V. DEBTS.

While reciprocity can not be accorded in all respects, the allied and associated powers have nevertheless applied this principle wherever it has been possible. Such is the case with regard to the clearing-office system provided in the conditions of peace. Reciprocity is complete in so far as regards individuals. The system departs there from only in so far as regards the nonpayment to Germany of balances which may become due by the allied and associated powers, and this provision is merely the application of the principle of the retention of enemy property for payment of claims. 1. Provision of article 296 (e), under which each of the allied and associated powers, but not Germany, is able to decide whether the scheme is to be applied between Germany and any allied power or

not:

It is not possible to give both the allied or associated power and Germany an option whether to adopt the scheme or not, for the result might be that one power would decide to adopt it and the other not to adopt it.

2. Provision of article 296 (d) that debts shall be paid in the currency of the allied or associated power concerned at the prewar rate of exchange:

Owing to the great depreciation in the value of the mark, some hardship will necessarily result in the settlement of prewar debts whatever basis of settlement may be adopted. The method provided for is as fair to both sides as could be devised. While under this scheme an allied creditor who is owed a sum in marks by a German debtor will receive an equivalent amount in allied currency at the prewar rate of exchange, a German creditor of an allied debtor who owes a sum in marks will also be credited with the amount of allied currency calculated at the prewar rate of exchange, so that reciprocity is accorded in this respect.

3. Prohibition of direct agreements between debtors and creditors: It appears that one of the objections to the prohibition of direct agreements between debtors and creditors is that such prohibition will prevent modification of the amount of the debts. An essential part of the scheme is that debts shall be guaranteed by the Governments concerned and paid in full, and no provision which would enable debtors and creditors to agree to be satisfied with some smaller amount than the full claim can be admitted.

4. (Article 296, paragraphs 3 and 4:) The reserve contained in article 296, paragraphs 3 and 4, provides for a case in which the payment of interest on government securities shall have been suspended or deferred with regard to all the holders of these government securities whatever their nationality. The clearing-office system ought not to have the effect of allowing a former enemy to receive interest when holders who are nationals of the State by which the loan was issued or neutrals have not been paid. This provision is reciprocal. Ex-enemy holders of similar securities will receive. arrears of interest under the same conditions as other holders.

5. (Article 2966:) The German delegation objects to the guaranty of the State for the debts of its citizens only on the ground that reciprocity is not given. Full reciprocity is given with regard to this guaranty. The necessity for retaining any balance in favor of Ger

many arises, as explained above, from the fact that the immediate resources of Germany are not adequate to meet her obligations.

An explanation is desired of the terms "bankruptcy," "failure." and "formal indication of insolvency." These terms indicate conditions in which it has been recognized, in accordance with the laws of the State where a debtor resides, that he is not in a position to meet his liabilities in full.

6. (Article 296c:) As explained above, there is nothing inequitable in the provision with regard to the currency and rate of exchange to be adopted for payment of debts. It is further suggested in the German note that the method of settlement adopted will create a great demand for bills of exchange in the currency of the allied and associated powers, and that this will necessarily lead to a further depreciation of German currency. There is no reason to anticipate such a result, for the balance due by Germany will in practice be settled by crediting Germany with the proceeds of German property liquidated in allied or associated States.

7. (Article 296d, last paragraph:) As regards the rate of exchange in the case of new States, due regard will no doubt be paid by the reparation commission, in fixing the rate of exchange, to the provisions in force in the new States as to the relations between its currency and the currency previously existing in its territory.

8. (Article 296e:) The German delegation points out that a period of six months is allowed within which any allied or associated State may decide to adopt the clearing-office scheme, and suggests that if it is to be put into operation a speedy decision should be required. In this respect satisfaction can be given to the German delegation, and for this purpose the period of six months can be reduced to one month from the date of ratification of the treaty of peace by the interested power.

9. (Article 296 f:) This article provides for the possibility of two allied and associated States which have adopted as regards Germany the clearing-office system, agreeing that nationals of one in the territory of the other shall be treated as nationals of the latter with. regard to the payment of their prewar debts to Germans and the recovery of debts owing to them by Germans.

Article 72 (special provisions with regard to Alsace-Lorraine): In fact and in law economic relations between Alsace-Lorrainers and Germany have been suspended by the occupation and by the armistice. They will only be resumed at a later date.

It is therefore necessary that the debts of which the payment has been suspended should be regulated by a special clearing office at a fixed and reciprocal rate of exchange.

The only debts here in question are those between Alsace-Lorrainers who acquire French nationality on the one hand, and the German Empire, German States, and their nationals on the other hand.

VI. PROPERTY, RIGHTS, AND INTERESTS.

Articles 297 and 298: The German delegation refers in the first place to the observations in its note of the 22d May with regard to private property, rights and interests. The allied and associated powers have examined above the principles involved in that note.

The remarks of the German delegation repeat the objection as to the right reserved to the allied and associated powers to liquidate German property after the coming into force of the treaty: to apply measures of liquidation in territory detached from Germany: and to avail themselves at once of the advantages of the settlement provided for in the conditions of peace..

It is sufficient to refer on this subject to the explanations already given pointing out that the use of property in the manner provided is an essential means for the allied and associated States to recover a part of their claim. It is necessary, therefore, for this principle to be applied as widely as possible, and there can be no question of limiting it to property in allied territory as that territory existed before the war, or to property which has already been liquidated during the war.

Nevertheless it appears possible to provide a special régime in this respect so far as regards the newly created allied and associated powers and those which are not entitled to reparation in accordance with the conditions of peace.

So far as regards these powers provision is now made that, without prejudice to the rights given to the reparation commission by the present treaty, the proceeds of liquidation shall in certain cases be paid direct to the owner. If on the application of the owner the mixed arbitral tribunal provided for by Section VI, or an arbitrator appointed by that tribunal, is satisfied that the conditions of the sale or measures taken by the allied or associated Government by which the liquidation has been effected, outside their general laws, were unfairly prejudicial to the price obtained, they shall have discretion to award equitable compensation to be paid by the allied or associated Government concerned to the owner.

Certain provisions of article 297 of the conditions of peace are further made the subject of observations by the German delegation with regard to special matters.

1. The note of the 22d May refers to paragraph 10 of the annex to Section IV relating to the handing over of securities, certificates, and like documents of title with regard to property situated in allied and associated countries. With regard to such delivery the allied and associated powers have simply adopted a different method from that which Germany herself has adopted in like matters, but with no variation of principle. Germany, in case of similar liquidations of allied property, gave new securities or certificates to German or neutral nationals, excluding allied or associated nationals from the companies or associations concerned. The allies have considered it preferable for the purpose of liquidating German interests in allied enterprises to require from Germany the direct delivery of the securities and documents of title held by Germans. This difference in method gives no reasonable ground for complaint.

2. (Article 297 ƒ and g :) The German delegation asked for an explanation with regard to the conditions in which nationals of allied and associated States who are owners of property which has been subjected to a measure of transfer in German territory can require the restoration of such property. This power is given to nationals of allied and associated States in the territory of which legislative measures requiring the general liquidation of enemy property were

not in application before the signature of the armistice. It does not appear that this provision can be misunderstood. Legislative measures requiring general liquidation clearly mean those which, as in Germany, have been passed by the legislative authority and were applicable to all the property of nationals of an enemy state.

The restoration in specie has the effect of assisting in the settlement of the compensation provided for nationals of allied and associated powers, and limiting the inconveniences falling upon Germany from the depreciation of the mark.

3. The German delegation also asks for explanations as to the disposal of the proceeds of liquidations of German property.

Such disposal is clearly dealt with by article 297 (h) and paragraph 4 of the annex to that article, giving the allied and associated powers the right to employ the proceeds of these liquidations as there specified.

4. (Annex, paragraph 1:) The proviso at the end of the first part of the paragraph that the provisions of the paragraph shall not be held to prejudice the titles to property heretofore acquired in good faith and for value and in accordance with the laws of the country in which the property is situate by nationals of the allied and associated powers is inserted in order to prevent the rights of allied nationals being prejudiced by the confirmation of action taken by the allied and associated States. This proviso will not affect the rights of German nationals.

5. (Annex, paragraph 5:) The object of this paragraph is to require the restoration to the virtual owner of trade-marks outside Germany, which, through liquidation proceedings taken in Germany, have been transferred to other persons. It may be pointed out that the operation of the paragraph is limited to cases in which before the war the company incorporated in an allied and associated State had rights to the use of the trade-marks or methods of reproduction referred to in the paragraph, and that the German company will be allowed to continue the use of the trade-marks in Germany and will also be able to manufacture in Germany.

6. The German claim that the property of German institutions for research and education shall be wholly exempt from liability to liquidation can not be conceded in view of the past activities of some of the institutions which nominally exist for the above purposes. Nevertheless, in the exercise of their rights under article 297 with regard to any particular institution, the allied and associated powers will have full regard to the interests of the advancement of science and education and of organizations bona fide limited to these objects.

The following explanations should be added on certain points referred to in the German note of May 22:

It is suggested in the German note that the allied and associated Governments reserve for themselves the right of extending the progress of liquidation to German property which may come within their territory in the future. In explanation it may be said at once that paragraph (b) of article 297 will be applied only to property as it exists on the coming into force of the treaty of peace.

The German delegation suggests that there may have been corrupt or fradulent machinations by persons in the allied and asso

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ciated States dealing with the liquidation of German property. The allied and associated States are ready to give full assurance that procedings will be taken against persons who have committed punishable offenses in the liquidation of German property, and that they will welcome any information and evidence which the German Government can furnish in this respect.

Finally, the German note states that it appears to be reserved to the allied and associated Governments to reach arbitrary decisions as regards the amount of the claims of their nationals in respect of acts committed by the German Government between July 31, 1914, and the date at which the respective allied or associated States entered the war. The allied and associated Governments agree that, so far as such claims are concerned, their amounts may be assessed by an arbitrator appointed by M. Gustav Ador, or if M. Ador can not make the appointment, by an arbitrator appointed by the mixed arbitral tribunal.

VII. CONTRACTS, PRESCRIPTIONS AND JUDGMENTS.

I. CONTRACTS.

In the provisions of the treaty the determination of the question of the maintenance or dissolution of contracts depends on the fact of trading between the parties being unlawful, because if such trading was not unlawful the contract could have been completed.

The provisions with regard to contracts do not apply to contracts between German nationals and the nationals of the United States of America, of Brazil, and of Japan, because the constitution and law of those countries create difficulties in applying these provisions to their nationals.

It is suggested by the German delegation that the continuance of contracts between enemies is made dependent on the inclination of the allied and associated States or of their nationals alone, but in the first place the exception contained in paragraph (b) of article 299 is limited to cases in which the execution of a contract is required in the general interest, and in the second place, the execution can only be required by the allied or associated Government concerned and not by a national of that State. The same paragraph also provides for equitable compensation being granted where the maintenance of the contract would, owing to the alteration of trade conditions, cause one of the parties substantial prejudice.

It is suggested further that this provision would make German contractual interests in the future a prey to the arbitrary will of aliens, but in accordance with the terms of paragraph (b) the execution of a contract thus maintained must be required within six months from the coming into force of the treaty.

The German delegation suggests that the future treatment of prewar contracts can not be solved in one and the same way for all classes of contracts, and it may be pointed out that certain classes of contracts, which are specified in paragraph 2 of the annex, are excepted by that paragraph from the general rule of dissolution laid down by article 299.

Article 299 (d): It is suggested that some particular favor is shown to inhabitants of transferred territory who acquire the nationality of an allied power, by excluding contracts between allied