The Acting Secretary of State to the German Chargé.

No. 295.]

Sir: I have the honor to acknowledge the receipt of the Imperial German Embassy’s note of May 27, 1910, regarding the rival claims of American and German creditors in American courts, with special reference to the case of one Terlinden, a German subject. The questions raised by your note which have received the very careful consideration of this Department, appear to involve the following facts and circumstances:

One Terlinden, a resident of Germany, absconded from the German Empire with money belonging apparently to the Disconto-Gesell-schaft, which money he deposited August 9th and 14th, 1901, to the extent of $6,420, in the First National Bank of Milwaukee. The Disconto-Gesellschaft, a banking corporation of Berlin, by the [Page 521] German Consul began an action August 17, 1901, in the Milwaukee county court in Wisconsin, against Terlinden for the recovery of this money, and at the same time garnisheed the First National Bank. Terlinden hired Umbreit, a citizen of Wisconsin and an attorney, to defend him in the suit. In this cause judgment was given February 19, 1904, against Terlinden for $94,145.11.

Umbreit interpleaded as a defendent in the above suit, and on March 21, 1904, also garnisheed the First National Bank and began suit against Terlinden for the recovery of the value of his services as attorney. As Terlinden had been extradited to Germany upon charges of forgery, counterfeiting, and the utterance of forged papers (see Terlinden v. Ames, 184 U. S., 270) the service of summons was had by publication on June 11, 1904 (about four months after judgment was rendered for the Disconto-Gesellschaft). Judgment was given by default in favor of Umbreit for $7,500.

On the question as to who should have priority, the Disconto Gesellschaft, a foreign corporation, or Umbreit, an American citizen, to the sum of $6,420, on deposit in the First National Bank, the county court held that the Disconto Gesellschaft should come in first. The supreme court of Wisconsin on appeal reversed this judgment and gave priority to Umbreit on the general ground—

that no court in such case ever has allowed or should allow the foreigner to seize and carry away property within the jurisdiction when a resident creditor stands also at the bar with his judgment and his provisional lien, and thus force such resident creditor to go to a foreign country to collect his debt. If such action be not prejudicial to the rights and interests of our own citizens, it is difficult to see what action would be prejudicial. Nor does it make any difference that the home creditor’s claim may have accrued after that of the foreign creditor; the question is not to be determined by priority in point of time any more than by priority of garnishment, but by the situation at the time when the court is called upon to finally decide which creditor shall receive its aid. So, if the case were devoid of any other facts, comity would require that the interests of the home creditor be protected. (127 Wis., p. 667.)

In regard to Article I of the United States-Prussia treaty of 1828 and the treaty of 1799 between the same parties the court were “unable to see that either of these treaty provisions has any bearing on the questions in controversy here.” (P. 677.)

The United States Supreme Court on appeal affirmed the judgment of the supreme court of Wisconsin. The court said:

What property may be removed from a State and subjected to the claims of creditors of other States is a matter of comity between nations and States and is not a matter of absolute right in favor of creditors of another sovereignty, when citizens of the local State or country are asserting rights against property within the local jurisdiction. (208 U. S., 578.)

* * * * * * *

There being, then, no provision of positive law requiring the recognition of the right of the plaintiff in error to appropriate property in the State of Wisconsin and subject it to distribution for the benefit of foreign creditors as against the demands of local creditors, how far the public policy of the State permitted such recognition was a matter for the State to determine for itself. In determining that the policy of Wisconsin would not permit the property to be thus appropriated to the benefit of alien creditors as against the demands of the citizens of the State, the supreme court of Wisconsin has done no more than has been frequently done by nations and States in refusing to exercise the doctrine of comity in such wise as to impair the right of local creditors to subject local property to their just claims. We fail to perceive how this application of a well-known rule can be said to deprive the plaintiff in error of its property without due process of law. (P. 580.)

In regard to the treaties the court stated that the treaty of 1799 expired by its own terms June 2, 1810, and that the provision of [Page 522] this treaty, which was relied upon in this case, was not revived by Article XII of the treaty of May 1, 1828. As to Article I of the treaty of 1828 the court declared—

there is nothing in this treaty undertaking to change the well-recognized rule between States and nations which permits a country to first protect the rights of its own citizens in local property before permitting it to be taken out of the jurisdiction for administration in favor of those residing beyond their borders. (P. 582.)

In the course of its opinion the court also pointed out that this ruling was in accord with the general law in force between the different States in the Union with reference even to assignments. Upon this point the court said:

Even between the States of the American Union, as shown in the opinion of Mr. Justice Brown in Security Trust Co. v. Dodd, Mead & Co., 173 U. S., supra, it has been the constant practice not to recognize assignments for the benefit of creditors outside the State, where the same came in conflict with the rights of domestic creditors seeking to recover their debts against local property. This is the doctrine in force as against natives of the country residing in other States, and it is this doctrine which has been applied by the supreme court of Wisconsin to foreign creditors residing in Germany. In short, there is nothing in this treaty undertaking to change the well-recognized rule between States and nations which permits a country to first protect the rights of its own citizens in local property before permitting it to be taken out of the jurisdiction for administration in favor of those residing beyond their borders.

In this connection it may not be improper to direct to your attention the fact that it would appear that the laws of Germany and the United States are not in accord in other particulars than the one to which you have referred. As an illustration of this, there might be cited the recent suit instituted in the German courts by American policyholders against certain German insurance companies, which had issued large policies in San Francisco prior to the destruction of that city by earthquake and fire. You will recall that notwithstanding the general rule that judgments secured in the courts of one country are, as a matter of comity, enforced in the other country—a rule well recognized in international law—and notwithstanding that there was furnished to the German courts evidence establishing not only that the courts of California would enforce a judgment secured in a foreign tribunal against a person resident in California where the foreign tribunal would grant a reciprocal right in favor of American judgments, but that this was the common rule and practice of American courts, both State and Federal, yet the courts of Germany have refused in certain test cases brought therein, to enforce against German insurance companies judgments secured in the courts of California upon policies held by citizens of the United States upon property destroyed in San Francisco at the time of the earthquake and fire.

Accept, etc.,

Huntington Wilson.