763.72113/2272a

The Department of State to the British Embassy

Memorandum

On March 10, 1921, the British Ambassador addressed a communication to the Secretary of State24 in which he stated, among other things, that the British Government was desirous of effecting an arrangement under which the British Public Trustee would be able to secure the registration in his own name of the stock of American companies vested in him as enemy property. The note dealt with both bearer and registered stock certificates. As to the former it was suggested that the “situs of the property” in the shares of stock followed the situs of the certificates, and as to the latter it was stated that, although these shares were described and registered, they were in fact endorsed in blank and transferable in practice by delivery of the certificates without any transfer on the register of the company, and that the Public Trustee had been advised that American law appeared to recognize that the situs of the property in such shares was the situs of the certificates. The note proceeded to suggest a method by which the Public Trustee might complete his title in the United States through a decision of the Alien Property Custodian under Section 9 of the Trading with the Enemy Act to the effect that the shares in question vested in the Public Trustee. This, it was suggested, might have the effect of divesting the Alien Property Custodian of the shares. It was added that the British Government would be willing to reciprocate on such basis of settlement.

Later, by a memorandum of April 20, 1921,24 the Embassy referred to the practice of the British Public Trustee in dealing with claims advanced by American citizens and to the attitude of the American Alien Property Custodian and the Attorney General with respect to the consideration of British claims. It was stated that the then existing situation caused numerous difficulties, and that there were also various other questions pending between the Embassy and the Alien Property Custodian’s office for which no satisfactory solution had been found by correspondence and it was suggested that, under the circumstances, it would be desirable to have direct conferences between representatives of the Embassy and the Alien Property Custodian.

The Department of State replied by a communication of May 4, 1921,24 to the effect that no objection was perceived to such conferences or to interviews generally between members of the Alien Property Custodian’s office or of the Department of Justice, and representatives of the Embassy. The British Ambassador inquired [Page 476] whether it would be agreeable to the Government of the United States for a representative of the British Custodian to come to Washington to confer with the Alien Property Custodian, to which reply was made in the affirmative.

In the early part of October, 1921, conferences were held between the Honorable P. F. Swain, representative of the British Public Trustee, and the Alien Property Custodian. A satisfactory understanding appears to have been reached with respect to the handling of claims of nationals of the respective Governments on account of enemy property seized by the other, and also with respect to the conflict of interests in enemy-owned securities. Mr. Swain requested the aid of the Alien Property Custodian in securing a transfer on the books of American corporations of certificates held by the British Public Trustee where no demand of the Alien Property Custodian had issued. The Alien Property Custodian agreed that all bearer securities in the hands of the Public Trustee which were the obligations of companies incorporated in the United States should be the property of the Public Trustee for England and Wales, and to lend his assistance in effecting a transfer on the books of the companies. Mr. Swain agreed that, where the British Public Trustee held certificates of stock and the Alien Property Custodian had demanded of the companies the right, title and interest in the shares represented thereby, the Public Trustee should forward such certificates to the Alien Property Custodian for his use and benefit. The results of the conferences were later the subject of several exchanges of notes between the British Embassy and the Department of State. Particular reference is made to the note, No. 936 of December 16, 1921, from the British Ambassador to the Secretary of State,26 enclosing two memoranda embodying Mr. Swain’s understanding of the arrangement reached between him and the Alien Property Custodian and requesting “confirmation of the understanding”; also, to notes dated January 16 [18?], 1922, February 21, 1922, March 15, 1922, and April 5, 1922,27 in the latter of which the Embassy stated:

“Owing to technical considerations, which have been explained to the Alien Property Custodian, His Majesty’s Government are anxious that these understandings should be confirmed at the earliest possible date.”

The understanding was confirmed by a note which the Secretary of State addressed to the British Ambassador under date of May 5, 1922,28 in which were set forth comments received from the Alien Property Custodian and the Department of Justice with respect to the subject. The memoranda submitted with the British Ambassador’s [Page 477] note of December 16, 1921, covered two principal subjects, namely, (1) enemy-owned shares in American companies claimed by the Public Trustee and by the Alien Property Custodian, and (2) claims by nationals of the respective Governments for the release of property seized by the other as enemy property. The memorandum with respect to shares of stock contained three paragraphs reading as follows:

  • “1. The Alien Property Custodian on behalf of the United States Government concedes that all bearer securities in the hands of the Custodian and being the obligations of Companies incorporated in the United States shall be the property of the Custodian for England and Wales.
  • “2. The Alien Property Custodian recognizes on behalf of the United States Government the right of the Custodian for England and Wales to complete his title on the registers of the American Companies to any shares, the certificates of which were deposited in his jurisdiction and have subsequently become vested in him, provided that such shares have not already been claimed by the Alien Property Custodian who, by virtue of the powers vested in him, has placed himself upon the register of certain companies in respect of the shares which he has claimed.
  • “3. The Alien Property Custodian’s agreement to Clause 2 is made conditional on the Custodian for England and Wales surrendering to the Alien Property Custodian in due course all certificates which he holds which represent shares claimed by the Alien Property Custodian as disclosed by his printed list.”

As to this memorandum the Alien Property Custodian stated:

“The memorandum submitted with your letter of January 17, 1922,29 embodies most of the points discussed by Mr. Swain and myself. Referring to the memorandum of Mr. Swain, I beg to advise that in connection with the enemy owned shares in American Companies,

(1) This paragraph is too broad and should be worded as follows:

‘The Alien Property Custodian concedes that all bearer securities in the hands of the British Public Trustee and being the obligations of Companies incorporated in the United States, shall be the property of the British Public Trustee for England and Wales, where that official for England and Wales holds the actual certificates.’

The Alien Property Custodian did not take over any interest in the bearer securities unless the certificates themselves could be secured. Therefore, where the British Public Trustee holds the certificates for such securities, his claim thereto does not conflict with any rights secured by the Alien Property Custodian, nor is there any objection whatever to the British Public Trustee’s ownership in such certificates.

(2) It was recognized by the British Public Trustee that title in the Alien Property Custodian was vested by virtue of his demand where such demand was registered on the books of the companies even though the British Public Trustee might have possession of the [Page 478] certificates themselves. This, of course, does not relate to bearer certificates but only to such securities as were registered in enemy names or in which enemies had a beneficial interest determined by the Alien Property Custodian.

(3) As the ownership of the Alien Property Custodian in the certificates mentioned under (2) was recognized by the British Public Trustee, the Birtish Public Trustee then agreed that it was proper for him to surrender to the Alien Property Custodian such certificates as he held representing securities demanded by the Alien Property Custodian.”

This statement was incorporated in the above-mentioned note of May 5, 1922, addressed by the Secretary of State to the British Ambassador.

It will be seen from the foregoing that conflicting interests resulting from the seizures of stock certificates in England and the registering by the Alien Property Custodian of demands for the beneficial interest in the same stock on the books of the companies in the United States were settled. The British Public Trustee recognized, with respect to other than bearer certificates, that title to the stock vested in the Alien Property Custodian by virtue of his demands, where such demands had been registered on the books of the companies, even though the Public Trustee might have possession of the certificates themselves, and agreed that such certificates should be surrendered by the Public Trustee to the Alien Property Custodian.

By a letter dated June 21, 1922, from the Public Trustee to the Alien Property Custodian,30 the former advised that he was taking steps to deliver the certificates held by him which represented shares claimed by the Custodian and inquired as to the manner in which the Custodian would like delivery to be made. Later, by a letter dated August 21, 1922, the Public Trustee advised the Alien Property Custodian30 that he had issued directions that shares of stock in American companies, the certificates of which were deposited in England, were to be dealt with in accordance with the Custodian’s wishes and that the certificates were to be surrendered in due course.

Considerable correspondence later passed between the Public Trustee and the Alien Property Custodian, the details of which are not essential to an understanding of the present situation. It would seem to be sufficient to say that there was entire agreement between the Public Trustee and the Alien Property Custodian with respect to the securities here in question, as is shown by the fact that large quantities of certificates falling within the category mentioned were subsequently turned over by the British Public Trustee and his successor, the Comptroller of the Clearing House (Enemy Debts) London, on the basis of a list furnished by the Alien Property Custodian of the securities with [Page 479] respect to which demands had been registered by him on the books of the American companies.

On his part the Alien Property Custodian assisted the Public Trustee in perfecting his claim to stock with respect to which no demand had been made by the Alien Property Custodian on the books of the companies. He also turned over to the Public Trustee certificates issued by a British corporation where demand for the stock had been made by the Public Trustee on the company.

The Public Trustee has now filed three Bills of Complaint (February 24, February 29, and March 2, 1928,) in the Supreme Court of the District of Columbia against Howard Sutherland, Alien Property Custodian, et al., to recover securities turned over by him pursuant to the above-mentioned arrangement. The court actions are understood to be based on the theory that the Public Trustee was under a misapprehension as to his rights under the law with respect to these securities. It apparently is now his intention to contest the principle formerly accepted by him, namely, that by demanding the beneficial interests on the books of the companies, the Alien Property Custodian acquired all interest in the shares as against the Public Trustee who held the certificates. The British Public Trustee apparently regards as favorable to his contention that he is entitled to have the securities returned to him the decision of the Supreme Court in 1925 in the case of the Disconto-Gesellschaft v. U. S. Steel Go. (267 U. S. 22), which had to do with certificates of shares in the U. S. Steel Corporation, endorsed in blank and owned and held by German corporations, which were seized in London during the war by the British Public Trustee. While the court held in that case that, under the laws of New Jersey, under which the corporation was organized, as well as the law of England, an endorsement in blank authorizes anyone who is the lawful owner of the paper to write in a name and thereby entitle the person so named to demand registration as owner in his turn on the corporation’s books, and that the question as to who is the owner of the paper depends upon the law of the place where the paper is, the court also made the following additional significant statement:

“If the United States had taken steps to assert its paramount power, as in Miller v. Kaliwerke Asehersleben Aktien-Gesellsehaft, 283 Fed. 746, a different question would arise that we have no occasion to deal with. The United States has taken no such steps. It therefore stands in its usual attitude of indifference when title to the certificate is lawfully obtained. There is no conflict in matter of fact or matter of law between the United States and England and therefore Baker v. Baker, Eccles & Co., 242 U. S. 394, does not apply.”

It is important to observe, moreover, that following the rendition of this decision the matter was the subject of fresh discussions between the Comptroller of the Clearing House (Enemy Debts), who [Page 480] had succeeded to the duties of the Public Trustee, and the Alien Property Custodian, and it was agreed that the decision of the Supreme Court did not in any way alter the situation. The Comptroller, by a communication of February 10, 1925, addressed to the Alien Property Custodian,32 referring to the understanding arrived at between the Public Trustee and the Alien Property Custodian, stated:

“In the case of registered securities, where, under the United States Trading with the Enemy Legislation, you had already seized on the register of an American Corporation ex-enemy holdings therein the certificates of which were in the possession of the Public Trustee, it was understood that such certificates should be surrendered to you, and on the other hand, where no such seizure had taken place, no objection would be raised by you to their sale by the Public Trustee under the charge imposed upon enemy property by virtue of the permissive provisions of the various Treaties of Peace.”

The Comptroller added that, as administrator of Austrian, Hungarian and Bulgarian property, he had discharged duties analogous to those theretofore performed by the Public Trustee in relation to German property, and that he considered himself “honourably bound to give effect to the above arrangement even in cases where the certificates were never in the possession of the Public Trustee but came direct to me as Administrator from other sources”, and requested the Alien Property Custodian to furnish him with an authoritative list revised to date of enemy-owned securities seized by the Alien Property Custodian in the circumstances stated above. He further stated;

“In view of the decision of the U. S. Supreme Court in the recent Appeal by the Disconto Gesellschaft and the Bank fuer Handel und Industrie, the rights of holders of endorsed certificates have recently been authoritatively determined, and it may be that in view thereof, you will not desire the delivery of these certificates even if they are in fact amongst those in respect of which you had registered demands with these Corporations, but that is a matter for your consideration. So far as I am concerned, I am prepared to give effect to the understanding between you and the Public Trustee referred to above, irrespective of whether but for such an understanding, you would have been entitled to such delivery.”

In replying to this communication the Alien Property Custodian, by letter of March 14, 1925,32 observed with respect to the decision of the Supreme Court that:

“This case did not deal with any shares in which the American custodian had demanded any interest, and consequently there is no [Page 481] necessity for modifying in any manner the arrangement which has existed between this office and the British Public Trustee.

The recent Supreme Court case concerned only shares in American corporations held abroad by other than the rightful owner, in which shares the American custodian claimed no interest.

We trust that the arrangements heretofore existing between your predecessor in office and the American Custodian may be continued, and we assure you of our willingness to cooperate in any way that will advance our mutual interests.”

This latter communication was acknowledged by the Comptroller of the Clearing House by letter dated April 21, 1925,33 in which with respect to the court decision in question he stated:

“I note, and[,] if I may respectfully say so, concur in, the view you express that the recent decision of your Supreme Court does not apply to cases where you, as representing your Government, had intervened, to claim the interest over the ex-enemy holdings in American Corporations even though the certificates themselves were held outside the United States. In such cases, purely as an expression of my personal opinion, I am disposed to agree that, by virtue of the right of eminent domain, a Government has supreme power over its Corporations as against all comers. I am therefore prepared to subscribe to the arrangement come to by you with Mr. Simpkin, the British Public Trustee.”

It is worthy of mention that this construction of the law and of the decision of the Supreme Court is advanced and relied upon in an action recently instituted in Canada by the Canadian Alien Property Custodian against the American Alien Property Custodian and others, in which the situation presented in the actions filed by the Public Trustee is reversed, i. e., the Canadian Custodian claims title by virtue of vesting orders to securities of Canadian corporations as against the American Custodian who had seized the stock certificates actually in this country. The contentions of the Canadian Custodian in the Canadian action are diametrically opposed to those of the Public Trustee in the actions filed in the District of Columbia. It is understood that Coudert Brothers of New York represent both the Canadian Custodian and the British Public Trustee.

Following the despatch of his letter of April 21, 1925, the Comptroller of the Clearing House delivered certificates to the Alien Property Custodian who surrendered them to the companies and obtained from the latter new certificates registered in his name.

The British Public Trustee is a corporation sole. It is at the same time an arm of the British Government to the same extent and in the same manner that the Alien Property Custodian is a governmental agency. The arrangement, therefore, between the Public [Page 482] Trustee (and later the Comptroller of the Clearing House) on the one hand, and the Alien Property Custodian, on the other hand, was an arrangement between official agencies of the two Governments and had the sanction of the two Governments, as is shown by the fact that the principal correspondence was conducted between the Department of State and the British Embassy.

In view of these facts and the further fact that the arrangement was carried out in good faith on both sides, it would seem that it should now be observed. The court action is in effect a suit by the British Government against the Government of the United States.

The Public Trustee states as a reason for the suit that at the time he entered into the arrangement with the Alien Property Custodian he had been misled by a mistaken interpretation by the Custodian of American law, and that relying upon such interpretation he delivered the securities to the Alien Property Custodian. The authorities of the United States do not admit that the arrangement was effected as a result of any alleged mistaken interpretation of the law, or that a mere mistake, if there was one, on the part of the Public Trustee as to his rights under the law is sufficient, in the absence of some element of fraud, to entitle him to repudiate an arrangement which was reciprocal in character and which has been fully executed.

Generally speaking, the Government of the United States favors appeal to the courts for the settlement of justiciable questions, but it feels that the facts in this case hardly warrant the action which has been taken. There is, apparently, no allegation that the Alien Property Custodian took advantage of the Public Trustee. No fiduciary relationship existed. They were endeavoring to settle conflicting interests according to legal principles and on an equal footing, and neither should now be heard to complain that he failed to inform himself of his rights under the law.

It is suggested that the British Government may desire to consider whether, under the circumstances, the Public Trustee should be instructed to discontinue the court actions. If the actions are prosecuted, the Government of the United States will, of course, be under the necessity of showing in defense that the action of the Public Trustee is in repudiation of an arrangement entered into in good faith and scrupulously observed by the Alien Property Custodian. This might conceivably prove embarrassing to both Governments.

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