entailed by war on neutrals if, while it paralyzes such a branch of commerce as our cotton trade, other branches, such as the manufacture of small-arms for warlike purposes, should be deprived of their legitimate development. For the present, we must acquiesce in the maintenance of the existing line between ordinary contraband and ships of war, and the problem is, how to control the building and sale of these so as to check abuses of neutrality. Experience has shown that, partly owing to the enormous profits that may be realized by such ventures, and partly to the facility of evasion where the proof of guilt must chiefly depend on intention, the prospect of punishment is of little avail. The one remaining expedient is to arm the executive government with more stringent, if not more arbitrary, powers of prevention. Mr. Adams to Mr. Seward. No. 1277.] Legation of THE UNITED STATES, London, November 24, 1866. SIR: It is with great regret I find it my duty to apprise you of a difference of opinion between the consuls at London and at Liverpool, which threatens to terminate in a grave question of conflict of authority, to be put at issue before the courts of this kingdom, in the suits which have been brought against the holders of rebel property. As the consuls themselves have, doubtless, made official reports of their different modes of action under the powers respectively conferred upon them, as well as the result to which they have brought them, I shall not enter into any explanations on that subject. It will be sufficient for me to state the circumstances under which I have been called upon to interpose in the affair. Mr. Morse, in conjunction with Mr. Gibbs, has considered the authority under which he acts sufficient to empower him to negotiate with Mr. Prioleau, of the firm of Fraser, Trenholm & Co., and conclude a contract which involves the withdrawal of the suits in court, hitherto carried on under the sole direction of Mr. Dudley. This gentleman, on the other hand, who appears never to have been consulted in the proceedings, denies the power of Mr. Morse to make such a concession, and considers the terms of that contract so disadvantageous to the government as to render it highly unadvisable for him to consent to it. He therefore appeals to me in a letter, a copy of which is herewith transmitted. Mr. Morse, on the other hand, has submitted to me the letter from the Secretary of the Treasury under which he claims his authority. In it, to my surprise, I find at the close a suggestion that in whatever he may do he should consult with me and obtain my assent. This has placed me in a situation of no slight embarrassment. Under the contract thus made, without my knowledge, by Mr. Morse, the counsel of Mr. Prioleau propose to move in court, next week, that the suits be dismissed, and they expect the assent of the lawyers on our side employed by Mr. Dudley. On the other hand, the latter propose to resist the action, and to deny the validity of Mr. Morse's contract, as not having had my assent. I am, therefore, to be drawn in to give a public opinion in a case, the merits of which I have not been previously called to determine. In order to put an end to the possibility of such an unseemly exhibition in the eyes of a foreign nation, I have at once seen and conferred with Mr. Morse. I did not disguise to him my opinion that it was not the intent of the Secretary of the Treasury to give him powers so extensive as he claims. The purpose seems to me to have been to authorize him to act in cases of discovery of further property than that already proceeded against, and not to trench upon the powers under which Mr. Dudley had been already authorized to act with success. Hence, if appealed to by Mr. Dudley, I should not feel able to direct him to withdraw his suits and abandon the property involved in them, against his own judgment. I therefore recommended it to both gentlemen to exert themselves to procure a suspension of action until the government could be heard from or they could enter upon a plan of perfect and hearty co-operation. To this course Mr. Morse has consented, and I trust the difficulty may be avoided. But it is no more than my duty to point out to you that the trouble has grown out of the division of authority given by the government, and the absence of one directing mind with a clear and single responsibility to the highest authority at home. At an early date I pointed out to you more than once the necessity of sending such a person here to superintend all these proceedings, whether conducted in or out of the courts. I am aware that Mr. Cushing was reported to me as having been assigned to such a duty, and I thought no person was more competent satisfactorily to perform it. Unfortunately, Mr. Cushing has never come out to do so. The consequence is now made visible. I trust I may be excused if I now renew an urgent entreaty either that Mr. Cushing be sent out by the very next steamer, or, if he be unable to come, some other individual equally competent and of high character be commissioned to assume the responsibility of all these negotiations, and, acting with the co-operation of the respective consuls, to make such complete and final settlements with the various parties holding rebel property as may terminate forever all disputes upon the subject in this kingdom. It is highly expedient that there should be no delay in such a mission. It is proper for me to add that I entertain the highest opinion of the motives of the two gentlemen in prosecuting their respective proceedings. Both are animated by their anxiety for the public interest only. I have the honor to be, sir, your obedient servant, Hon. WILLIAM H. SEWARD, CHARLES FRANCIS ADAMS. Secretary of State, Washington, D. C. Mr. Dudley to Mr. Adams. UNITED STATES CONSULATE, SIR: I enclose you a copy of a most extraordinary settlement, or agreement, made by Montgomery Gibbs, esq., and Freeman H. Morse, esq., our consul at London, with Fraser, Trenholm & Co., of this town, the financial agents of the late so-called confederate government during the war, extraordinary in its terms, for what it expresses upon its face, for what it concedes by implication, as well as for the time selected and the circumstances under which it was made. The time selected was while I was temporarily absent from Liverpool. The solicitor, though living in Liverpool, was not consulted, or the least information given us that any such thing was contemplated. The whole matter was kept as a profound secret. Though Mr. Morse and Mr. Gibbs were in Liverpool part of two days, neither of them ever called upon my solicitor or at the consulate. But aside from this slight and discourtesy to myself, which places me in a false position before the courts as well as the people, that I had instituted these suits either without any authority from my government, or else had forfeited its confidence, which is merely personal to myself, there are other and more important considerations involved in it of a public nature to which I deem it my duty to call your attention and to ask for your advice. The first knowledge I received of it was from my solicitor, who wrote me what Mr. Hull had communicated, and on the same day enclosed a letter from Mr. Hull requesting me to discontinue the suits. These letters were dated on the 7th and received by me on the 9th instant. On the 13th instant I received a letter from Mr. Gibbs, dated the 12th, informing me they had made the settlement. The next day, the 14th instant, I received a letter from Mr. Morse, dated the 13th instant. I enclose you a copy of Mr. Morse's letter, and my answer, and his reply received yesterday. Mr. Morse, as you see, gives, or professes to give, the substance of the settlement. Finding that this differed very materially from what the other side was stating it to be, I got my solicitor to call on the solicitors of Fraser, Trenholm & Co., and procure from them a copy of the settlement. I send you, as mentioned before, what they, or Mr. Huil, furnished as the settlement which had been made. You will see how widely this settlement differs from that which Mr. Morse states in his letter. It is for him to reconcile and explain the discrepancy. I know nothing beyond what he saw fit to communicate, and which he calls the substance, and what Mr. Hull gives as the text of the agreement. This settlement, I think, is one-sided, unjust, and unfair to the United States; its interest is totally sacrificed, and everything given to Fraser, Trenholm & Co., and nothing given in return. I assume that you are aware of the condition of things at the time this settlement was made. Two suits were pending in the court of chancery of this county against the firm of Fraser, Trenholm & Co.; one for the cotton brought here in the ship Aline, and valued at about £40,000 sterling, or $200,000, more or less, and which was instituted by me in behalf of the United States by your direction, and which was subsequently approved by the department; and the other, a bill for discovery and a general account of all their transactions and dealings, from the commencement of the rebellion down to the day of filing the bill, involving many millions of dollars and opening up their books, correspondence and dealings, and exposing and bringing to light the doings of themselves and their English friends, in fitting out piratical expeditions to destroy our commerce and make war upon our government, had been commenced by me under express instructions from the State Department. The management and conduct of both these suits had been intrusted entirely to myself in this country. As I construe this settlement, or agreement, it gives them without question or dispute all the moneys in their hands realized from cotton, ships, and other property sold before and since the termination of the rebellion, amounting in the aggregate to millions of dollars, including the proceeds from the cotton brought by the ship Aline, and supposed to amount to about £40,000 sterling, or $200,000, the four blockade steamers now under seizure at the suit of the United States in the court of admiralty of this country, to wit: the Ariel or Colonel Lamb, the Wasp, the Badger, and the Fox; and the £150,000 sterling, or upwards of $700,000, out of the property remaining in their hands, or under their control, unsold or undisposed of at the date of this agreement, provided it sells for enough to realize this sum. Of the five ships, to wit, the Ruby, Rosine, Penguin, Owl, and Lark, mentioned in the settlement as property, the highest valuation I had received for them is £40,000. I do not myself think they will bring this sum; but if, under favorable circumstances, they should, it would leave £110,000 to be made out of other property in their hands or under their control. There is no other property mentioned in the settlement, and it will remain for Mr. Morse and Mr. Gibbs to show where the property is that Fraser, Trenholm & Co. have under their control, out of which this sum is to be made, before anything can come to the United States under this agreement. I hope I may be disappointed, but my belief is that they have not now got sufficient property in their hands or under their control, undisposed of, belonging to the late so-called confederate government, to realize this sum, much less anything over and above it for the United States. I am quite prepared to hear that Fraser, Trenholm & Co. claim that all confederate property here in England, withou, regard to its location or the person in whose possession it may be, is under their controlt and that they have the right to have it sold to pay them the £150,000 conceded by Mr. Morse and Mr. Gibbs to be due them. This seems to be foreshadowed in the remark made by Mr. Hull their solicitor, to Mr. Morse, as communicated in his letter to me, a copy of which is enclosed, that "we should get that property under the settlement they were making." Now, this property is certain guns, made for the confederate government, and now in possession of Fawcett, Preston & Co., not in the possession or in point of fact under the control of Fraser, Trenholm & Co. If this proves to be the case, then this firm will not only have all the property in their hands out of which to pay themselves this enormous sum, but all the confederate property in England. They may be able in this way to pay themselves in full the amount allowed them in the settlement, to say nothing about the suit pending in chancery for a discovery and general account, involving all Fraser, Trenholm & Co.'s dealings and transactions with the so-called confederate government from the commencement of the rebellion down to the time of filing the bill. In the other suit which we have for the cotton brought by the Aline, there is about £40,000 involved, the whole of which we claim; and there is no good reason for saying that we shall not have it all decreed to us upon a final hearing, when the case with all the evidence and facts are fully before the court, if not by the vice-chancellor at least by the chancellor or House of Lords, on our appeal which we have a right to make. The one-half part, or about £20,000 sterling, or $100,000, is conceded to the United States, even by the vice-chancellor's opinion, as one-sided and as unequitable as it is. This much is certain, and it is secured to us by three freeholders as security for its payment. This settlement discontinues or attempts to discontinue and wipe out both these suits, compels us to pay all our own costs in their prosecution, and hands over the whole of this money, as well the £20,000 conceded and secured to us as the other portion to Fraser, Trenholm & Co. So I read the agreement, or settlement; and so I understand Fraser, Trenholm & Co. construe it. I have received a letter from Mr. Morse in reply to the one I wrote to him on the 15th instant, and partly in reply to one I wrote to him on the 17th instant, about another case which he has assumed to control. I do not find that he explains in the least this most unjust and extraordinary settlement, or gives any satisfactory reason for making it, but seems fully in accord with Fraser, Trenholm & Co. in enforcing and carrying it out, and having the suits dismissed before I can be advised from the department. My solicitors also received on Monday the following notice from the solicitors of Fraser, Trenholm & Co.: "The United States and Fraser, Trenholm & Co. "Acting under the advice of counsel, we are instructed to give you notice that unless you agree to the dismissal of these suits we shall on Thursday give a notice of motion for Monday, the 26th instant, to stay all further proceedings, and to discharge the receiver and the recognizances. You will oblige us personally if you can give us as early an intimation as you are able of the course you intend to take, so as to save us the trouble and expense, if possible, of the preparation of the necessary documents." I have written fully to the department, and asked instructions as to my future conduct in these cases, and had hoped the parties would have assented to await the answer; but, as you will see, Fraser, Trenholm & Co. are determined to follow up the advantage they have gained by this unjust settlement, and Mr. Morse is disposed to assist them in it. My own judgment is, that it is my duty to resist the dismissal of these suits until I hear from Washington, and my solicitors think this is the proper course, under the circumstances, and I have no doubt but what our counsel will concur; but I defer the matter to you, and shall be obliged for any instructions you may feel authorized to give. I am, sir, very respectfully, your obedient servant, CHARLES FRANCIS ADAMS, Esq., United States Minister, London. THOMAS H. DUDLEY. Memorandum of agreement made the sixth day of November, one thousand eight hundred and sixty-six, between Montgomery Gibbs, esquire, agent in Europe for the Treasury Department of the United States of America, and Freeman Harlow Morse, esquire, consul at London for the said United States, of the one part, and Messrs. Fraser, Trenholm & Co., of Liverpool, merchants, of the other part. It is hereby mutually agreed as follows: 1. The claim of Messrs. Fraser, Trenholm & Co. against certain property of the late Confederate States under their control is agreed at £150,000. 2. Messrs. Fraser, Trenholm & Co. are to declare what property they have under their control and where it is; it being understood that amongst this property are the five following ships: the Ruby, the Rosine, the Penguin, the Owl, and the Lark. 3. This property to be sold at the best prices obtainable by Messrs. Fraser, Trenholm & Co., and the proceeds to be applied to the payment of the £150,000, and any surplus to be accounted for and paid over to the United States government. 4. The United States consul, Mr. Morse, and the United States government to give every assistance in disposing of the property, and if proper and expedient, to grant an American register to all or any of the said ships. 5. All suits now pending, either in Great Britain or in the United States, between Messrs. Fraser, Trenholm & Co., or any of them, and the United States, to be abandoned, each party paying their own costs. 6. Messrs. Fraser, Trenholm & Co. to furnish Mr. Morse and Mr. Gibbs with an account showing how the indebtedness to them is made out, and to allow them and an accountant acceptable to Messrs. Fraser, Trenholm & Co. to inspect their books, it being understood that any information thus derived shall not be used against any one in any action or proceeding except for the recovery of property. In witness, &c. MONTGOMERY GIBBS, Agent, &c. F. H. MORSE, U. S. Consul. Mr. Morse to Mr. Dudley. UNITED STATES CONSULATE, MY DEAR SIR: Owing to your absence on the continent, which deprived me of the advantage of a personal interview with you, I hasten to inform you of an important step taken by Mr. Gibbs and myself to bring nearer to a close our exertions for the recovery of such rebel property as was left in Europe at the close of the rebellion. One week ago last Saturday I received a message through Henry Lafone from Mr. Prioleau, requesting me to meet him and see if we could not agree upon some mode of settlement by which justice would be done to both him and the United States. Holding the power both from the State and Treasury Departments to compromise and settle" just such cases, I did not feel at liberty to repel the advance made by Mr. Prioleau, nor did I desire to take the responsibility entirely upon myself. I therefore invited Mr. Gibbs to accompany me, thinking when we reached Liverpool to confer with you and have the aid of your counsel before meeting them 66 But your absence deprived us of this. On meeting them we requested that the whole negotiations and settlement might be transferred to you, and much preferred it on account of your knowledge of their connection with the confederate transactions, but this they declined positively, either directly or indirectly. We, under such a state of facts, felt compelled to go on with the settlements, knowing full well that their aversion to you was owing to your zeal and energy in protecting as far as possible the interests of the government. After a long conference of six hours on the first day of our meeting, we agreed on an outline of a settlement, which was in substance that they are to give us a sworn statement of all rebel property held or contracted by them, which is to include five steamers, cotton, material of war, &c., &c., give us free access to their books, vouchers, and anything they have to aid us in reaching property held by them and others, and we are to allow them a portion under three-fifths of the just and legal liens they have on the property, and withdraw all suits against them in the courts of this country, and they to withdraw their suit for the recovery of the Wren in the courts of the United States, which vessel they say they prove was taken into Key West by mutineers, after the surrender of General Kirby Smith. We already have the evidence of the benefit of a settlement with so important a house over other persons in a like condition, but of less importance. By this arrangement we reach far better results than can possibly be reached by long, expensive, irritating and doubtful lawsuits in the courts of this country, where all the leanings are against us. Mr. Gibbs has not only consented but earnestly advised to every step which has been taken in the case. He carefully examined my authority and instructions, and said my power to act was full and complete; that it was my duty to make the settlement, and I could not escape censure if I did not. Trusting that you will agree with us in the belief that some of our duties will be lighter hereafter in consequence of this arrangement, and that you will cordially co-operate with us in removing any remaining barrier to its completion, I remain, very truly, yours, F. H. MORSE. T. H. DUDLEY, Esq., United States Consul. Mr. Dudley to Mr. Morse. UNITED STATES CONSULATE, SIR: Yours of the 13th instant, relating to a settlement you state that you have made, in conjunction with Mr. Gibbs, with Fraser, Trenholm & Co., has been duly received. As you contented yourself with sending me a mere statement of the substance without a copy of the agreement, I was compelled to apply through my solicitors to the other side for what you failed to give me. This accounts for the delay of a day in my answer. Although your letter, which is dated on the 13th instant, states that you hasten to give me the information of the settlement, (which now appears to have been made on the 6th instant, one week before the date of your letter,) we were informed of it by a letter of the attorneys of the other side, dated the 7th instant. In comparing the report of the agreement rendered by Mr. Hull with your letter, I find it differs from the statement made by you in most important and material points. You state that Fraser, Trenholm & Co. are to give as a "sworn" statement of all rebel property held or controlled by them, &c. No such provision is in the agreement. You state that a portion under three-fifths of the just and legal liens they have on the property is to be allowed them; the agreement provides that the claim of Fraser, Trenholm & Co. against the late confederate government is agreed at £150,000, and that this is to be first paid, and if any surplus remain it is to go to the United States. I regard this agreement or settlement as most unjust and unfair to the government, and the conduct of yourself and Mr. Gibbs in entering into it, under the circumstances and in the manner it was done, as most discourteous and disrespectful to myself. Neither myself nor my attorneys were consulted, or any information given us that such a thing was contemplated. You nor Mr. Gibbs, though both in Liverpool a part of two days, never called on my attorneys or at the consulate. It is not enough for you to say I was absent. If you had dropped me a line at the time when you summoned Mr. Gibbs from Paris it would have found me at home, and I should certainly have remained until you came; or if you had gone to my office and made the matter known to the vice-consul, who was there, or to my attorney, whom you knew, I could and would have been with you in 18 hours. If there had been any desire on your part to have had me present, or to let me know what was being done, there was no difficulty in the way. Mr. Gibbs had been informed by letter before he left Paris that I was coming there. But the slight or discourtesy to myself in settling these matters, which were intrusted to my conduct by special instructions from the State Department, and about which I was probably more conversant than any one else, without consulting with me or giving me the least information that it was contemplated, however unpleasant it may be to me, or whatever false position it may place me in to my counsel or before the communities, either in this country or at home, is a mere personal matter and is of but slight importance when compared with the |