Papers Relating to the Foreign Relations of the United States, With the Address of the President to Congress December 4, 1917
File No. 422.11G93/929
Minister Hartman to the Secretary of State
Quito, March 27, 1917.
Sir: Referring to my telegram of March 4, 1917, 1 p.m., and to other correspondence relating to the subject thereof, I have the honor to enclose herewith, duplicate copies of my note No. 227, dated February 16, 1917, and duplicate copies, together with translation, [Page 740] of note No. 37, dated February 28, 1917, from the Minister of Foreign Affairs, in reply thereto. I especially desire to direct the attention of the Department to that portion of the note of the Minister of Foreign Affairs wherein he suggests or raises the question that Ecuador is not responsible for the failure of the arbitration of 1908, and leaves, the implied impression that such a charge was made by me in my note. The Department will observe that instead of indicating a failure of the arbitration of 1908,1 impliedly recognized its consummation in the following language, which is substantially the language used by the Department in its telegram of February 14, 1917, 5 p.m., to wit:
In giving this friendly advice to the Government of Ecuador, the Government of the United States did not consider it necessary to recall the arbitration proceeding of 1908, to which the Government of the United States was a party, etc.
Up to this date I have not received the report of the Minister of Public Works indicated in the note of the Minister of Foreign Affairs of February 28, 1917, and bearing the No. 37. As soon as it is received, I will forward it to the Department, and in the meantime will defer answering the note No. 37, of February 28, 1917, until further instructed by the Department.
I have [etc.]
Minister Hartman to the Minister of Foreign Relations
Quito, February 16, 1917.
Mr. Minister: Referring again to my note No. 219, of January 15, 1917, and to your excellency’s esteemed note No. 10, of January 16, 1917, in reply thereto, I have the honor respectfully to inform your excellency that the contents of both of said notes were promptly transmitted by me to my Government, and that I am now in receipt of telegraphic instructions from the Secretary of State relating to the subjects treated of in said notes, with which instructions I now have the honor to comply and submit their contents to your excellency:
The Government of the United States regards the reply of your excellency to my note of January 15, 1917, as wholly unsatisfactory to it, and it finds ample warrant for diplomatic intervention in the needed protection for large American interests, threatened with destruction through failure of the Government of Ecuador to respect its contractual obligations, and in the whole record of the dealings by that Government with the Guayaquil and Quito Railway Co.
The railway company finds itself unable to appreciate the offer of coal in part payment of interest due.
In my note of January 15, 1917, the Government of the United States attempted to point out to your excellency’s Government, in a most friendly manner, the desirability of the early payment of the interest on the prior lien bonds of the Guayaquil and Quito Railway Co., and the wisdom of immediately cabling to the bondholders that the payments would be made promptly. In giving this friendly advice to the Government of Ecuador, the Government of the United States did not consider it necessary to recall the arbitration proceeding of 1908, to which the Government of the United States was a party, nor the contract of that year, in which the Government of Ecuador bound itself in any event to make daily deposits for the payment of the interest on all railway bonds, as these facts were too well understood to necessitate further mention; but it was clearly set forth that, in the event of failure on the part of the Government of Ecuador, many complications might arise, notably the impairment of the Government’s credit.
Besides sending this friendly advice through this Legation, the Government of the United States took pains to impress upon the Chargé d’Affaires of Ecuador in Washington the necessity for the payment of the interest, and commencement [Page 741] of daily deposits on account of the American interests involved. More than four weeks have elapsed since this friendly advice was given by my Government to the Government of Ecuador in the two ways outlined above, and it is understood by my Government that, neither has the interest on prior lien bonds been paid, nor the daily deposits been resumed, in spite of the assurances given October 30, 1916.
The Government of the United States feels that, in the absence of any definite assurances as to the time the interest will be paid, or the daily deposits resumed, and in view of the statement of your excellency to me to the effect that the economic conditions of the Republic had greatly improved, it can only reach one conclusion, and that is that the Government of Ecuador is not willing to live up to her contractual obligations toward the Guayaquil and Quito Railway Co., an American corporation in which large American interests are involved, and is willing to permit, through her default, great losses to be occasioned to these American citizens.
Therefore, the Government of the United States, unless a definite statement is received in the very near future as to the date when the interest will be paid and the deposits resumed, will be forced to give consideration to the question of taking such action as may be necessary properly to protect these American interests.
I therefore entertain the sincere hope that your excellency’s Government will, under all the circumstances, find it quite convenient to arrange for the prompt payment of said interest, and the resumption of daily deposits, and that I may receive early notice thereof, for transmission to my Government.
I avail myself [etc.]
The Minister of Foreign Relations to Minister Hartman
Quito, February 28, 1917.
Most Excellent Sir: The note number 219,  of February 16, addressed to this office by your excellency, has been received. In that note, after informing me that your excellency has transmitted by cable to the Government of Washington a résumé of the note of that Legation, No. 219, and of mine, No. 10, your excellency advises me that, therefore, your excellency’s Government has informed you that it regards my note as wholly unsatisfactory, and that it finds itself amply warranted diplomatically to intervene in order to protect large American interests, which are threatened through failure of the Government of Ecuador to comply with its obligations toward the Guayaquil & Quito Railway Co. Your excellency adds that the railway company finds itself unable to appreciate the offer of coal which was made to it, in part payment of interest due it. Your excellency tells me that more than four weeks have elapsed since a friendly suggestion was made to Ecuador by the American Government to the effect that the Government of Ecuador should resume daily deposits and payment of interest, and that in spite of the assurances given, your excellency’s Government knows that none of them has taken place.
Your excellency closes notifying that unless a definite date for the payment of interest or resumption of daily deposits is fixed, the Government of the United States, in view of the statement which I made to your excellency as to the hope entertained by my Government relating to the improvement of the economic conditions of the Republic, will reach the conclusion that the Ecuadorean Government does not wish to live up to its promises regarding its obligations toward the railway company, an American corporation in which large American interests are involved. Therefore, the Government of the United States, unless a definite statement is received as soon as possible as to the date when the interest will be paid and the deposits resumed, will be forced to take such action as may be necessary to protect the American interests.
Your excellency’s note, therefore, contains two parts: One devoted to asserting that the Government of Washington regards that it has the right diplomatically to intervene in Ecuador on account of the contract entered into by an American company with the Government of this country for the construction and operation of a railroad; and the other confines itself peremptorily to demand the payment of the debts which, it is said, Ecuador owes the company, having to state the date in which said payment will be made, because if that is not done your excellency’s Government will take certain action.[Page 742]
The position taken by your excellency in the name of the American Government surprises me, inasmuch as it relates to the legality of diplomatic intervention in this matter. In reply I have to express, with deepest repugnance, of course that the opinion of my Government is entirely opposed to that one. This Ministry in fact, feels the necessity of rejecting the legality of said diplomatic intervention, and with much more reason that of the later position announced by your excellency, and it (the Ministry) rejects them because it regards that to accept them, even tacitly, would be contrary not only to the national dignity and its sovereignty, but also to the rules of law and justice which govern those matters in international life.
It is the matter of a contract of private law and of mutual obligations derived therefrom, and the fact that one of the contracting parties is a person of public law can not give the contract the character of a contract of public law. The doors of the courts of justice are open for the railway company or any other third person to demand access to the Ecuadorean Treasury, if it believes that the latter does not comply with its obligations; but it (the company) has no reason to appeal, on account of a controversy or even in the event of an evident failure, unless denial of justice might have taken place, to the American Government in order that that Government intervene in favor of the company’s interests.
Diplomatic intervention in a case like this would not be justified in any way, and much less the action of the American Government in favor of the Guayaquil and Quito Railway Co., in an action which your excellency announces as a possible one. Among the fundamental principles of international law, one of the most excellent is that which establishes equality of nations, excluding power, prestige and influence available; any action on the part of a powerful country that would pretend, in a given moment, to demand in a coercive and peremptory manner, the payment of a debt which is not even between nations, but the results from a contract signed by the nation and a private party, would be contrary to that principle. If it should be otherwise, if perhaps, I desire to believe it improbable, it would be a matter of making use of national aid to help the private contracting party on his just or unjust pretensions against a nation also contracting, then that would mean to establish by that fact as principle and rule the ruin of weak countries and their absorption by the powerful ones, and if this should occur it would be better to forget that the law and only the law should govern the relations of countries.
I do not think that President Wilson’s Government which in a very important document of recent date just declared, in a noble manner, that
“the interest of the Government and people of the United States, in the means which might be adopted to relieve the damages caused to small and weak peoples is as deep and sincere as that of another people and Government could be,”
I do not believe, I say, that that Government intends to ignore, because we of Ecuador are concerned, that rule of the illustrious Hamilton, which Drago reproduced, according to which “the contracts entered into between a nation and private parties, can not be the subject of a compulsory force.”5
Mr. Root, the eminent American Secretary of State, stated in a notable speech that
“to try to obtain by means of force the payment of debts resulting from contracts, is equivalent to justifying abuses, the unavoidable result of which is far worse and more lamentable to humanity than if the payment of the debts of one nation were delayed. We regard, he added, that the use of the army or navy of a great power to cause pressure upon a weak nation, on account of contracts entered into with a private party, tends to encourage the exploitation of the urgent necessities of a country and to attack its sovereignty.”
The form of intervention,—I imagine of course that your excellency could not refer to coercive and forcible measures,—does not change the essential character of the impairment of the sovereignty of the country bound with the contract. If the United States have courageously and energetically supported the principle of non-official intervention for the payment of contract debts of States, when the big countries of Europe have tried to demand by force from weak countries of America, payments of that nature, I suppose that they (the United States) will not desire to be inconsistent by using means of pressure to enforce themselves in this country the same thing which they condemned in the other ones.[Page 743]
I have understood the value of the citation appearing in the note to which I refer, relating to the arbitration of 1908; but whatever may be the effect to be obtained from the lack of success of that arbitration, I beg leave to record that the failure should not be attributed in any way to Ecuador: this country could not abdicate its dignity and its sovereignty, by waiving a form prescribed by its institutions, a form which, in other respects, neither concerned the essence of the question submitted to judgement nor the main part of the arbitration.
I do not find the present attitude of the American Government in harmony with the policy observed by the Government of your excellency, a policy which was set forth by the Secretary of State Fish in 1871:
“Our policy followed long time since and permanently observed, has been that of avoiding the formal intervention of the Government, in matters relating to claims based upon contracts, except in cases of injuries and damages which common law calls injustice and regards as inflicted by force and not as the result of voluntary obligations or contracts. In contract cases, the practice of the American Government has been limited to permitting its Minister to exercise friendly good offices, recommending the claim to an equitable examination by the debtor, without compromising the Government with any future action.”
In 1881, Secretary Blaine established as a universally accepted and practiced rule that
“a person who voluntarily compromises himself in a contract with the Government of a foreign country, is submitted, in order to secure compensation of all complaints he might allege or losses he might sustain resulting from the contract, to the laws of the country of the Government or the citizens with whom he contracted.”
The representatives of the United States to the Third Pan American Conference at Rio Janeiro in 1906, had, among their instructions, the following ones, which give honor to the American Government:
“It has been for a long time the permanent policy of the United States not to use force to obtain the payment of ordinary contract debts of other Governments to citizens. We have felt that to use force with such a view was incompatible with the respect to the independent sovereignty of the other members of the family of nations, a most important principle of international law, and which is a guaranty of weak peoples against oppression of strong ones.”6
After having set forth the general doctrine on the matter, a doctrine which has been especially observed by your excellency’s Government, I do not believe that those general and noble principles of justice and law may or should be broken in the present case; Ecuador does not wish nor ever intended to cause the least damage to the legitimate interests of the railway company; it is her intention scrupulously to comply with the obligations imposed upon her by the respective contracts, as far as she can; the diplomatic intervention in matters relating to the railway, I repeat, is not legal because no denial of justice exists. The failure of the arbitration of 1908 is not due to it (Ecuador). It is necessary also that the company comply with its obligations; it has not up to date complied with its obligations in a satisfactory manner. Until the mutual claims between the Government and the company are determined it is not possible to talk of failure on the part only of the Government of Ecuador, nor of damages sustained only by the company, because it, being the manager and operator, is more properly bound to carry out the payment of debts and coupons, and not to take for itself alone the profits leaving only the responsibilities to Ecuador. If the American Government would perhaps intervene in these matters, that should be perhaps with a view that the American citizens, of the railway company, fulfill their obligations toward the bondholders and the Ecuadorean Government in a proper and full way.
As to the essence of the note to which I refer, notwithstanding the statement made in my previous note, as to the effect that no dates or terms could be fixed for the payments and deposits, I have the honor to inform your excellency that your note has been transcribed to the Minister of Public Works, who announces a reply, which will be received by your excellency as soon as possible.
The hopes which my Government entertains, regarding the improvement of the economic conditions of the Republic, can not serve as a pretext to allege that the Ecuadorean Government does not wish to live up to her contract obligations toward the railway company, and much less to serve as a basis to imagine that [Page 744] a big or small failure in this regard can be intentional; from the fact that those hopes were stated, no assurance of immediate and necessary nature may be inferred, respecting their realization and much less under the present conditions of ineffectiveness of the commerce and the consequent and unavoidable lessening of every custom income.
In other respects, the responsibility on account of losses and damages, never can, in accordance with the doctrine of the Institute of International Law, which is the reasonable and universally accepted one, be considered established by the sole claims of the one party to that contract who declares himself as the victim, as it occurs in the present case of the railway company; the Government of Ecuador has examined the accounts of the company and has objected to the debts and their amount; it has believed and so has stated on repeated occasions, that the company has not complied with its obligations, neither as the constructor of the railroad, nor as the partner of the State in its operation; hence it is necessary that the mutual claims be previously ascertained in order to be able to talk of damages caused to only one of the parties by the other one and to allege denial of justice.
For the responsibilities which may result to my Government, on account of the announcement contained in the note which I answer, I have the honor to inform your excellency that I am of the opinion that the communications exchanged between that Legation and this Ministry, regarding the railway from Guayaquil to Quito, be given the publicity which the matter requires and that, in consequence, this Ministry reserves to itself the authority of publishing them whenever it regards it proper.
On this opportunity I extend to your excellency the assurances of my most distinguished consideration.