Cities Service Co. v. McGrath

1952-01-28

Headline: Wartime seizure power upheld: Court affirms Government can vest debts tied to domestic bearer debentures even when the physical certificates are abroad, affecting companies, trustees, and overseas holders.

Holding: The Court held that the Trading with the Enemy Act allows the Government to vest and enforce debts evidenced by domestic bearer debentures even if the physical certificates were abroad, with recoupment for double foreign liability.

Real World Impact:

Allows U.S. Government to vest debts tied to domestic bearer debentures even if certificates are abroad.
Obligors within the U.S. may be required to pay the Attorney General instead of foreign holders.
Companies can seek compensation from the U.S. if they suffer double liability in foreign courts.

Topics: government seizure of assets, bearer bonds and securities, foreign lawsuits against companies, compensation for double liability

Summary

Background

The dispute involves two 5% gold bearer debentures each for $1,000. A corporation that issued the debentures (Cities Service Company) and a bank acting as trustee (Chase National Bank) were asked by the U.S. Attorney General, as successor to the Alien Property Custodian, to pay the proceeds after a wartime vesting order found the debts belonged to a German national. One certificate was presented for redemption in New York and is now held by a brokerage, while the other matured abroad and was last reported in Berlin.

Reasoning

The key question was whether the Trading with the Enemy Act lets the Government vest and enforce debts evidenced by domestic bearer debentures even if the physical certificates were outside the United States. The Court said yes, pointing to broad statutory language and a provision that allows the Custodian to seize indebtedness without seizing the physical instrument. Because the debtor (Cities Service) was within the United States, the Government could deal with the obligation here. The Court also addressed Fifth Amendment concerns and recognized that if a company is later forced to pay again in a foreign court, it may recoup just compensation from the United States for that double liability.

Real world impact

The ruling lets the Government require payment to itself on wartime-seized debts even when bearer certificates are abroad, and it leaves companies facing the practical risk of foreign suits but with a possible U.S. claim for compensation if forced to pay twice. The right to recoup only arises if and when a foreign court actually forces a company to make a second payment.

Dissents or concurrances

A concurring opinion agreed with the result but said there was no present taking of property and that any U.S. obligation to compensate should await the facts of a later foreign judgment.