Direction Der Disconto-Gesellschaft v. United States Steel Corp.

Background

Two German companies—a trading firm and a bank—owned identified shares of a U.S. steel company through physical stock certificates kept in London. The certificates were registered in a broker’s name, indorsed in blank, and passed by endorsement. During the war, an English Board of Trade order gave an English Public Trustee custody of enemy property and the Trustee seized the London certificates. The German companies sued in U.S. courts asking to be declared owners, to have new certificates issued to them, and to recover unpaid dividends. The District Court dismissed the suits and declared the Trustee the owner.

Reasoning

The central question was whether U.S. courts must recognize the ownership that the English Trustee acquired under English wartime law. The Court said ownership of a paper certificate depends on the law of the place where the paper is located. Because English law and the wartime orders transferred ownership in the London-held certificates to the Trustee, and because the United States had not asserted any overriding power to upset that transfer, the Trustee obtained good ownership as against the German companies. The Supreme Court therefore affirmed the lower court’s decree ordering the U.S. corporation to issue new certificates to the Trustee’s nominee.

Real world impact

This decision means that transfers of physical stock certificates made under host-country wartime rules can be recognized in U.S. courts when the certificates were located abroad. It affects foreign holders, brokers, and issuing corporations by making ownership depend on the law where the paper sits. The Court noted the United States might raise other claims later, but it did not decide on any such future claim.