Where the debt has been acknowledged there is usually no hesitation either on the part of the government or of international commissions respectively to demand and to allow damages on claims arising out of contract.1 Such acknowledgment has even been held to purge the said that under the word "injury" a mere omission of payment of a debt makes it necessary to bring it to the knowledge of the defendant government. Throughout the commission Palacio held that notice and a refusal of payment were conditions precedent to a valid claim. Union Land Company et al. (U. S.) v. Mexico, Act of Congress, Mar. 3, 1849, Moore's Arb. 3440, service rendered in securing immigrants. Meade (U. S.) v. Mexico, Mar. 3, 1849, Moore's Arb. 3431, expenses incurred in fitting out vessel in service of Mexico. The Hermon, Green (U. S.) v. Mexico, April 11, 1839, Moore's Arb. 3425, repairs and ship stores furnished to a vessel of war. Boulton et al. (U. S.) v. Venezuela, Feb. 17, 1903, Ralston, 26-29, carrying the mails. Turini (U. S.) v. Venezuela, Feb. 17, 1903, Ralston, 51-52, services rendered as a sculptor. The Great Venezuelan Railroad (Germany) v. Venezuela, Feb. 13, 1903, Ralston, 638, railroad forcibly used to carry troops. Hudson Bay Co. (Gt. Brit.) v. U. S., Feb. 8, 1853, Moore's Arb. 3459, goods supplied to shipwrecked sailors and other citizens of the United States to secure their relief from captivity by savage Indians and in repelling attacks, which service the government should have rendered. Underhill (U. S.) v. Mexico, Mar. 3, 1849, Moore's Arb. 3433, charter of a vessel. Ulrick (U. S.) v. Mexico, Mar. 3, 1849, Moore's Arb. 3434, lease of house for legation. Eldredge (U. S.) v. Peru, Jan. 12, 1863, Moore's Arb. 3462, supplies furnished to Peruvian army. Dundonald (Gt. Brit.) v. Brazil, Apr. 22, 1873, Moore's Arb. 2107-2108, military service rendered by Admiral Lord Cochrane. Arbitration between Great Britain and Portugal in 1840, for compensation due British soldiers and officers for services rendered to Portugal in her war of liberation, La Fontaine, 93, 636. It is not the policy of the United States to espouse claims for military service rendered to foreign governments, whether claims for gratuitous or statutory pensions, or payment of salary. Notwithstanding the uniform rule, the Department of State allowed out of the Boxer Indemnity, the claim of General Frederick Ward for services rendered in putting down the "Taiping Rebellion" in China. Several administrations had previously rejected the claim because of its character and intrinsic lack of merit. For. Rel., 1888, I, 199.

On the services rendered to Mexico by American citizens see a pamphlet, "The Republic of Mexico and its American creditors. The unfulfilled obligations of the Mexican Republic to citizens of the U. S. from whom it obtained material aid on credit." (Indianapolis, Douglass & Conner, 1869, 94 p.)

1 Sparrow (U. S.) v. Peru, For. Rel., 1895, II, 1036-1055; settled in 1896, For. Rel., 1896, 492-494; Lord J. Russell to Sir C. K. Wyke, Mar. 30, 1861, in the case of British bondholders whose unpaid bonds were converted into a liquidated debt against Mexico, 52 St. Pap. 238-239; Cox & Elkins (U. S.) v. Mexico, Mar. 3, 1849, Moore's Arb. 3430; Parrott (U. S.) v. Mexico, Mar. 3, 1849, ibid. 3430; Eckford (U. S.) v. Mexico, Mar. 3, 1849, Op. 435 (not in Moore); Mercantile Insurance Co. (U.S.) v. Mexico, Mar. 3, 1849, Moore's Arb. 3429; Meyer (U. S.) v. Mexico, Mar. 3, 1849, ibid. 2380; Rosenwig, Crosby et al. (U. S.) v. Peru, Dec. 4, 1868, ibid. 1651

contract of illegality, as, for example, the unneutral character of the act.

BONDS OF PUBLIC DEBT

§ 116. Claims Arising out of Unpaid Bonds.

We may now consider the third class of contract claims, those arising out of a foreign government's unpaid bonds, held by a citizen. These obligations of the state differ in many respects from the contractual obligations arising out of a contract for concessions or the execution of public works. In the latter case, the government has entered into relations with a definite person; in the former, as bonds are usually payable to bearer and negotiable by mere delivery, the state never knows to whom it is indebted until the bonds are presented for payment.

Some publicists regard such a bond as a contractual obligation subject to the same rules, both in interpretation and enforcement, as ordinary contract debts.1 Hall even goes so far as to liken in principle a breach of a monetary agreement, e. g., the non-payment of public loans, to tortious injuries committed by the government, though he admits a difference in practice in enforcing the two classes of claims.2 The unpaid bond of a foreign government held by a citizen has been a frequent and most perplexing cause of international conflict.

§ 117. Nature of Public Loan and Law Governing.

Before discussing the nature of the enforcement of rights arising out of public debts, it is desirable to examine the nature of the contract and the law governing the transaction of subscribing to the public loan of a foreign state. If the lending citizen is domiciled in the country emitting the loan, the contract may for many purposes be regarded as subject to the law of the debtor country. When, however, as is generally the case in external loans, the lending citizen or subsequent transferee-holder is domiciled not in the debtor country, but in his 1652; Hammaken (U. S.) v. Mexico, Mar. 3, 1849, ibid. 3471; Corcuera (Spain) v. Venezuela, Apr. 2, 1903, Ralston, 936.

1 1 Vattel, Bk. II, ch. XIV, §§ 214–216; Phillimore, 3rd ed., II, ch. III, 8 et seq. See opinion of Findlay, commissioner, in case of Aspinwall before U. S.-Venezuelan commission of 1885, Moore's Arb. 3650.

2 Hall, 6th ed., 276.

own or some other state, difficult questions in the conflict of laws and in international law are encountered. Is the transaction one of private or public law, and if private, what law governs its interpretation?

In the first place it may be admitted that a contract has been concluded. If it is a contract of private law concluded by the state in its capacity as an ordinary contractor (jure gestionis),1 there would be some ground for asserting that the contract is subject to the local law of the debtor state,2 or as the contract is often to be performed in the country of the lending citizen, where the interest and principal are sometimes to be paid, that the law of the place of performance governs. Again, the loan may be subscribed in a third state, as, for example, where a Chinese loan is underwritten by a New York banker, the individual bonds being held by citizens of Germany; the loan having been made in a third state, the lex loci might be regarded as the law governing the contract. Other possibilities have been suggested, as, for example, where the loan has been guaranteed, that the law of the guaranteeing state governs, or that the parties themselves may agree on the law governing the contract.4

3

If the contract were concluded between individuals or between a municipal corporation and an individual, the above theories might warrant consideration. The factor which makes the public loan a contract sui generis is that one of the contracting parties is a sovereign and therefore not subject to the ordinary rules of legal obligation, and

1 We cannot here discuss the distinctions between contracts made by a government in its capacity as a business corporation and engagements contracted in its character as a sovereign. We may merely note the usual rule of the suability of the government on contracts of the former category, and its immunity in the case of contracts of the latter description. See supra, p. 127 et seq., 170.

2 Freund, G. S., Die Rechtsverhältnisse der öffentlichen Anleihen, Berlin, 1907, 64 et seq. This is probably the most thoughtful book on the subject of public loans. Loening, Edgar, Die Gerichtsbarkeit über fremde Staaten und Souveräne, Halle, 1903, 256 and authorities there cited. See also Freund, G. S. Der Schutz der Gläubiger gegenüber auswärtigen Schuldnerstaaten, Berlin, 1910, 14; Pflug, Karl, Staatsbankerott und internationales Recht, München, 1898, 15-16; Cuvelier in 20 R. D. I. (1888), 111.

3 Wuarin, Albert, Essai sur les emprunts d'états, Paris, 1907, 88 et seq.; Imbert, Henri M., Les emprunts d'états étrangers, Paris, 1905, 50 et seq., 96.

Meile, Fr., Das internationale Zivil- und Handelsrecht, II, 57; Clerin, Georges, Inexécution par un état de ses engagements financiers extérieurs, Dijon, 1908.

the other a non-resident alien, against whom the local territorial law is not enforceable. The debt is generally authorized and created by an act of legislation, which escapes all judicial review. The inherent reservation of the possibility of modifying the terms of the loan, suspending or even repudiating it by an act of sovereignty similar to that which created it, has led some writers to the conclusion that the obligation of the state is one of honor only, a moral, and not a legal obligation,2 so far at least as its enforcement in municipal courts is concerned. Freund tells us that several German writers regard it as discretionary with the state whether it will take up foreign loans.3 Zorn even regards the payment of interest as the exercise of a sovereign right. The failure of a state therefore to take up a public loan, not being justiciable in municipal courts, has been regarded as not legally a breach of a contractual obligation. This confuses the nature of the contract with the means of its enforcement.

4

The foreign citizen would never lend his money on such uncertain security. He does in no sense regard himself as subject to the local law of the debtor state, as he has never entered its territorial jurisdiction. His rights as lender and the obligations of the debtor are derived from the contract of loan which neither the creditor nor his government regards as purely one of private law to be interpreted by the local courts of the debtor state.

The mixed private and public nature of the transaction of subscribing to a foreign loan shows that it partakes of the nature of an international contract, and that its breach, if not justiciable before municipal courts, does give rise, under certain circumstances, to the diplomatic interposition of the national government of the creditor, and in practice has at times resulted in armed intervention. These questions will be discussed hereafter.

The transaction of subscription to a foreign public loan is not

1 Freund, Der Schutz der Gläubiger, etc., 15; Wuarin, op. cit., 34.

2 Bar, Ludwig von, The theory and practice of private international law (2nd ed., trans. by G. R. Gillespie, Edinburgh, 1892), 1152, and certain French cases there cited; Politis, Nicholas, E., Les emprunts d'état en droit international Paris, 1894, 280; Milanowitsch, cited by Freund, Rechtsverhältnisse, etc., 56.

3 Freund, Schutz der Gläubiger, 13.

Zorn in Bankarchiv, VI, 106, cited by Freund, Schutz der Gläubiger, 13.

purely an international contract, for this could be concluded only by states and not by a state and the subjects of another state. The contract is, however, by its nature under the protection of international law and is what Bluntschli called a quasi-international contract.1 There is certainly some analogy between a contract (1) between Venezuela and Germany and (2) between Venezuela and a German citizen, for the building of a vessel or the borrowing of money. Neither contracting party in these cases would be willing to submit to the national municipal law of the other.

$118. Remedy in Municipal Courts.

If we turn to the jurisdiction of courts and the means of enforcement of the contract, the international nature of the legal relation created will become apparent. While in theory the jurisdiction of the courts of the debtor state may be invoked, several contingencies in connection with the public loan must always be borne in mind. First, the debtor state may or may not permit itself to be sued.2 While most states now freely subject themselves to suit in cases of ordinary contracts, many states still decline to extend this right so far as the public debt is concerned. Many states of the United States have repudiated their debts and have declined to permit themselves to be sued on them.3 Again, as the public loan is created by legislation, an act of sovereignty, so it may be suspended, reduced or even repudiated by a similar act 1 Bluntschli, Das moderne Völkerrecht der civilisirten Staaten, Nördlingen, 1878, 3rd ed., §§ 442, 433 (b); Pflug, op. cit., 40-41.

The argument against the international nature of the contract of public loan, that individuals cannot derive rights from international agreements, as they are not subjects of international law, has been greatly weakened by the Hague Convention for the establishment of an international prize court, and the growing opinion, shared by authorities like Westlake and Bonfils, that individuals may derive subjective rights from international agreements. See also art. 2 of the Convention establishing the Central American Court of Justice. See supra, § 9.

Twycross v. Dreyfus, 36 Law Times Rep. (N. S.) (July 21, 1877), 752, 755. See also Moulin, La doctrine de Drago, Paris, 1908, 86 et seq.

'Scott, William A., The repudiation of state debts, New York, 1893, particularly Chap. I, in which the constitutional and legal aspects, with the decisions of the Supreme Court and state courts are lucidly presented. The United States has considered itself not responsible for the debts of the repudiating states, and has therefore declined the proffer of foreign governments to arbitrate the claims of their nationals, holders of the repudiated bonds of these states.