Papers Relating to Foreign Affairs, Accompanying the Annual Message of the President to the First Session Thirty-ninth Congress
Mr. Adams to Mr. Seward
Sir:. I have the honor to transmit to you a copy of the Morning Post, containing a report of the proceedings at an adjourned meeting of the holders of the cotton bonds. It will there be seen how a learned British expounder of the Constitution of the United States, undertakes to set aside all the wisdom of Marshall and Kent and Story upheld by the verdict of the people and confirmed by the result of an appeal to the sword.
I have the honor to be, sir, your obedient servant,
Hon. William H. Seward, Secretary of State, Washington, D. C.
The seven per cent. cotton loan of the Confederate States of America.
Yesterday afternoon an adjourned meeting of the holders of the above loan was held at the London tavern, for the purpose of receiving a report of a committee appointed at a meeting held on the 4th of September last. Vice-Admiral Sir Provo William Parry Wallis, K. C. B., was called to the chair.
Mr. J. M. Chamberlain, a member of the committee, submitted the report, which was designed to inform the bondholders of the steps which had been taken to place their interests on a firm and legal basis. In the course of a long correspondence with various parties, the committee ascertained from Messrs. Schroder & Co. that the amount of the bonds of the seven per cent, cotton loan in circulation were: Amount of bonds issued, £3,000,000; amount of bonds exchanged for cotton certificates, £376,600; amount of bonds redeemed by the drawings, £204,600; making together, £581,200; amount of bonds at present in circulation, £2,418,800. The committee had thought it their duty to ascertain precisely the legal status of the bondholders, and therefore they submitted a case drawn up with the utmost impartiality to Mr. Fleming, Q. C, and the Times’ report of “The United States of Amer ica v. Prioleau and others,” before Vice-Chancellor Sir W. P. Wood, was laid before him. Mr. Fleming was requested to consider the rights and liabilities of the contractors and agents of the loan, and whether any and what means could be adopted to force them to disclose what funds, if any, they had in hand belonging to the late government, and to compel their application in part liquidation of the claims of the bondholders. Mr. Fleming gave the following opinion: “The more important questions involved in this case are of such magnitude and difficulty that my opinion upon them has been come to with much anxiety and hesitation, and is given with great diffidence. Upon the best consideration which I can give, it appears to me that the loan in question was validly created, although, of course, whatever may be the strict rights of the parties, it is in the power of the conquering party to disallow and reject it. I think that the Confederate States may properly be deemed to have been a de facto independent State from the time of the secession until they were finally conquered. They possessed within themselves, and over the States and populations which submitted to their government, every attribute of sovereign authority; and the internal sovereignty of a State does not in any degree depend upon its recognition by other States. The United States date their existence from the Declaration of Independence in 1776, and not from the subsequent treaty with Great Britain, or any other recognition by foreign powers. (Wheaton on International Law, chap. 11, p. 1, sec. 6.) The Confederate States cannot, I humbly conceive, be likened to a part of an European kingdom in rebellion against its sovereign. All the original States of the Union had been separate and distinct colonies of Great Britain, owing no obedience and no obligations to each other, and when they united or confederated together they did so as distinct and independent States. The articles of confederation of 1778 expressly reserved to each State its sovereignty, freedom, and independence, and every power, jurisdiction, and right which was not by the constitution expressly delegated to the United States in Congress [Page 621] assembled. The powers, jurisdictions, and rights delegated to the Congress by the 8th section of the 1st article of the Constitution of 1787, and yielded up by the several States by the 10th section of the same article, appear to me quite consistent with the maintenance of the sovereignty, freedom and independence of each State; and the 10th additional article of the Constitution expressly provided, ‘That the powers not delegated to the United States by the Constitution, nor prohibited to it by the States, are reserved to the States, respectively, or to the people.’ The several States agreed and contracted that part of their sovereign and independent power should be exercised for them by a Congress, the members of which shoulp be chosen by the several States, and by a President and other officers selected and acting under the provisions embodied in the Constitution of 1787, but they reserved to themselves all the other sovereign rights, and by no means made the inhabitants and subjects of each State subjects of the President, or of any authority at Washington, or blended the several States into a common empire. The arrangement between the several States originally embodied in the articles of Constitution of 1778, and subsequently in the Constitution of 1787, appears to me to have been not the creation of a sovereignty which the people accepted as subjects, but merely a compact or agreement, binding no doubt upon the States which were, or which became, parties to it, so far as it could be enforced against them, but not making the refusal of a State to act in obedience to, or in conformity with it, an act of rebellion. My opinion consequently is, that although the Confederate States may have been acting in violation of the provisions of the Constitution, they were acting as sovereign and independent States—owing no obedience as subjects to any authority; and that when they seceded from the Union they broke through the compact or agreement of their predecessors, but violated no allegiance, and that whilst unsubdued they maintained their sovereignty, and, as a necessary incident to it, their power to contract loans and to pledge the property of each of the confederated States as security for their repayment. The body which contracted the cotton loan consisted of especial representatives from the several States which united in confederation, having, as I conceive, full power to bind the States which they represented; and I am further informed that the State legislatures of most of the Confederated States, by separate acts, adopted or confirmed the loan, although it was made in the name of the Confederated States. Every guarantee which could make the Confederated States, jointly and each of them, respectively liable for the repayment of the loan appears to have been given; and unless their existence as independent States has been lost before the loan was contracted, it appears to me that there is no ground on which its original validity can be successfully called in question. Secession could not forfeit, and I do not understand that it did forfeit, the independence or the sovereignty of the several States of the confederation; and I think it must be deemed that those States continued to hold their authority as sovereign States until they were finally subjugated. The illegal or improper usurpation of the government of those States, as such government was actually held and exercised, would make no difference. If the view which I have formed as to the original validity of the loan be well founded, then the United States have taken the property of the Confederated States subject to the charge for the loan, and which has by conquest become the property of the United States, continues liable to the charge, and can only be obtained by the United States subject to the liability which previously attached to it. The case is different in fact, but not in principle, in regard to property in America and under the immediate control of the conquerors. With that, of course, the successful party can deal; and if it be their pleasure to deny the validity of the loan, I do not see any means by which their right to take the property of the States which they have conquered, repudiating the liability to creditors under the loan, can be questioned in America. But whatever may be the actual power of the conquering States, as the Confederate States did, in fact, for a considerable time maintain their, separate and independent existence, and as during that time they contracted the loan*, if the principle all but universally acted upon in Europe be applied, the loan ought to be admitted. The government of a State which is de facto independent raising loans is held to have the power of binding the State, although the government be a revolutionary government; and the greatest blame has been attributed to the successive governments of Spain because that country repudiated the loans raised by the Cortes, whilst the government kept the king in reality as a prisoner; and I am informed that up to the present day the merchants of the principal kingdoms of Europe refuse to allow any public loan for Spain to be dealt with on their public exchanges. The liability of a borrowing State appears to me to be very clearly and correctly put in Whea-ton’s ‘Elements of International Law,’ page 1, chap. 2, secs. 2 and 3. The case of Texas, mentioned in a note to the last edition, bears a resemblance to the present case. Texas, which had been a part of the colony of Mexico, and a dependency of Spain, declared herself an independent State, and subsequently made herself one of the United States. It was held by all that Texas continued liable for the loans which it had contracted, and that the difference which had resulted from the fact that it had become one of the United Stales was that foreign governments could only deal with it through the medium of the authorities of the United States in conformity with the Constitution of 1787. But Texas had been the borrower, and continued liable, and was the sole party to pay the debt, and would, I think, have been equally liable had it again become a dependency of Spain instead of becoming one of the United States. It therefore appears to me that if the principle generally adopted were applied to the present case, the liability of the States which united as the Confederate States [Page 622] would be admitted by the United States government; but it is most certainly in the power or the United States, as the conquering party, to admit or deny the liability. Upon this part of the case I have assumed that the States which originally constituted the United States have not, by any proceeding under the 5th article of the Constitution of 1787, altered their position or rights as independent States. I have not heard of any such alteration, nor have I found a note of any alteration in any work which I have consulted. I have no doubt that if the contractor have any portion of the loan in his hands unapplied, or if he have in his hands any property or funds forwarded to him by the confederate government, or their agents, to meet any liability, or payment on account or in respect of the loan, that he is liable to the contributors; and it appears to me that if there be reason to suppose that he has any such property or funds in his possession, it would be prudent to file a bill in equity against him. The frame of the bill and the proper parties to the suit would require much consideration. There is nothing stated in the case which would, in my opinion, justify the contributors in filing a bill against the agent in England of the contractor.” On this opinion the committee remark: “Your committee have the utmost satisfaction in stating that the opinion of Mr. Fleming in the case leaves no doubt that sooner or later either the United States, or the States which lately formed the confederation, will recognize and pay the loan. Your committee, in forming this opinion, which shows that the loan was a perfectly legitimate transaction, considered it would be highly desirable that the bonds of the loan should be quoted like other loans in the official list of the Stock Exchange, the more especially as large transactions were and are daily taking place in it by members of the Stock Exchange and by the public.” After quoting a letter from Mr. Seward, in which he states that it is not the intention of the government of the United States to assume the public debts of the insurgents, the committee say in conclusion: “They beg to remind those whom it may concern, and especially Mr. Seward, that the cotton loan was strictly a mercantile transaction, based and subscribed for on an hypothecation of cotton which has been seized on by the United States, and which, by the condition and terms expressed in the bonds, the holders had the option of exchanging for cotton at 6d. per pound six months after the conclusion of peace, and which option made every cotton bondholder a promoter of peace; and moreover, without such a condition and hypothecation, they would not have advanced their money. Your committee are surprised, therefore, that under such circumstances, and considering their strong legal position, any bondholder can be induced to part with his bonds at existing rates; for although Mr. Seward at present repudiates the liability of the United States to pay the bonds, it is admitted that the federal government has seized on the cotton hypothecated to the bondholders. But apart from this the bond remains a 7 per cent, bond, with a 2 per cent, per annum redemption fund at 100, for which the southern States, lately in secession, are separately and collectively liable, and which they are bound to pay by every principle which can induce states to fulfil their sacred obligations.”
The Chairman moved the adoption of the report, and the motion was seconded by Mr. William Morgan.
Mr. T. G. Taylor inquired what amount of bonds was held by the gentlemen at present-attending the meeting. It might happen that only a comparatively small portion of the loan was held by them, and they might be doing a very unwise thing if they adopted the report.
Mr. Morgan (one of the committee) said he did not know how much was held by the gentlemen present. He himself held bonds to the amount of £500,000.
Mr. Green spoke in strong terms of a letter of Emile Erlanger & Company, of Paris, dated September 12, in which they refused to give the bondholders an inspection of the contract for the loan, which they contended was a document private to the government of the Confederate States and to themselves. He (Mr. Green) thought the bondholders should take the bull by the horns, and see whether they could not enforce an explicit statement on the part of the contractors. He thought it would not be advisable to adopt or confirm the report. There were some portions of it which seemed to reflect upon Mr. Seward, and as they were about to ask a favor, he thought it would be well to leave out those portions of the report which might tend to hurt the dignity of the United States. [Hear, hear.]
Mr. Chamberlain regretted to find that there was a fear on the part of many who held the confederate bonds to acknowledge (the fact. He did not see why it should be so. Strong language had been used by Mr. Seward towards the bondholders, and he did not see why strong language should not be used in return.
Mr. Taylor moved the adjournment of the meeting. He believed that the time would come when people would not be ashamed of holding confederate bonds. He considered them a far better security than Greek or Spanish bonds, for the south had not yet repudiated its engagements. He looked on these cotton bonds as a good speculation to go into even now.[Hear, hear.]
Mr. Chamberlain expressed his belief that they would become safe stock eventually.
After a long and somewhat desultory discussion, it was arranged that the report should be “received” merely, and that the meeting should stand adjourned until the 18th of January.