
5(b) (1946).
(1946).
55 STAT. 839
6540 STAT.
1020 (i9i8),
S. C.
C. APP.
(1946). It
It is clear that the
6540
STAT. 1020
(1918), 5o
50 U.
U. S.
App. §§ 7(c) (1946).
Custodian
Custodian may vest and litigate an unliquidated
unliquidated claim for breach of contract.
174
173 (S.
(S. D. N. Y. 1925),
1925), aff'd,
i6 F.2d 174
v. Ballard, 16
i6 F.2d 173
E.g., Mutzenbecher
Mutzenbecher v.
afj'd, 16
(1927) ; Nord Deutsche
J. L.
1926), cert. denied,
denied, 273 U. S. 766 (1927);
(2d Cir. 1926),
Deutsche Ins. Co. v. J.
1918) (not officially reported),
reported),
Dudley, Jr., Co., 169 N. Y. Supp.
Supp. 303
303 (Sup. Ct. 1918)
Rothbarth v.
I69 N. Y. Supp. 1106
xio6 (1St
(1st Dep't
i918); Rotbbarth
aff'd, 183 App. Div. 887,
afj'd,
887, 169
Dep't 1918);
(ist Dep't 1917),
1917), aff'd,
223
i67 N. Y. Supp. i99
Herzfeld, 179 App. Div. 865, 167
199 (1St
afj'd, 223
io75 (1918).
(I918).
E. 1075
N. Y.
II9 N.
N.
Y. 578, 119
N. E.
HeinOnline -- 62 Harv. L. Rev. 737 1948-1949
HARVARD LAW
LAW REVIEW
HARVARD
REVIEW
[Vol.
['Vol. 62
It is, in effect,
conferred by the New York Decedent Estate Law. It
an option to acquire an intestate share of an estate and as such
would seem to be within·the
within'the scope of the Trading with the Enemy
Act.
It is well settled, at least, that restraints
It
restraints imposed by state law
on the alienability of more prosaic interests in property cannot
cannot
defeat the Custodian's power to vest 666 and, in particular,
particular, the New
York courts have sustained
sustained the Custodian's power
power to vest the
beneficial interest in a spendthrift
spendthrift trust, notwithstanding
notwithstanding the facts
that under New York law the spendthrift himself could not have
alienated his interest, and his creditors
creditors could have reached only
only
to
support
him
if
any,
in
excess
of
what
was
required
the portion,
required
7
67
in suitable style.1
style. The New York Court of Appeals has held that
that
an enemy's inchoate
inchoate right of dower (for which the right of election is a statutory substitute) could be divested by the Custo68 But there remains unsettled the question whether an indian."'
dian.
remains
terest in property
property can be so "personal"
"personal" that the Custodian cannot be substituted for an enemy owner.
individual testator
testator
A closely
closely allied question is the right of an individual
or settlor to condition a bequest or gift to an enemy upon the
personally to take and enjoy the property. Thus,
enemy's
enemy's capacity personally
opinion,
a New York testatrix provided that if, in her executor's
executor's opinion;
"the
"the transferring
transferring of this money to my beloved
beloved relatives,"
relatives," who
"shall be frustrated
were residents and nationals
nationals of Germany, "shall
frustrated by
by
political conditions
conditions and laws which substantially
substantially deprive my bebequests," the
loved relatives
relatives of the full use and fruit of such bequests,"
executor
executor should hold the funds in trust until such time as the becould enjoy the full use and fruit of the bequests.
loved relatives
relatives could
6 Great Northern Ry. v. Sutherland, 273 U. S. 182, 193-94 (1927); Miller v.
66
Great Northern Ry. v. Sutherland, 273 U. S. 182, 193""""94 (1927); Miller v.
1922).
Kaliwerke
Aktien-Gesellschaft, 283 Fed. 746, 751 (2d Cir. 1922).
Kaliwerke Aschersleben
Aschersleben Aktien-GeseIIschaft,
67 Matter of Bendit, 214 App. Div. 446, 212 N. Y. Supp. 526 (ist Dep't 1925);
67 Matter of Bendit, 214 App. Div. 446, 212 N. Y. Supp. 526 (1St Dep't 1925) ;
& Trust Co. v. Markham,
accord, Central Hanover Bank &
accord,
Markham, 68 F. Supp. 829 (S. D.
N. Y. 1946).
1946). The court reasoned
reasoned that the Custodian
Custodian was not merely a transferee,
transferee,
concerning
but was actually substituted for the enemy
enemy beneficiary
beneficiary in every respect concerning
182, 193--94
193-94 (X927);
the trust. Cf. Great Northern
Northern Ry. v. Sutherland, 273 U. S.
S. 182,
(1927);
& App. 1919)
i919)
io8 Atl. 432 (Ct. Err. &
Keppelmann v. Palmer, 91 N. J. Eq. 67, 108
Keppelmann
(state legislation in conflict
conflict with the Trading
Trading with the Enemy Act must give way
power).
before
before the federal exercise of the war power).
(1924). The common
132, 145 N. E. 907
9o7 (1924).
6 Miller v. Lautenburg, 239 N. Y. 132,
68
common
"personal" to precisely the same
law
la,w right of dower was "personal"
same extent as the statutory
(i9o5); Camardella
x83 N.
N. Y. 62,
substitute.
62, 75 N. E. 931
931 (19°5);
substitute. Flynn v. McDermott, 183
i9o8);; see Matter
v. Schwartz, 126 App. Div. 334,
334, iio
IIO N. Y. Supp. 6i
6II (2d
(2d Dep't 1908)
Matter
332, 337, 55 N. E.2d 184, 186
z86 (1944).
(i944).
of Zalewski, 292
292 N. Y. 332,
HeinOnline -- 62 Harv. L. Rev. 738 1948-1949
1949]
1949]
TRADING WITH THE
THE ENEMY
ENEMY ACT
ACT
TRADING
739
739
In such aa situation as this the Custodian, when he has vested
the right, title and interest of the enemy legatee or beneficiary,
may contend that
may make two arguments. In the first place he may
a sort
sort of statutory transubstantiation
transubstantiation has taken place -- that to
to
all legal intents he has become identified with the enemy, so that
payment to him satisfies the provisions of the will or trust instru69
conceptual and more practical approach is emA less conceptual
ment.69
bodied in the contention that such provisions are simply atattempts to evade the Trading
Trading with the Enemy Act and hence are
7"
void as against public policy.
policy.70
The Custodian must of course
contend further that if the condition
condition is considered void, the bequest
bequest
operates as though the condition had been fulfilled, a rather questionable contention in those jurisdictions
jurisdictions which treat gifts on void
conditions according to the presumed intent of the testator.
Rather surprisingly, considering
considering how frequently some such device might have been expected to suggest
drawing
suggest itself to lawyers drawing
wills for testators
with
relatives
in
enemy
(or
potential
enemy)
testators
(or
countries, research
lower
research reveals
reveals but two reported cases, both in lower
71
courts.71
Each involved the sort of artless testamentary provision
quoted above, and in each case the court ordered immediate distribution to the Alien Property Custodian. The moral would seem
seem
affection
to be that testators, unless filled with natural love and affection
for the Alien Property Custodian, should not attempt to leave their
property, directly
directly or indirectly, to persons who are, or are
are likely to
become, enemies within the meaning of the Trading
Trading with the
eventually be upheld by appellate
appellate
Enemy Act. Such devices
devices may eventually
courts; but the question is at least doubtful, and -- until such
definitely laid to rest --such
such provisions are pretty
time as it is definitely
72
72
likely to entail
complex
and
costly
litigation.
entail
69 Cf.
Cf. Matter
of Bendit,
Bendit, 214
214 App. Div. 446, 212 N. Y. Supp. 526 (ist Dep't 1925).
Matter of
App. Div. 446, 212 N. Y. Supp. 526 (ISt Dep't 1925).
70 Cf.
Cf. Commissioner
Procter, 142
142 F.2d 824 (4th Cir. I944), cert. denied, 323
Commissioner v.
v. Procter,
F.2d 824 (4th Cir. 1944), cert. denied, 323
U. S. 756 (1944)
(1944) (holding void as against
against public
public policy a condition
condition subsequent
subsequent
that a transfer should
should be deemed
deemed to be revoked
revoked if it were determined
determined that the
federal gift tax
igg N. E.
tax was applicable)
applicable) ; Matter
Matter of Rosenberg,
Rosenberg, 269
269 N. Y. 247, 199
206 (1935)
(holding that, regardless
(1935) (holding
regardless of the state's
state's policy on reaching the income
of a spendthrift
spendthrift trust, a federal tax
tax lien
lien could be imposed).
imposed).
71 Matter
of Reiner,
Ct. 1943)
1943) ; Thee's
71
Matter of
Reiner, 44
44 N.
N. Y. S.2d
S.2d 282
282 (Surr.
(Surr. Ct.
Thee's Estate,
Estate, 49
49 Pa.
Pa.
D.
In re Thramm's
D. &
& C. 362
362 (Orphans
(Orphans Ct. 1942).
1942). But cf.
cf.In
Thramm's Estate,
Estate, 183
183 P.2d 97 (Cal.
(Cal.
App.
1947).
App. 1947).
72
72 Much
Much more
more difficult
difficult problems
problems from
from the
the Custodian's
Custodian's standpoint
standpoint are
are presented
presented
by a testamentary
testamentary provision
provision that, if
if the alien
alien is unable
unable to take personally at the
time of distribution, the
the property
property shall
shall be paid over to an alternate, nonenemy,
69
70
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['Vol. 62
D. "Revenue" Aspects of the Vesting Power
The Herter
Herter case suggests another interesting problem, and one
approach to construction
which colors strongly the judicial approach
construction and
enforcement of the Act. The lower court pointed out that the
enforcement
effect
effect of his holding was to place the property
property in the hands of
American citizens and said that if that were the consequence,
consequence,
"no wrong
the United
States is
is done."
"no
wrong to
to the
United States
done." 773 But this reasoning
is not easy to reconcile
reconcile with one of the basic purposes
purposes of the
Trading with the Enemy Act. Carried to its logical conclusion, it
would mean that, so long as the property is prevented
prevented from being
used by an enemy government
government in aid of its war effort against the
United States - whether by being awarded to the Custodian
Custodian or
or
to some deserving American
to
American or left with the enemy
enemy subject to
certain
restraints
the
essential
purpose
of
the
Act
is
achieved.
certain
essential
A court with such a view of the statute cannot be expected to display much enthusiasm
enthusiasm when asked to help the Custodian scoop
up the scattered assets of enemies,
enemies, some of them widows and orphans, long after the defeat of Germany and Japan. The jaunleast
diced judicial
judicial eye sees the Custodian as combining
combining the least
unreformed
attractive qualities of Shylock, Uriah
Uriah Heep, and the unreformed
Ebenezer Scrooge, and tends to construe
against
Ebenezer
construe the Act narrowly
narrowly against
this unamiable
character.
unamiable
This sort of judicial approach
approach was taken by a majority of the
J osephberg v. MarkMarkCourt of Appeals for the Second
Second Circuit in Josepkberg
74 X,
X, a naturalized American citizen
citizen of Italian
Italian birth, reham.74
turned to Italy in 1931
i93i for the sake of his mental
mental health. He
never came back to the United States
States and, apparently, never fully
regained
substantial
1937 he inherited property of substantial
regained his sanity. In 1937
value located in New York, and in 1939
1939 a New York court, determining him to be an incompetent,
incompetent, appointed Josephberg
J osephberg as his
committee. In 1943 the Alien Property Custodian, determining
determining
X to be an enemy, vested his property. Josephberg
Josephberg brought suit,
under Section 9(a) of the Trading with the Enemy Act, to recover
recover
beneficiary,
rather than held indefinitely
beneficiary, rather
indefinitely by the executor or trustee until such
such time
seems to be no reAlthough there seems
as the enemy's
enemy's disability shall be removed. Although
sanctioned
ported case
case involving
involving such a provision, several state probate courts have
have sanctioned
distribution to the alternate
alternate legatee in such cases.
13193 Misc. 602, 6o5,
Y. S.2d
S.2d 36,
(Surr. Ct.
1948), afl'd,
aff'd, 84 N. Y. S.2d
'13 193 Misc. 602, 605, 83
83 N.
N. Y.
36, 40
40 (Surr.
Ct. 1948),
S.2d
913
ist Dep't 1948)
1948) ; Stoehr v. Miller, 296
1923).
913 74(App.
(App. Div. Ist
296 Fed. 414,
414, 425
425 (2d
(2d Cir. 1923).
152 F.2d 644 (1945).
'14 152 F.2d 644 (I945).
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TRADING WITH THE ENEMY
ENEMY ACT
ACT
74 1
the property. Strictly, the sole question before the Court was the
correctness
correctness of the Custodian's determination
determination that X
X was an
enemy. Since, under the statute
statute and the executive orders, enemy
character normally depends upon residence at the time of vestcharacter
ing,7 5 the ultimate question was whether
X was a resident of Italy.
ing,75
whether X
The majority held that he was not, and backed
backed up its conclusion
conclusion
76
considerations: 76
with the following considerations:
In determining
determining whether [X] falls within the provisions of the statute . . . ,his
, his physical
physical presence . . . is not decisive. . . . [X's] property in New York was in no way threatened
threatened with subjection to enemy
enemy
uses by reason of his presence in Italy. He had no control over it himadministered by a committee
self since it was being administered
committee appointed
appointed by the
New York court; and, consequently,
consequently, Italy could exercise no control
control
over it through the control of him. Furthermore, the New York court
court
Such
would not have permitted its use for the benefit
benefit of an enemy.
enemy. .. .. .. Such
use could also have been prevented
prevented by a freezing order issued by the
Treasury.
Treasury. ...... .
The property being in cash and securities its confiscation
confiscation was not
required, as, for instance, is the case of assets consisting of, or controlling,
manufacturing facilities usable to secure production
manufacturing
production of materials to aid
this government
government in the prosecution
prosecution of the war; and, as a means for the
purchase of such materials,
materials, it was comparatively negligible.
negligible.
confiscation under the Trading with the Enemy Act
Act
The purpose
purpose of confiscation
is either to lessen the ability of the enemy government to make war
upon the United States by depriving it of the means so to do which
which
would otherwise be within its reach or to enhance
enhance the ability of this
country
war .... . .
country to prosecute
prosecute the war.
When this significance is, as it should be, given to term "resi"resident" in the Trading with the Enemy Act . •. .• and in the Executive
Executive
Orders promulgated
promulgated thereunder, it does not include a citizen in [X's]
situation.
"the whole purpose
Judge Clark dissented, saying that "the
purpose of the
legislation may
may be
be frustrated
legislation
frustrated if courts attempt
attempt to decide the valid77
individual cases."
of individual
equities of
upon the
ity of seizure upon
the equities
cases." 77
The majority
opinion
amounts
to
a
holding
that
an
owner of
majority
"resident" of an enemy country
property is a "resident"
country only if there is a
possibility that the enemy
enemy government
government can exercise
exercise control of the
7540 STAT. 411 (1917), 50 U.
C. ApP.
(1946); Exec.
Exec. Order
8389,
'15 40 STAT.4II (1917),5°
u. S.S. c.
APP. §§ 2(a)
2(a) (1946);
Order No. 8389,
REG. 2897 (1941)
(1941);j Exec. Order No. 9193,
9193, §§ 10(a),
io(a), 7 FED. REG. 5205 (1942).
(1942).
66 FED. REG.
76 152 F.2d 644, 648 (1945).
'16 15 2 F.2d 644, 648 (1945).
77Id. at
65o.
'1'1ld.
at 650.
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property through him, or if the United States (in the opinion
opinion of
the court) really needs the property for its war effort. The upshot
upshot
is that the enemy's
beneficial interest
enemy's beneficial
interest in the property is left unresult may be defended upon the ground, sketchily
sketchily
disturbed. The result
indicated by the court, that X's insanity deprived his physical
indicated
physical
to
"residence"
presence
of
the
element
of
intent
requisite
presence
"residence" -- although it is, as Judge Clark suggested, doubtful whether there
presence be not positively
requirement, if the physical presence
positively
is any such requirement,
individual."8 At least one
against the will of the individuaF8
one district court, in
language as
another circuit, has "preferred"
"preferred" to treat
treat the cited language
79
79 Whatever the
distinguishing the case out
possibility of distinguishi~g
out
dictum. Whatever
considerations were
of existence, it is evident
evident that the quoted considerations
fundamental to the court's decision.
If the court's basic premise were correct -- that the Act has
If
no other purposes than to deprive enemy governments of the
sinews of war and to enhance the war-making
war-making ability of the
it-- its deciUnited States
States by making those sinews available to it
sion would be more defensible,
defensible, although still open to the charge
that the court substituted its discretion
discretion for that of Congress
Congress and
that of the President
President in deciding
deciding what property is needed by the
United States for its war effort. (The argument that X's prop"comparatively
purchasing war material, was "comparatively
erty, as a means for purchasing
such reasoning
negligible"
has
not
much
force
in
any
case
on
negligible"
much
many a citizen
citizen would be justified in refusing to pay his income
tax.) But if the Act had no other
other purposes than these, the vesting
tax.)
provisions
provisions of the Trading with the Enemy
Enemy Act would
would now be quite
freezing
program
as
the
court
pointed
outobsolete, for the
program
pointed out
adequately achieved the first purpose, and the war against Germany and Japan
Japan has been won.
In fact, as has been
been indicated, the purposes
purposes of the Act are now
much broader. Simply stated, one purpose
purpose is to help the United
United
78
An American prisoner of war (to select an extreme example adduced by the
78 An American prisoner of war (to select an ~treme example adduced by the
vesting
majority opinion) would
would evidently not be a "resident" for purposes of vesting
Cf. Stadtmuller v. Miller, IIiI F.2d 732 (2d
(2d Cir.
Cir. 1926); Vandyke
under the Act. Ct.
[19421 All Eng. 139 (Ch.).
(Ch.). The Custodian has, of
v. Adams, [1942]
of course, never
never
property of
attempted to vest
vest the property
of such persons.
persons. On the other hand, aa British
court has held under the similar British Trading with the Enemy Act of
of
trapped there by the
1939 that a British subject, temporarily visiting Jersey and trapped
enemy territory
German occupation,
occupation, was
was a resident in enemy
territory within the meaning of the
In re Hatch (deAct. However,
However, the question was presented only
only collaterally. In
(de[1948] 22 All Eng. 288 (Ch.).
ceased),
ceased), [1948]
(Ch.).
" See Blank v. Clark, 79 F. Supp. 373, 377 (E. D. Pa. 1948).
79 See Blank v. Clark, 79 F. Supp. 373, 377 (E. D. Pa. 1948).
HeinOnline -- 62 Harv. L. Rev. 742 1948-1949
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ENEMY ACT
TRADING WITH THE ENEMY
743
States defray some of the expenses which, although
although caused
caused by
by
the war, did not really begin to accrue until actual hostilities had
ended. Moreover,
Moreover, in signing the Final Act of the Paris Conferagreed
ence on Reparations
Reparations from Germany,
Germany,sa0 the United
United States agreed
jurisdiction
in substance that German enemy property within its jurisdiction
reparations which might othershould constitute
constitute a charge against reparations
claimed from Germany.
wise be claimed
Germany.
cost
There may properly
properly be included among these expenses
expenses the cost
of putting the conquered
conquered populations
populations back on their feet, through
Marshall Plan aid and otherwise, and the satisfaction of war
claims of American
American citizens against the Axis powers. In fact, the
recent
vested German
German and Japanese property
property which the most recent
amendment to the Trading with the Enemy
Enemy Act directs
directs to be turned
over to the Treasury (instead of being returned
returned to its former owners), is to be used to create
create "a
"a trust fund to be known as the War
War
ers),
Claims Fund,"
Fund," from which some (although
(although not all)
all) types of war
claims
" The act, known as the War
cla1ms are authorized to be paid.881
War
Claims Act of 1948,
1948, of which this amendment
is
a
part
creates
amendment
creates
a War Claims Commission with authority to receive and adjudicate various classes of claims and to make recommendations
recommendations to
by
Congress as to the payment of war claims not provided
provided for by
the War Claims Act itself.8822 Any surplus would presumably
presumably be
available for the general
general purposes of the United States, including
the defrayment
defrayment of occupation
occupation costs and Marshall
Marshall Plan aid.
This is a logical implementation
implementation of the general legislative
legislative intent
intent
to use vested
property
"in
the
interest
of
and
for
the
benefit
of the
vested property "in
seizure and use of
United States."
States." 83 There
There is no doubt that the se.izure
enemy
states is sanctioned
sanctioned not only by the
enemy property in the United States
Constitution
States,8 4 but by international
Constitution of the United States,84
international law.8855
"0u.
U. S.
SER., No. z655 (Dep't State 1946).
S. TRATY
TREATY SER.,
No. 1655 (Dep't State 1946).
80
"
81
STAT. 1247 (1948), 50 U. S. C. A. Aep. § 2012 (Supp. 1949).
STAT.
1247 (1948),50 U. S. C. A. M!P. § 2012 (Supp. 1949).
should be
be noted
noted that
that the
the decision
decision in
the Josephberg
case antedated
antedated this
this
should
in the
J osephberg case
unequivocal expression
of
Congressional
intent.
expression
8 H. R. REP. No. 1507, 77th Cong., ist Sess. 2-3 (1941); 55 STAT. 839 (1941),
83 H. R. REp. No. 1507, 77th Cong., 1st Sess. 2-3 (1941); 55 STAT. 839 (1941),
5o
S. C.
C. M!P.
App. §§ 5(b}(I)
5(b) (z) (1946).
(1946).
u. S.
50 U.
84Miller v. United States, ii
Wall. 268, 305 (U. S. 1870). See McNulty,
84 Miller v. United States, II Wall. 268, 305 (U. S. 1870). See McNulty,
Constitutionality
of
Alien
Property Controls,
Controls, II
ii LAw
CONTENT. PROB.
135
Constitutionality of Alien Property
LAW & CONTEMP.
PROB. 135
(1945). The
The author
author suggests
even without
sanction, the
(1945).
suggests that,
that, even
without Congressional
Congressional sanction,
the war
war
powers of the president might include the power to sei2e
seize enemy
enemy property. Id. at
137.
137·
85
"Inviolability" of
Property, ii
CONTENT.
811 See
See Rubin,
Rubin, "Inviolability"
of Enemy
Enemy Private
Private Property,
II LAW &
& CONTEMP.
PROB. 166
166 (1945).
(1945). But
But cf.
cf. Sommerich,
Sommerich, AA Brief
Confiscation, id.
id. at
at 152
152
PROB.
Brief against
against Confiscation,
62
62
2 It
It
82
et seq.
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HARVARD LAW
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LAW REVIEW
744
[Vol.
[Vol. 62
of
Not
Not less important, it seems justified according
according to the canons of
reaction
international morality, despite the lawyer's instinctive reaction
international
confiscating the property of private persons
against confiscating
persons who may not
chargeable with the misconduct of their governments.
fairly be chargeable
Perhaps
Perhaps the most persuasive argument advanced is that which
which
starts from the premise
premise that the war has compelled allied nations,
dollar
notably
seize and liquidate the dollar
notably France and Great Britain, to seize
to
assets
assets of their nationals
nationals in the United
United States
States in order partially
partially to
It would be an anomaly if German
cover essential purchases.
purchases. It
Japanese private
and Japanese
private citizens
citizens should emerge from the war with
intact."s66 Of course, friendly nationals
their dollar assets intact.
nationals have
been
compensated - after a fashion -- by their own governbeen compensated
governments, in that they have received soft local currency, often at
an arbitrary and inadequate
inadequate rate of exchange,
exchange, for their hard dolbut
there
is
no
reason
why
the
German and Japanese
Japanese govlars;
ernments
ernments should not do as much after the peace treaties have been
signed; and, indeed, the treaties
treaties might so provide.
Giving
Giving due weight to all these considerations, the courts might
well regard
regard the Trading
Trading with the Enemy Act, in its present
present phase,
Preoccupation
as a revenue measure, and enforce
it accordingly. Preoccupation
enforce it
with the purely defensive
defensive aspects of the Act is likely to make
many current cases seem hard; and every
every lawyer
lawyer knows the traditional effect of hard cases.
II.
II.
PROPERTY HOLDER
THE RIGHTS
RIGHTS OF THE PROPERTY
Act
A.
Provisions of the Act
A. Exculpatory
Exculpatory Provisions
complement to the summary
A natural
natural and necessary complement
summary powers
conferred on the Custodian is a provision exculpating
exculpating persons
(e), enacted
who obey or act in reliance
reliance upon his orders. Section 77(e),
enacted
"No person
I, provides
provides that {(No
person shall be held liable
during World War I,
in any court for or in respect of anything done or omitted
omitted in
pursuance of any order, rule, or regulation
regulation made
made by the President
President
8"
This
seems
both
broad
and
under the authority
authority of this Act."
Act." S1
seems
8
plain, and the courts repeatedly implemented
fully." This
implemented it
it fully.sS
86 See Rubin, supra note 85, at 178.
See Rubin, supra note 85, at 178.
8740 STAT. 46 ('917), 50 U. S. C. App. § 7(e) (1946).
87 40 STAT. 416 (1917), 50
S. C. A;pP. § 7(e) (1946).
"sE.g., Commercial Trust Co. v. Miller, 262 U. S. 5I (1923); Great Northern
86
u.
E.g., Commercial Trust Co. v. Miller, 262 U. S. 51 (1923); Great Northern
Ry. v. Sutherland, 273 U.
U. S.
S. 182
182 (1927);
(1927); Columbia Brewing
Brewing Co. v. Miller, 281
Aschersleben Aktien-Gesellschaft,
Fed. 289 (5th Cir. 1922); Miller v. Kaliwerke Aschersleben
Aktien-Gesellschaft,
1922).
283 Fed. 746 (2d Cir. 1922).
88
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TRADING WITH THE ENEMY
ENEMY ACT
ACT
745
provision was substantially re-enacted
prOVISIOn
re-enacted in the World War II
II
89 with the addition of
"in
amendment of Section 5(b)
amendment
5(b) 89
addition
the words "in
90 While, in general, the
omitted." 90
"done or omitted."
good faith"
faith" after "done
courts have not discriminated
discriminated between the World War II
II provi9"
undoubtedly
faith," undoubtedly
7(e),,91
sion and Section 7(e)
the words "in good faith,"
somewhat ambiguous
ambiguous in the context, have led one federal court of
somewhat
appeals to hold that the failure of the Japanese
Japanese officials
officials of a JapaJ apato
license
nese bank in Hawaii to apply for the reissuance of their license to
operate - which had been revoked
revoked immediately
immediately after Pearl
Pearl Harborbor - showed
showed such a lack of good faith as to render the bank
bank
liable to its depositors
depositors for losses incurred through the bank's sus92 The
operations.92
pension of operations.
net effect of the decision
decision was to
reduce to the vanishing
vanishing point the bank's surplus, which would
stockholders and to
otherwise have gone to American
American minority stockholders
the Custodian. A mild comment upon this holding, on the facts,
implication
is that it is unrealistic. It
It contains the mischievous
mischievous implication
affected by a regulathat it is the bounden duty of every person affected
to
tion or order under the Trading with the Enemy Act to seek to
evade
evade or resist it by every lawful
lawful means, administrative or judicial, no matter how dim his prospects of success. Such a result
scheme of the
would do considerable
considerable violence to the fundamental scheme
Act, which is to facilitate the swift and summary conduct of economic warfare.
89
Any re-enactment would seem to have been rather unnecessary, in the light
89 Any re-enactment would seem to have been rather unnecessary, in the light
(945).
of Markham
Markham v. Cabell, 326 U. S. 404 (1945).
90 Section 5(b)(2) provides that "no person shall be held liable in any court
90 Section 5(b) (2) provides that "no person shall be held liable in any court
connection with the
omitted in good faith in connection
for or in respect to anything done or omitted
administration of, or in pursuance of and reliance on, this subdivision, or any rule,
(1941), 50
STAT. 839 (1941),
hereunder." 55 STAT.
50
regulation, instruction, or direction issued hereunder."
(1946). Both this subsection
U. S. C. App.
APP. § 5(b)(2)
5(b)(2) (1946).
subsection and § 7(e) also provide in
Custodian
substance that payment
payment in compliance
compliance with the Act or an order
order of the Custodian
shall operate as a full acquittance of the obligation of the payor.
(§§ 5(b)
91 See, e.g., Silesian-American
91
Silesian-American Corp. v. Clark, 332 U. S. 469 (1947)
(1947) (§§
(2) and 7(e) protected a corporation from liability to existing holders
holders of its
stock certificates
compliance with the Custodian's
Custodian's demand for the
certificates arising out of compliance
& Film Corp.,
issuance to him of new certificates);
certificates); Alexewicz v. General Aniline &
exonerated an em1943) (the section
1Si
1i8, 43 N. Y. S.2d 713 (Sup.
181 Misc. 181,
(Sup. Ct. 1943)
section exonerated
emAct).
ployer who discharged an employee pursuant
pursuant to an order issued under the Act).
92
Sunrise Soda
Soda Works
Works Co.,
Co., 158
I58 F.2d 490 (9th Cir. 1946),
I946), cert.
92 Fujikawa
Fujikawa v.
v. Sunrise
S.2d
851, 36 N. Y. S.2d
z78 Misc. 851,
cf. Dezsofi.
Dezsofi v. Jacoby, 178
denied,
denied, 33I
331 U. S. 832 (1946); c/.
X942).
672
672 (Sup. Ct. 1942).
•
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HARVARD
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REVIEW
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62
B. Representation
Representationin Actions to Which the Custodian
Custodian Is a Party
Party
A knottier problemproblem - or, at any rate, one as to which there
is some lack of judicial harmony
harmony --is is the right of the Custodian
to be the 'exclusive representative in litigation of interests
which
interests which
latinists like to put it, dominus
dominus litis.
litis.
he has vested, or, as judicial
judiciallatinists
The divested property holder
holder may well desire
desire to be personally
personally
represented
represented in the litigation, in the hope that the property will
eventually
It is inevitable that enemies whose
eventually be returned
returned to him. It
interests have been vested will remember
remember the generous attitude
I," despite the cold, unsympathetic
unsympathetic
of Congress
Congress after World War 1,93
94
II Congress.
attitude of the post-World
post-World War II
Congress.94
A person nursing
such hopes with respect to interests which have been vested may
fear lest the Custodian's defense of them in litigation
litigation be insuffiespecially where
ciently solicitous
solicitous - especially
where the United States, in some
vested."95 It
It is also
other capacity, has interests
interests adverse to those vested.
that
a
divested
conceivable
enemy,
not
so
sanguine
about
the
conceivable
chances of Congressional
Congressional return, might prefer to have the property awarded to an American
American relative
relative or business associate with
Such
a claim adverse to his own, rather than to the Government.
Government. Such
a person
might
regard
vigorous
litigation
of
the
interest
by
the
person
Custodian as nothing short of officiousofficiou~ - might, in brief, desire
13
authorized the
the return
return to
93 In
In 1923
1923 Congress
Congress authorized
to enemies of a maximum of $io,ooo
$10,000
of their seized property. 42 STAT.
(1923). The Settlement
STAT. 1511
I5II (1923).
Settlement of War Claims Act
Act
1928 authorized
8o% of such property, and would have perof 1928
authorized the return of 80%
mitted the return of it all, had not Germany
Germany welshed on her own obligations to
to
Americans.
Americans. 45 STAT. 254, 50 U. S. C. APP.
App. §§ 9,
9, et seq. (1946).
(1946). The Joint Resolution
Resolution'
of June 27,
2934, suspended returns
27, 1934,
returns of German property vested
vested during World
World
2267 (1934).
War I. 48 STAT. 1267
(1934).
" The latest amendment to the Act declares that "No
94
"No property or interest
interest
therein
Germany, Japan, or any national of either
or
either such country
country vested
vested in or
therein of Germany,
transferred
transferred to any officer
officer or agent of the Government at any time after
after DecemDecem2942, pursuant to the provisions of this Act, shall
ber 17, 1941,
shall be returned to former
owners
owners thereof or their successors
successors in interest, and the United
United States
States shall not pay
compensation
1246 (1948),
compensation for any such property or interest therein."
therein." 62 STAT.
STAT. 1246
(1948),
5o U. S.
50
S. C. A.
A. App. § 20II
1949).
2012 (Supp. 1949).
"5 E.g., Hamburg-American
Hamburg-American Line v. United States, 71 F. Supp. 314
324 (D.
(D.
95
1947), aff'd,
2948). Prior to the outbreak of
of
afJ'd, 168 F.2d 47 (ist
(1st Cir. 1948).
Puerto Rico, 1947),
war, the United States filed in admiralty
salvage against a German
admiralty a libel for salvage
German
appeared as claimants.
claimants. Thereafter
Thereafter
which proceeding the German owners
owners appeared
ship, in which
the Custodian vested the right, title, and interest
interest of the owners in and to the vessel.
vessel.
The district court, in a curious
curious and somewhat inconsistent
inconsistent order, substituted the
Custodian
Custodian as a party
party in all respects
respects in place of the German owner, but nonetheless
nonetheless
permitted counsel for the enemy
libel.
enemy to appear and defend
defend against the libel.
HeinOnline -- 62 Harv. L. Rev. 746 1948-1949
1949]
I949]
TRADING WITH THE ENEMY ACT
ACT
747
worst light.
an opportunity
opportunity to present his former interest in its worst
intervention may
From another viewpoint, restrictions
restrictions on easy intervention
to a suspicious mind that Amerbe desirable. Thus, it may occur .to
appearican counsel for enemy former owners
owners are not averse to appearing in proceedings
in rem and performing services
services compensable
proceedings in
comfortable reasoning
out of the res,
res, on the comfortable
reasoning that no one save the
Government
Government will be the poorer
poorer thereby.
Despite these considerations, or perhaps because
because of them, the
presence in court of repreCustodian
Custodian has been intolerant of the presence
sentatives of enemies whose interests
interests have been vested. Prior to
vesting, while the Custodian is entitled
entitled to represent an enemy in
enemy's
concerning the enemy's
judicial or administrative
administrative proceedings concerning
interests, 6 and while his discretion
property interests,96
discretion in such a case is
absolute, 97 he cannot properly
absolute,91
properly object to an appearance by an authorized representative
representative of the enemy owner.998 Where, however,
however,
the Custodian has vested the enemy's interest, the appearance
appearance of
the enemy in court seems at least anomalous.
enemy, 99 but simply beThis is so not because the enemy
enemy is an enemy,99
cause he po longer owns any interest
interest in the property which is the
subject of the suit, any more than if he had sold or assigned his
100
self-evident principle that one
interest. loo
It is a familiar and self-evident
It
who has no interest
interest in property cannot ordinarily participate
participate in
in
l
no
special
reason
it,'' and there seems to be
litigation
litigation concerning it/o
special reason
treatment than to
for according to enemies any more favorable treatment
anyone else. The only federal appellate court which has squarely
considered
considered this problem
problem held that the mere hope nourished by a
8
5205 (1942).
9193, §§ 5, 7 FED.
Exec. Order No. 9193,
FED. REG.
REG. 5205
(1942).
503, 504, 49 N.
N. Y.
Y. S.2d
49
.82 Misc. 503,
See Petschek
Petschek v. American Enka Corp., 182
S.2d 49
v. Superior
Superior Court,
15o P.2d
P.2d
Farmers &
& Merchants
Merchants Nat.
(Sup. Ct.
Ct. 1944);
1944); Farmers
Nat. Bank
Bank v.
Court, 150
(i945) ; Estate
of Ferraro,
App. 1944),
i944), aff'd,
Cal.2d 823 (1945);
241, 250 (Cal. App.
afJ'd, 25 CaI.2d
Estate of
Ferraro, Orphans
Orphans
241,250
Ct., Allegheny County, Pa., No. 6165 (1941).
(1941).
N. Y. S.2d 968
968 (Surr.
(Surr. Ct.
Ct. 1943).
1943).
885, 39 N.
08 Cf. Matter of Renard, 179 Misc. 885,39
98
91
99 The Trading with the Enemy
Enemy Act expressly provides that an enemy may
him, although
although he may
may not prosecute
counsel any action brought against
defend by
by counsel
against him,
McVeigh v.
United
App. §§ 7(b)
7(b) (1946).
5o U.
U. S.
S. C.
C.APP.
one. 40 STAT. 416 (1917),
(1917),50
(1946). Cf. McVeigh
v. United
& Co. v. Unione Austriaca
(U. S.
S. 1870);
1870); Watts, Watts &
Austriaca de
States, IxiI Wall. 259 (U.
9
96
9
97
S. 9,
(i918).
Navigazione,
248 U. S.
Navigazione,
9, 22 (1918).
10 0 See Commercial Trust
Trust Co.
Co. v.
v. Miller,
Miller, 262
262 U. S.
S. 51, 56
g6 (1923);
(1923) ; Cummings
100 See Commercial
Cummings v.
(i937).
Deutsche
lIS, 121 (1937).
Deutsche Bank, 300 U. S.
S. 1I5,
1828); ;
'0'
101 Cf., e.g., United
United States v. 422
422 Casks of Wine, iI Pet. 547, 549 (U. S.
S. 1828)
.nem., 266
gII (Sup.
1943), afJ'd
aff'd mem.,
v. Hardy, 18o
180 Misc. 63, 39 N. Y. S.2d 911
(Sup. Ct. 1943),
White v.
1943).
App. Div. 660, 41 N.
N. Y. S.2d 210
210 (ist
(1st Dep't 1943).
HeinOnline -- 62 Harv. L. Rev. 747 1948-1949
HARVARD LAW REVIEW
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[Vol.
[Vol. 62
divested enemy is not a sufficient interest to give him standing in
02
court."102
court.
On the other hand, two district courts in other circuits,
from the true premise
premise that an enemy may defend aa suit
drawing from
03
against himself or his property 103
the fallacious conclusion that
he may defend an interest in property which he no longer owns,
have permitted enemy former owners to participate in proceedings
proceedings
after the Alien Property Custodian had vested their interests and
04
intervened. 104
Similarly, the New York appellate division has
sanctioned the appointment of a guardian ad
ad litem for infant benaccounting), despite the fact
eficiaries (in aa trustee's suit for an accounting),
that the infants'
infants' interest in the trust res had been vested and was
105
being actively represented by the Custodian.105
On the whole, it
is probable that the last word on this question has not yet been
been
spoken. In one situation at least, the former owner of the property would seem in fairness entitled
entitled to a hearing - where he
either has commenced
commenced or is about to commence
commence proceedings
proceedings under
under
the Act to recover the interest
It might
might
interest vested by the Custodian. It
not normally
normally be practicable
practicable to postpone the proceedings
proceeding§i concerning the extent of the interest to await the outcome of the litigation
concerning
concerning its ownership; but in such a case it is suggested
suggested that
the claimant should be allowed to appear as amicus
amicus curiae.
curiae.
102The Antoinetta, 49 F. Supp. 148, 1so-s (E. D. Pa. '943), aff'd, 153 F.2d
102 The Antoinetta, 49 F. Supp. 148, ISo-SI (E. D. Pa. 1943), afJ'd, IS3 F.2d
138, 143 (3d Cir. 1945),
(1946).
138,143
1945), cert. denied,
denied, 328
328 U. S.
S. 863 (1946).
103 See note 99 supra.
103 See note 99 supra.
"04The Pietro Campanella, 47 F. Supp. 374 (D. Md. 1942); United States v.
104 The Pietro Campanella, 47 F. Supp. 374 (D. Md. 1942); United States v.
The San Leonardo,
1942).
Leonardo, 51
SI F. Supp.
Supp. 1o7
107 (E. D. N.. Y. 1942).
"05Matter
Dep't
io9 (ist
105
Matter of von der
der Decken, 274 App. Div. 764, 8o
80 N. Y. S.2d 109
(1st Dep't
1948). Neither the supreme court
1948).
court nor the appellate
appellate division wrote
wrote an opinion, and
and
the
consequently obscure. No motion had been made
the ground of the decision
decision is consequently
made to
to
drop the
the infants
infants as parties, and the appellate court may have believed that, since
they were
were named as parties, the Civil Practice
Practice Act made
made mandatory the appointment
of aa guardian.
Civ. PRAC.
PRac. Acr
AcT §§ 1313.
1313. A recent
ment of
guardian. N. Y. CIV.
recent opinion
opinion of
of the New
York
York Supreme
Supreme Court
Court indicates
indicates that in some
some cases a guardian
guardian ad litem may be
regarded
regarded as necessary
necessary for the protection
protection of
of unborn members (whose
(whose interests
interests the
the
Custodian
class of which the enemies
Custodian has not
not vested)
vested) of the
the c1ass
enemies are
are the representatives
in
esse. In
in esse.
In re
re Bank
Bank of New
New York, 85
8S N. Y. S.2d
S.2d 413,
413, 414 (Sup.
(Sup. Ct.
Ct. 1948).
1948).
Where
Where the interests of the
the enemies
enemies are
are vested
vested (in the ordinary
ordinary legal
legal sense
sense of
of
the
the term) and presently
presently payable,
payable, the same court
court has held that vesting
vesting by the CusCustodian deprives
deprives the enemies of any interest in the property
property so that
that they cease
cease to be
be
necessary or
Guarantee &
necessary
or proper
proper parties
parties and
and may
may be excluded. Matter
Matter of
of Title Guarantee
Trust Co.
Trust
Co. (Winnegge),
(Winnegge), N.
N. Y.
Y. L.
L. J., Dec.
Dec. 15,
IS, 1948,
1948, p. i54o;
IS40; cf.
ct. Matter
Matter of Winburn,
Winburn,
N. Y. L. J.,
J., Feb. 5,
S, 1948,
1948, p. 468.
468.
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19491
1949]
TRADING WITH THE ENEMY
ENEMY ACT
ACT
749
Property: Judicial
Judicial Review
C. Actions to Recover Vested Property:
Seizure
of the Administrative
Administrative Seizure
Unlike the proceedings which have so far been discussed, prorecover or establish an interest
interest in property
property which the
ceedings to recover
correctness
Custodian
Custodian has vested properly call into question the correctness
a
proceeding
Such
of his administrative
proceeding can be
administrative determination.
on
brought only under Section 9 of the Act. Congress
Congress was explicit on
0 G and the courts have consistently refused to enterthis point,'
point/OG
tain suits which could not be fitted within the framework
framework of that
that
0
7
10r
that
establish
must
such
a
suit
in
section.
In effect, the plaintiff
that
a res),
property seized by the Custodian (whether an interest or ares),
property
and which the plaintiff claims, is not enemy
enemy property. For examBlackacre is the property
determining that Blackacre
ple, the Custodian, determining
of Hans Fritz and that Hans is an enemy, vests Blackacre. Hans
United
Fritz may allege that in fact he was a loyal resident of the United
States and bring suit to recover his property. Or John Smith,
concededly a resident of the United States, may bring suit allegconcededly
ing that Hans Fritz conveyed Blackacre
Blackacre to him in 1939, or, perhaps, that he has a mortgage on Blackacre
Blackacre to secure
secure a past due
loan to Hans Fritz. Under a recent decision of the Supreme
0 s
Finanz-Korporation,
Uebersee Finanz-Korporation/o
in fact, any perClark v. Uebersee
Court, Clark
9 (a) that he be
Section
of
requirement
within
the
comes
son who
9(a)
"not
an
enemy
or
ally
of
enemy,"
109
say
a
Swiss
corporation,
"not an enemy or ally of enemy," 109
may
bring such a suit.
clearly required by the
This last proposition, apparently
apparently so clearly
Supreme Court, not
was
decided
(a),
decided
by
the Supreme
not
language
of
Section
9
(a),
language
apparent
without some difficulty. The trouble was caused
caused by the apparent
conflict between the quoted language of Section
Section 9 (a) and the auconflict
1941,:" ° to vest
vest
thority, conferred by the First War Powers Act of 1941,110
"any
interest of
any foreign
"any property
property or
or interest
of any
foreign country or national
"0ISection 7(c) of the Act provides in substance that the "sole relief and remedy
106 Section 7(c) of the Act provides in substance that the "sole relief and remedy
having any claim"
claim" to any property seized by the Custodian
Custodian shall
of any person having
be that provided by the Act. Section
Section 9 of the Act is the only one which authorizes
suit against the Custodian to recover
recover or establish
establish an interest in vested
vested property.
Sigg-Fehr v.
59, (1924);
(1924) ; Sigg-Fehr
o'0E.g.,
E.g., Banco Mexicano v. Deutsche
107
Deutsche Bank, 263 U. S.
S. 591
(D. C.
1923); Crone v. Sutherland, 63 F.2d 895 (D.
White,
(D. C. Cir. 1923);
C.
White, 285 Fed. 949 (D.
1933); Von Hennig
Cir. 1933);
Hennig v. Clark, 19r
191 Misc.
Misc. 261,
261, 76 N. Y. S.2d 350 (Sup. Ct.
1948).
(ist Dep't 1948).
aff'd, 274 App. Div. 759,
1947), aj]'d,
1947),
759, 80 N. Y. S.2d
S.2d 727 (1st
108 332 U. S.480 (1947).
108 33 2 U. S. 480 (1947).
10940 STAT. 419 (1917), 50 U. S. C. App. § 9(a) (1946).
109 40 STAT. 419 (1917),50 U. S. C. APP. § 9(a) (1946).
11°55 STAT. 839 (194i), 50 U.S. C. Arp. § 5(b) (946).
110 55 STAT. 839 (1941),50 U. S. C. APP. § 5(b) (1946).
HeinOnline -- 62 Harv. L. Rev. 749 1948-1949
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[V¢ol. 62
thereof," including
thereof,"
including friendly and neutral foreign countries. There
substance to such authority if a friendly or
seemed
seemed to be little substance
neutral owner could recover
recover his property as soon as vested, and
the Government
Government in effect argued that the later enactment must be
(a) to require that plaintiffs
construed
construed to have amended Section 99(a)
show that they are not foreigners.
The Court avoided the difficulty by substantially rewriting
rewriting Section 2 of the statute. Since Section 2 defines
defines the term enemy
enemy as
(a), a broadening
broade~ng of this definition
definition enabled the
used in Section 99(a),
Court to reach
reach the desired
desired result without ignoring the fact that
"enemy or ally of enemy."
Section 9(a) was limited to an "enemy
enemy." Sec"enemy" in substance as any individual
individual (regardless
(regardless
tion 22 defined "enemy"
incorporated) in enemy
enemy
corporation incorporated)
of nationality) resident (or corporation
territory; or resident (or
(or incorporated)
incorporated) outside the United States
and doing business within enemy
enemy territory. Under this section,
the Court had previously
previously held that the ownership and control
control of
irrelevant: so long as it was neither incora corporation
corporation were irrelevant:
porated
porated nor doing business
business within enemy
enemy territory, it was not an
"enemy
or
ally
of
enemy."
"'
Such
"rigidity and
and inflexibility"
inflexibility" 112
112
"enemy or ally of eJ;1emy." 111 Such "rigidity
was, of course, a standing invitation
invitation to adroit German
German and JapaJapanese financial experts, particularly the Germans, who were
were conconcealment of
veniently near Switzerland
of
Switzerland and Sweden. The concealment
German interests
interests in the United States
States was frequently attempted
through the medium of neutral or American
American corporations, whose
Court
German affiliations
affiliations were more or less camouflaged."
camouflaged.1133 The Court
5(b), as amended,
recognized that Section 5(b),
amended, was intended to plug
recognized
economic defenses. But it could hardly
this breach in the nation's economic
hardly
enemy" were
phrase "enemy
"enemy or ally of enemy"
have that effect unless the phrase
mee,tning broad
broad enough to prevent
prevent recovery
recovery of proppropeither given a meaning
erty by Axis associates in neutral territory or were read out of
to
Section 9(a) altogether. Thus, in effect the Court had either to
rewrite Section
Section 2 or Section 9(a).
difficulties
Recognizing
Recognizing that "the problem is not without its difficulties
...Behn,
111
Hamburg-American
& Co. v. Miller, 266 U. S. 457 (1925);
Meyer &
(1925); Hamburg-American
(1928).
Line
v. United States, 277
Line v.
277 U.
U. S. 138 (I928).
2 See Clark v. Uebersee Finanz-Korporation, 332
112
1 See Clark v. Uebersee Finanz-Korporation, 332
.3 See ADmINISTRATION o WARTIE FINANcIAL
113 See ADMINISTRATION OF WARTIME FINANCIAL
U. S. 480, 484
U.
S. 480, 484
AND
AND PROPERTY
PROPERTY
(1947).
(I947).
CONTROLS OF
OF
CONTROLS
beGOVERNME'NT 29-3I
29-31 (U. S. Treas. Dep't
1942); Hearings
THE UNITED
UNITED STATES
STATES GOVERNMENT
Dep't I942);
Hearings be-
Military Affairs Pursuant
Pursuant to
fore a Subcommittee of the Senate Committee on Military
fore
rst Sess. 49,
S. Res. I07
107 and
and S. Res. 146,
I46, 79th Cong., 1st
49, 52,
52, 68-69, 564-85, 969-77,
969-77, 1o63,
I063,
(i945); H.
1203-21 (I945);
H. R.
R. REP. No.
No. 2398,
2398, 79th
79th Cong., 2d Sess. 3 (1946).
(1946).
1203-21
HeinOnline -- 62 Harv. L. Rev. 750 1948-1949
1949]
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TRADING WITH THE ENEMY ACT
ACT
75 1
4
whichever way we turn,"
turn," 114 a unanimous
unanimous Court decided that re5(b), as amended
harmonize with Section 5(b),
vision of Section
Section 2 to harmonize
i94i, was the less drastic operation. Accordingly,
by the Act of 1941,
Accordingly,
"merely illusit held the definitons
definitons contained in that section
section to be "merely
15 an "enemy
trative, not exclusionary";
exclusionary"; 115
"enemy taint" would be enough
to make a neutral, friendly or American corporation an "enemy
"enemy
or ally of enemy"
enemy" for the purposes of the Trading
Trading with the Enemy
Enemy
Act. Prudently, if tantalizingly, the Court refrained from definUebersee
ing "enemy
"enemy taint,"
taint," for the procedural posture of the Uebersee
case was such that the plaintiff was assumed to be free of any
enemy interest whatsoever.'"
whatsoever.ll a
supposed that enemy control would constiIt may at least be supposed
It
tute an "enemy
"enemy taint."
taint." The federal courts have in other contexts
given some provocative definitions of "control,"
"control," which will probremarked
ably not be lost upon the Custodian. Thus, it has been remarked
circumstances controlling influence
that "under
"under some circumstances
influence may spring
as readily from advice
advice constantly
constantly sought as from command
command arbiimposed"; 117
17 and under
under the Public Utility Holding Comtrarily imposed";
"controlling influence"
pany Act "control"
"control" and "controlling
influence" have been
been held
to "include
"include the power to control and the power to exert a con118
power." 118
such power."
trolling influence as well as the actual exercise
exercise of
of such
And the Supreme Court has emphasized that questions of control
control
"artificial test"
"actualities" rather than upon any "artificial
turn upon "actualities"
114
114
480, 488
Finanz-Korporation, 332
332 U.
U. S.
Clark v.
v. Uebersee
Clark
Uebersee Finanz-Korporation,
S. 480,
488 (1947).
(1947).
15
Id. at 488-89.
1
115Id.
On remand to the district court, however, it was held that various factors,
116
116 On remand to the district court, however, it was held that various factors,
"usufructuary" interest
nationals and a cerincluding a "usufructuary"
interest in the property
property by German nationals
tain fishiness in the claimed
claimed neutral (Liechtensteinean)
(Liechtensteinean) status of the owner of the
Finanz-Korposufficient "enemy
"enemy taint." Uebersee
remaining interest, constituted
constituted a sufficient
Uebersee Finanz-Korpo1949). A curious coni7U. S. L. WEEK
WEEK 2394 (D. D. C. Feb. 21, 1949).
ration v. Clark, 17
conUebersee case is furnished by the Court's opinion, handed
trast to the Uebersee
handed down
S. 469 (i947).
the same day in Silesian-American
Silesian-American Corp. v. Clark, 332 U. S.
(1947). AlAlUebersee case, for it holds only
though not actually inconsistent
inconsistent with the Uebersee
only
that the Custodian may summarily
summarily reduce to possession
possessio't neutral or friendly alien
compensation" for the
property, it speaks of the nonenemy alien's right to "just compensation"
not
taking of his property. Id.
ld. at pp. 479-8o.
479-80. But such a right would seem not
suit
he redundant, if he may recover the property itself in a suit
to exist, or at least to be
under Section 9(a) of the Trading with the Enemy Act, for in that case there
"taking."
would be no "taking."
1943),
633, 642 (D. C. Cir. 1943),
& Elec. Co. v. SEC, 134
""ISee
117
See American Gas &
134 F.2d 633,
S. 763 (1943).
('943).
cert. denied,
denied, 319 U. S.
cert.
1942) ; Detroit
Edison
129 F.2d 899,
899, 903 (3d Cir. 1942)
118 Public Servo
Serv. Corp.
v. SEC, 129
118
Corp. v.
Detroit Edison
denied, 314 U. S.
(1941).
1941) , cert.
cert. denied,
Co. V.
v. SEC, iig
CO.
II9 F.2d 730, 739 (6th Cir. 1941),
S. 618 (1941).
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62
and are issues "of
determined by the special circum((of fact to be determined
stances
case." 119
119
stances of each case."
At any rate, the Uebersee
Uebersee decision insures that the property
property of
of
genuinely friendly or neutral aliens will not be confiscated. The
Court's reluctance to find such a Congressional
Congressional intent seems justified in the light of recent amendments
amendments to' the Act which authorize
authorize
(although
they
do
not
compel)
(although
compel) the return of vested property
property to
"technical enemies"
enemies" such as nationals
or
((technical
nationals and residents of allied or
"enemy" status was involuntarily
neutral countries whose ((enemy"
involuntarily acoccupation; 20 victims of Nazi
quired via German or Japanese
Japanese occupation;120
racial, religious, and political persecution
persecution who were similarly enemies in name only; and Italians, who are considered to have 2'
restored themselves to the friendship of the United
United States.
States.l21
A new twist to the problem of eligibility for return has been
given by the most recent amendment
amendment of the Act.'
Act. 122 That section
section
expressly forbids return of any vested property to any "national"
('national"
Germany or Japan. But, it will be recalled, the
(i.e., citizen)
citizen) of Gerfl?any
test of enemy status under Sections
Sections 22 and 9(a)
9 (a) of the Act has
normally
been
residence
rather
than
citizenship.
normally
residence
citizenship. Thus, a case
recently decided by the United States District Court for the
Southern District of New
N ew York presented
presented facts virtually identical
with those of Josephberg
Josephberg v. Markham
Markham 123 except that the incompetent whose property
property had been vested was admittedly
admittedly a citizen
citizen
of Germany. There
There was no doubt that the Custodian had been
authorized
authorized to vest the property, for Section 5(b) authorizes the
vesting of the property
"foreign national;"
national;" the question,
property of any ((foreign
Rochester Tel.
Tel. Corp.
v. United
United States,
States, 309
309 U.
U. S.
S. 125,
125, 145
145 (1939).
(1939).
Rochester
Corp. v.
status
is fixed
fixed as
as of
of the
the time
time of
of vesting,
vesting, and
and would
would not
not be
affected
status is
be affected
by any subsequent change of nationality, residence, or international 1elations.
relations. Swiss
(1925). In that
that case, the Custodian
Custodian had
Ins. Co.
Co. v. Miller, 267 U. S. 42, 44 (1925).
vested the property of a Swiss corporation, after finding that it was doing business
consequently an "enemy."
"enemy." The corporation
in Germany and was consequently
corporation attempted
attempted to recover
9(a), arguing that it was no longer an enemy because,
cover its property under §§ 9(a),
in the first place, it had ceased to do business in Germany
Germany and, in the second place,
a treaty of peace had been concluded between
between the United States and Germany. The
Court rejected both arguments.
Supreme COjlrt
121
12' 60
6o STAT.
STAT. 784
So u.
U. S.
S. C.
App. §§ 32
(Supp. 1948).
1948). Although § 32
784 (1947),
(1947), 50
C. APP.
32 (Supp.
is cast in discretionary
discretionary language, one district court has recently held that return thereunder
thereunder is a matter of right, so that the Custodian's
Custodian's denial of a claim under
Procedure Act.
the section is subject to judicial
judicial review
review under the Administrative
Administrative Procedure
Zander v.
v. Clark,
8o F.
F. Supp.
Supp. 453
(D.D.
1948). The Custodian
Custodian has appealed.
453 (D.
D. C. 1948).
Zander
Clark, 80
12262 STAT. 1246 (1948), 50 U. S. C. A. Anpl. § 39 (Supp. 1949).
122 62 STAT. 1246 (1948), 50 U. S. C. A. APP. § 39 (Supp. 1949).
123 See pp. 74.o-42 supra.
123 See pp. 74q--42 supra.
119
119
120
"Enemy"
120 "Enemy"
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TRADING WITH THE ENEMY ACT
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753
Uebersee case, was whether he could retain
as in the Uebersee
retain it in the face
district
9(a). In a curt opinion, the district
of an action under Section 9(a).
incompetent's residence, Seccourt held that, regardless
regardless of the incompetent's
tion 39 forbade the return of his property, and dismissed the com1 24
Section
In effect, Section 39 was held to have amended Section
plaint.124
who
only
those
"enemies"
not
of
to
the
category
9 (a) by adding
9(a)
"enemies"
Uebersee case)
construed by the Uebersee
case)
are enemies under Section 22 (as construed
but those who are nationals
nationals of enemy countries. Technically, the
holding would seem to make possible the taking and retention of
the property
property of German and Japanese nationals
nationals resident
resident in the
United States;
States; in practice, it may safely be predicted that the
Custodian
Custodian will not embark upon any such campaign.
campaign.
Uebersee case, by permitting the
The Court's decision in the Uebersee
Government to look behind the corporate
corporate veil, opens new vistas
Government
"Cloaking" may be concisely defined as
"cloaking" litigation. "Cloaking"
of "cloaking"
an attempt to cover
cover enemy property
property in the United States with a
cloak of apparent nonenemy ownership; and its forms are as
various as the ingenuity
ingenuity of enemy
enemy financial and economic
economic experts
would allow - which is very various indeed. For example, real
nominees and the
ownership has been concealed
concealed by the use of nominees
elaboration of complex holding company structures; and the
elaboration
stock of the top holding companies
companies is often in the form of bearer
bearer
shares, the ownership of which is obviously not easy
easy to trace.
Control was often divorced from ownership
ownership and exercised
exercised through
technical
options, contractual
contractual relationships, possession of vital technical
personrelationship) of key person~
(or family relationship)
information, and loyalty (or
information.
25
neJ.l25
Despite the variations of technique, the general
general patteri
pattern:
nel.
determined that ceris always the same; the Custodian, having determined
tain property
property or interest
interest therein is really beneficially
beneficially owned or
presently
controlled by an enemy, vests it, and is presently sued under
(a) by a virtuous and fearfully
fearfully indignant American
American
Section 99(a)
citizen (Swiss
(Swiss corporation, Swedish
Swedish bank) who alleges acquisition of all the enemy interest, with no strings attached,
attached, long
before the war; and further that the Custodian is arbitrarily, unlawfully, and unconstitutionally
unconstitutionally attempting
attempting to confiscate the hard
American citiwon property of this same virtuous and indignant American
bank).
zen (Swiss
(Swiss corporation, Swedish bank).
t
124 Bellman v. Clark, S. D. N. Y., 1948.
Bellman v. Clark, S. D. N. Y., 1948.
See Brief for Petitioner, pp. 14-15, Clark v. Uebersee Finanz-Korporation,
S. 480 (1947).
(r947)332 U. S.
332
124
125 See Brief for Petitioner, pp. 14-15, Clark v. Uebersee Finanz-Korporation,
125
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A highly typical
typical cloaking
cloaking case
c'ase was Kind v.
'V. Clark, decided
decided by
by
2 6 A large and longthe 'Court
Court of
of Appeals
Appeals for the
the Second
Second Circuit.
Circuit.126
longestablished
established German
German manufacturer
manufacturer owned
owned a subsidiary
subsidiary in the
United
closely knit group of dedeUnited States,
States, nominally
nominally operated
operated by a closely
of the German
German company
company who had
had settled
settled
scendants of an agent of
in the
the United
United States, but
but actually controlled
controlled by a director
director of the
Americans
invariably
whose
instructions
the
German
German company
company
instructions the Americans invariably
followed to the letter. The
The German
German company
company owed
owed the Americans
Americans
a sumof
the stock of the American
American
sum ,of money, secured by a pledge of the
amount
corporation, which
which stock was
was worth
worth much more than
than the
the amount
of the debt. In 1939,
1939, shortly
shortly after
after the outbreak
outbreak of war in Europe,
the Germans
Germans purported
purported to transfer
transfer all the stock
stock outright to the
indebtedness. But
Americans
~ericans in exchange
exchange for the release
release of the indebtedness.
But
correspondence between
correspondence
between the parties showed
showed plainly
plainly a secret
secret underunderstanding (which
(which they called a "gentlemen's
"gentlemen's agreement")
agreement") that the
eventually
pay
over to the Gerwould
hold
for
and
Americans
Americans
eventually
mans the difference
difference between
between the true value of the stocks and the
Germans should
amount of the debt: in other words, that the Germans
retain their equity in the pledged
German director
director
pledged shares. As the German
expressed it in one of his letters, the shares were to be transferred
"in order that the enterprises
to ostensible American
enterprises
American ownership "in
seizure." Unfortunately
over there could be saved
saved from a foreign seizure."
Unfortunately
-- from the standpoint
standpoint of the American cloaks - the Germans,
who had the national taste for comprehensive records, who did
did
not foresee the result of the war, and who did not, perhaps, wholly
trust their American confederates,
confederates, preserved all this interesting
to
eventually became
correspondence in files which eventually.
correspondence
became available to
and
American occupation forces. In the light of these records, and
having regard to certain
certain unbusinesslike aspects of the deal considered as an ordinary commercial
commercial transaction, the court of aptransfer
peals had little difficulty in deciding that the ostensible transfer
was a nullity, because
because neither party had the intent necessary to
to
propvalidate the "sale."
"sale." Consequently the stock was still enemy
enemy
erty and fair game for the Custodian. The same result would
different route had the Court dehave been reached by a slightly differept
control over the property left
cided that the Germans' continued control
it still enemy property, for the purposes of the Trading with the
invariably make
It is noteworthy that prize cases invariably
Enemy Act. It
126
126
i61 F.2d 36
36 (2d Cir.
Cir. 1947),
1947), cert. denied,
denied, 332 U. S. 808 (1947).
(1947).
161
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ENEMY ACT
TRADING WITH THE ENEMY
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755
control, rather than common law rules as to passage
passage of title, the
27
test of the enemy
character
of
property.'
enemy character property.121
All this, of course, was almost a pure question of fact -the
- the
true intent of the parties --andand so, in essence, are most of the
28
reported
cases.'128
But the Government, by petition
petition for
for
reported cloaking cases.
certiorari
from
the
opinion
of
the
court
of
appeals
in
the
Kind
certiorari
1 29
case,
case,129
attempted to raise a significant
significant question of law. The
court of appeals, while holding the transfer to be a nullity, held
held
further that the Americans
secured
Americans consequently retained their secured
claim against
against the Germans and hence retained
retained and could enforce
a lien on the property vested by the Custodian
Custodian.31300 The GovernAmerican cloaks
ment sought to contend, in substance,
substance, that the American
had lost even the right to enforce their original
original lien. Moreover,
there were fairly strong grounds
grounds for this position.
In the first place, suits under Section 9(a)
9 (a) are, by the terms
of that section, "in
equity." One who has been engaged
"in equity."
engaged in a sincere and industrious effort fraudulently to circumvent an important federal statute may well be thought to have dirtied his hands
in the process. There is a solidly established corollary of the
clean-hands doctrine, applied in a variety of situations, that one
clean-hands
attempted perpetration
perpetration
who has misused his property
property in the attempted
of a fraud cannot
cannot invoke the aid of equity to enforce his
rights in that property
'' --a a doctrine which is applied with
property 131
particular breadth and vigor where the public (or the Govern"the finanment) is the intended
intended victim of the misconduct, so that "the
cial element of the transaction
transaction is not the sole or principal thing
33
involved." 132 In Standard
Clark,'1 33
however, the second
second
Standard Oil Co. v. Clark/
involved."
12
See, e.g., The Benito Estenger, 176 U. S. 568, 578-79 (i9oo). Judicial use
1:27 See, e.g., The Benito Estenger, 176 U. S. 568, 578-79 (1900). Judicial use
Cf. Helvering
Helvering v. Clifford,
of control
control as the test of taxability also affords
affords a parallel. CJ.
309 U. S. 331
331 (1940).
(1940) .
128 For other typical cloaking cases, see Standard Oil Co. v. Markham, 64 F.
• 1:28
Supp. 656 (S.
(S. D.
1945), aff'd sub nom. Standard Oil Co. v. Clark, x63
F.2d
D. N. Y. 1945),
163 F.2d
917
(2d Cir.
Cir. 1947),
1947), cert.
S. 873 (1948); Brassert
917 (2d
cert. denied,
denied, 333 U. S.
Brassert v. Clark, 162
F.2d 967 (2d Cir. 1947).
1947).
129 Clark v. Kind, 332 U. S. 808 ('947).
1:29 Clark v. Kind, 332 U. S. 808 (1947).
10 Clark v. Kind, 161 F.2d 36, 47 (2d Cir. '947).
130 Clark v. Kind, 161 F.2d 36, 47 (2d Cir. 1947).
"'
Cf., e.g.,
5,7, 523 (U.
S.
131 CJ.,
e.g., Milwaukee
Milwaukee & Minn. R. R. v. Soutter, 13 Wall. 517,
(U. S.
x87i); Commonwealth
Commonwealth Finance Corp. v. McHarg, 242 Fed. 56o,
560, 571 (2d
1922);
1871);
(2d Cir. 1922);
Baldwin v. Short, 125 N. Y. 553,
(189x).
553, 560, 26 N. E. 928,
928, 929 (1891).
132
Pan American Co. v. United
United States,
States, 273
S. 456,
456, 509
509 (1927);
(1927); Worden
132 Pan American Co. v.
273 U.
U. S.
Worden v.
S. 516 (1903);
(i9o3); Morton Salt Co. v. G. S.
SupS. SupCalifornia Fig Syrup Co., 187 U. S.
piger
piger Co., 314 U.
U. S.
S. 488, 493-94 (X942).
(1942).
133 163 F.2d 9,7 (2d Cir. 1947), cert. denied, 333 U. S. 873 (1948).
133 163 F.2d 917 (2d Cir. 1947), cert. denied, 333 U. S. 873 (1948).
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circuit rejected
rejected a contention
contention that the plaintiff's
plaintiff's unclean hands
9(a), pointing
out
deprived it of the right to sue under Section
Section 9(a),
pointing out
that "nowhere
"nowhere in the statute is there written any restriction of
of
the right to the return of property
property or any enlargement of the
Government's power of seizure because of violation of law in the
Government's
13' But this language
language reclaimant's original
original acquisition
acquisition of it." 134
ferred to a contention that, even if Standard
Standard had genuinely become
the owner of some of the property in suit, through agreements
agreements
conspiracy
made long before
before the war, it had done so as part of a conspiracy
case,
it was not
not
to violate the antitrust laws. In the Standard
Standard
necessary for the court to consider the effect of unclean hands
havifig
acquired in the attempt to cloak enemy property, for, having
event
found that this transaction was a nullity, it could not in any event
of
which
that
corporation
had
never
return to Standard property
corporation
never
property
become
become the true owner. A rough analogy to the situation
situation in the
Standard Kind case would have been presented
Kind
presented if, for example, Standardcorroborative detail lending
verisimilitude to
in order to provide corroborative
lending verisimilitude
an otherwise bald and unconvincing
unconvincing transaction
transaction - had purported,
I. G. valuable
I. G. Farben's property, to assign to 1.
in exchange
exchange for 1.
patents, and if the Custodian had vested
vested those patents. If the
in
transaction were a sham, equitable
equitable ownership
ownership would remain in
reassert
Standard; but could it have invoked equitable process
process to reassert
ownership? There appears to be no definitive answer to this
that ownership?
decision
question, but one is suggested by an aspect of the court's decision
in the Standard
Standardcase.
As part of a prior consent decree, the Standard companies had
been ordered
ordered to place certain
certain of their patents
patents in an American
American
decree
corporation, JJasco,
asco, Inc., which was declared
declared in the consent decree
asco
to be wholly owned by Standard. In the Section 9(a) suit, JJasco
I. G. Farben, and hence
was found to have been half owned by 1.
thereupon
by the Custodian
Custodian through his vesting
vesting order. Standard
Standard thereupDn
Custodian should not get
get
asked the 9(a) court to direct that the Custodian
Standard patents
patents which had been
been
any of the royalties from the Standard
Jasco by the consent decree. The court of appeals
appeals
placed in Jasco
predicament
was
denied any relief on the ground that Standard's
Standard's
the result of its own attempted fraud on the Government.
Government. The
hypothetical situation is perhaps
perhaps more favorable to the GovernGovernment's contention
contention than is the situation in the Kind case,
case, however,
since in the former Standard is attempting
attempting to assert the nullity of
of
134
134
163 F.2d
F.2d 917,
917, 926
926 (2d
(2d Cir.
eir; 1947).
1947).
163
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TRADING WITH THE ENEMY
ENEMY ACT
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its own transaction, whereas in the latter it is the Government
Government
which is asserting that the transfer is void.
This clean-hands
interlocks neatly with an ancient rule
clean-hands principle
principle interlocks
of prize law - a closely
closely related field -- that one who has misused his name and property
property in order to cloak enemy
enemy property
cannot, when the cloak has been thrust aside and the property
property
seized, recover his own property employed
employed in the "iniquitous
"iniquitous adventure." 135
135 There seems good reason to deal with the subtler
subtler
venture."
financial blockade
blockade runners of modern
modern war in much the same mani6 of the Act 136
136 provides that any propner. Indeed, Section 16
erty-presumably
"concerned"
erty - presumably including
including American
American propertyproperty - "concerned"
in a willful violation of the Act or of the regulations issued thereunder shall be forfeited to the United States. Apparently this
sweeping sanction
sanction has never been invoked, but it offers intriguing
possibilities. How much of the property
property of the Standard
Standard Oil Company of New Jersey, for example, might have been held to be
"concerned" in
in its
its unsuccessful
American
unsuccessful efforts
efforts to cloak the American
"concerned"
assets of 1.
I. G. Farben?
The
subject
is
one
on
which
attorneys
Farben?
subject
for cartel-minded
cartel-minded corporations
corporations may well pause to ponder.
A collateral question, adumbrated by the decision in the StandStandard case, is the status of a nonenemy who has, in effect, been
ard
the agent
cloaking transaction.
transaction. The executive
agent of an enemy in a cloaking
order
"national of a designated
order implementing the Act defines "national
designated
country" to include any person whom the Custodian deterenemy country"
mines to be "controlled
"controlled by or acting for or on behalf of [including cloaks for] a designated
designated enemy country
country or a person within
within
country." 13
indicated, 338' Standard's
137 Thus, Judge
Judge Clark indicated/
such country."
concealment
I. G. assets after Germany's
declaration of war,
concealment of 1.
Germany's declaration
might have made it an "enemy"
"enemy" for the purposes of Section 9 (a)
(a)..
The court's view of the case made
the
question
academic,
for
made
question
to the extent that Standard genuinely acquired the ownership of
See,
Nicholas, Ii Wheat.
Wheat. 417,
47, 431
Saint Nicholas,
(U. S.
The Fortuna,
Fortuna,
See, e.g.,
e.g., The
The Saint
431 (U.
S. 1816);
1816) ; The
(U. S. 1818);
i8i8); Carrington
Carrington v. Merchants Ins. Co., 88 Pet. 495,
236, 245 (U.
3 Wheat. 236,
520-21
1834).
520-21 (U. S. 1834).
13840 STAT. 425 (T917), 5o U. S. C. Api. § i6 (1946).
136 40 STAT. 425 (1917), 50 U. S. C. APP. § 16 (1946).
137 Exec. Order No. 9193, par. io(a) (i), 7 FED. REG. 5205 (1942); cf. Exec.
137 Exec. Order No. 9193, par. Io(a) (i), 7 FED. REG. 5205 (1942); ct. Exec.
135
135
5E(iii), 6 FED.
FED. REG. 2897 (194),
(1941), which, for the purposes of
of
Order No. 8785, par. 5E(ili),
"foreign national" to include any
the freezing regulations, in substance defines
defines "foreign
person
person to the extent
extent that he has been acting directly or indirectly
indirectly for the benefit
benefit
of or on behalf of a national
national of a foreign country.
138See
(2d Cir. 1947),
1947), cert. denied,
138
See Standard Oil Co. v. Clark, 163 F.2d 917,
917, 925 (2d
denied,
333
S. 873 (1948).
333 U. S.
(1948).
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r.I. G.'s property, it was acting for itself. But, as above indicated,
I. G. assets had been accomplished in part
if its concealment
concealment of r.
part
I. G. of some of its own United
through a colorable transfer to r.
Clark, this question,
States property, as was the case in Kind v. Clark,
as well as the problem of the effect of unclean
unclean hands, would have
been squarely
held
squarely presented. In at least one case, it has been held
the
stock
of
an
Amerwas
authorized
to
seize
that the Custodian
Custodian
ican corporation, owned by an American citizen,
citizen, but operated
operated by
by
39
139
him in the interest of a German
German concern.
Section
9 (a) raises, or has raised, a number
Section 9(a)
number of other questions,
some of which have been laid to rest within the year or so by
by
legislation. Thus, for example, Section
Section 34 now affords an exclusive method whereby American creditors
creditors may reach the vested
assets of enemy debtors, thereby obviating
obviating the World War I
such crediprovisions
9(a), which authorized suit by such·
provisions of Section 9(a),
1140
40
to
have
an interest
interest
Secured
tors.
Secured creditors, who may be said
in the vested property, have still a cause of action under Secanticipated a rash of suits
tion 99(a),
(a), and hence there may be anticipated
under that section alleging the existence of various species of liens
on vested property.141
property.'
CONCLUSION
CONCLUSION
It
It has been the purpose of this article briefly
briefly to outline
outline some
construction of the Act as it now
of the intricacies
intricacies of judicial construction
amendatory legislation.
stands, rather than to consider
consider potential amendatory
discussion in facile fashion by
There
There is a temptation
temptation to end the discu!>sion
by
all
the
ills
of
designed
to
cure
briefly
recommending
legislation
briefly recommending legislation
aU
of
the world, or at least that portion of them which arises from the
ambiguities
inconsistencies of the Trading with the Enemy
Enemy
ambiguities and inconsistencies
Act, as amended and judicially
judicially construed. Perhaps some such
such
1944).
9o6 (S.
(S. D.
' Draeger
Shipping Co. v. Crowley, 55 F. Supp. 906
139
Draeger Shipping.
D. N. Y. 1944).
.40
Prior to the enactment of § 34, Pub. L. No. 671, 79th Cong., 2d Sess. (1946),
140 Prior to the enactment of § 34, Pub. L. No. 671, 79th Cong., 2d Sess. (1946),
the Supreme
Supreme Court had held that these provisions of § 9(a) had continued vitality,
thereunder to
despite
despite a time limitation contained
contained in § 9(e),
9(e), which
which limited
limited claims
claims thereunder
1917. Markham
those owed
owed to or owned by
QY the claimant
claimant prior
prior to October
October 6,
6, 1917.
Markham v.
S. 404 (1945).
(1945). After the enactment
Cabell, 326 U. S.
enactment of § 34, Cabell's suit under
under
§§ 9(a) was dismissed on the ground that the new section was the exclusive remedy
1946),
(S. D. N. Y. 1946),
for American
American creditors. Cabell
Cabell v. Markham, 69 F. Supp. 640 (S.
1947). For a comprehensive
(2d Cir. 1947).
aff'd
af!'d sub nom. Cabell v. Clark, 162
162 F.2d 153 (2d
comprehensive
Payment of
description
description of the new remedy, see Mason
Mason and Efron, The Payment
of American
Creditors
Creditors from Vested Assets, 9
9 FED. BAR J. 233 (1948).
(1948).
1411Cf. Cabell v. Clark, supra note 140.
141 ct. Cabell v. Clark, supra note 140.
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759
759
legislation is or may be desirable, but I am beginning to suspect
suspect
that the complexity
complexity and unpredictability
unpredictability of the situations and tactics with which the Act is designed
designed to deal make the filling up of
of
its interstices a job more suitable to the judicial
judicial than to the legiswould
lative process. Certainly, a little more judicial
judicial uniformity
uniformity would
eighty-odd
be desirable. Judicial interpretation
interpretation in ten circuits and eighty-odd
districts (not to speak of occasional swipes at the statute by the
of the forty-eight states) has proved
courts 'of
proved the hard way to forge
a sword of economic warfare;
warfare; but it may be the best.
HeinOnline -- 62 Harv. L. Rev. 759 1948-1949