CHANGE OF SOVEREIGNTY AND CONCESSIONS I. GENERAL PRINCIPLES THE principle of international law as announced by Chief Justice Marshall in the famous Percheman Case1 and supported by a long list of American decisions is that no confiscation of private property in land results from a mere change of sovereignty. Will this principle be sufficient and adequate to protect private property rights in concessions and contracts? In other words, since contracts no less than land may constitute valuable and irreplaceable private property, should any distinction be made, in the application of the Percheman principle, between land and contracts? Where the parties to the contracts are private persons or corporations there seems to be no essential distinction between property in the form of land and property in the form of contracts. In either case the change of sovereignty must, of itself, effect no forfeiture; where, for instance, territory passes out of the sovereignty of State X and under the sovereignty of State Y, just as State Y must not allow the change of sovereignty to affect the ownership of land held by a private individual, A, within the ceded territory, so State Y must not allow it to affect the ownership of contract rights, held by A against some private obligor or debtor, B.2 17 Peters, 51. In the course of his opinion Chief Justice Marshall said: "It is very unusual, even in cases of conquest, for the conqueror to do more than to displace the sovereign and assume dominion over the country. The modern usage of nations, which has become law, would be violated. . . if private property should be generally confiscated, and private rights annulled. The people change their allegiance; . . . but their relations to each other, and their rights of property, remain undisturbed. . . . A cession of territory is never understood to be a cession of the property belonging to its inhabitants. . . . The cession of a territory by its name from one sovereign to another would be necessarily understood to pass the sovereignty only, and not to interfere with private property.” 2 Where the law in State X differs from that in State Y, State Y must enforce those contracts which are valid by X law. But where the obligor or debtor under the contract is not a private person or corporation but the state itself, quite a different question arises. If, in the example above, B, the obligor, is not a private individual or corporation, but State X itself, although unquestionably State Y is bound not to allow the change of sovereignty to destroy A's contract rights, will State Y succeed to the former obligation of State X upon the contract itself? Granting that State Y succeeds to the position of State X as the enforcing power which gives to all contracts their value, does it also succeed to the position of State X as the obligor or debtor under the contract? May not the ceding state, the original party to the contract, still remain bound upon it? Here lies a question of true succession; and this question cannot be solved by the principle of the Percheman rule. For the Percheman rule merely says that private property upon change of sovereignty shall not be confiscated; but there is no confiscation if either the ceding or the receiving state remains bound by the concession; the Percheman rule, therefore, is of no value in determining which one of the two shall be bound. For instance, the Percheman rule would be of little help in the case where a public deposit of money, required by State X from all those doing business within a certain district, is retained by State X after the cession of the district to State Y. After the cession it is clear that State Y cannot be held liable for the return of the deposit upon the theory that international law protects private contract rights from confiscation upon a change of sovereignty. There is no confiscation, because State X still remains liable in theory, whether, as a practical matter, it is possible to collect from State X or not. Some principle other than that of the Percheman Case must therefore be resorted 3 See Chas. E. Magoon: The Law of Civil Government in Occupied Territory; Reports submitted to the U. S. Secy. of War (3d ed), 1903, p. 484. Before the cession of Porto Rico to the United States the Board of Harbor Works of Ponce, Porto Rico, had made a deposit, required as security, of 27,503.06 pesos with the Spanish collector of customs, and this the collector of customs had apparently refused to return when Porto Rico was ceded to the United States. Mr. Magoon advised that the United States was not bound to make any compensation, but that the United States should support the claim of the Harbor Board against the Government of Spain for the amount in question. to in order to ascertain whether or not the receiving state does succeed to the liability incurred by the ceding state through the grant of concessions and franchises. It must be confessed that judges and writers do not always make a clear distinction between these two quite different principles in the law of succession; there is evident a tendency to apply to all cases alike the comprehensive principle of the Percheman Case; to examine whether any given concession or contract constitutes "property" or not, and, if it can be said to fall within the undefined category of "property," to decide that therefore it cannot be confiscated, and hence the receiving state must succeed to the obligation of the contract. The difficulty with this mode of reasoning is that, even were it logically sound, it rests the whole case upon the determination of what constitutes "property"; and the definition of property is a will-o'-the-wisp which is all but impossible to attain. For half a century the courts have been struggling to define the meaning of property under the Fourteenth Amendment to the Constitution of the United States; if it has been found impossible during that time to reach a common national understanding, sufficiently precise to decide all cases arising under this amendment, is it likely that municipal courts would agree upon any exact understanding of international validity? The truth is, not that promises will be enforced if they constitute "property," but rather that promises constitute property if they can be enforced." ♦ Innumerable examples of this commonly adopted viewpoint might be cited. In speaking of concessions granting the exclusive right to lay cables, the United States Attorney General, in an opinion rendered on June 15, 1899, said: "Concessions of this kind, which carry with them exclusive rights for a period of years, constitute property of which the concessionary can no more be deprived arbitrarily and without lawful reason than it can be deprived of its personal tangible assets." (22 Op. 518.) For a still better example, see the case of Sanchez v. United States (216 U. S. 167). 5 Many obligations, even though they clearly constitute property, cannot be enforced against the receiving state, as, for instance, in the Ponce Harbor Works case, cited in note 3. II. THE GENERAL RULE AS TO CONCESSIONS If, then, the Percheman rule, or, in other words, the "property test," is not adequate for determining the effect of a change of sovereignty upon concessions and contracts where the state itself is obligated under the contract, what is the general principle upon which these cases must be decided? Some writers would have it that the receiving state succeeds to none of the burdens and contract obligations undertaken by the ceding state. The great majority of cases, however, do not lend support to this contention, which seems also to be out of keeping with the modern trend of international law, with general principles of fairness and equity, and with considerations of international expediency. In the days of Rome, war was considered as a legitimate method by which a state might replenish its own coffers; the captives of the Roman army were sold into slavery, and all captured immovables, not hitherto owned by Roman citizens, became the property of the Roman state. In those days there was no such thing as protection. of enemy private property from confiscation. Since then our civilization has progressed; unless the German arms prove victorious, we have abandoned the idea that the citizens of a conquered state are the legitimate prey of the victor state for its self-enrichment. The whole trend of modern international law is consistently to protect the 6 See, for instance, Keith, Theory of State Succession, pp. 5, 6. "The authorities are very much divided as to the meaning and propriety of the phrase 'succession of States.' Several (e.g., Gareis, Par. 16, pp. 59 ff., and Zorn, 32, 77) even deny that it ever takes place, and one (Liszt, Par. 23) only admits it in a few cases. Others maintain that it is a pure fiction or metaphor, whether useful or otherwise. But the majority accept the doctrine of succession either in pure or modified form. . . "Among the publicists who evidently consider the phrase 'succession of States' a mere fiction or metaphor are Appleton, Gabba, and Gidel, who have produced valuable monographs on this important subject. But Huber, the most important of them all, does not hesitate to use the phrase 'Staatensuccession' as the title of his remarkable work. It must be admitted that these monographs are, for the most part, highly abstract and theoretical, and that their conclusions are often at variance with international practice." (Hershey's Essentials of International Public Law, p. 141, note 27.) individual citizens of a conquered state from injuries to their persons, their property, or their rights, as far as military considerations will permit. Furthermore, general considerations of fairness and equity do not accord with the view that no obligations pass to the receiving state. Where, for instance, a corporation has in good faith spent of its substance for the construction of a railway for the exclusive benefit of the territory later ceded, expecting its return under concessions granted it in consideration thereof, it would seem neither fair nor equitable that the new sovereign should be allowed to retain the benefit of the railway and avoid any liability for its cost. One of the fundamental principles underlying all equity is that the benefit shall not pass without the burden. In the third place, considerations of international expediency would seem to require the adoption of some clear principle of state succession to obligations. After cession or conquest, the territory ceded becomes a part of the receiving state; and it is to its vital interest that its rule be characterized by the generosity which stimulates contentment rather than the severity which breeds hate. Since the commercial prosperity and industrial fabric of the ceded territory henceforth will go to make up part of the national existence of the receiving state merely enlightened self-interest would suggest that such a rule of succession be adopted as would result in the minimum disturbance of business and commercial life. The injury caused to business by lack of protection of corporate or private property is by no means confined to the intrinsic worth of the property confiscated; the real injury lies in the depression and disarrangement of the whole commercial and economic fabric through uncertainty and apprehension. A rule of international law to the effect that no obligations pass to the receiving state would therefore seem out of keeping with the needs of the modern industrial world, and with the desire and common interest of all nations to build up international credit so that state obligations will be given a maximum valuation. In view of these considerations, there seems sound reason behind the rule that the receiving state does succeed under international law to certain of the ceding state's obligations,-a rule which is supported |