The Secretary of State to the French Ambassador ( Jusserand )
Excellency: I have the honor to acknowledge the receipt of your Excellency’s note of April 10, 1923,34 in which you inform me that a certain number of the holders of the bonds of the Haitian 5% Foreign Gold Loan of 1910 have demanded that the interest and amortization on these bonds be paid not in French francs of current circulation but either in gold coin or in paper francs in an amount based on the current rate of exchange of the dollar. You state that the Bank of the Parisian Union, which is the fiscal agent of the loan, has brought the demands of these bondholders to the attention of the French Government, and that the French Government, considering that these demands were justified, has made representations to the Haitian Government indicating its interest in an equitable solution of the matter. Since the Haitian Government declined to accede to the request for the payment of the bonds in the manner above mentioned, you request that the Government of the United States examine the matter and if it concurs with the conclusion reached by the French Government, that it give instructions to its representative at Port au Prince to make representations to the Haitian Government similar to those already made by the French representative in Haiti.
The question whether the Haitian Government is required by the conditions of the loan of 1910 to pay the interest and amortization in gold coin has already been carefully considered by the Government of the United States, which is obligated under the Treaty of 1915 to aid the Haitian Government by its good offices in the establishment of the finances of Haiti on a firm and solid basis. After examining the provisions of the loan contract and of the bonds themselves, this Government reached the conclusion that the terms of the loan did not obligate the Haitian Government to the payment of interest and amortization in gold coin, and communicated this conclusion to the Government of Haiti. In studying the matter this Government has not failed to consider the arguments presented in behalf of payment in gold by the Bank of the Parisian Union, which were communicated to the Haitian Government in November last by the bank referred to and which have again been brought to my attention by your Excellency’s note.
The Bank of the Parisian Union seeks especially to prove that the word “gold” was used in the caption of the loan to indicate that the interest and amortization of the bonds would be paid in gold [Page 416] francs. The bank does not, however, refer to any provision of the contract itself which bears out this contention. It seems clear, on the other hand, that this expression was used because the loan was secured, as the Bank of the Parisian Union itself points out, by certain revenues which were to be collected in gold, as distinguished from Haitian paper. It emphasized the fact that the bondholders would not be dependent for their security on revenues collected in the then fluctuating Haitian currency,—a feature of the loan to which the prospective investor at that time would probably have attributed more importance than to the promise to repay in gold coin as distinct from ordinary francs. If it had been the intention of the contracting parties to provide for the payment of interest and amortization in gold coin it seems improbable that bankers who were assuming a moral responsibility for the validity and security of the bonds which they were selling to the French public should have permitted so important a provision to be expressed solely in the caption of the loan and in language which, to say the least, lends itself to another interpretation. It surely would not have been redundant to include in the contract itself provisions relating to so important a matter as the currency in which payment was to be made.
I do not perceive the force of the argument that the contracting parties must have intended that the loan was to be repaid in gold because the proceeds of the loan were to be used for the establishment of a gold currency. There would appear to be no necessary connection between the method of repayment to bondholders and the purposes for which the funds obtained from the loan were to be employed.
In reply to the argument that the word “gold” had not been used in other loan contracts in Haiti, and that its use in the loan of 1910 was, therefore, an innovation which must have some rational explanation, it may be said that the use of the word “gold” in the caption of the loan, as I have already pointed out, is satisfactorily explained by the nature of the security upon which the loan was issued. In the absence of any other indication of the intention of the contracting parties it does not seem necessary to assume that the use of a new word in the caption of the loan signified an important difference between the terms of this and previous loan contracts when no such difference appears from the text of the contracts themselves.
The Bank of the Parisian Union sets forth as additional evidence that it was the intention of the contracting parties to assure the service of the loan in money which would not fluctuate, that the loan was taken not only by the French bank but also by two American [Page 417] banks and one German bank. It may be pointed out, nevertheless, that the bonds were expressly payable in francs only and not, as in the case, for instance, of the bonds of the National Railroad of Haiti, either in francs or in dollars at the option of the holder. Apparently holders of the 1910 bonds in the United States, or in Germany, would be compelled to receive their interest and amortization in francs. Even in 1910 this would at times have involved for the bondholders either a gain or a loss by exchange.
In making the argument that certain revenues payable in gold were set aside for the security of the loan in order to maintain a proper relation between the amount of the security and the amount of the service of the loan, the Bank of the Parisian Union, as I have indicated above, appears to have set forth the real explanation of the use of the word “gold” in connection with this loan. It is true that the revenues pledged were made collectible in American gold in order to make certain that they would provide an amount in francs sufficient for the service of the loan, but there is nothing in the contract which provides that the bondholders should receive from these revenues more than the amount in francs specified in the bonds and coupons. The loan contract, after providing in Article XVIII that the revenues in question should be collected in American gold, provides expressly in Article XXI that these collections, to such extent as might be necessary to make up the required number of francs to meet the service of the loan, should be remitted “in francs” to the fiscal agent in Paris.
The presentation by the Bank of the Parisian Union of arguments regarding the intention of the parties to the loan contract appears futile when the contract itself expresses no intention to make payments in gold francs. The contract provides simply for payments in francs and francs have now been tendered to the bondholders, in accordance with its terms. In stating that the gold franc and the paper franc were identical in value at the time when the loan was made and “that no one could foresee the present fluctuations in exchange,” the Bank of the Parisian Union has undoubtedly set forth the exact reason why no provision was made for the payment of the loan in gold and why the banks negotiating the loan did not request from the Haitian Government any guarantee against changes in the value of the currency in which repayment was to be made. In the absence of such a guarantee there would appear to be no justification for demanding that the Haitian Government should make up to the bondholders the losses which they may have suffered by reason of the decline in the value of the franc. The holders of the bonds of this loan are in exactly the same position in this respect as the holders of other obligations payable in currencies the value of which has declined in relation to gold.[Page 418]
With regard to the intentions of the contracting parties, however, I desire to call your attention to the fact that the great majority, if not all of the holders of the bonds of 1910 have for more than three years been accepting interest payments in francs of current circulation. These payments have been made through the Bank of the Parisian Union, which is at the present time acting as the agent of the Haitian Government in redeeming the bonds at their nominal value in francs. The acceptance of these payments appears to indicate that no very large number of the bondholders had purchased the bonds in the belief that they were payable in gold. I may remind you in this connection of a memorandum prepared by the Bank of the Parisian Union and transmitted to this Department by the French Embassy in Washington on November 4, 1918,37 in which the bank urged the resumption of interest payments upon the 1910 bonds, calling attention to the fact that the product of the customs revenues pledged for the service of the 5% Gold Loan of 1910 from September, 1915 to March, 1918 had amounted to $1,894,251, and stating that “at the present rate of exchange this sum would represent an amount in francs sufficient to pay all of the coupons in arrears.”
In view of the considerations above set forth this Government is of the opinion that the Government of Haiti has fully discharged its obligation to the holders of the bonds of the loan of 1910 by tendering payment in francs of current circulation. It considers that there is no provision either in the loan contract or in the bonds themselves which would impose upon the Haitian Government any obligation to redeem these bonds either in gold coin or in francs at a rate based on the present rate of exchange of the dollar. I do not feel able, therefore, to accede to your Excellency’s request that instructions be given to the American representative at Port au Prince to make representations to the Haitian Government in this matter.