Isenberg v. Trent Trust Co.

• Decision Date: 21 May 1928
• Docket Number: No. 5193.,5193.
• Citation: 26 F.2d 609
• Parties: ISENBERG et al. v. TRENT TRUST CO., Limited.
• Court: U.S. Court of Appeals — Ninth Circuit

26 F.2d 609 (1928)

ISENBERG et al. v. TRENT TRUST CO., Limited.

No. 5193.

Circuit Court of Appeals, Ninth Circuit.

May 21, 1928.

COPYRIGHT MATERIAL OMITTED

John Francis Neylan, of San Francisco, Cal., and Barry S. Ulrich, of Honolulu, Hawaii (Grove J. Fink, of San Francisco, Cal., of counsel), for appellants.

Oscar Sutro and Renato Capocelli, both of San Francisco, Cal. (Smith, Warren, Stanley & Vitousek, of Honolulu, Hawaii, and Pillsbury, Madison & Sutro, of San Francisco, Cal., of counsel), for appellee.

Before GILBERT, RUDKIN, and DIETRICH, Circuit Judges.

GILBERT, Circuit Judge (after stating the facts as above).

The controversy involves the liability of the appellee to account for 670 shares of the capital stock of the Kekaha Sugar Company, reported by the appellee to have been sold under the act known as the Trading with the Enemy Act, by the Alien Property Custodian, as property of beneficiaries of the estate of Otto Isenberg, deceased. The circuit court found that the stock was part of the trust estate, and that at the time of the accounting it should have been in the appellee's possession as trustee, and that it had been lost to the estate, through its negligence in failing to reduce it to possession. The Supreme Court of the territory held that the demand addressed by the Custodian in May, 1918, to the Kekaha Sugar Company, for 840 shares of common stock therein standing on its books in the name of the estate of Otto Isenberg, did not operate to transfer to the Custodian any title either of the trustee or of the beneficiaries under the will, because that company did not hold any property belonging either to the trustees or to the beneficiaries; there being no deposit of any of the certificates of stock with the Kekaha Sugar Company for safe-keeping or for any purpose, that the company was not the agent either of the trustees or of the beneficiaries, and that for those reasons the demand was not sufficient to accomplish the seizure of the property of others which the company did not hold or control in any way.

While we are constrained to differ with the learned court in that view of the law, Stoehr v. Wallace, 255 U. S. 239, 41 S. Ct. 293, 65 L. Ed. 604; Great Northern R. Co. v. Sutherland, 273 U. S. 182, 47 S. Ct. 315, 71 L. Ed. 596, we think the court's conclusion is sustainable on other grounds. The demand made on the Kekaha Sugar Company gave notice that the Custodian had determined that "Estate of Otto Isenberg, whose address is Berlin, Germany, is an enemy and has a certain right, title, and interest in and to 840 shares of common stock standing on your books in the name of Estate Otto Isenberg." There was no estate of Otto Isenberg whose address was Berlin or elsewhere, and there were no shares standing on the books of the Kekaha Sugar Company in the name of the Estate Otto Isenberg. Otto Isenberg had died many years before. His estate had been administered and settled and closed, and his executors had been discharged in 1905, and in that year the property of the estate had been delivered to trustees, who held it for the benefit of Otto Isenberg's widow and children, and from and after that date the shares of the stock of the Kekaha Sugar Company stood in the names of the trustees. We are unable to see why the reasoning of the territorial Supreme Court and the conclusion which it reached as to the demand upon the Kekaha Company should not apply to the demands made upon the trustees Schultze and Rodiek. At the time when those demands were made, the trustees held no property belonging either to themselves or to the beneficiaries of the trusts. The demands were made in June, 1918. At that time the appellee held, and since January 31, 1918, had held, possession of all the shares of stock belonging to the trustees or to the beneficiaries, and there was nothing in the hands of the trustees subject to their control or subject to seizure. On January 31, 1918, Schultze, trustee, had voluntarily surrendered all the trust estate to the appellee as depositary, and on March 11, 1918, the shares of stock constituting the trust estate had been transferred to the appellee as depositary for the Alien Property Custodian. Demand upon Schultze, after he had surrendered the corpus of the trust estate and had been divested of title thereto, cannot be said to be a seizure. No demands were addressed to the appellee. It has been uniformly held that no seizure can be had without a valid demand upon the party in possession of the property. Said the court in Miller v. Rouse (D. C.) 276 F. 715:

"Normally a `demand' should include the communication of the claim to the person against whom it is directed. Probably in section 2 of the executive order this is not its meaning; it is to be treated as a completed `demand' when once drawn up. Yet under section 2 (c) it is only after notice that the property vests in the Alien Property Custodian. Therefore it is apparent that under the executive orders the capture is made to depend upon the service of the demand, and this conforms with the meaning of `require' in the act itself. * * * The property does not become the `subject' of a demand till those acts are done which would vest the property in the United States, and that, as I have said, even under the executive orders themselves, is only when the demand is served. * * * In the case of choses in action, where the property cannot be forcibly taken, notice is all that can be given, unless the enemy's debtor is himself to be seized. The analogy of garnishment is directly in point."

We are of the opinion that the voluntary surrender by Schultze as trustee of the entire corpus and income of the Otto Isenberg estate was without authority of law. On January 31, 1918, there were two trustees, Schultze and Rodiek. Schultze alone made the surrender to the appellee of the shares which stood in the name of himself and his cotrustee, and on March 11, 1918, the appellee surrendered to the Kekaha Company the stock certificates and received in place thereof one certificate for 170 shares and one for 500 shares as requested by it, in its capacity as depositary for the Alien Property Custodian. This was done without authority from the Custodian. Up to that time there had been no determination that any of the beneficiaries of the Otto Isenberg trust estate were enemies, and no demand had been made for the surrender of their property. Section 7-D of the Trading with the Enemy Act (50 USCA Appendix § 7d; Comp. St. § 3115½dd) provides for voluntary surrender to the Alien Property Custodian and declares that any person not an enemy or ally of an enemy, who holds property for the benefit of an enemy, "may, at his option, with the consent of the President, pay, convey, transfer, assign, or deliver to the Alien Property Custodian said money or other property under such rules and regulations as the President shall prescribe." Rule 30 provides that the person making the surrender shall file an application with the Alien Property Custodian for consent and permit, and it authorizes the Custodian to consent and issue a permit or to withhold or refuse the same. There was no compliance with this rule. Schultze filed no application for permission, and no permission was granted by the Alien Property Custodian. The stock certificates at that time stood in the name of the trustees, and the estate was subject to the control of the probate court.

On October 31, 1918, the appellee upon its own petition and without notice to the widow or to any of the beneficiaries of the trust estate was appointed trustee of the trust formerly administered by Schultze and Rodiek, and shortly thereafter gave a bond for the faithful performance of the duties of the trust in the sum of $120,000. In thus assuming, as it did, the duties of trustee of an active trust, while at the same time discharging the duties of representative of the custodian of alien enemy funds, the appellee acted in inconsistent and conflicting capacities. As trustee, it was its duty to protect the trust and carry out its provisions. The legal title of the trust property was vested in it. Two of the beneficiaries of the trust were not enemies, but were loyal American citizens residing in the United States, and they held an interest in the shares of stock which had been set apart for the benefit of the widow during her life. The appellee had been instructed by the Custodian to be very cautious and not to recommend any bank or trust company as depositary "which may have any interest which would conflict with those of the properties deposited with it, or the good faith of the officers of which might be questioned in any manner in discharging their duties for the government." As early as September 16, 1918, the president of the appellee had been advised of the condition of the Isenberg trust and knew that to seven of the children had been distributed their distributive shares of their two-thirds of the estate, leaving two-ninths of the two-thirds in the names of Paul Otto and Dorothea, and yet in his letter to the Custodian of September 25, 1918, although he knew that no alien enemy held the legal title to any of the securities constituting the estate in trust, he represented that the widow was the owner of 500 shares of Kekaha stock, and that Paul Otto and Dorothea were each the owner of 170 shares of the Kekaha stock, and on September...