In a suit by an American citizen under the Trading with the
Enemy Act to recover the proceeds of property mistakenly seized and
sold as enemy property, which were deposited with the Treasurer of
the United States and by him invested in interest-bearing
securities of the United States, the plaintiff is entitled to an
accounting for the interest derived from such investment, as well
as the principal. P.
271 U. S.
300.
4 F.2d 988 reversed.
Appeal from a judgment of the circuit court of appeals which
affirmed a judgment of the district court (298 F. 947) dismissing
the bill in a suit under the Trading with the Enemy Act in which
the plaintiff, Henkels, sought an accounting for interest.
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
This is a suit in equity, under § 9(a) of the Trading with the
Enemy Act, c. 106, 40 Stat. 411, 419, as amended by c. 6, 41 Stat.
35 and c. 241, 41 Stat. 977, brought by Henkels, a citizen of the
United States, in the Federal District Court for the Southern
District of New York, to
Page 271 U. S. 299
recover the proceeds of the sale of 2,298 shares of common stock
of International Textile, Inc., a Connecticut corporation,
theretofore seized by the Alien Property Custodian upon the claim
that it was the property of an alien enemy. A decree was rendered
in Henkels' favor adjudging him to be the sole owner of the stock,
and the Treasurer of the United States was directed to account for
and pay over to Henkels the proceeds of the sale, "together with
the income or interest, if any, earned thereon." There was realized
from the sale of the stock, made on March 26, 1919, after deducting
expenses, a balance of $1,505,052.55. This amount the Treasurer
paid to Henkels. Subsequently Henkels applied to the district court
to name a master to take and state the account of interest or
income earned upon the fund prior to its payment. The application
was denied, and a final decree of dismissal entered upon the ground
that the principal sum had been paid to Henkels, who had executed a
release and satisfaction in full which the court refused to set
aside on the claim of duress.
Henkels v. Miller, 298 F.
947. Upon appeal, the circuit court of appeals, without passing
upon this ground, held that the United States was not liable for
income resulting from an investment of the funds in its own
securities.
Henkels v. Miller, 4 F.2d 988.
The proceeds arising from the sale of the stock were deposited
with the Treasurer in conformity with law, and by that officer they
were commingled with the proceeds of other sales of alien property
and invested in interest-bearing securities of the United States.
The government admits Henkels' right to recover income earned on
the corporate shares prior to their sale, but denies his right to
recover for interest actually paid on government securities in
which the proceeds had been invested. This presents the only
question for our determination, the government having expressly
waived the point upon which the district court decided the
case.
Page 271 U. S. 300
No question is made in respect of the right of the Custodian to
seize property supposed to belong to an enemy, although it may
subsequently turn out to have been a mistake, adequate provision
having been made for a return in that case.
Central Trust Co.
v. Garvan, 254 U. S. 554, 556
[argument of counsel -- omitted];
Stoehr v. Wallace,
255 U. S. 239,
255 U. S.
245.
By Executive Order No. 2813 of February 26, 1918, made pursuant
to law, moneys deposited with the Treasurer by the Custodian are to
be held by the Secretary of the Treasury "for account of the Alien
Property Custodian," and may be invested and reinvested from time
to time in bonds or United States certificates of indebtedness. All
moneys so deposited, together with interest or income received from
the investment thereof, are made subject to withdrawal by the
Secretary of the Treasury for the purpose of making payments
pursuant to the provisions of the Trading with the Enemy Act, which
would include, of course, payments under § 9(a).
Section 9(a) authorizes a suit in equity by any person not an
enemy, etc., to determine a claim to any interest, right or title
in the property seized. If, in the meantime, the seized property
has been sold, the same remedy, by § 7(c), as amended, c. 201, 40
Stat. 1020, becomes available "against the net proceeds received
therefrom and held by the Alien Property Custodian or by the
Treasurer of the United States." No distinction in this respect is
made between the property and its proceeds. It cannot be doubted
that, if the seized property had been securities of the United
States and these thereafter had been held in their original form,
maturing coupons for interest would have belonged to the American
claimant equally with the body of the bonds. In principle, there
can be no difference between such a case and the one here, where
claimant's property had been converted into securities of the
United States. Such securities constitute the statutory "net
proceeds," and, by the clear import of the
Page 271 U. S. 301
statute, claimant's rights in respect of such proceeds are not
inferior to his rights in respect of the original property. And no
distinction fairly can be made between the accumulated interest
upon securities constituting the proceeds in the one case and like
securities constituting the property in the other.
The government cannot be sued without its consent, and
accordingly it cannot be sued for interest unless it consents to be
liable therefor. But the claim here is not for interest to be paid
by the United States in the sense of the rule. It is for income,
derived from an investment of Henkels' money in obligations of the
United States, which income has been actually received by the
Treasury and is in its possession, to be held, as the proceeds
themselves are to be held, for the account of the Alien Property
Custodian.
With enemy-owned property seized by the Custodian, it has been
held, the United States may deal as it sees fit,
White v.
Mechanics' Securities Corporation, 269 U.
S. 283, but it has no such latitude in respect of the
property of an American citizen. Whether the government shall pay
interest upon its obligations depends upon congressional assent,
but it cannot confiscate the actual increment of property belonging
to a citizen, or the increment of the proceeds into which such
property has been converted, any more than it can confiscate the
property or its proceeds, without coming into conflict with the
Constitution.
The government contends that
Angarica v. Bayard,
127 U. S. 251, is
to the contrary, and the court below so held. In that case, the
suit was for interest or income realized upon the amount of an
award in favor of Angarica paid by the Spanish government to the
United States. This Court, in denying the right of recovery,
applied the general rule of immunity from interest, saying (pp.
269 U. S. 259)
that the claim
"is not different in character
Page 271 U. S. 302
from what it would have been if, instead of being a claim for
increment or income actually received by the United States, it were
a claim for interest generally, or for increment or income which
the United States would or might have received by the exercise of
proper care in the investment of the money."
Without challenging the correctness of this view as applied to
the precise facts of that case, it cannot be accepted as a rule of
general application. Especially it cannot be accepted as applicable
here, where the property of a citizen has been mistakenly seized,
and, by executive authority, after conversion into money, has been
invested in government securities. We cannot bring ourselves to
agree that a direction to invest such money in securities of the
United States, rather than in other securities, may be utilized to
enable the government unjustly to enrich itself at the expense of
its citizens by appropriating income, actually earned and received,
which morally and equitably belongs to them as plainly as though
they had themselves made the investment.
Since the proceeds resulting from the sale of Henkels' property
have been commingled with the proceeds of other sales, and thus
invested, an account must be taken to ascertain the average rate of
interest received by the Treasury upon all the proceeds invested,
and thereupon, after deducting proper charges and expenses and
taking into consideration the average amount of such proceeds which
remained uninvested in the Treasury, a proportionate allocation
made in respect of the proceeds belonging to Henkels for the period
of their investment.
Compare 78 U. S. 11
Wall. 356,
78 U. S.
368-369;
Intermingled Cotton Cases,
92 U. S. 651,
92 U. S.
652-653;
Duel v. Hollins, 241 U.
S. 523.
Decree reversed.