File No. 817.51/821

The Secretary of State to the Financial Agent of Nicaragua

Sir: The Department has received your communication of August 15, 1916,1 enclosing a copy of a contract concluded by you, under date of July 31, 1916, in behalf of the Republic of Nicaragua with Brown Brothers and Company and J. & W. Seligman and Company, and a copy of a contract of the same date concluded by you in behalf of the Government of Nicaragua with the National Bank of Nicaragua, Incorporated, both contracts relating to the adjustment of debts owing by the Nicaraguan Government to the other parties of these contracts out of funds which the Government of the United States is obligated to pay to the Government of Nicaragua under the terms of the recently ratified treaty relating to an interoceanic canal.

The Department has examined these contracts and deems it proper to inform you that it has instructed the American Minister at Managua to call the attention of the Nicaraguan Government to the fact that these contracts have been received by the Department, and to communicate further with the Nicaraguan Government in the sense of the following:—

By Article III of the Treaty it is provided that these funds are to be applied by Nicaragua upon its indebtedness or other public purposes for the advancement of the welfare of Nicaragua in a manner to be determined by the two High Contracting Parties. [Page 908] Obviously, therefore, no final nor definite action can properly be taken by the Government of the United States or by the Government of Nicaragua respecting the disposition of the funds, until an arrangement shall have been effected by the contracting parties as to the application thereof to one or both of the two general purposes designated in the treaty.

Under these circumstances the Department, in examining the contracts transmitted to it by Mr. Cuadra, regrets to observe that the Nicaraguan Government should undertake at this time to enter into negotiations with the above-mentioned parties respecting the payment to them of the funds in question, and it is surprised to find in the contract concluded with Brown Brothers and Company and J. and W. Seligman and Company the following provision:—

The Republic furthermore, as a condition hereof, hereby agrees that it will not consent to any disbursement or distribution of the moneys which it has become entitled to receive from the United States under the Convention of August 5, 1914, in conflict with the provisions of this agreement or which may deprive the Bankers of any of the rights secured to them hereunder and under the earlier agreements hereinbefore mentioned.

The Government of Nicaragua, if it is to be considered as bound by this provision and by other provisions in the contract which appear to recognize the right of the bankers to be paid a specified amount out of the funds referred to in the Treaty, would appear to have placed itself in a position in which it will be unable to cooperate with the Government of the United States in carrying out the stipulations in Article III of the treaty just mentioned.

In effecting an arrangement with the Nicaraguan Government as to the disposition of the funds in question in the manner prescribed by the Treaty, it is the intention of this Government to exercise its best judgment in seeking to carry out the purposes of the Treaty with respect to the application of these funds on Nicaragua’s indebtedness or for other public purposes. The Department therefore can take no cognizance of the above-mentioned contracts at this time further than to inform the Nicaraguan Government of its views respecting them as above briefly indicated and to request that the Government of the United States may receive from the Government of Nicaragua a statement regarding its action in relation to these contracts which appears to have been taken without proper regard for the stipulations of the recently ratified Treaty.

I am [etc.]

Robert Lansing
  1. Not printed.