United States v. Chemical Foundation, Inc.

Decision Date03 January 1924
Docket Number502.
Citation294 F. 300
CourtU.S. District Court — District of Delaware

[Copyrighted Material Omitted] [Copyrighted Material Omitted]

Harry M. Daugherty, Atty. Gen., James H. Hughes, Jr., U.S. Atty of Wilmington, Del., and Henry W. Anderson and Herman J. Galloway, way, Sp. Asst. Attys. Gen. (H. E. Knight, of Washington, D.C., Spier Whitaker, of New York City, James J. Lenihan, of Washington, D.C., William M. Offley, of New York City, and Thomas E. Rhodes and William W. Wilson, both of Washington, D.C., of counsel), for the United States.

William D. Guthrie, Isidor J. Kresel, and Bernard Hershkopf (of Guthrie, Jerome, Rand & Kresel), all of New York City, Lucien H. Boggs and Seiforde M. Stellwagen, both of Washington, D.C., and William G. Mahaffy, of Wilmington, Del., for defendant.

MORRIS District Judge.

By this suit in equity instituted by the United States of America against the Chemical Foundation, Incorporated, the plaintiff seeks the annulment of sales of property purporting to have been made by the plaintiff to the defendant. The property sold consisted mainly of United States letters patent, copyrights and trade-marks pertaining to chemicals and pharmaceuticals. At the outbreak of the war it was owned by subjects of Germany. During the war it was seized as enemy property by the Alien Property Custodian. The President, stating the reasons therefor in the public interest, authorized the Custodian to sell the same to the defendant at private sale upon such terms and conditions as to the Custodian might seem proper. The sales were made in the years 1919, 1920 and 1921. Conditions of sale were that the property should be held in a fiduciary capacity for the Americanization of such industries as might be affected thereby and for the advancement of chemical and allied science and industry in the United States; that nonexclusive licenses, only, should be granted; that the United States should receive free licenses; and that other licenses granted should be upon reasonable and equal terms without advantage as between licensees. The monetary consideration paid was approximately $271,000.

The plaintiff challenges the power to make the sale. It asserts, and the fact is not disputed, that the price for which the property was sold was far less than the property was worth to the Germans from whom it was seized. It asserts that the conditions of sale were partially destructive of the selling value even to American citizens. This is likewise conceded. It contends that no authority existed for selling enemy property for less than its fair monetary value and that conditions of sale destructive of its fair monetary value, though in the public interest and even though the independence of the United States might have depended thereon, could not be imposed. The defendant takes the position that in the disposition of enemy property there was not only a power, but also a primary duty, to consider and safeguard the public interest; that the President and the Custodian were clothed with this power and burdened with this duty, and that, in the absence of fraud, their acts done in the exercise of this power and in the performance of this duty are not subject to judicial review. There is thus presented the broad question of power with respect to the seizure and sale of enemy property.

Enemy property found upon land in the United States cannot be condemned as enemy property without an act of Congress. A declaration of war is not such an act. Brown v. United States, 8 Cranch, 110, 3 L.Ed. 504. The Trading with the Enemy Act (40 Stat. 411 (Comp. St. 1918, Comp. St. Ann. Supp. 1919, Sec. 3115 1/2a et seq.)), approved October 6, 1917, as amended in March and November, 1918 (40 Stat. 460 and 1020), is here relied on. Whether considered as originally passed or as amended that act is strictly a war measure finding its sanction in the constitutional provision (article 1, Sec. 8, cl. 11), empowering the Congress 'to declare war, grant letters of marque and reprisal, and make rules concerning captures on land and water. ' Stoehr v. Wallace, 255 U.S. 239, 241, 242, 41 Sup.Ct. 293, 295 (65 L.Ed. 604); Commercial Trust Co. of New Jersey v. Miller, 281 F. 804 (C.C.A. 3), affirmed 262 U.S. 51, 43 Sup.Ct. 486, 67 L.Ed. 858. We are here concerned with captures on land only. By section 5 of the act the President is in terms authorized to 'exercise any power or authority conferred by this Act through such officer or officers as he shall direct. ' Section 6 authorized the President to appoint and 'prescribe the duties of' an official to be known as the Alien Property Custodian and empowered the Custodian to receive all money and property in the United States due or belonging to an enemy and to hold, administer and account for the same under the general direction of the President and as provided in the act. Section 7(a) imposes upon all persons in the United States the duty of reporting to the Alien Property Custodian the enemy owned property within their control. Section 7(c), as originally passed, authorized the president to require all enemy property to be paid, transferred or delivered to the Alien Property Custodian. An amendment of November 4, 1918 (40 Stat. 1020), makes the provisions of this subsection apply expressly to 'patents, copyrights, applications therefor, and rights to apply for the same, trade-marks, choses in action, and rights and claims of every character and description' and authorizes the seizure by the Custodian of any property that the President might require to be paid, transferred or delivered to the Custodian.

By an amendment of March 28, 1918 (40 Stat. 460 (Comp. St. 1918, Comp. St. Ann. Supp. 1919, Sec. 3115 1/2ff)), the fourth paragraph of section 12 was made to read as follows:

'The Alien Property Custodian shall be vested with all of the powers of a common-law trustee in respect of all property, other than money, which has been or shall be, or which has been or shall be required to be, conveyed, transferred, assigned, delivered, or paid over to him in pursuance of the provisions of this Act, and, in addition thereto, [1] acting under the supervision and direction of the President, and under such rules and regulations as the President shall prescribe, shall have power to manage such property and do any act or things in respect thereof or make any disposition thereof or of any part thereof, by sale or otherwise, and exercise any rights or powers which may be or become appurtenant thereto or to the ownership thereof in like manner as though he were the absolute owner thereof: Provided, that any property sold under this act, except when sold to the United States, shall be sold only to American citizens, at public sale to the highest bidder, after public advertisement of time and place of sale which shall be where the property or a major portion thereof is situated, unless the President stating the reasons therefor, in the public interest shall otherwise determine. * * * '

Under this amendment the powers granted with respect to the disposal of enemy property are broad, indeed. It first expressly authorized 'any' disposition, by sale or otherwise, as though the Custodian were the absolute owner thereof. Stoehr v. Wallace, 255 U.S. 239, 243, 41 Sup.Ct. 293, 65 L.Ed. 604. Whether under this broad power the Custodian, acting under the supervision and direction of the President, would have authority to destroy enemy property-- for example, propaganda books and pamphlets, munitions of war unsuitable for America's use, or property whose mere presence here might constitute an actual or possible menace to the public health-- need not be determined for the transaction here in question was a sale. But it is clear that, save as limited by the first proviso, the powers of sale conferred by the amendment are as broad as those of an absolute owner. An absolute owner may sell his property under any terms and conditions that he, in his absolute discretion may deem proper. He may sell it at public sale to the highest bidder, as ordinarily he would do where the only advantage to be derived by him from the sale is directly monetary. He may likewise sell it at private sale to the low bidder. Indeed, he frequently does so if, in his opinion, there will accrue to him directly, or indirectly, from such sale benefits and advantages more than sufficient to offset and overcome the direct and immediate monetary loss. The proviso, however, recognizes that with respect to some enemy property the public interest may be peculiarly interwoven. It thus recognizes that enemy property may consist of two classes-- the ordinary and usual class and a special class. For the former class the proviso, itself, prescribes and rigidly fixes the conditions of sale. With respect to the special class the last clause of the proviso-- 'unless the President stating the reasons therefor, in the public interest shall otherwise determine'-- empowers the President to nullify any or all of the statutory conditions of sale prescribed for property of the ordinary and usual class. United States v. Standard Brewery, 251 U.S. 210, 218, 40 Sup.Ct. 139, 64 L.Ed. 229; Levinson v. United States, 258 U.S. 198, 201, 42 Sup.Ct. 275, 66 L.Ed. 563. It does more. It authorizes the President to substitute other conditions in place of those nullified, for such is the meaning of 'otherwise determine' when read in connection with the remainder of the amendment. But that is unimportant, for if the President, acting under the last clause of the proviso, removes the statutory conditions as to specified property, but does not prescribe other conditions of sale in place of the nullified statutory conditions, the provisions in the body of the amendment...

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