812.5200/34a: Telegram

The Secretary of State to the Ambassador in Mexico (Sheffield)

240. [Paraphrase.] Department has carefully considered the matter and is transmitting below the following conclusion for your personal guidance.

It is not advisable to send formal note setting forth that law under consideration is clearly retroactive in respect to property acquired before the Mexican Constitution went into effect and therefore confiscatory. Article 27 is general in its terms, and the Supreme Court of Mexico in the case of the Texas Company23 and other cases24 has held that the article is not retroactive so far as it relates to persons holding petroleum lands who have, before the Constitution went into effect, performed some positive act showing an intention to exercise the petroleum rights. It is not clearly specified in the bill, and the language thereof does not necessarily imply, that it is the [Page 524] intention of the bill to cover lands, rights and interests of stockholders acquired before the Constitution was promulgated. The full effect of the bill, if it becomes a law, would depend upon interpretations made by the courts and by the Mexican Government. If a law prohibiting foreigners from owning lands and being stockholders in Mexican corporations does not affect vested rights acquired before the Constitution was promulgated, then it relates to a purely domestic policy, and this Government has no suggestions to make thereon. American interests which have protested against the law have not conclusively proved that it would necessarily affect rights acquired before the Constitution was promulgated. According to the familiar principles of construction applied under the Constitution of the United States and practice, the courts must construe a statute, whenever possible, so as to preserve its constitutionality, and I incline to the view that the bill under consideration is capable of being construed in a way which would prevent it from affecting American interests vested before the Constitution came into force.
If, under the Constitution of Mexico after it was promulgated, Mexican companies having American stockholders legally could acquire lands, waters, and the appurtenances thereto, or could secure concessions to develop mines, waters and mineral fuels, either within or without prohibited zones, according to our understanding of the practice, this law seemingly would deprive them of that right since by the first part of section 6, those aliens who may have acquired in prohibited zones any real property rights to waters and their accessions [appurtenances?] as shareholders in Mexican companies before the law came into force, must relinquish the same within 3 years, etc.
Under these circumstances the Department deems it unwise to address a note on this subject to the Government of Mexico at present. It is our feeling that if the present Government intends to pass the bill, a note from this Government would not stop its passage. In fact, such action might hasten its passage and even render it difficult for the administration to amend the bill, were it so inclined.
The Department believes that the proper course at the present time is for you to obtain an interview with the Foreign Minister and in a frank and friendly way point out to him those provisions in the bill which if applied retroactively would affect American vested interests both before and after the promulgation of the Mexican Constitution as set forth above. Possibly in the course of your conversation you can obtain a clearer idea of the scope of the bill. The United States–Mexican Commission reached an understanding regarding the effect of the Mexican Constitution on those vested rights,25 and I hesitate to attribute to the Government of Mexico the [Page 525] intent to enact confiscatory and retroactive laws contrary to that understanding. [End paraphrase.]
Following are some of the pertinent questions which occur to us as proper for you to have in mind for the purposes of your interview:
With respect to land within the prohibited zone:
Does this mean that, without regard to the time when his interest was acquired, no foreigner may be interested hereafter or continue to be interested in a Mexican corporation owning lands or water rights or their appurtenances? (Article 3).
Does this mean that any foreigner holding such interest, regardless of when acquired, must dispose of it within three years or acquire Mexican nationality? (Article 6).
With regard to lands or water rights or their appurtenances outside the prohibited zone:
Does this signify that, without regard to the time when foreigners acquired their interests in a corporation, such interests in excess of 50 percent must be disposed of before the corporation may hold real estate? (Article 5).
Does this signify that, regardless of the time when he acquired such interest, a foreigner already interested in such corporation must renounce his national rights? (Articles 3 and 6).
Do the provisions of Article 4 signify that, regardless of when they were made, contracts transferring property to foreigners and by which they hold a present interest therein are to be held without force and effect unless such foreigners renounce their national rights with respect to such property?
Are the provisions of Article 5 and the last half of Article 6 intended to relate as well to foreign corporations as to Mexican corporations?
Is the proposed legislation, intended to apply to subsoil deposits?
  1. For text of decision, see Foreign Relations, 1921, vol. ii, p. 464.
  2. In four amparo cases instituted by the International Petroleum Company and the Tamiahua Petroleum Company. See Estados Unidos Mexicanos, Semanario Judicial de la Federacion (México, Antigua Imprenta de Murguía, 1922), quinta época, tomo x, p. 1308.
  3. See Proceedings of the United States-Mexican Commission Convened in Mexico City, May 14, 1923 (Washington, Government Printing Office, 1925).