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, 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.

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.

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.

of sovereignty, by which the national courts are bound. The creditor, therefore, is juridically opposed to a sovereign who may with perfect legality, by an act of sovereignty, deprive him of his substantive right and of his remedy. In other words, the state in the exercise of its sovereign powers may regulate the execution of its contract of loan in any manner conformable with its public interest.1 Again, the improbability in many states of securing an impartial judicial determination by national courts in cases of this kind makes the creditor's position precarious. To sue the debtor state on a public loan, therefore, is practically useless. There are some states whose national courts might grant a creditor relief. These are the states that are never sued on their national debts.

To sue the debtor state before the courts of the creditor is still less practicable. As a general rule municipal courts decline to take jurisdiction over foreign states as defendants.2 The exception of voluntary

1 Lewandowski, Maurice, De la protection des capitaux empruntés en France par les Etats étrangers, Paris, 1896, 24 et seq. While apparently accepted as a principle, the theory is by no means undisputed that a state contracts a public loan in its character as a sovereign, jure imperii, and is not bound contractually to its creditors. See Moulin, H. A., La doctrine de Drago, Paris, 1908, 76 et seq.; Freund, Rechtsverhältnisse, etc., 59-61; speech of M. Ruy Barbosa (July 23, 1907) at the Hague Conference of 1907, Actes et Discours de M. Ruy Barbosa, 60 et seq.; see also the recent case of De Andrade v. the government of Brazil, reported in 40 Clunet (1913), 237. 2 Bynkershoek is the father of this theory.

Loening, E., Die Gerichtsbarkeit über fremde Staaten u Souveräne, Halle, 1903 is one of the leading works on the subject. The opinions of courts are discussed, p. 23 et seq.; the opinions of writers, p. 55 et seq.; Christian Meurer, Klagen von Privatpersonen gegen auswärtige Staaten, 8 Ztschr. f. Völkerrecht (1914), 1-47, and supra, § 72. See also Brie, Fischer & Fleischmann, Zwangsvollstreckung gegen fremde Staaten u Kompetenzkonflikt, Breslau, 1910, containing three opinions. rendered at the request of Russia in the case of Hellfeld v. Russia on the question of the jurisdiction of German courts over funds of Russia in Germany and the possibility of execution against them. The translation of the decision of the German court for the determination of jurisdictional conflicts in the now famous Hellfeld case may be found in 5 A. J. I. L. (1911), 490–519.

See on the whole subject an able article by Droop in 26 Gruchot's Beiträge zur Erläuterung des deutschen Rechts, 289–316, in which the decisions of courts are carefully reviewed. Some writers have made a distinction as to jurisdiction over foreign states, depending upon whether the transaction in question involved the defendant state in its capacity as a sovereign (jure imperii) or as a fiscus (jure gestionis), granting immunity from jurisdiction in the former case, but asserting it in the latter. The most noteworthy of these writers are Laurent, Droit civil international, Paris,

submission and questions concerning real estate are hardly of practical significance for the present case.

1

The French courts take the firm position that bondholders of the debt of a foreign state cannot sue before the French courts. The English courts have usually declined to exercise jurisdiction over foreign states, and in the case of bondholders of foreign debts have unequivocally declared themselves jurisdictionally incompetent.2 This is the rule of the German and Austrian courts 3 and has been the uniform rule in courts of the United States. In Belgium and Italy the courts seem to have adopted the distinction of administrative law between transactions of the state undertaken jure imperii and jure gestionis, and to have exercised jurisdiction in the latter case.5

If there were still any doubt as to the impracticability of relief by suit against a foreign government in municipal courts, it would be dispelled by the certainty that execution of the judgment, even if obtainable, is practically impossible. No legal process lies against the property of a foreign state, and even the jurisdictional distinction made by some courts between acts jure imperii and jure gestionis is disregarded in the matter of execution. The exception of actions involving real estate does not concern us here. Even attachment and garnishment proceedings against the movable property of foreign sovereigns are almost uniformly dismissed."

1880, III, 42–103, and von Bar, op. cit., 1101 et seq. They have been followed by a number of courts, notably those of Belgium and Italy. Supra, p. 176.

1 See the cases cited in Weiss, A., Traité de droit international privé, V, 94; Loening, op. cit., 45.

2 Westlake, J., A treatise on private international law, London, 1905, 4th ed., §§ 190, 192 and cases there cited. See particularly Twycross v. Dreyfus (1877), 36 Law Times Rep. (N. S.) 755, 757, decision of Jessel, M. R.

3 Citations of cases in Brie, op. cit., and Loening, op. cit., 23 et seq.

Moore, J. B., in his American notes to Dicey, A. V., A digest of the laws of England with reference to the conflict of laws, London, 1896, p. 229. See leading case of Schooner Exchange v. McFaddon (1812), 7 Cranch, 116; 30 Cyc. 104, and cases there cited.

$ Cases cited in Loening, op. cit., 52-54.

Brie, op. cit., 45 et seq.; Loening, op. cit., 139 et seq. See the cases of von Hellfeld v. Russia, supra; De Reilhac, Trib. civil de la Seine, June 12, 1895, 40 Clunet (1913), 907, and Mason v. Intercolonial Railway of Canada (1908), 197, Mass. 349. See article by Nathan Wolfman, "Sovereigns as defendants," in 4 A. J. I. L. (1910),

Fi

It is thus apparent that national municipal courts, either of the debtor state or of the country of the creditor, are unable to secure the unpaid creditor any remedy. He is not left helpless, however. The sanction for a violation of his rights is found in international law and practice, in that states have frequently interfered in behalf of their creditor subjects to secure the payment of unfulfilled national obligations of foreign states. Before examining the legitimacy of diplomatic interposition and intervention for such unpaid creditors, let us inquire into the nature of the transaction by which a citizen becomes a holder of a share in the public debt of a foreign nation.

§ 119. International Remedies. The Drago Doctrine.

It has already been observed that the emission of a public loan takes place by legislative act. The individual abroad may obtain the bond either through a direct transaction with the government or through a banker who has underwritten the loan. As a general rule, however, the bonds are purchased in the open market as industrial securities would be, without any direct relation with the debtor government. Being payable to bearer, they pass from hand to hand, from national to national, by mere delivery.

Again, the price paid takes into account the value of the security, both intrinsically and as an investment. Thus the solvability of the government bears a direct relation to the price of its bonds. Weak and unstable governments must sell below par and pay high rates of interest. The original capitalist takes advantage of the necessities of the borrowing state and exacts discounts and interest accordingly, and subsequent dealers in the bonds know the conditions equally well. The legal fact that the emission was an act of sovereignty, that the debt may be repudiated or reduced by a similar act, that the usual civil remedies are barred, and that the state is the sole judge of its ability to pay, are known to all parties to the transaction. The investor therefore buys with full notice and assumption of the risks, and has weighed the probabilities of large profits against the danger of loss.

It is for these reasons that it seems unfair, both to the debtor state 373-383, in which a departure from the general rule is urged in favor of jurisdiction over property engaged in private or commercial undertakings.