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to function and operate directly upon the occurrence of an event when its services are properly requisitioned; it tends to remove dangers of interruption of service. If it is reasonable and lawful to encumber through a mortgage the particular property pledged as security, it is equally reasonable to utilize the services of a trustee for the success of the transaction. If the local laws present a definite obstacle, dangers of invalidity may compel abandonment of such an agency. If they do not, it is obviously desirable to place the trustee in a position where it may fully and freely conserve every asset constituting security, and thereby assist the borrower in the performance of its duties as such. To that end the question may present itself in a particular case as to the desirability of utilizing as trustee an entity strongly represented if not resident within the place where the security is located, especially if the latter be immovable property.

Irrespective of the nature of the security given, it may be of concern to the lender that the proceeds of a loan be so conserved and so expended as either to increase generally the power of the borrower to repay interest and principal, or to enhance definitely by some specific means assurance of faithful service. Opportunity for so doing may not be apparent when funds are wanted for the general purposes of the borrower. Again, the known character and stability of the borrower may be such as to demand no external watchfulness over its expenditures. On the other hand, where the purpose of a loan is for a particular outlay in a specified place, as, for example, an industrial development, the lender may be enabled, and may deem it necessary to provide through the terms of its agreement, that dangers of wastefulness or extravagance or cupidity be minimized or eliminated; and in some cases that the funds loaned be rendered productive of an income adequate for service. Devices appropriate to such an end are not open to practical objections oftentimes raised against certain forms of security. It is in no sense in derogation of the rights of the public borrower that the lender should exercise a degree of oversight or control over the expenditure of funds furnished by itself. Methods of so safeguarding the lender are various and familiar. A few may be noted. Where, for example, a loan is negotiated for the construction of a railway in the territory of the borrower, it may be of highest importance that the proceeds be deposited in a bank designated by the lender and subject to withdrawal solely under warrants issued under the approval or inspection or oversight of the lender or its agent. In certain cases it may become important to have methods of accounting fixed according to an accepted standard and in a particular language, and perhaps under the management of an accountant of the nationality of the lender and to be appointed with its approval. Again, it may be highly desirable to provide for an audit by an auditing officer appointed with the approval of the lender. Finally, the entire matter of expenditure may need to be subjected not merely to the oversight of the lender, but to the actual control of some agency in its behalf, such as a trustee; or arrangement may be required for service (at least contingently) out of the very proceeds of the loan. In a word, whenever unfamiliarity on the part of the borrower with European or Western civilization and the business methods thereof, or insufficient experience with large industrial developments, or other kindred considerations so dictate, the conservation of the proceeds of the loan, in furtherance of the design of the parties, by the lender or a trustee must be regarded as beneficial to the interests of both parties to the transaction. The appropriateness of the method of conservation to be utilized in the particular case will depend largely upon the nature and record of the borrower. That requiring adoption may serve to harmonize conflicting equities, by establishing safeguards for the benefit of the lender, and by avoiding dangers of resentfulness to be anticipated from injury to the pride of the borrower.22

By way of summary, the following points in relation to security deserve emphasis:

First, if security is needed, it should, regardless of its form or nature, be placed, whenever possible, wholly beyond the reach of the borrower and within the control of the lender or a trustee.

Secondly, except under special conditions rarely if ever present when the borrower is an independent state recognized for all purposes as a full-fledged member of the society of nations, the security should not assume a form such that utilization of it by the lender or a trustee involves the exercise of public functions locally deemed subversive of the sovereignty of the borrower and offensive to its national pride.

Thirdly, some degree of control or oversight by the lender or a trustee of the expenditure of proceeds of a loan must operate, whenever agreed upon, to conserve the strength of the borrower and proportionately safeguard the interests of the lender.


A few miscellaneous matters merit attention. In order to eliminate dangers of conflicting interpretations, it is obviously wise to make provision that one version of the agreement in a specified language be controlling.23 To the same end it may be deemed wise to announce that the contract is to be construed as one concluded in pursuance of, and with a view to the operation of the laws of, a particular state. Controversy between the parties during the life of the loan should be anticipated; and especially issues concerning which agreement between them proves to be incapable of attain

B It may be observed that while no consideration can ever outweigh the value of a safeguard essential to the protection of the lender at all times during the life of the loan an unnecessary precaution which roughly ignores the feelings of the borrower and is contemptuous of its pride is not likely to prove beneficial to the transaction or really advantageous to the lender.

u Instances are numerous.

ment. To meet that contingency there should be arrangement for some mode of adjustment outside of the exclusive control of the borrower. The right of the lender to invoke and utilize in case of need the diplomatic interposition of its own government should be appropriately acknowledged in case the borrower is known to be disposed to object to such procedure. The lender and its government should not be exposed to the contention of the borrower, under any circumstances, that diplomatic interposition is premature or unreasonable or at variance with common practice. A loan agreement may provide that in case of controversy, the issue shall be referred to the Secretary of State for adjustment by him.

The known approval of the government of the lender is of value, partly because of the removal of grounds of possible conflict between that government and the lender, should it become important for the latter to invoke the interposition of the former, and also because of the influence of such approval and cooperation upon the mind of the borrower. Frequently American lenders have voluntarily submitted the terms of proposed agreements to the Department of State. At times, as has been seen, American loans have been conditioned upon the cooperation of the Government of the United States.*4 Again, international banking arrangements between groups representative of several states have announced governmental undertakings to support those groups.*4 Recently, the Department of State has announced a desire that American concerns contemplating foreign loans inform it in due time of the essential facts and of subsequent developments of importance; and it has manifested a readiness to endeavor to say, in response to the inquiry of a prospective lender, in the light of information in its possession, whether or not there exists ground for objection to a proposed loan. Moreover, it has expressed belief that "in view of the possible national interests involved," it should have opportunity of saying to the underwriters concerned, should it appear advisable to do so, that there is or is not objection to any particular issue.2* The reasonableness of this

u This was true in the case of a proposed loan to Honduras in 1911.

* See, for example, Text of China Consortium Agreement of October 15,1920, this JocrtNal, January, 1922, Vol. 16, p. 4. See also note of Secretary Hughes to Messrs. J. P. Morgan and Company, March 23, 1921, declaring that the principle of cooperative effort for the assistance of China, through the operations of the Consortium, had the approval of the Government. Pamphlet No. 40, Division of International Law, Carnegie Endowment for International Peace, p. 74.

"See Department of State, Statement for the Press on Flotation of Foreign Loans, March 3, 1922. In this statement it was declared: "but it should be carefully noted that the absence of a statement from the Department, even though the Department may have been fully informed, does not indicate either acquiescence or objection.

"The Department of State can not, of course, require American Bankers to consult it. It will not pass upon the merits of foreign loans as business propositions, nor assume any responsibility whatever in connection with loan transactions. Offers for foreign loans should not, therefore, state or imply that they are contingent upon an expression from the Department of State regarding them, nor should any prospectus or contract refer to the attitude of this Government."

announcement ought to be apparent. It is due to the international and essentially public character of agreements arranging for the flotation of foreign public bonds in the United States, and to the direct effect of such transactions upon the economic and political relations of the United States with the governmental borrowers. American bankers are not likely to be blind to this circumstance or to be indisposed to act in harmony with the wishes of the Government.


By Dr. Wolfgang Mettgenberg
Oberregierungsrat in the Ministry of Justice of the German Reich

In the evening hours of the 8th of March, 1921, the president of the Spanish Council of Ministers, Don Eduardo Dato, was assassinated as he was bound from the Senate for his home. From a motorcycle occupied by three persons, which followed the automobile of the Prime Minister, numerous shots were fired on the Plaza de la Independencia at the rear of the automobile, penetrating the wall and upholstery and wounding Dato so severely that he died upon entering the first aid station. The investigations soon showed that the act had been committed by members of the Sindicato Unico. As perpetrators of the deed especially Pedro Matheu, Ram6n Casanellas Lluch, Luis Nicolau Fort and his wife Lucfa Joaquina Concepci6n were sought, but the competent authorities assumed that the number of participants was far greater. Pedro Matheu was soon seized on Spanish soil and arrested in Madrid. The traces of the remaining participants led by way of Barcelona over the national boundary into France, Germany and Russia. Warrants issued on March 24 and 26, 1921, and notices requesting apprehension given on August 1, 1921, did not at first achieve their purpose. In France, certain suspects were seized, but they had to be released upon expiration of the maximum period for preliminary arrest provided for in Article 7 of the French-Spanish extradition treaty of December 14, 1877. Ram6n Casanellas Lluch had been warned by the premature publication of the arrest of accomplices and he had succeeded in escaping to the territory of the Russian Socialistic Federal Soviet Republic. On the other hand, the German police, supported by the Spanish, found in a suburb of Berlin Luis Nicolau Fort and his wife Lucfa Joaquina Concepci6n, who had arrived from Paris under a false name on October 25, 1921, and had found refuge with supporters of the Communist Party. On October 29 they were temporarily seized with a view to subsequent extradition under Article 9, paragraph 1, of the extradition treaty between Germany and Spain of May 2, 1878. Other Spanish nationals also suspected of being implicated in the assassination of Dato, who were likewise taken into preliminary custody, were later released in accordance with Article 9, paragraph 2, of the GermanSpanish treaty because the maximum period for temporary arrest expired

* Translated from the German by Mr. E. H. Zeydel, of Washington, D. C.

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