Campo & Co to negotiate a loan of funds, under the guarantee of the customs-revenues of the island of Cuba, for the necessities of the war in that island, September 28, 1876

Minutes of the public session held by the council of ministers in order to negotiate a loan of funds, under the guarantee of the customs-revenues of the island of Cuba, for the necessities of the war in that island.

The council of ministers having met in Madrid on the 30th day of September, 1876, at 3 o’clock in the afternoon, at the ministry of the colonies, I being present as director-general of finance ad interim of said department, acting as secretary, in order to receive and decide upon the proposals to advance a sum of not less than fifteen nor more than twenty-five millions of dollars, to supply the demands of the treasury and of the war in Cuba, according to the royal orders of August 27 and the 27th instant, the meeting was opened by the president of the council of ministers, stating that proposals would be received until 4 o’clock in the afternpon. That hour having arrived, his excellency the president gave permission to any persons who might desire it to be present, and then stated that only two proposals had been received, one constituted by a provisional agreement of August 5, guaranteed by a new deposit of 15,000,000 reals, a draft for which had just been presented by Mr. Cabezas, and another, contained in a sealed document from Don José Campo & Co., likewise accompanied by their respective draft for $750, deposited in the general-deposit fund as a guarantee for their proposal.

Immediately his excellency the president ordered me to read the aforesaid royal order of September 27, which states the formalities to be observed on the present occasion, and also to read the provisional agreement of the 5th of August last. I then read the three following official letters:

I.

Most Excellent Sir: In view of the royal order, bearing date of yesterday, of which your excellency was pleased to send me a copy, a doubt arises in my mind which I beg your excellency to be pleased to solve.

Those intending to present proposals for an increase are obliged by article 3 to deliver previously $750,000, as a guarantee of their proposal. This grave measure, adopted one or two days before the holding of the meeting, would place us in a position different from that of the signers of the provisional contract should it not extend to them. These gentlemen have given an equal sum, it is true, but in the character of a loan, and fixing their guarantees, their interest, the precise time of payment, means of re-imbursement, and profits to be reaped by them, whereas the delivery on our part neither has that character nor those advantages nor any of those circumstances. Without seeking to avoid the responsibility imposed by the royal order of yesterday, I understand it to be obligatory upon all, and thus the signers of the provisional convention will neither be able to ratify nor increase it, even verbally, without depositing $750,000 in the deposit fund, in due fulfillment of the royal order of yesterday, since the contrary would argue another advantage in their favor, which the high sense of justice of the worthy government of His Majesty cannot grant.

I give this upright and faithful interpretation to the royal order, and although I suppose your excellency has foreseen this case, I have the honor to call your attention to it in the interest of the country and of the operation, and for the avoidance of serious difficulties which would involve an impairment of the public credit.

May God preserve your excellency many years.

II.

Ministry of the Colonies.

Messrs. Manuel Calvo and Rafael Cabezas y Montemayor:

His excellency the Marquis de Campo, in a letter which I have just received, writes to me as follows:

(Here follows a transcription of what is inserted under No. 1.)

The considerations presented by the Marquis de Campo having been duly appreciated by the government of His Majesty, it has determined to lay the same before you, that you may state whether the $750,000 which you have advanced for the embarkation of troops, according to article 12 of the provisional agreement of August 8, are to be considered as a deposit and guarantee of the same agreement in case of its ratification, and on the same conditions as any other deposits which may have guaranteed other proposals, and if all that refers to the interest and repayment of these $750,000 is to be understood in case of the non-ratification of the agreement on your part, or of the presentation of another and more advantageous proposal.

The government of His Majesty has always believed that the money thus advanced was a guarantee of the agreement in case of its ratification, but this authoritative interpretation is necessary in order to exempt you from the obligation of making a new deposit.

May God preserve you many years.

III.

To His Excellency Don Adelardo Lopez de Ayala:

In communicating to us by an official letter from your excellency, dated yesterday, the letter addressed to you by his excellency the Marquis de Campo, with regard to the interpretation of the third rule of the royal order of the 27th instant, your excellency states that the government of His Majesty has always believed that the advance of $750,000 already made by the signers of the agreement of August 5 was a guarantee of the contract in case of its ratification, this authoritative interpretation being necessary in order to exempt us from the obligation of making a new deposit. Such an interpretation is authoritative and not to be doubted. Our advance is at an end, and the money delivered to the government now constitutes a real deposit, designed to serve as a guarantee in case of the ratification of the contract.

When the agreement of August 5 was discussed and signed the government of His Majesty firmly intended to commence recruiting at once, and diligently to make every preparation in order that the 24,000 men by whom the army in Cuba was to be re-enforced might embark in September and October, to the end that the winter campaign might be opened early and vigorously. The government therefore desired to be sure of the funds required for recruiting, and to secure those which were indispensable to enlist the entire number of troops needed, and to send them out and maintain them until the termination of the war, which is the patriotic object that it has in view.

The advance having been made, and knowing the result of the subscriptions in Cuba and Barcelona, His Majesty’s government relied upon the material guarantee of the $750,000 which had been received, and upon the moral guarantee, which was still more important, of having fully secured the fulfillment of the conditions stipulated, and, moreover, upon the promise made to your excellency to continue advancing, during the month of October, a million and a half of dollars for the enlistment and embarkation of all the troops that are to be sent to sustain the integrity of the Spanish territory.

The royal order of the 27th instant, although it contained no reference to the moral guarantee upon which it relied in the agreement of August 5, and made no mention of the new advances of funds asked for and offered, demanded a simple material guarantee, equal in amount to that which we had given, which was the least that could be required, the question being to secure a service of such importance, the results of which may perhaps prove barren, not only from a failure in its fulfillment, but in consequence of a simple delay.

The interpretation given by the Marquis de Campo to the third rule of the royal order of the 27th instant is therefore entirely without foundation when he states that a new deposit of $750,000 should be exacted from us, as from those who now come, without antecedents in the case, without previous pledges, and without the capital already subscribed and disposed of to present proposals. So far from any privilege existing for us, the disadvantage is evident, since every one knows the conditions of the agreement of August 5, any of the conditions of which may be positively or apparently changed, whereas those who sign it are ignorant of the text and even of the nature of the proposals to be presented.

At all events, as the question is not to obtain more or less profit in a mere public service, but the performance of a patriotic duty of the highest importance, the undersigned, who will be very glad if it be thus realized, obtaining at the same time positive advantages for the state, thought that, although the claim of the Marquis de Campo is without foundation, they ought to avoid giving any cause for protests, unjustifiable though they be, by making a new deposit of $750,000, a draft for which they will present to-morrow, although not pledged to do so by the royal order of the 27th instant, the operation of which, we repeat, is highly disadvantageous for us, inasmuch as, representing, as we do, three parties, one in Barcelona, and another in Cuba, who have made their subscriptions on a definite basis, we are neither at liberty to change them, nor have we time to come to an understanding with the subscribers, being ignorant, as we are, of the proposals that may be presented.

Finally, we assert that, if the agreement of August 5 does not become a definite contract, on account of the admission of more advantageous proposals, we will have a perfect right not only to an immediate return of the new deposit, but also of the $750,000 already advanced, which now constitute a guarantee.

May God preserve your excellency many years.

His excellency the minister of the colonies stated that he had felt much surprised that Mr. Campo, in a letter just read, said that he had only known for forty-eight hours the necessity under which he was of making a deposit of 15,000,000 reals in order to have a right to present his proposal, when, in an official conference held between his excellency, Mr. Campo, the under secretary, and the director of finance of this ministry, eight days before the publication of the royal order, he had been informed of the necessity of said previous deposit, and he did not then manifest any surprise or make any objections. The two drafts were then read, each being for 15,000,000 reals, which guaranteed the provisional agreement and the proposal presented, Mr. Cabeza saying that, although he had stated that the 15,000,000 reals which the signers of the provisional agreement had advanced to the government might be considered as a guarantee, the said signers had decided to make, this day, a new deposit of 15,000,000 additional, in order to prevent any doubt of the legality of their representation in this matter. A communication was also read, bearing date of to-day, from Don Juan Llasera y Garrido, in which he abandoned the proposal presented by him on the 17th instant, because, in his opinion, the royal order of the 27th made notable alterations in the matter, and because he could not accept the condition of the provisional deposits remaining for the benefit of the state in case of a failure on the part of the contractor to fulfill the contract in any of its clauses, or in case of the final contracts not being made. The official correspondence between his excellency the minister of the colonies and Mr. Llasera was then read, in which the latter stated that he knew that the government required the deposit to be made before to-day, in consequence of which the said proposal was declared withdrawn.

A statement of his excellency Don José Emilio Santos, representative in Madrid of the Spanish Bank of Havana, was then read, in which he argued that the contracts for loans previously held between the Cuban treasury and the aforesaid bank should be considered at this meeting. These contracts, he said, gave to that establishment rights to the customs-revenue of the island of Cuba, and his excellency the president, without considering as accepted the facts or the conclusions of the statement just read, made, in the name of His Majesty’s government, the following declaration:

“The government will reserve such part as may annually remain of the proceeds of the customs-revenues to meet the lawful obligations contracted by it upon said revenues with the Bank of Havana, when the expedientes now being prepared shall be terminated.”

His excellency the president, in ordering the reading of the sealed document containing the proposal of Don José Campo & Co., declared that the signers of the provisional agreement were at perfect liberty to increase the amounts to be loaned by them according to article fifth of the royal order of the 27th instant, and Mr. Calvo, in consequence, ratified, in his own name and in that of his associates, the aforesaid agreement, asking that the fourth paragraph of the official letter printed above (which, together with Mr. Cabezas, he had yesterday addressed to his excellency the minister of the colonies) might be considered; in which paragraph the pledge is made to deliver to the government during the month of October next 30,000,000 reals; offering, moreover, to furnish on the 30th of the same month 30,000,000 additional to the governor-general of the island of Cuba, which sums, together with the 15,000,000 advanced by the signers of the contract, amount to 60,000,000 reals.

The signers of the provisional contract being asked by Mr. Campo how they would give this money, Mr. Calvo replied that it would be delivered on account of the first payment, and therefore without any interest.

His excellency the president declared that the provisional agreement, amplified in this manner, thenceforth constituted the proposal of Messrs. Lopez, Calvo, Vinent, and Cabezas. The proposal of Mr. Campo was then opened, and found to read as follows:

Most Excellent Sir: The very short time intervening between the publication of the royal order of the 27th of August last and the provisional agreement signed on the 5th of the same, and the still shorter one of the 27th instant, in which a guarantee of fifteen millions of reals is required in order to be present on the 30th, which is to-day, at the adjudication, have rendered it impossible for the undersigned to present greater advantages than those resulting from the following proposition, which Messrs. José Campo & Co., domiciled in this city, present for the objects of the royal order of the 27th of August last, and article 11 of the provisional agreement of the 5th of the same month:

• On the execution of the document of adjudication, he shall deliver $1,000,000 in cash, as an advance, without interest or security. When it loses this character of an advance, it shall form a part of the first installment of the loan. If, in consequence of any unfortunate event, no delivery of the guarantee shall be made by the government, the latter shall immediately return the aforesaid million of dollars, paying them in bonds of the floating debt of the treasury, at the current price, and at the rate of interest then paid.
• He also pledges himself to open credits to the amount of an additional million of dollars in Europe and America on the same terms. If, from causes over which the government has no control, it shall have been unable to take possession of the guarantee of the loan in order to make the first payment, these credits, if used, shall preserve the character of an advance, without interest, until the payment of the first installment, and they shall then form a part of the second payment or installment.
• The delivery of the loan shall take place in four installments, to be received by the government; the first when the society takes possession of the sum collected in the custom-houses, and it shall amount to $3,000,000, including the million of dollars in cash already advanced; the second, two months afterward, and it shall be $4,000,000; the third, two months after the delivery of the second, and it shall be $1,000,000; and the fourth, at the expiration of three months from the delivery of the third, and it shall be composed of the remaining $4,000,000.
• This loan shall bear interest at the rate of 10 per cent. per annum, and it shall be paid in ten years, in equal parts, by means of the customs-revenues of that island, which shall be mortgaged for the fulfillment of all the obligations accruing to the government from the present proposal.
• The society shall also receive during the same period of ten years, 35 per cent. of the increase which may be obtained from the customs-revenues of the island over the present income, graduated according to the last six half-yearly periods. If the loan amounts to twenty millions of dollars, it shall receive 40 per cent., and if to twenty-five millions, 50 per cent., during the period for which the contract is made. The present customs-tariffs of the island of Cuba shall not be changed without the mutual consent of the government and the party to whom the loan is awarded.
• Of the amount yielded by the customs-duties of the island, there shall be retained every month the aliquot part sufficient for the amortization of the loan and the payment of the interest; and there shall be made, likewise, each month a liquidation and provisional distribution of profits, the final one being made at the close of each one of the ten years for which the contract is made.
• The party to whom the loan is awarded, and in his stead the anonymous society of credit which shall be formed, shall establish, with the concurrence of the government, the form for the organization of the management, collection, and control of the customs-revenues of the island of Cuba.
• Said society and its issues of shares, bonds, and other values of whatever kind, shall be forever exempt from any tax or impost, both ordinary and extraordinary.
• If it shall prove true that any part of the customs-revenues of the island are appropriated to the payment of obligations previously made with the Spanish Bank of Havana, the government will take the necessary steps, and to aid it the undersigned and the society, whenever peace shall be restored, pledge themselves to negotiate with the government a new loan, with the same security as the present, and no other, to be devoted exclusively to the said Spanish Bank of Havana, and to remedying the difficulties now afflicting the island of Cuba, using for this purpose the most efficacious measures.
• In payment of the cash received according to articles 3 and 4 of the royal order of the 27th instant, the exact fulfillment of the present proposal is guaranteed by means of 15,000,000 reals in real property, situated in Madrid, or by an equal sum in shares of the railways from Almansa to Valencia and Tarragona, at the price at which they are quoted at the Barcelona exchange, or in bonds of the state at the market-price.
• The government reserves the right to annul the present contract at the expiration of the fifth year, or at any time thereafter, giving the society six months previous notice, and paying it in cash the amount which may be due in liquidation, together with 10 per cent. of this sum as an indemnity. The government shall submit the present agreement to the Cortes as soon as they shall assemble, in order that, they may give the guarantee of the nation for the principal of the loan and the payment of the amortization and interest. In case this contract shall not receive the legal sanction referred to during the present year, it shall be null and void de facto and de jure, and the government shall be obliged to pay in cash the amount due in liquidation, and also to pay damages.

This paragraph having been read a second time, paragraph by paragraph, in order that the ministers as well as the party interested might make remarks, as provided in article 5 of the royal order of the 27th instant, Mr. Campo explained that the credits mentioned in paragraph second would be in gold. His excellency the minister of the colonies and Mr. Cabezas made the remark on paragraph 3 that the signers of the provisional agreement understood that it was a clerical error, when, in said agreement, the sum collected in the custom-houses is spoken of, and that it should say the collection; and this explanation was unanimously agreed to.

The same minister of the colonies said that, it being necessary to fix the time when the parties whose proposal should be accepted might begin the performance of the service, he asked the signers of both proposals if they could undertake it as soon as the government could give it to them, even before the close of the month of October, to which Messrs. Campo and Cabezas replied in the affirmative. With regard to article 12 of the proposal of Mr. Campo, which refers to the submission of the contract to the Cortes, his excellency, the minister of the colonies, said that he called the attention of Mr. Campo in order that he might make the necessary explanations with regard to the form in which it was drawn up, since, in addition to other misunderstandings, it might be uncle stood that an effort would be made to exert a certain pressure upon the Cortes. His excellency the President added that the signers of the provisional contract, as appeared in their fourteenth article, agreed that the government, should give an account of the contract to the Cortes in order that they might approve or disapprove its conduct; hut that the said contracting parties being firmly and definitively bound to comply with all the terms imposed by it whenever the government should require such compliance, that the government, on its part, considered itself, as had been all its predecessors, without exception authorized by the special regimen which still exists in the island of Cuba to receive loans upon their revenues, and to modify and even change the management of the same, according to the requirements of circumstances; that the proposal of Mr. Campo and company was not, according to its twelfth article, definitive, since its efficaciousness remained dependent upon the previous appropriation of the Cortes, which, in the present case, was unnecessary; that the said article 12 of the proposal of Campo and company tended, moreover, to settle indirectly a question of political order, such as was that of the date of the re-assembling of the Cortes; and finally, that the government, which could receive advances of funds on the local revenues of the island of Cuba, could in no wise pledge the guarantee of the nation for capital received as a loan, this being a prerogative of the Cortes and of the King, in virtue of which it had only offered, in the provisional agreement, to ask such a guarantee of the Cortes, leaving that body entirely at liberty to grant or refuse it as it should deem proper, and that subsidiarily, and only in case that at any time the amount yielded by the customs revenues of the island of Cuba should not be sufficient to cover the interest and amortization of the legal advance or loan in question; and that all this should be remembered by the gentlemen signing the proposal, for the proper understanding of their requirements in so grave a matter.

The discussion having been opened on this point, Mr. Cabezas said that the signers of the provisional agreement had always understood that the contract was final, and that, as to asking the national guarantee for the amortization and interest of the advance, it would only be in case the revenues of all kinds of the island of Cuba should at any time not be sufficient to cover it.

Mr. Arnús asked what would be the situation of the shareholders if the Cortes should not approve the agreement, and the President again stated that, without giving any assurance, he hoped that the Cortes would furnish the guarantee which would be asked of them, and approve the conduct of the government, but that the contract which it was proposed to execute would always be valid on the ministerial responsibility, subject to the supreme rescissory powers which our administrative law recognizes in the state. In view of these explanations, and after some remarks by Mr. Campo, he withdrew the second part of the twelfth article of his proposal.

It now being 6 o’clock in the evening, his excellency the President declared the point sufficiently discussed, and, according to article 7 of the royal order of the 27th instant, all those present, excepting the ministers, withdrew from the room.

At half past 8 o’clock I was summoned by his excellency the President, from whom I received the order, which was immediately obeyed, to notify the parties interested that the government of His Majesty, after lengthy deliberation, had unanimously agreed to accept, as the one most advantageous to the general interest of the state, the proposal, amplified as aforesaid, of Messrs. Lopez, Calvo, Marquis de Vinent, and Cabezas.

This closed the meeting for the execution of this service.

In testimony whereof I signed the present minute with the approval of his excellency the President.