What Is Confiscation?
‘A VERY great part of the mischiefs that vex the world arises from words,’ wrote Edmund Burke. ‘People soon forget the meaning, but the impression and the passion remains.’ And, to the same effect, Horne Tooke wrote that ‘words without meaning or of equivocal meaning are the everlasting engines of fraud and injustice.’ Misunderstanding as to the use of words is a frequent factor in the production of international controversy; and it may well happen in a particular case that resort to war could be avoided if there could be not only an agreement as to what are the facts involved, but also an agreement as to what the disagreement is about.
When the President of the United States and the Secretary of State inform Mexico that the provisions of the Mexican Petroleum Law of December 31, 1925, together with the regulations framed under it, constitute ‘confiscation’ of American property, the statement sounds simple; and American citizens rightly entertain the belief that the claim of their Government is a just one. Is the question of confiscation, however, quite as simple as it sounds? How many of us can define just what constitutes confiscation? The average man might answer that his property is confiscated if a Government deprives him of it without paying him for it. But in law what constitutes deprivation? Can anyone answer that without the aid of a court of law? And what answer would the average man think that the Supreme Court of the United States gave as to confiscation in the following five cases which actually came before it?
1. A company erects, at a cost of $375,000, a factory for the manufacture of carbon black and the extraction of high-gravity gasolene by the use of natural gas. The State Legislature later prohibits the use of natural gas for the production of anything but heat, thus ruining and destroying the corporation’s business.
2. A man owns a wharf, lawfully constructed on his own land, within a harbor line duly established by the Secretary of War. Congress later decides to widen the river and authorizes the Secretary to establish a new harbor line, requiring the destruction of the wharf.
3. A man owns a tract of land in a city, worth $800,000 for brickmaking purposes (because of its valuable clay contents), but worth not over $60,000 for any other purpose; he has made excavations and installed expensive machinery, so that it cannot be used for residential or other purposes. A city ordinance later forbids the operation of a brickyard within the territory.
4. A man lawfully purchases and owns liquor valued at four hundred dollars. The State Legislature later makes possession of liquor illegal, and the sheriff seizes this four hundred dollars’ worth.
5. A company owns valuable land and oyster beds under a salt-water bay. The United States later, in dredging a channel, utterly destroys these oyster beds.
In no one of these cases did the Government provide for payment of any compensation to the owner of the property destroyed or injured, and for that reason the owner claimed the Government’s action to be unlawful. In which of these cases has there been, in the eye of the law, confiscation of property?
All these questions may suggest the thought that we, as citizens of the United States, may possibly have been considering as incontestably clear a subject on which others may reasonably have divergent views.
At the present time it seems plain that a loose use of this one word ‘ confiscation’ has caused much misunderstanding as to at least one of the issues in the controversy which has so long prevailed between this country and Mexico. While it appears probable that this controversy will happily be settled by diplomatic negotiations, nevertheless questions of a similar nature may possibly arise in the future; and hence it is highly desirable that there should be an understanding of the real nature of the present controversy. In an address at a dinner of the United Press Association on April 25, 1927, President Coolidge implied that the pending questions were not appropriate for arbitration, because, as he said, ‘the principle that property is not to be confiscated and the duty of our Government to protect it are so well established that it is doubtful if they should be permitted to be questioned.’ It is just at this point that our confusion may arise. The proposition, as thus simply stated by the President, may be true. On the other hand, since the President of Mexico has insisted that his country has not confiscated the oil lands and does not intend to do so, would it not seem that the real issue between the two countries is as to the existence, in law, of any confiscation, and not as to the existence of a right to confiscate? It is on this issue that American citizens have received little information and need much enlightenment.
Let us try to penetrate, therefore, the fog with which this controversy has been surrounded, and with which any similar controversy in the future might be surrounded, through the equivocal use of the word ‘confiscation.’
In the first place, it should be noted that this term has no fixed and unalterable meaning, no absolute meaning which is unaffected by times or circumstances and unrelated to social and economic conditions. In fact, the very opposite is true as to its definition.
In common parlance, ‘confiscation’ conveys to the average individual the idea of unlawful or unpaid-for taking of property by the Government. Yet such was not the original meaning of the word, nor is it the primary meaning given in the standard dictionaries, which define the word ‘confiscate’ as: ‘To appropriate private property to the sovereign or the public treasury by way of penalty.’ Moreover, even in the terminology of the law the word ‘confiscation’ or ‘expropriation’ does not always or in every country denote an unlawful or unpaid-for appropriation of private property by a Government. President Coolidge, in his address to the United Press above referred to, stated that ‘it is a cardinal principle of law that private property should not be taken without fair compensation. This principle is declared in our national Constitution and in those of all our States. I know of no written constitution that does not contain a similar provision.’ Nevertheless, in spite of this statement, there are actually a number of modern written constitutions which do permit government expropriation of property for the public use or benefit, without compensation, provided such expropriation is made by a legislative act. Thus, the Constitution of Germany of 1919 provides that ’expropriation shall take place only for the general good and only on the basis of law. It shall be accompanied by payment of just compensation unless otherwise provided by national law.’ The Constitution of Czechoslovakia of 1920 provides that ‘expropriation is possible only on the basis of law. Compensation shall be given in all cases unless it is or shall be provided by law that no compensation shall be given.’ Similar provisions are to be found in the Constitutions of Poland (1921) and of Esthonia (1920). In these four republics, therefore, while taking of property without compensation simply by executive or administrative action is forbidden, there may be such a taking by legislative action. And in all European countries it is assumed that taking of property by a capital tax levy would be lawful. It may, therefore, be an arguable question whether a nation necessarily, and under all circumstances, violates international law if it expropriates property without compensation, provided that it acts in accordance with its own constitution, and provided that it makes no discrimination between its own nationals and aliens.
But even if it be assumed that confiscation of property without compensation is always and everywhere a violation of international law, there will always remain open two questions: What governmental actions under the law constitute ‘confiscation’? And do the particular actions in the case fall within the definition of ‘confiscation’ at law?
In the United States there are two provisions of our Constitution which are supposed to protect an individual’s property from confiscation — one, the Fifth Amendment, which forbids the Federal Government to deprive a person of his property without due process of law, or to take private property for public use without just compensation; the other, the Fourteenth Amendment, which forbids a State Government to deprive a person of his property without due process of law. These provisions are plain and clear in their phraseology; but in their application to any particular set of facts they are difficult and uncertain. For what is due process of law? What is a taking of property? The answer to those questions can never be known, in any individual case, until after a court decides. And in the words of the Biblical proverb, as paraphrased by an eminent jurist in a recent address, ‘There be three things which are too wonderful for me, yea, four which I know not: The way of an eagle in the air; the way of a serpent upon a rock; the way of a ship in the midst of the sea; and the way of the Supreme Court with the Due Process Clause.’
The layman probably believes that destruction of his property by the State could never be ‘due process.’ He seldom realizes that even in this country a state legislature has a certain degree of power to damage or destroy property, take away its use, ruin its value, and to abolish or restrict a business and to occasion serious loss and injury, without being required to pay compensation to the owner — all provided that the act is reasonably in the interest of the general welfare and there is sufficient force of public opinion behind it. This power of the legislature is called ‘the police power’ — a rather meaningless phrase, which, as Judge Oliver Wendell Holmes has said, ’is convenient to conciliate the mind to something that needs explanation.’ It denotes simply the right of the State to cause discomfort, injury, loss, or ruin to a part of the community in the interest of a greater part — up to the point when the court says that the State has gone too far. To what extent this power exists or may be exercised the court must decide in each case; and, as Judge Holmes has constantly said, ‘Here, as elsewhere, the distinctions of the law are distinctions of degree. . . . Often it is a delicate matter to decide which interest predominates and how far the State may go without making compensation. The line cannot be drawn by generalities, but successive points in it must be fixed by weighing the particular facts.’
The ordinary individual knows little or nothing about this vague ‘police power’; hence inevitably an individual’s idea of confiscation in fact and a court’s decision as to confiscation in law are widely divergent. Man after man, corporation after corporation, whose property or property rights have been in fact destroyed or taken by virtue of a statute, have gone to the Supreme Court of the United States and there learned for the first time that their property has not been, in the eye of the law, confiscated.
To add to the complexity of the problem, the courts of the various States in this country frequently differ in their decisions as to whether a certain type of legislative act is or is not to be deemed confiscation; and the Supreme Court of the United States often finds that a state court has erred in its conclusion on this question.
The distinction between confiscation and nonconfiscation in the States of this country often depends on the particular circumstances, or on ancient customs or historic, economic, or social institutions of one State which are nonexistent or inapplicable in another State. Thus the Supreme Court held that the Government may take a man’s land for a levee, without compensation, in Louisiana; but a similar taking in Massachusetts would probably be held unlawful. So mill acts or flowage acts, founded on Colonial precedents, have been held valid in New England which might not be so held in newer States. It is evident that similar considerations may prevail as between different countries; and that history, local conditions, and local necessities may cause the same act to be treated as unlawful confiscation in the one country and lawful confiscation in the other. That which our Supreme Court holds not to be allowable under the police power a court of another country may find to be so fully in the interest of the public welfare as to justify a deprivation of property without compensation. In other words, that which our Supreme Court holds to be confiscation in law a court of another country may hold to be only confiscation in fact.
The existence of the grave gap between the fact and the law can be emphasized by a consideration of a few of the actual cases, set out in untechnical language, in which the Supreme Court of the United States has held that actions of Government did not constitute confiscation in law, but which the ordinary individual, ignorant of the law, would certainly assume to be confiscatory.
In the first place, let us note the interesting fact that in every one of the five cases which were described at the outset of this article the court held that there was no confiscation in law.
Next, let us compare the case of a building-height law with a law taking property by eminent domain for public use. For instance, John Smith owns land on which he proposes to erect a fifteen-story building, which will produce a rental of $150,000; a buildingheight law is passed, restricting his building to ten stories, which will rent for only $100,000; Smith thus suffers an annual loss of $50,000. On the other hand, James Johnson owns land on which he has erected two buildings, one renting for $100,000 and the other for $50,000; a law is passed taking the second building for governmental purposes; Johnson also suffers an annual loss of $50,000. In the one case, the courts hold that there is no unlawful confiscation, since the legislature may, under the police power, inflict the injury, in view of the resultant safety and welfare of the city. In the other case, the courts hold that there would be confiscation in law, unless compensation be paid. Yet the monetary loss to Smith and to Johnson may be the same in each case.
Some other actual cases of a similar nature are as follows.
A man in Euclid, Ohio, owned land which, if used for industrial purposes, had a value of $10,000 per acre, but, if used for residential purposes, had a value of only $2500 per acre. A zoning ordinance confined the use of the land to residential purposes, excluding all shops and apartment houses. The value of the land was thereby considerably destroyed; but in law it was held that the ordinance was ‘a valid exercise of authority.’
A cemetery corporation in San Francisco owned land remaining to be sold for burial purposes that was estimated to be worth $75,000. A city ordinance forbade further burials there, and the land of the corporation thus became worthless. Certainly its property had been confiscated in fact. But in law the court held no confiscation, since the ordinance was within the police power.
A man received from the State of Virginia a lease of valuable oyster beds in the waters of Hampton Roads. The State Legislature later authorized a city to discharge its sewerage into the Roads in such a way as to pollute the oyster beds. This action completely ruined and destroyed the beds, but in law it is not considered a damage requiring compensation by the State.
A railroad in Illinois owns a bridge on its right of way, valued at $8000. The State, in creating a drainage district and widening a creek, orders the railroad to remove the old and build a new bridge, at a cost of $13,000. The sum of $13,000 is thus taken out of the railroad’s pocket, for the benefit of owners of lands drained — a clear confiscation in fact. It is held, however, that this can be legally done, under the police power.
A street railway company in Chicago lawfully builds a tunnel under a river, in a manner not obstructive of navigation. Congress later decides to deepen the channel; the city orders the railway company to remove its tunnel and, if it desires a new one, to build it at a lower level at its own expense. Though the company is clearly deprived of its property in fact, the court holds that, in law, it is not to ‘be deemed a taking of private property for public use . . . but is only the result of the lawful exercise of a governmental power for the common good.’
A man owns a livery stable in Little Rock, Arkansas. An ordinance forbids all livery stables, and it is held valid. So, too, a man in Pasadena has his money invested in a billiard hall, fitted up at large expense and conducted in such a manner as not to be a nuisance in any way. An ordinance forbids the maintenance of such a billiard hall. In fact, his property is confiscated. In law, it is not.
A corporation in Mississippi manufactures and sells a nonintoxicating malt beverage. The State prohibits its manufacture, by a statute whose main purpose is only to prevent manufacture of intoxicating beverages. The innocent beverage has been clearly confiscated in fact, though not in law.
When we approach the power of the Federal Government to inflict injury and loss upon an individual and to deprive him of his property rights without compensation, we find a series of cases in which the courts have upheld such a power, under the provisions of the broad clause of the Constitution giving to the Federal Government control of commerce between the States, which is held to include full authority over the navigable waters of the country. In this class of cases the complete divergence between the ordinary individual’s idea of confiscation and the judicial view of that subject is even more impressive.
The oyster-bed case is a good example. There are many other less extreme cases. A corporation builds and owns for thirty years a wooden bridge over a navigable river. Congress authorizes the Secretary of War, whenever he finds that a bridge is an unreasonable obstruction to free navigation, to require its alteration. The Secretary orders an alteration which means the destruction of the old bridge and the construction of an entirely new, larger bridge, at a great loss and expense to the corporation. The court holds that this is ‘ not a taking of private property for public use within the meaning of the Constitution, and 1 hat the cost of such alteration, or changes, is to be deemed incidental only to the exercise of an undoubted function of the United States when exerting, through Congress, its power to regulate commerce among the States.’
A woman owns a farm on the Ohio River. The Government builds a dike which throws the water away from her farm and destroys her use of the river for a landing or shipping place for her products, reducing the value of her land from $600 per acre to $200 per acre. The damage is actual, but in law it cannot be recovered for.
When we come to the subject of the individual’s rights to transfer his own real estate during his life, or to devise or to transmit it after his death, we find those rights practically wholly subject to the power of the State to control, restrict, and even to prohibit. Fifty years ago the Supreme Court held that ‘the power of the State to regulate the tenure of real property within her limits, and the modes of its acquisition and transfer and the rules of its descent and the extent to which a testamentary disposition of it may be exercised by its owners, is undoubted. It is an established principle of law, everywhere recognized, arising from the necessity of the case, that the disposition of immovable property, whether by deed, descent, or any other mode, is exclusively subject to the government within whose jurisdiction the property is situated.’
Thus a man owning agricultural land in California or Washington may find the value of his land almost wholly destroyed by a statute prohibiting him from selling or leasing it to Japanese or other classes of aliens. Yet the court holds such a statute not to be confiscatory. So, too, a citizen of a State holding lands may be later forbidden by the State to convey or devise his lands to corporations. So, too, the owner of land may find himself later prevented by a state statute from devising it by will to any alien. Such a law is held nonconfiscatory, because, as the Court said, seventy-seven years ago, ‘Every State or nation may unquestionably refuse to allow an alien to take either real or personal property situated within its limits, either as heir or legatee, and may, if it thinks proper, direct that property so descending or bequeathed shall belong to the State.’ The right to take property by devise or descent is held to be ‘the creature of the law, and not a natural right hence it may be restricted or entirely abolished by the legislature of a State at any time. So, too, an alien holding land may be later required state statute or constitution to dispose of it within a reasonable time.
The foregoing are some of the cases in which actual injury, loss, deprivation, or destruction of property has been brought about by governmental action and which, nevertheless, have been judicially held not to constitute confiscation in law. Do they not lead to the conclusion that no individual can afford to be too dogmatic, too selfassured, too confident of the correctness of his view in pronouncing any particular governmental action confiscatory, until after the courts shall have passed upon it? And, if such is the conclusion with respect to individuals, may it not be similar with respect to nations? At all events, is not the question of confiscation rather peculiarly and preëminently one to be submitted to judicial or arbitral determination?
Suppose that in any of the cases above described the class of property taken or destroyed had been owned chiefly by citizens of a foreign nation, and that the statute involved had been enacted by the Congress of the United States. Would our Government accept with equanimity the decision of the foreign nation that the statute was confiscatory, and that the question as to its confiscatory nature was not susceptible of submission to a court or arbitral tribunal?
And should it not be true of nations, as well as of individuals, that the more clear the conviction of right on the part of a nation, the greater should be its willingness to submit the question to judicial determination? Certainly no nation can maintain that it will arbitrate only those cases which it considers doubtful, and that it will not arbitrate when it is fully convinced of the justice and legality of its own cause.
Is it not well for us all to consider these questions very seriously — not with any intent to cast a doubt upon the validity of our Government’s case against Mexico, but with the desire to satisfy ourselves as to the policy we think that our Government should adopt, in the future, with reference to arbitration of similar controversies?