Papers Relating to the Foreign Relations of the United States, Transmitted to Congress, With the Annual Message of the President, December 3, 1888, Part I

No. 103.
Mr. Bayard to Mr. Hall.

Department of State,
Washington, March 27, 1888.

No. 563.]

Sir: In your dispatch No. 766, of January 11, 1888, you reported the protest made by the managing director of the Champerico and Northern Transportation Company of Guatemala against certain acts of the Guatemalan Government which, it was asserted, constituted a violation of the contract between that Government and the company.

On February 7 last, by instruction No. 550, I informed you that the subject could not be considered by the Department unless the case were brought to its attention by a memorial supported by affidavits.

This memorial has now been furnished, and the facts already reported, with considerable fullness of detail, in your No. 766, are all in the possession of the Department.

Mr. Sanford Robinson, the managing director of the company, has submitted, besides the memorial—a copy of which I inclose—a copy of the concession for the construction of the railroad which he represents, and of the report of Mr. Rockstroh, of the Guatemalan Government.

These papers are annexed to your dispatch, already adverted to, and no copies of them need be now transmitted to you. Mr. Robinson further submits a copy of the decree of September 24, 1884, accepting his road, and of the concession recently granted for the construction of a road from Ocos to Quesaltenango, which you will find published in the Official Gazette for October 4, 1884, and December 15, 1887, respectively.

From these documents it appears that on March 12, 1881, the Government of Guatemala entered into a contract with Messrs. Lyman, Fenner, and Bunting, citizens of the United States, for the construction of a railroad from Champerico, on the Pacific coast, to Retalhuleu, a town about 30 miles in the interior. Certain modifications were made by a separate instrument dated May 30, 1882. The contract as modified was subsequently assigned to the petitioner, the Champerico and Northern Transportation, Company of Guatemala, a corporation organized under the laws of the State of California, who completed the road and now possess and operate it.

By the contracts in question the Government of Guatemala granted to Mr. Lyman and his associates authority to build and to operate for ninety-nine years a railroad from Champerico to Retalhuleu, at the end of which time the road with all rolling stock, etc., should become national property. The Government further agreed that for twenty-five years from the date of the opening of the line for traffic no other railroad should be operated between these terminal points and none other should be constructed within 15 leagues on either side of the line. The Government further agreed to assist the enterprise by a subvention of $700,000 in bonds receivable at the Champerico custom-house for 25 per cent, of the export or import duties there collected. The Government further granted land in aid of construction, besides giving the road-bed and land for stations; and it exempted the enterprise for the term of twenty-five years from all taxation, including duties on articles imported for the construction and maintenance of the road. The grantees were bound to build and equip their railroad in a specified manner and to begin and complete it by a specified time under penalty of forfeiture, and to deposit $10,000 as guaranty of performance on their part.

Other features of this contract will be referred to below.

The railroad was built in accordance with the contract and accepted by the Guatemalan Government on September 24, 1884, and the $700,000 in bonds duly delivered to the grantees or their assigns.

Up to the end of 1884, therefore, there is no evidence of any dispute between the railroad company and the Government.

It is now asserted by the petitioners that on July 31, 1885, when about $441,000 of the bonds remained unredeemed, the Government of the Republic issued a decree suspending payment of the bonds for one year, which suspension has since continued in force, although interest at 6 per cent on the unredeemed bonds has been paid for some portion of the intervening time.

It is further alleged that on November 8, 1887, the Government of Guatemala, by a contract dated on that day, granted to J. L. Bueron & Co. the right of constructing and working a railroad from the port of Ocos to the city of Quesaltenango, which contract was approved and ratified by the constituent assembly on November 14, 1887, and approved by the President of the Republic on December 15, 1887. The port of Ocos is situated on the Pacific Ocean in Guatemalan territory to the northward of Champerico. The distance between Champerico and Ocos is stated by you to be about 8 leaguesand the distance between Champerico and the mouth of the Suchiate River, which forms the boundary between Guatemala and Mexico, is said to be a little less than 56 kilometers or about 35 miles. Any railroad terminating at Ocos must, therefore, run within much less than 15 leagues of the petitioner’s road throughout its entire length, and the construction of such a line would seem to be in plain violation of the exclusive privileges conferred upon the assignors of the petitioner.

These privileges, as already pointed out, were contained in the clauses guarantying that no other railroad should be constructed within 15 leagues of the petitioner’s road during the first twenty-five years of its existence.

The transaction, as above stated, can not be treated as open to the objections which could be made to a grant of a perpetual monopoly. It is, on the contrary, a contract, by which the petitioners and the parties interested with them, agree to build for the Guatemalan Government a railroad, and are to receive for building such road $700,000 in bonds, a certain quantity of land, and the right of operating the road without charge for a period of ninety-nine years; and, as incidental to this, they are to be secured against certain competition, and be free from all taxes for a period of twenty-five years.

The petitioners aver that this guaranty against competition is of vital importance to them, and that without it they should not have undertaken the construction of this important work.

It appears, therefore, that the Guatemalan Government have directly violated two essential features of their contract—the agreement to receive their bonds at the custom-house, and the guaranty against competing roads within 15 leagues—and it is for these breaches of the contract that the petitioner now asks redress.

It is, of course, unnecessary for me to remind you that the Government of the United States has always refused to press the contractual claims of its citizens against foreign powers, unless it should appear that the citizens holding such claims were unduly discriminated against by the debtor government, or denied a judicial domestic remedy against it. Where these conditions do not exist the intervention of this Government in contractual claims by its citizens against foreign governments is limited to instructions to its diplomatic representatives abroad to exercise, unofficially, their personal good offices in recommending to the governments to which they are accredited a just and honorable settlement of the claims.

The present case appears to be one of the class in which that course may properly be adopted, and you are therefore instructed to present unofficially to the Guatemalan Government the grievances of which this petitioner complains.

In so doing you may take occasion to call the attention of the minister of foreign affairs to the great importance to Guatemala, as well as to the citizens of the United States whose interests are now directly involved, of a scrupulous observance of good faith in the performance of their contract. In the pursuance of an enlightened policy, Guatemala has sought to attract the capital and skill of citizens of other countries and particularly of the United States, to undertake the construction of works of public utility which may serve to open to the world her great but hitherto undeveloped resources. To accomplish this result, nothing is more essential than a feeling on the part of those who may be willing and able to undertake such tasks, of confidence in the exact integrity of the Guatemalan Government, and it is not too much to say that the course of that Government in relation to the contract now under consideration contains nothing in it re-assuring for persons whom Guatemala may invite to enter into future engagements. It is vain to expect that the means of men and money required from other nations for the execution of similar works will ever be furnished in the face of such manifestations of disregard for contracts deliberately made.

It is not questioned that a government, when a monopoly becomes oppressive, may give public relief by the grant of privileges to an adverse interest. If, however, it should do so in such a way as to destroy private rights granted by its own express agreement, it would seem but just that compensation should be made to the parties thereby injured. And, it may be observed, that in the case now in question the exclusive privileges granted to the petitioners’ assignors are not only conferred for a limited period, but are so guarded by provisions for prompt and effective service, at rates fixed in the contract itself, as to prevent the possibility of any oppression to the public.

It may be said that the petitioner under the contract ought to have submitted these questions to an arbitration. But the terms of article 25 can hardly be regarded as applying to a case like the present, which does not arise from any dispute as to the meaning of the contract or as to its application to a particular state of facts, but is based upon a clear repudiation and disregard by the Guatemalan Government of some of the essential features of the agreement. It seems plain that these questions are not such as can be disposed of by arbitration.

It may further be urged that the petitioner is bound by the restrictions embodied in and imposed by the terms of the President’s approval of the contract of March 12, 1881. These conditions require that the enterprise shall always be national; that all persons interested in the road as stockholders, employés, or otherwise, shall be regarded as Guatemalans in regard to it; that they can never maintain the rights of foreigners in respect to the titles and transactions relating to this enterprise; and that no foreign diplomatic agent can ever intervene.

Provisions similar to this contained in the laws of certain Spanish-American Governments, or in contracts between those Governments and citizens of the United States, have in recent years been several times set up by those Governments as a bar to the intervention of this Government for the protection of the rights of its citizens. But the United States has uniformly refused to regard such provisions as annulling the relations existing between itself and its citizens or as extinguishing its obligation to exert its good offices in their behalf in the event of the invasion of their rights.

As instances of the Department’s action in such matters may be mentioned its intervention in May, 1885, in behalf of certain Americans employed on Mexican railroads (see Wharton’s Digest, II, 337) and its instructions of February 15, 1888, to Mr. Buck, United States minister to Peru, with reference to the case of Mr. John L. Thorndike, in which it took the position that “this Government can not admit that its citizens can, merely by making contracts with foreign powers, or by other methods not amounting to an act of expatriation or a deliberate abandonment of American citizenship, destroy their dependence upon it or its obligation to protect them in case of a denial of justice.”

I am, etc.,

T. F. Bayard.

[Inclosure in No. 563.]

Mr. Robinson to Mr. Bayard.

Washington, D. C., March 21, 1888. (Received March 22.)

Sir: Sanford Robinson, as managing director of the Champerico and Northern Transportation Company of Guatemala, a corporation formed under the laws of the State of California, respectfully comes before the honorable Secretary to complain of the unlawful acts of the Government of the Republic of Guatemala, hereinafter set forth, and begs leave to submit the following statement, to wit:

On March 12, 1831, the Government of Guatemala made a concession to and entered into a contract with three American citizens, to wit: J. H. Lyman, D. P. Fenner, and T. B. Bunting, for the construction of a railroad from the port of Champerico, on the Pacific coast, to the town of Retalhuleu, situated about 30 miles in the interior. The most important points in the said contract were as follows:

Article 1. A franchise for ninety-nine years.

Article 2. A reservation during the term of twenty-live years of a strip of land on each side of the said railroad, 15 Spanish leagues (equal to about 39 English miles) in width, or a total of 78 miles, in which territory the’Government agreed notto authorize during the said term the construction of any other railroad.

Article 3. A subvention of $700,000 in debentures, redeemable at the Champerico custom-house with 20 per cent, of the duties. Afterwards this was modified to 25 per cent, of the duties at the said custom-house (section 5 of the modifications), and afterwards, by special decree, the percentage was made 12 per cent, of the duties at all the custom-houses of the Republic.

Article 9. Exemption from duties on railroad material for construction and maintenance.

Articles 10 and 11. Exemption from stamp duties and taxation.

Other concessions of minor importance were made, not necessary to enumerate, and which up to date have been fulfilled on the part of the Government.

The two most important concessions on the part of the Government were the subsidy and the reservation of the 15 leagues on each side of the line. These are of the essence of the contract, without which the railroad would not have been constructed.

Article 14 extends the rights 61” the concessionaries to their legal representatives, and article 15 confers on them the right to form a company outside of the Republic for the purpose of constructing the said road.

The grantees assigned the contract to the aforesaid Champerico and Northern Transportation Company of Guatemala, and the said company in accordance with the original contract constructed the said railroad, expending a large sum of money in the work. The road was by decree of the executive duly accepted on October 4, 1884, as having been constructed in compliance with the contract.

The debentures were duly issued by the Government in “bonds” (bonds) to the amount of $700,000; each bono specifying on its face the object of its issue, and these bonos became at once receivable at the custom-houses of the Republic for 12 per cent, of the duties. Here, however, commenced the acts of bad faith on the part of the Government. It issued “documents,” so-called, to merchants in exchange for advances of money made to the Government, receivable for duties; these documents bearing on their face the provision that they were not subject to the necessity of paying 12 per cent, of the duties in bonos of the railroad company. In consequence of this the company received up to the time of the suspension of payments of its bonos not over 6 per cent, of the duties.

The process of redemption, however, went on until July 31, 1885, when the Government, by formal decree, suspended payment of the “bonos” for the term of one year, failing, however, at the end of the year to resume payment, and froni the said 31st day of July, 1885, none of them have been redeemed. Up to that date about $295,000 had been redeemed, leaving on hand about $441,000. At the expiration of the year of suspension the Government organized a “syndicate of the public debt,” its duties being to collect 50 per cent, of the maritime revenue, and devote the proceeds to the payment of interest on the debt, at varying rates, ranging from 12 per cent, down to 6 per cent, the “bonos” of the Champerico Railroad being entitled to the lowest rate. After payment of the interest any surplus in each year was to be devoted to payment of principal.

Under this law the Champerico Company received three months’ interest, from the 1st day of January, 1887, to the 1st day of April of the same year. Your petitioner, acting for the company, having no other resource, was obliged to accept the forced regulation of the Government, but did so under protest, reserving all the right of the company under the original contract, in case of the failure on the part of the Government to carry out the new arrangement. After the payment of the first three months’ interest the syndicate continued to collect its proportion of the customs duties until the 26th day of June, 1887, the second installment of interest being due on the 30th of June. On the 26th of June the President declared himself dictator, and on the 27th of June, by decree, abolished the syndicate and seized the funds in its hands. Your petitioner immediately made a demand for the amount due the company, claiming that the funds were held by the syndicate in trust, and on the 4th day of July following the treasury paid the three months’ interest due to the company, but it held and still holds the surplus available for payment of principal. Since that time no payments whatever have been made.

During the suspension of payments the Government has made other contracts for the construction of railroads, with subventions. Amongst these one was made with a Spaniard, named Fernandez, for the construction of a railroad from Antigua to Palin, with a subsidy of Government bonds receivable for duties in the customhouses. Fernandez made a pretense of grading a portion of the road, and then, receiving the bonds for that portion, abandoned the work with the consent of the Government. The bonds, however, have always been receive, at the custom-houses, and are now nearly or all canceled, although those of the company are not received. Other contracts have since been made with large subventions from the Government. The above-mentioned acts of bad faith on the part of the Guatemala Government were but the beginning and led up to the last attack on the company, one so flagrant and so ruinous in its consequences as to force the company to take whatever measures it can to save itself from the complete ruin of the enterprise.

On December 15, 1887, the Government, against the earnest and formal protests of your petitioner, made a contract with J. L. Bueron & Co. for the construction of a railroad from Quezaltenango to the port of Ocos. Ocos is a small and new port, situated about 7£ Spanish leagues to the west of the port of Champerico. This Ocos road is to run lengthwise through the coffee districts of Costa Grande and Costa Cuca; then to turn towards the coast and run to the said port of Ocos. These districts supply nearly all the traffic of the Champerico road, and for that traffic the road was built. For 30 miles or more this new road will run within the 15–league strip on the westerly side of the Champerico road and take all its trade. The result of the construction of this road will be simply the complete ruin of the property of the Champerico Company.

It is well to state here that some time before the Bueron contract was heard of your petitioner had, encouraged and urged by the members of the Government, made surveys for an extension of the Champerico road through the same country covered by the Bueron road, and had formally applied for a concession asking for no subvention-or aid except the right of way.

After making this proposition your petitioner was unable to get any action on it and was suddenly surprised by discovering that the Government had made a contract with Bueron for a road covering the same ground and giving him besides a large subsidy. In opposing this contract, which your petitioner did most strenuously in communications, protests, and personal interviews, he was aided strongly by the United States minister, the Hon. Henry C. Hall, who, unofficially, made every endeavor to prevent the carrying out of the threatened contract. As, however, he acted only unofficially, simply using his good offices in behalf of the company, the Guatemala Government paid no attention to him.

Mr. Hall has informed your petitioner that he has fully and minutely reported the whole transaction to the Department of State.

The statements herein contained can, therefore, be fully verified by his reports.

In company with Mr. Hall, your petitioner had several interviews with the minister of foreign relations, Don Lorenzo Montufar, and was assured by him that in the face of the contract with the company none such as contemplated could be made with Bueron. In the whole affair your petitioner feels assured that Mr. Montufar acted in good faith, and that he would have prevented the consummation of the Bueron contract if he had had the power. The President conceded all the arguments of your petitioner and gave him to understand that the contract would not meet his approval. Before the final approval of the contract by the President, Mr. Montufar submitted the whole question at issue to Mr. E. Roekstroh, a competent and scientific man, for many years in charge of one of the Government institutions of learning, and for some years past engaged in making, in company with Prof. Miles Rock, of Washington, the survey for the boundary-line between Mexico and Guatemala. The points on which he was asked to report were: (1) The meaning of article 2 of the contract; and (2) the distance from the Champerico road to the contemplated Ocos road.

On both points Mr. Rockstroh, in a report dated November 19, 1887, decided against the right of the Government to make the Buerron contract.

In face of this report of their own expert, appointed by themselves, the President approved the Bueron contract, it being published as a law in the Official Gazette on December 15, 1887.

Your petitioner further states that he was refused a sight of the Bueron contract, until it was published, after approval of the President, in the Official Gazette of the Government.

The above history will show the honorable Secretary that the Government, by promises, having induced the Champerico Company to construct the railroad, commenced, as soon as it was completed, a consistent course of violation of the contract, ending in the Bueron concession, a deliberate and willful attempt to ruin the enterprise. This last act is one equivalent to confiscation of its property, for the Government might as well seize the road itself as to take away its traffic, a traffic they had agreed to protect.

The 15-league clause was so important that the construction of the road would never have been undertaken without it. There was a practically fixed amount of business. The building of the road brought no new business. The road simply hauled by steam-power what had hitherto been hauled by oxen. With a fixed amount of traffic limited in quantity no one would have invested money in it without an allowed tariff sufficient to yield a proper revenue and exemption from competition for a reasonable term of years.

Except the questions above stated no disputes have occurred between the Government and the company. The Government has never claimed, nor does it now claim, that the company has in any way violated any part of its contract.

In consequence of this last act of oppression and violation of contract on the part of the Guatemala Government, the company already finds itself seriously damaged. Negotiations which have been pending for a sale of the company’s road have been stopped, and the stock of the company has been rendered practically valueless.

The Champerico Company is not the first American enterprise that has suffered at the hands of the Guatemala Government, nor will it be the last, unless the said Government can be brought in some way to see the error of its ways. The company is powerless in Guatemala; it has no tribunal to appeal to; it has no resource whatever except in the mediation of the United States Government. Your petitioner believes that such mediation would be effectual, not only in protecting the company from the present attack, but in relieving it from future ones, as well as tending to prevent attacks on other American enterprises. It is with regret that the company finds itself forced to ask this intervention, but it is compelled by its necessities to do so. Wherefore, in view of all the facts herein set forth, your petitioner, in the name of the Champerico and Northern Transportation Company of Guatemala, now respectfully asks the aid and intervention of the Department of State, in order to procure from the Guatemala Government a strict compliance with the terms of the contract made with Lyman, Fenner and Bunting, and, therefore, prays that the Department will take such steps as it may deem necessary in the premises to secure an an rogation of the Buerron contract, and prevent the threatened spoliation and practical confiscation of the company’s property.

Your petitioner respectfully refers to the following documents herewith submitted:

• Copy and translation of Lyman, Fenner and Bunting contract.
• Translation of decree accepting the Champerico road.
• Copy and translation of the Buerron contract.
• Copy and translation of the report of E. Roekstroh.
• Certified copy of articles of incorporation of the Champerico and Northern Transportation Company of Guatemala.

U. S. Coast Survey map and official map of Guatemala, showing location of the ports of Ocos and Champerico, the line of the Champerico Railroad, and approximate line of the proposed Ocos Railroad, the position of the coffee-producing districts, and the 15-league lines.

And your petitioner will ever pray, etc.

Sanford Robinson.
Managing Director.

Washington, D. C., March 21, 1888.

Sanford Robinson, being duly sworn, deposes and says: That he is forty-one years of age; that he was born in North Yarmouth, in the State of Maine; that his residence is in the city of San Francisco, State of California, but that he is at present residing temporarily in the city of Guatemala, in the Republic of Guatemala; that he is the managing director of the Champerico and Northern Transportation Company, of Guatemala, a corporation formed under the laws of the State of California, owning property in the said Republic of Guatemala; that he is a stockholder in the said corporation; that the statements made by him in the above petition are true, except as to those matters stated on information and belief, and as to those matters he believes them to be true; that the documents filed with the said petition and referred to therein are correct copies of the originals, and that the translations are true and correct; that the line of the Champerico Railroad is correctly laid down on the maps filed with said petition, and that the acts referred to and complained of in the foregoing petition took place during the time that the deponent has been acting as managing director of the said Champerico and Northern Transportation Company, and while he was residing in Guatemala; that is to say, between the 31st day of July, 1885, and the 1st day of January, 1888.

Sanford Robinson.

Subscribed and sworn to before me this 22d day of March, A. D. 1888.

[seal.]

Emma M. Gillett,
Notary Public.