272 U.S. 1 (1926), 127, United States v. Chemical Foundation, Inc.

Docket Nº:No. 127
Citation:272 U.S. 1, 47 S.Ct. 1, 71 L.Ed. 131
Party Name:United States v. Chemical Foundation, Inc.
Case Date:October 11, 1926
Court:United States Supreme Court

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272 U.S. 1 (1926)

47 S.Ct. 1, 71 L.Ed. 131

United States


Chemical Foundation, Inc.

No. 127

United States Supreme Court

Oct. 11, 1926

Argued December 9, 10, 11, 1925




1. A decree of the circuit court of appeals, entered prior to the taking effect of the Jurisdictional Act of February 13, 1925, and affirming dismissal on the merits of a bill by the United States to set aside, as unauthorized and fraudulently procured, sales of patent and other rights and properties seized pursuant to the Trading with the Enemy Act was reviewable by this Court on appeal (Jud.Code §§ 128, 241). Certiorari denied. P. 5.

2. The purpose of the Trading with the Enemy Act was not only to weaken enemy countries by depriving their supporters of their properties, but also to promote production in the United States of things useful for the effective prosecution of the war. P. 9.

3. The Act should be construed liberally to effect its purposes. P. 10.

4. Congress has power to authorize seizure, and use or appropriation, of enemy properties without compensation to their owners. P. 11.

5. Where German properties were seized and sold under the Trading with the Enemy Act, the Act (including its provision that, after war, enemy claims shall be settled as Congress shall direct) gave the former owners no rights in, or to question the adequacy of, the proceeds of sale. Moreover, the Treaty of Berlin prevents the enforcement of any claim by Germany or its nationals against the United States or its nationals on account of such seizures and sales. P. 11.

6. The Act, as amended, (§ 12), vested the Alien Property Custodian with the powers of a "common law trustee" over all

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property other than money taken over by him, with power, under the President, to make any disposition of it "by sale or otherwise" and to exercise any appurtenant rights or powers "in like manner as though he were the absolute owner." A proviso regulated sales, requiring, inter alia, that they be public, to the highest bidder" unless the President, stating the reasons therefor, in the public interest shall otherwise determine."


(1) That a disposition of enemy patents, made at private sale to a corporation organized for the purposes of taking over and holding them as a trustee for American industries affected, of eliminating hostile alien interests and advancing chemical and allied industries in the United States through licenses under the patents free to the United States and upon equal terms to others, was within the authority granted by the Act to the President and the Custodian. P. 9.

(2) That empowering the President thus to determine the terms of sale of enemy properties in the light of conditions arising in the progress of the War was not an unconstitutional delegation of legislative power. P. 12.

7. Under § 5a, providing that the President may exercise any power conferred on him by the Act "through such officer or officers as he shall direct," the power to determine how enemy property should be sold could be delegated, and this also is constitutional. P. 13.

8. An order of the President under § 5a is not invalid because it purports to "vest" the power in another, instead of "to act through" him, nor because of its failure to show that he was an officer, when he was in fact such, appointed by the President and confirmed by the Senate. P. 13.

9. Orders made by the President's delegate describing enemy patents which had been seized by the Alien Property Custodian, and authorizing private sale thereof to the defendant "Foundation," held valid exercise of the President's power under § 12 of the Act. P. 14.

10. Evidence claimed to show that such orders were induced by misrepresentation and made without knowledge of material facts, will not be reexamined in face of concurrent findings of two courts below to the contrary. P. 14.

11. Such orders are supported by the presumption of official regularity, and the validity of reasons stated therein, or the basis of fact on which they rest, will not be reviewed by the courts. P. 14.

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12. Order of the President held to have ratified and confirmed sales and transfers of patents made by the Alien Property Custodian. P. 15.

13. In making such an order, the President is presumed to have known and acted in the light of the material facts. P. 16.

14. Section 41 of the Criminal Code lays down a general rule for the protection of the United States in transactions between it and corporations to prevent its action from being influenced by anyone interested adversely to it. It is a penal statute, and is not to be extended to cases not clearly within its terms or to those exceptional to its spirit and purpose. P. 18.

15. Section 41 of the Criminal Code is inapplicable to affect the validity of transactions carried out under authority conferred on the President by the Trading with the Enemy Act, whereby enemy patents were transferred, for prices less than their commercial value, from the Alien Property Custodian to the " Chemical Foundation," a corporation created as an instrumentality to receive and subsequently control the patents in the public interest, the Custodian being the president of the company and others representing the government being also representatives of the corporation, but none of them interested in it financially. P. 17.

16. In such case, the rule forbidding sale of trust property by the fiduciary to himself or to a corporation of which he is the head does not apply. P. 20.

17. In absence of statutory authority, stenographers' fees and expense of printing transcripts cannot be adjudged against the United States. P. 20.

18. This immunity from costs is a sovereign prerogative which cannot be waived by the Attorney General or other government counsel in the case. P. 21.

19. Equity Rule 50 does not attempt to allow taxation of stenographers' fees against the United States. P. 20.

5 F.2d 191 modified and affirmed.

Appeal from a decree of the circuit court of appeals which affirmed a decree of the district court (294 F. 300) dismissing the bill, on final hearing, in a suit brought by the United States to set aside transactions whereby patents, copyrights, etc., which had been seized as enemy property, were transferred to the defendant corporation by the Alien Property Custodian,

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acting, by direction of the President, under authority conferred by the Trading with the Enemy Act.

BUTLER, J., lead opinion

MR. JUSTICE BUTLER delivered the opinion of the Court.

Suit was brought by the United States in the District Court for Delaware to set aside sales made by it to the Chemical Foundation of a number of patents, copyrights, trademarks, and other similar properties -- which, for brevity, will be referred to as "patents" -- seized pursuant to the Trading with the Enemy Act of October 6, 1917, c. 106, 40 Stat. 411, as amended by the Act of March 28, 1918, c. 28, 40 Stat. 460, and the Act of November 4, 1918, c. 201, 40 Stat. 1020, and other Acts. The complaint alleges that a number of domestic manufacturers, as a result of war conditions, had been able to combine and monopolize certain chemical industries in this country, and, fearing that, at the end of the war, German competition would destroy the monopoly, they conspired to bring about transfers and sales of the patents at nominal prices to themselves or to a corporation controlled by them; that the patents so obtained would control the industries in question and perpetuate the monopoly, and that the sales were procured through the fraudulent deception of the President, the Alien Property Custodian, and other officials.

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The answer denies conspiracy and fraud, and asserts that the transfers were made in good faith and pursuant to law, and that they are valid. There was a trial at which much evidence was taken. The district court dismissed the complaint (294 F. 300), and its decree was affirmed by the circuit court of appeals. 5 F.2d 191. Both courts found that no unlawful scheme, combination, or conspiracy was shown, and that there was no deception or fraud.

The United States took an appeal under § 241, Judicial Code, and has applied for a writ of certiorari under § 240. The decree of the circuit court of appeals was entered March 26, 1925, prior to the taking effect of the Act of February 13, 1925, amending the Judicial Code. Chapter 229, 43 Stat. 936. Since this is not a case in which the decree of [47 S.Ct. 3] that court is made final by § 128, the United States had the right of appeal. The application for certiorari is therefore denied.

The chemical industries in question are closely related to the production of explosives, gasses, and other things directly used in waging war, as well as to the production of dyestuffs and medicines essential to the welfare of the people. At the outbreak of the war, many necessary medicines and other substances, as well as most of the dyestuffs used in this country, were imported from Germany or were manufactured under patents owned by enemy Germans. The amount of such things here produced was small. Importations were hindered by the blockade, and ceased when this country entered the war. To meet the demand, numerous plants were developed, and by 1919, chemicals, dyestuffs, medicines, and the like were being produced here in large quantities. A number of associations of manufacturers were formed for the advancement of such industries; they included in their membership the producers of nearly all the dyestuffs and like chemicals made in this country. Mr. A. Mitchell Palmer was the Alien Property Custodian until he was

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