Papers Relating to the Foreign Relations of the United States, 1925, Volume II
The Ambassador in Mexico ( Sheffield ) to the Secretary of State
[Received December 15.]
Sir: Confirming my telegram No. 269 of today’s date, ten A.M.,38 transmitting translation of the memorandum dated December 5, which I received last night from the Mexican Secretary of Foreign Relations, in reply to my aide memoire of November 27, last, on the subject of the bill regulating fraction 1 of article 27 of the Mexican Constitution, I have the honor herewith to enclose copy with translation of the said memorandum.
I have [etc.]
The Mexican Minister for Foreign Affairs ( Sáenz ) to the Secretary of State
I have given due attention to your memorandum of the 27th of November, last,40 in which, referring to the previous one of November 17th,41 you state that the circumstance of the law regulating article 27 of the Mexican Constitution having been approved by the Chamber of Deputies, moves you to present some further considerations directly relating to the said pending legislation, and you add that you would consider that you were not acting in an entirely friendly spirit if you were to refrain from advising me that the law in question is viewed with apprehension by many American citizens holding property rights in Mexico. You were good enough to conclude that, in your [Page 541] judgment, such an apprehension is justified because some features of the law regulating section 1 of article 27 operate retroactively and with manifestly confiscatory effect.
You then go on to analyze some of these features to which I propose to refer immediately in order to refute the criticism which you make of the law under project as being retroactive and confiscatory. But first I wish to make certain comments of a general nature.
In the first place, and even in a spirit of perfect friendship, the fact is extraordinary that the American Government should make representations to that of Mexico in regard to the pending legislation which, precisely because of being in a formative state, can cause no present injury to American citizens, and therefore it seems preferable to know the definite scope of the laws after they have been put into effect, since only then would we be able to appreciate whether the above-mentioned legislation is prejudicial to any rights or persons. The circumstance that there is an exception made to the effect that the observations in regard to such legislation are made in a friendly spirit does not prevent the possibility that suspicious minds may believe that it involves pressure upon the legislative bodies in order that the projected legislation be not approved, especially since these observations are preceded by press publications, which, although I am sure do not emanate officially from the respective offices, certainly originate therein.
Furthermore I understand that within the territory of the United States there are laws in force very similar to the one which is now pending the approval of the Mexican Senate denying to foreigners the very rights to which reference is made in the organic law of section 1 of article 27 of the Constitution, and which restrict and regulate in many cases the right to acquire and possess land. Then, too, according to a well-recognized principle of the law of nations, a nation must not claim as a violation of rights those not granted by itself, and therefore it is not fitting that the United States should attempt to prevent Mexico from adopting such laws in the exercise of her sovereignty.
I take the liberty of calling your attention to the legislation which exists in the State of Illinois, regulating the acquisition of real property by foreigners. This comprises exactly the same provisions contained in the legislation approved by the Mexican Chamber of Deputies, but more extreme, since the period given for foreigners to divest themselves of their properties is very much shorter than that contemplated by the Mexican law, and the penalty imposed for the infraction of its provisions is the future loss of the real property or of the pertinent rights in favor of the State of Illinois. This law is surely more drastic, more conclusive, and goes further in its effects than the projected Mexican legislation.[Page 542]
Referring now to the aims of the projected legislation, you are advised that it merely tends to avoid in general an abuse which the very jurisprudence of the United States decries. No person may acquire through a company, property which he is not permitted to possess directly. Devlin, page 259, paragraph 224, says:42
“Foreign corporations purchasing stock of local corporations.—A foreign corporation cannot as a device to enable it to hold real estate purchase the capital stock of a local corporation. Such an act is a violation of the law prohibiting corporations from acquiring any real estate within the State unless authorized by law and land so held is subject to escheat.”
Moreover, the legislation pending the approval of Congress is not a novelty in our system. The present Constitution has consecrated it for several years and it has been applied without opposition on the part of foreigners up to the present time; other laws, as well, have consecrated it for some time; for example, the railroad law, promulgated as far back as the 29th of April, 1899, in article 49, establishes that all railroad enterprises must always be Mexican, even though the company has been organized abroad, and even though all or some of its members be foreigners; the company itself will be subject to the tribunals of the Republic, whether federal or local, in all affairs over which they may have jurisdiction in accordance with the laws; the enterprise and all foreigners and their successors who may take part in the business of the company, whether they be shareholders, employees, or in any other character, will be considered as Mexicans in everything related to the company; they may never allege, in regard to the titles and affairs related to the enterprise, any rights as foreigners under any pretext whatsoever and will only have the right and means of making such rights effective as the laws of the Republic grant to Mexicans, foreign diplomatic agents, therefore, having no right to interfere.
The mining law, in force since the 25th of November, 1909, in turn establishes restrictions for the acquisition on the part of foreigners of titles to mining property in a fixed zone on the frontier with foreign countries, and establishes the procedure which must be followed in the cases in which the pertinent provisions are not fulfilled.
Having made the foregoing explanations, and since I do not wish the idea to remain in your mind that the Mexican bill is retroactive and confiscatory, I shall proceed to examine the observations which you were good enough to make.
You refer to the provision which requires that a foreigner owning shares in companies having real property must agree before the Minister for Foreign Affairs to consider himself as a national in regard [Page 543] to the part of the property which is his share in the company, and not to invoke the protection of his government in respect to the same under penalty of forfeiture to the Nation of such property. In this connection you call my attention particularly to the fact that your Government has always declined to concede that repudiation of nationality made by a citizen can deprive the Government of the United States from using diplomatic intervention in case of a denial of justice.
Beyond the fact that the provision to which you allude is not new, that is to say, beyond the fact that it does not emanate from the law now pending before the Senate Chamber but proceeds from the Mexican Constitution of 1917, for which reason your observations; seem inopportune, I take the liberty, in my turn, to reply to you that it is a universally accepted principle that every nation is sovereign to legislate in the matter of real property within its own territory. In consequence of this principle Mexico would be able to prevent all foreigners from acquiring such property within its jurisdiction and very justly may regulate the acquisitions of this kind because it is a principle of logic that he who can do the greater can do the lesser.
You observe particularly that the requirement of an agreement before the Ministry of Foreign Affairs, to which you have referred, is made without taking into account the date of the acquisition of the shares which the foreigner holds, by which you surely pretend to insinuate that the requirement should not be exacted of foreigners who acquired shares previous to 1917.
Possibly the foregoing statement is due to a lack of study of the law since, in article 5, it is clearly established that foreigners who may have acquired property or shares in Mexican companies will have all their rights respected, and precisely for this purpose it has been provided that a declaration be made before the Ministry for Foreign Affairs in respect to the rights which may have been acquired before the entry into effect of the law.
I sincerely believe that even supposing that those who might have acquired, before the entry into effect of the law, real property or shares in companies, should have to make the agreement required by the Constitution, this would not conflict with international law since, although it is well known that in accordance with such international principles, acquired rights may not be injured, in the case of the agreement no right is injured, since foreigners are at liberty to make at any moment the agreement under reference with the Ministry for Foreign Affairs, and since, especially, that which the principles of international law assure the foreigner is the respect of his property rights, but not respect of these rights as they existed [Page 544] at the time of the acquisition, since this would be to deny to a sovereign nation the right of imposing upon all those who inhabit its territory the modifications and regulations necessary for the defense of its interests, and would make impossible its subsequent development.
I call your attention, on the other hand, to the fact that the agreement required by section 1 of article 27 of the Constitution, has been ill named a renouncement of nationality. Such a renouncement does not exist and it is merely a question of an agreement of limited and special effects.
Moreover, the legal provisions in effect in Mexico in this connection are not obligatory since, although it is a requisite required by the law that in order that a foreigner may acquire real property he must obtain the permission of the Government, the foreigner who does not wish to acquire it is not obliged to do so; but from the moment in which he consents to submit to these regulations it must be considered that he has undertaken a voluntary contract which entails, as a consequence, not the renouncement of his nationality, but the agreement not to invoke diplomatic protection in those matters in regard to which he has voluntarily agreed to consider himself as a Mexican, merely for the effects of the acquisition of such rights, submitting himself thus to the guarantees and recourses established by domestic laws. I consider, furthermore, that the Government of the United States will not come to believe that the object of these provisions might be that the Mexican authorities have the deliberate aim of committing acts of injustice against foreign citizens and against bona fide foreign investments.
In this connection I should also like to point out to you that this constitutional provision is less rigorous than that which certain states of the American Union require of foreigners, to wit: That of being bona fide residents within the limits of such states or of taking out first papers of American citizenship, in order to allow them to acquire rights to real property, and going so far in this direction as to require American citizenship even for the obtainment of labor as employees or servants of a certain class. Among others, the State of Arizona has established that no person might hereafter acquire titles or property within the State unless he be a citizen of the United States or have declared previously his intention of becoming such. And the same law establishes that no corporation, more than 30 percent of whose shares are in the possession of persons not citizens of the United States or who may have declared their intention of becoming such, may acquire lands, titles or interests, therein. (Civil Code, Arizona, 1913, chapter 3, section 4716.)
The provision which includes the requirements of this permission for foreign shareholders in Mexican companies is a consequence, as [Page 545] has already been said, of the general principle established by the Mexican Constitution that in order that foreigners may obtain the ownership of lands, waters, and their accessions, or concessions for the development of mines, waters, or combustible minerals, must obtain a permit from the Ministry of Foreign Affairs and make an agreement to consider themselves as Mexicans as regards the acquisition of such rights. Furthermore, it proceeds from the policy of the American Government, which not only makes claims for foreign companies but even for Mexican companies. As a result of this policy it follows that foreign shareholders in Mexican companies not only enjoy the advantages of the laws of the country but, in addition, foreign diplomatic protection, a serious inequality for the development of Mexican companies which have no foreign shareholders.
It might be objected that the permission which foreign shareholders in Mexican companies must obtain in order to acquire rights therein will be an obstacle for corporations from the moment in which, in order to buy any share, a previous permission would have to be requested, but such would not be the case. In regard to shares payable to the bearer it will not be necessary that the bearers obtain the permission in every case; it will be quite sufficient that in the charter of the company it will be established that the shares payable to bearer must have inscribed upon them the obligatory provisions with the requirement that the acquisition of the shares is tantamount to an agreement on the part of the acquirer to consider himself as a Mexican national in regard to the acquisition of such titles, whereby the purchase of the share will be implicitly considered as subordinate to the requirement of the permission established by the Mexican Constitution.
In this connection I must inform you, as a proof, that this requirement has been so understood by all the unprejudiced companies operating in Mexico, which for several years have inscribed in their charters and upon their bonds this provision, thus anticipating what the law in project establishes, and acting in accordance with the spirit of the Constitution.
Since 1920, among others, the Consolidated Oil Company of Mexico and the Marland Oil Company of Mexico, S. A., and others have followed such a course, anticipating, as I have said, the provisions of the law under study.
You then go on to examine the requirement that shares in Mexican companies having agricultural purposes cannot, under any circumstances, accumulate in excess of 50 percent in foreign hands, and you say that this provision is retroactive and confiscatory. I suppose you will not charge that it is so as regards the future, and therefore I shall limit myself to analyzing its effect on the past. You will observe [Page 546] in the appropriate provisions of the organic law on which I am commenting that a long period is given to foreigners in which to divest themselves of their shares in such companies in excess of 50 percent. Therefore, the provision is not confiscatory, because the right is recognized, and only its transformation is required. This provision is not retroactive either, because it does not injure acquired rights since, as I said above, the form in which a foreigner holds a right may be changed by a sovereign nation as long as the right in its essence is respected.
The limitation imposed by the law upon companies possessing rural property for agricultural purposes tends to preclude possible conflicts in the application of agrarian legislation—since it is considered advisable to reserve the ownership and cultivation of the greater part of the land for Mexicans. Thus any possible chance of diplomatic discussion is eliminated, and this redounds to the direct and immediate benefit of the cordiality of our relations with other countries.
In regard to the permission for the present owners to preserve their rights until their death, the only thing that might be adduced is that the law puts a limitation upon the right of inheritance, which is in strict conformity with international law since, in such cases, there are no acquired rights, but simply an expectation of acquiring them. This has been practiced by the United States where there exist several laws on this matter, and Devlin, in the above-mentioned work on pages 260 and 261, paragraph 226, citing hundreds of authorities, says:43
“226. Alien acquiring title by descent. At common law an alien cannot acquire title to land by descent or by mere operation of law. The treaties of 1783 and 1794 between the United States and Great Britain were held to provide only for titles existing at the time of the making of the treaties and not titles subsequently acquired, and hence British subjects born before the Revolution were held to be equally incapable with those born after of inheriting or transmitting the inheritance of lands. Aliens, however, could inherit real estate under the laws of Mexico which were in force in California. But for the purpose of preventing an escheat, and with the object of effectuating the wishes of a testator, a court of equity will, if necessary, consider land as money, in a case where a testator, who is trustee, had directed the land to be sold, and will direct that the proceeds be given to the cestui que trust.”
A careful study of the law will show that it cannot be retroactive and confiscatory in its several provisions since, even in the cases in which a period of time is established for certain effects of the law, these rights are not confiscated, but it is established that foreigners may divest themselves in prudent and ample periods.[Page 547]
The President of the Republic, as well as the two legislative chambers, are animated in this respect with the best desires and have the firm intention of doing nothing but what is just, fair, and allowable under international law.
I believe that the foregoing will be sufficient to convince you that the law in project, although it entails for foreigners the necessity of fulfilling certain acts to place themselves in harmony with it, does not disregard any of their rights. And as further explanation I wish to repeat to you what I noted in my memorandum of November 28th [26th],44 to wit: that the provisions contained in the legislation on which you have been good enough to make observations have already been put in practice for the last 7 years in conformity with the various decrees and proclamations of the Executive, who found himself compelled from the beginning to apply section 1 of article 27 of the Constitution.
Finally, I believe that your idea will disappear, that such legislation may contravene the understanding reached by the two Governments through their commissioners before the resumption of relations, since the spirit of this agreement was only one of mutual respect for the rights of the two sovereign nations! but never of setting aside the clear provisions of their respective Constitutions.