411.12/1736
The Secretary of State to the Ambassador in Mexico ( Daniels )
Sir: Conformably to the last sentence of the Department’s cable No. 15 of February 3, 1934, an effort is herein made to give you, in general but brief outline, the views of the Department with respect to the advantages and disadvantages of the two methods of settling the outstanding claims now under consideration, and the reasons for believing that the question of a lump sum settlement should be held in abeyance until it has been clearly demonstrated that such a protocol as is now under consideration cannot be concluded.
The Department is not unmindful that an immediate lump sum settlement in which the Mexican Government would agree to pay this Government the sum of $22,000,000 would have advantages. On analysis, however, the advantages are perhaps somewhat more apparent than real.
In order to determine what amount the Mexican Government would pay on the unadjudicated general claims of the United States totalling $384,400,000 (after deductions for duplicate filings and adjudications), it is necessary, in the first instance, to deduct from the amount of $22,000,000 the amount which would be paid on special claims, and also the amount already awarded by the General Claims Commission. The special claims, after deductions, amount, in round figures, to $291,300,000. The liability of the Mexican Government on these claims, calculated on the lowest possible basis, namely, that representing the average recovery of all European Governments in the same class of cases, would be about $7,700,000. In this connection it is to be borne in mind, however, that under the special claims conventions heretofore concluded, there is a wider basis of liability than that upon which the European claims have been decided, and that, since the Senate has not agreed to any curtailment of this basis of liability, there might be opposition in the Senate to a lump sum settlement of special claims on the basis of the European average percentage of recovery. The amount of awards by the General Claims Commission, including interest, is about $3,432,000. The sum of these awards and the amount to cover special claims, on the basis of the European average recovery, would total about $11,150,000, leaving from the $22,000,000 to be paid by Mexico to be applied on the unadjudicated general claims the sum of only about $10,850,000. The general claims over which this $10,850,000 would be distributed (in the absence of any contribution by this Government) amount, after deductions, to $380,400,000. Therefore, the amount of indemnity to be paid by the Mexican Government on the unadjudicated general claims would amount to approximately [Page 405] 2.8 per cent, or a slight fraction over the amount which, it appears, the Mexican Government is willing to concede on the special claims. The Department is not aware that it has ever been seriously contended by the Mexican Government that its actual liability on general claims would amount to such a small percentage.
In the event that a lump sum settlement involving the payment of $22,000,000 were made, this $22,000,000 would then be distributed approximately as follows:
| Special claims | $7,711,000 |
| General claims awards | 3,432,000 |
| For distribution on unadjudicated general claims | 10,857,000 |
| Total | $22,000,000 |
As was indicated in the enclosure with the Department’s instruction No. 214 of December 16, last, there are reasons to believe that the awards of a domestic commission before which both the general and special claims would have to go for adjudication, in the event of a lump sum settlement, would be larger than those of an international commission. The probabilities are, therefore, that the awards of the domestic commission would far exceed the amount of the lump sum settlement. The result would be a strong demand that this Government make good the deficit. Claimants would have as a basis for their claim of obligation on the part of this Government to appropriate the difference, decisions of the Court of Claims holding that such lump sum settlements, which involve a set-off of American claims against claims of a foreign government or its nationals, create such an obligation toward the American claimants. (In this connection see the decisions in 21 Court of Claims, 340, 390; 22, ibid., 408, and 457; and 46, ibid., 214, 224.) It is not unlikely, therefore, that, with this method of settlement, this Government would ultimately be compelled to appropriate many millions of dollars to settle the claims of American citizens against Mexico.
It is believed that a large part of this liability on the part of the United States could be avoided, without injury to the rights of American citizens and without great loss of time in settling the claims, by the procedure outlined in the proposed protocol now under consideration. The reasons for this conclusion are in brief as follows:
The unadjudicated general claims of the Mexican Government which, under the $22,000,000 lump sum proposal, would be evaluated at 8 per cent, amount, after deductions, to approximately $245,000,000. For the purpose of the lump sum settlement, these claims would be appraised at 8 per cent or $19,600,000 which amount would, in effect, be paid by this Government to Mexico, since, to arrive at the $22,000,000 lump sum basis, that amount would be deducted from the actual [Page 406] liability on American claims of approximately $41,400,000. This would not be of great moment if the Mexican claims were of a general diversified type of mixed claims such as our own. But quite the contrary is true. Approximately 95 per cent of the claims of the Mexican Government are based upon alleged illegal deprivations of title to real estate in Texas and California nearly 100 years ago. The Mexican Government has up to the present time put in no material evidence to support these claims. The American Agency, it is understood, made a somewhat extensive investigation of the circumstances of the claims, having sent an attorney to Texas to study the claims on the ground, and reached the conclusion that the claims were, for several reasons, entirely unfounded. There might, therefore, be basis for considerable criticism of the Department if it recommended a lump sum settlement which would contemplate giving Mexico credit for any such sum as, say $18,000,000 for these claims, and then ask Congress to make good to American citizens the difference between the amount of the awards of a domestic commission and the amount of recovery from Mexico under the lump sum agreement. On the other hand, it is believed that, if the claims were passed upon by appraisers and an umpire as contemplated in the proposed protocol, several more satisfactory results would follow, namely:
- First, the Mexican land claims would be found to be invalid, thus reducing from $19,600,000 to perhaps one million the amount of proper deductions from Mexico’s liability towards this Government.
- Second, the liability of this Government toward American claimants would be proportionately reduced. This might result in the saving of many millions of dollars to this Government.
- Third, as was indicated to you in the enclosure with instruction No. 214 of December 16, the adjudication of international claims by a domestic commission is attended with many embarrassing and expensive circumstances. In the first instance, the expense of a domestic commission would be much greater than the informal proceedings contemplated by the pending protocol. Then, the proceedings before a domestic commission are made infinitely more difficult, protracted and expensive because of the fact that the evidence bearing upon one side of the case is scattered throughout Mexico and, in order to provide for proper adjudication of the case, it would probably be necessary to maintain in Mexico for a period of several years a Commissioner to take testimony. In the most recent instance of such a lump sum settlement, namely that relating to claims against Spain at the termination of the Spanish-American War, the claims numbered about 500 and amounted to about $2,000,000. The domestic adjudication proceedings continued over a period of approximately eight years and the cost thereof, including the expense of a Commissioner in Cuba to take testimony, amounted to approximately $1,200,000. There is no reason to expect more expeditious or less expensive proceedings in the case of a domestic adjudication of the special and general claims against Mexico.
- Fourth, at the present time, in common with the rest of the world, Mexico is in a state of economic depression. The general attitude of many world powers at the present time with respect to international obligation is not a wholesome one. In the event of a lump sum settlement with Mexico there might be considered to be more reason for expecting leniency toward a failure to meet an international obligation arbitrarily arrived at than if such obligation were based upon definite judicial determinations. In connection with a lump sum settlement there must be considered, of course, not only the amount of liability but the terms under which it will be paid. It is the hope of all, of course, that financial conditions throughout the world will have considerably improved within the next two or three years. It would seem, therefore, that the end of that period might be a more propitious one for determining the manner in which the amount of liability to this Government could be met without serious embarrassment to the Mexican Government.
Since it is the belief of the Department that the appraisal of the claims under the proposed protocol could be completed within three years at the most, including the umpire proceedings, and since the fixation of the liability of the Mexican Government and the conditions for the liquidation thereof, at the end of that period, might be more advantageous to American claimants, and much more advantageous to this Government than the arbitrary fixation of that liability and the terms of payment at the present time, there would seem to be no compelling reasons why the lump sum settlement should be concluded at present. Of course, such a lump sum settlement at present would, in effect, remove these international claims from the field of diplomatic discussion. On the other hand, it is believed that the conclusion of the protocol would have virtually the same effect. As you are aware, it is the general thought underlying the protocol that the exchange of pleadings and the appraisal of the claims would be conducted in a quite unostentatious manner, without the establishment of a Commission and without direct contact of any kind between the Foreign Offices of the two Governments.
Therefore, aside from the fact that a lump sum settlement would immediately remove claims settlements from the field of international discussion, practically all of the advantages are on the side of the informal proceedings provided for in the draft protocol. It was these and other related reasons which prompted the Department’s cable No. 15 of February 3, which was despatched in advance of this instruction.
From the foregoing you will appreciate the fact that this whole matter is being considered from the practical, rather than from the purely legalistic, standpoint with a view to avoiding the creation of a basis for large liability on the part of this Government toward American claimants.
Very truly yours,