Foreign Relations of the United States Diplomatic Papers, 1934, The American Republics, Volume V

411.12/1761b

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

No. 282

Washington, March 9, 1934.

Sir: Referring to this Department’s instruction of this date³⁴ concerning the proposed general claims protocol, there is enclosed herewith for your use the draft of a convention providing for a lump sum settlement of the special claims. This convention follows the general lines indicated in Memorandum B, with your despatch No. 1094 of February 10, with, of course, some essential variations.

Several points are involved in this convention which require comment.

First. The basic amount of claims upon which to compute liability. This involves several somewhat difficult points. In the first place, it is to be understood, of course, that the basic figure from which to begin the calculation, by the deductions indicated in Article IV of the convention, shall be all claims filed by the United States before the Special Claims Convention. The question as to which of these claims were unnecessarily or improperly filed before the Special Claims Commission because of the fact that the General Claims Commission had jurisdiction over them is, of course, a technical and difficult question. It is not necessary, however, that this question be determined at the present time. It is conceded, of course, that, on the basis of admitted liability, a sufficient amount is owing by the Mexican Government to consume the annual payments, at the rate provided for in the convention, for a considerable number of years. It is only necessary, therefore, to determine at this time the manner in which the net liability is to be determined, leaving to a more propitious occasion the definite determination of that amount. Provision is made in Article V of the convention for such definite determination by the joint action of representatives of the two Governments. This procedure applies alike in the matter of determining the net amount of the claims upon which to compute the liability and the actual percentage of liability to be computed thereupon. It is not, of course, supposed that there has been any error on the part of the Mexican Government in computing the average percentage of liability on the European claims (resulting in the figure of 2.65%). Nevertheless the basic amount of claims to which such percentage is to be applied is so large that even so small an error as one-half of one percent would amount to a difference of approximately $1,500,000 in the amount of the total liability. Therefore, while the Department is willing to accept the proposal of the Mexican Government that American claims shall be settled by the payment of the average amount found to be due on all similar European claims, it does not feel that it could justify before the Senate the application of the percentage indicated by the Mexican Government without making provision in the convention for a careful verification of the percentage calculation by some such method as that provided in Article V. In the matter of determining the basic amount of the special claims and the deductions provided for in Article IV of the convention, it is believed that the results of the adjudications under the proposed general claims protocol and by the Domestic Commission which will distribute the amount to be received from Mexico under the proposed convention will afford very helpful guides, and that, therefore, the appointment by the two Governments of the representatives provided for in Article V of the convention might well be deferred several years, without, however, interfering with the annual payments to be made by the Mexican Government as provided in Article II of the convention.

With reference to the deductions provided for in Article IV, it is to be understood that the subparagraphs in this article have the following meanings:

• “First Claims heretofore withdrawn, in the amount of $ . . . . . .” This figure represents only claims withdrawn by the American agents because they had been filed too late and not claims withdrawn by the claimants themselves because of independent settlements with the Mexican Government or for other reasons.
• “Second. Claims decided, in the amount of $ . . . . . .” The amount represented under this item should be the total amount of claims decided, less the Santa Isabel claims. As you are aware, this Government feels very strongly that at least some indemnity should be paid by the Government of Mexico for the atrocious murders committed in the Santa Isabel case by the agents of Pancho Villa,³⁵ who was not only treated with great lenity but, in fact, with great consideration after the commission of these atrocities. This Government would feel less keenly on the subject were it not for the fact that the Mexican Government has agreed to pay the British Government on account of the death of certain British subjects which resulted from the same incident appropriate indemnities without regard to the matter of legal liability. Whereas the decision of the Special Claims Commission, United States and Mexico, to which reservation was made by the Agent of the United States, stated there was no legal liability on the part of the Mexican Government in connection with these cases, it is felt that a gross discrimination would be made by the Government of Mexico were it not to concede the same treatment to American citizens in this case as to British nationals, at least in principle. It is not necessary to raise any difficult or embarrassing questions in this connection nor to ask that the Mexican Government take any commitments other than by the stipulation, in this provision of the convention, of the amount of deduction which shall exclude the total amount claimed in the Santa Isabel cases. The result of such fixation of amount of deduction would be simply the payment, by Mexico, on the Santa Isabel cases of the average percentage of liability or the extremely conservative amount of approximately $32,000, for the deaths of seventeen American citizens whereas the Mexican Government agreed to pay, without regard to the question of legal liability, 39,000 pesos on account of the deaths of but two British nationals. In view of the fact that the Mexican Government did agree so to pay the British Government without regard to the question of legal liability and in view of the fact that this Government has recently paid the Mexican Government liberal indemnity on account of the loss of the lives of two Mexican nationals in the United States,³⁶ regardless of the fact that there still remain unsatisfied a large number of equally aggravated cases of the deaths of American citizens at the hands of Mexican nationals, it is not believed that the Mexican Government can, with any degree of reason, object to this simple act of justice.
• “Third. One-half of the amount represented by the total claimed in all cases in which the same claim has been filed twice, either for the same or for different amounts, with the Special Claims Commission” This provision seems to be clear as indicating that if, for instance, a claim has been filed twice, once for $10,000 and once for $15,000, the amount to be included for the purpose of the lump sum computation shall be one-half of the sum of these two amounts or $12,500. In case the claim were filed twice for the same amount, it would be included in the lump sum computation at the amount stipulated in each of these pleadings.
• “Fourth. The total of all claims which were improperly fled before the Special Claims Commission, that is to say, those over which the General Claims Commission was given jurisdiction by the General Claims Convention of September 8, 1923” As indicated above, the ascertainment of the exact amount to be deducted for this item is a difficult one and should be deferred for action by a joint committee of the two Governments, as provided by Article V of the convention.

Interest. The Department is not unaware of the fact that the Mexican Government has insisted that deferred payments on its special claims liability shall not bear interest and that it will probably object that if interest is included on the deferred payments owing to the United States the European governments will consider they are entitled to equal treatment. This is to be conceded. On the other hand, it is felt that the agreement must include some strong incentive to make payment of the instalments as they become due. The Department has, therefore, suggested, in the enclosed draft of convention, the payment of interest at the rate of one-fourth of one percent for the first year with an increase of one-fourth of one percent for each year thereafter. The net result of that provision, in the event of payment of instalments on due dates, would be the following:

Year	Principal	Rate	Interest Payments
1935	$500,000	0	—
1936	500,000	¼	$1,250
1937	500,000	½	2,500
1938	500,000	¾	3,750
1939	500,000	1	5,000
1940	500,000	1¼	6,250
1941	500,000	1½	7,500
1942	500,000	1¾	8,750
1943	500,000	2¼	10,000
1944	500,000	2¼	11,250
1945	500,000	2½	12,500
1946	500,000	2¾	13,750
1947	500,000	3	15,000
1948	500,000	3¼	16,250
1949	500,000	3½	17,500
Total	$7,500,000	Average 1.8%	$131,250

As will be observed, the average percent of interest contemplated by this provision is only 1.8 percent, which rate cannot be objected to by the Mexican Government by any sound reasoning. There are several very good reasons why this interest provision should be included, namely:

• First. The question as to the advisability of such a provision has been discussed with Senator Pittman, Chairman of the Foreign Relations Committee, who expressed the view that the Convention would be much more likely to be accepted by the Senate with such a provision.
• Second. In the event of default, the interest obligation would gradually increase not only in amount but in the applicable rate of interest, which fact should afford an important counter-balance to any local influence which might council default or delay of the payments when they become due. Such a counter-balance may prove advantageous alike to both Governments.
• Third. It is not desired to establish a precedent for the waiving of interest in this class of settlements. An examination of the records with respect to such settlements in the past discloses the fact that this Government has been a party to several lump sum settlements, in each of which interest was provided for. The rates usually stipulated in those cases were four, five, or six percent. The agreements in question were the following:

  1. Brazilian indemnity under the Convention of January 24 [27], 1849,³⁷ interest at 6 percent.

  2. Danish indemnity under Convention of March 28, 1830,³⁸ interest at 4 percent.

  3. French indemnity under Convention of July 4, 1831,³⁹ interest at 4 percent.

  4. Neapolitan indemnity under Convention of October 14, 1832,⁴⁰ interest at 4 percent.

  5. Spanish indemnity under Convention of February 17, 1834,⁴¹ interest at 5 percent.

  6. Peruvian indemnity under Convention of March 17, 1841,⁴² interest at 4 percent.

  7. Chinese indemnity under Convention of September 7, 1901,⁴³ interest at 4 percent.

  8. In the case of the Chinese indemnity under the Convention of November 8, 1858,⁴⁴ the amount distributed to the claimants included interest at the rate of 12 percent for a definite period determined by the Claims Board.

The Convention of 1876 between the United States and Mexico⁴⁵ (which, it is understood, the Mexican Government considers a precedent for the elimination of interest in the present instance—see enclosure to your despatch No. 809 of November 17, 1933⁴⁶) does not, in fact, constitute such a precedent since that convention provided for the payment of awards which already included allowances of interest in appropriate cases.

You will appreciate, of course, that any agreement by this Government at this time to the total elimination of interest in such international obligations might be misinterpreted and cause embarrassment in a much broader field. The application of the interest rates mentioned above to the obligations of the Mexican Government to both the United States and the European countries concerned would involve total interest payments of but approximately $280,000 over a period of fifteen years, or less than an average of $20,000 per year. While it is believed that it would not be unreasonable to expect this obligation to be paid over a period of ten years, it has been thought more in harmony with the spirit prompting the present proposal with respect to the settlement of both special and general claims, to concede the full period suggested by the Mexican Government and to insist upon only such a nominal rate of interest as will preserve the principle and serve the purposes indicated in paragraphs “First” and “Second” last above.

Evidence. As has already been indicated in the enclosure with instruction No. 214 of December 16, (See pp. 26–30 and enclosures 6 and 10–1 to 10–14)⁴⁷ one of the outstanding disadvantages of en bloc settlements is the difficulty in obtaining the necessary evidence from the foreign country in question to make possible reasonably satisfactory adjudications by domestic tribunals of the claims covered by such settlements. It is felt that it is reasonable to expect and that the Mexican Government will readily agree to provide this Government with all evidence in its possession or obtainable by it to facilitate the proper adjudication of the claims covered by this convention as provided in Article VII thereof.

The Department will be glad to receive and consider such reasonable amendments to this form of convention as the Mexican Government may feel it necessary to propose.

Very truly yours,

For the Secretary of State:

R. Walton Moore

[Enclosure]

Draft Convention for a Lump Sum Settlement of the Special Claims

The United States of America and the United Mexican States, desiring to settle and adjust amicably the claims comprehended by the terms of the Special Claims Convention concluded by the two Governments on the 10th day of September, 1923, without resort to the method of international adjudication provided by the said agreement, have decided to enter into a Convention for that purpose, and to this end have nominated as their Plenipotentiaries:

The President of the United States;

The Honorable Josephus Daniels, Ambassador Extraordinary and Plenipotentiary of the United States of America in Mexico, and

The President of the United Mexican States;

The Honorable José Manuel Puig Casauranc, Secretary of State for Foreign Affairs,

Who, after having communicated to each other their respective full powers, found to be in due and proper form, have agreed upon the following articles:

Article I

The special claims of the United States shall be adjusted, settled and forever thereafter barred from further consideration, by the payment by the Government of Mexico to the Government of the United States of a sum of money which shall equal the same proportion of the total amount claimed in all such cases (after the deductions provided for in Article IV hereof), as the total amount found to be due from the Government of Mexico in settlement of all similar claims filed by the Governments of Belgium, France, Germany, Great Britain, Italy and Spain, corresponds to the total amounts claimed by those Governments or their nationals under the terms of similar conventions concluded by the respective Governments and the Government of Mexico during the years . . . . . . . . . . . . . ., that is to say, the amount to be paid by the Mexican Government to the Government of the United States shall be the same percentage of the total amount of the claims filed as the average percentage found to be due on all of the claims filed by the European Governments above mentioned.

Article II

The amount provided for in Article I above shall be paid at Washington, in dollars of the United States, at the rate of $500,000 per annum, beginning January 1, 1935, and continuing until the whole amount thereof shall have been paid.

Article III

Deferred payments, by which term is meant all payments made after January 1, 1935, shall bear interest at the rate of one-fourth of one percent per annum for the first year counting from January 1, 1935, and an additional one-fourth of one percent for each additional year thereafter until final payment.

Article IV

In computing the total amount of claims mentioned in Article I above, there shall be deducted from the total amount of all special claims filed by the United States under the terms of the Special Claims Convention of September 10, 1923, the following items:

• First. Claims heretofore withdrawn, in the amount of $ . . . . .
• Second. Claims decided, in the amount of $ . . . . .
• Third. One-half of the amount represented by the total claimed in all cases in which the same claim has been filed twice, either for the same or for different amounts, with the Special Claims Commission.
• Fourth. The total of all claims which were improperly filed before the Special Claims Commission, that is to say, those over which the General Claims Commission was given jurisdiction by the General Claims Convention of September 8, 1923.

Article V

For the purpose of determining precisely the proportionate amount of total claims to be paid under this Convention, as provided by Article I above, and the total amount of the claims upon which to compute the obligation, as provided in Article IV above, each Government shall appoint a representative whose joint report, to be made after due conference and consideration, shall be accepted as final.

Article VI

It is agreed that, for the purpose of facilitating a proper distribution by the United States to the respective claimants of the amount to be paid as provided for herein, the Mexican Government shall deliver to the United States, upon request, all evidence in its possession bearing upon the merits of particular claims and to procure, at the cost of the United States, such additional evidence as may be available in Mexico and as may be indicated by the Government of the United States to be necessary to the proper adjudication of particular claims.

Article VII

The present Convention shall be ratified by the High Contracting Parties in accordance with their respective Constitutions, such ratifications being exchanged in Mexico City as soon as practicable and the Convention shall take effect on the date of the exchange of ratifications.

In witness whereof, the respective Plenipotentiaries have signed and affixed their seals to this Convention.

Done in duplicate at Mexico City this . . . . . day of . . . . . . . . . . . . . . .

34. Infra,
35. See Foreign Relations, 1916, pp. 650–683, passim.
36. See Foreign Relations, 1931, vol. ii, pp. 708 ff.
37. Hunter Miller (ed.), Treaties and Other International Acts of the United States of America, vol. 5, p. 507.
38. Ibid., vol. 3, p. 531.
39. Ibid., p. 641.
40. Ibid., p. 711.
41. Ibid., p. 811.
42. Ibid., vol. 4, p. 329.
43. Foreign Relations, 1901, Appendix (Affairs in China), p. 312.
44. Malloy, Treaties, 1775–1909, vol. i, p. 232.
45. Ibid., p. 1138.
46. Not printed.
47. For instruction No. 214 and its enclosed draft protocol regarding general claims, see Foreign Relations, 1933, vol. v, p. 814; enclosures under reference not printed.