711.1928/339
The Panamanian Minister (Alfaro) to the Secretary of State23
Memorandum
The Minister of Panama presents his compliments to His Excellency the Secretary of State and has the honor to submit to his learned consideration the following representations:
Since February the 26th, 1934, there have been numerous exchanges of views between this Legation and the Department of State in connection with the payment by the United States to the Republic of Panama of the annuity stipulated in the Article XIV of the Treaty of November 18th, 1903. On such a date the Department tendered payment [Page 917] of the annuity by a check in the amount of $250,000.00 legal currency of the standard of value established by proclamation of the President of January 31st, 1934,24 a payment which the Republic declined to accept in view of the fact that the obligation of the United States, as specifically expressed in the treaty, was to pay in gold coin of the United States of the standard of value existing at the time the treaty was signed.
On February 28th, 1934, the Legation, after a conference of the Minister with representatives of the State Department, the Treasury Department and the Justice Department, handed the State Department a memorandum25 containing 25 propositions which embodied the substance of the arguments he had advanced in behalf of his Government, in support of the right claimed by Panama to receive in gold coin of the standard of value existing in 1903 the amount of the annuity stipulated in the Canal treaty.
The memorandum in reference has not been answered up to the present but in the course of conversations regarding this matter, the authorities of the State Department have held the view that payment of the annuity could not be made in gold because of “legal obstacles”. These legal obstacles were, apparently, those encountered in the Joint Resolution of Congress of June 5th, 1933, 48 Stat. 113 [112], whereby it was declared that provisions requiring “payment in gold or a particular kind of coin or currency” were “against public policy” and provided that “every obligation, heretofore or hereafter incurred, whether or not any such provision is obtained therein,” shall be discharged “upon payment, dollar for dollar, in any coin or currency which, at the time of payment is legal tender for public or private debts”.
As the Legation understood, the Government felt bound by the letter of the above mentioned Joint Resolution of Congress, in spite of the argument repeatedly and insistently advanced by the Republic of Panama, that such a provision could not be applicable in the case of obligations towards another nation, on which the domestic laws of the United States are not binding.
The situation, however, has been clarified by the Supreme Court of the United States by means of the opinion read by Chief Justice Hughes in the Liberty Bond case brought by John M. Perry.26 In the said opinion the Supreme Court, represented by a majority of its members, made the declarations hereinafter quoted, by which it is now judicially established that the scope of the above mentioned Resolution of Congress cannot affect the obligation of the United States to pay in gold coin the Canal annuity.
[Page 918]In regard to point 1, of the decision, on “The import of the obligation”, the Court says:
“This obligation (the obligation to pay in United States gold coin) must be fairly construed. The ‘present standard of value’ stood in contradistinction to a lower standard of value. The promise obviously was intended to afford protection against loss. That protection was sought to be secured by setting up a standard or measure of the Government’s obligation. We think that the reasonable import of the promise is that it was intended to assure one who lent his money to the Government and took its bond that he would not suffer loss through depreciation in the medium of payment.”
Ref erring to point 2 of the opinion on “The binding quality of the obligation”, the Court says:
“The question is whether the Congress can use that power so as to invalidate the terms of the obligations which the Government has heretofore issued in the exercise of the power to borrow money on the credit of the United States”.… “The Government seems to deduce … that it is free to ignore that pledge and alter the terms of its obligations in case a later Congress finds their fulfillment inconvenient.” … “The contention necessarily imports that the Congress can disregard the obligations of the Government at its discretion and that when the Government borrows money the credit of the United States is an illusory pledge.”
“We do not so read the Constitution. […] “To say that the Congress may withdraw or ignore that pledge is to assume that the Constitution contemplates a vain promise, a pledge having no other sanction than the pleasure and convenience of the pledger. This Court has given no sanction to such a conception of the obligations of our Government”
“The binding quality of the obligations of the Government was considered in the Sinking Fund Cases, 99 U. S. 700, 718, 719.… “The Court took occasion to state emphatically the obligatory character of the contracts of the United States. The Court said: ‘The United States are as much bound by their contracts as are individuals. If they repudiate their obligations, it is as much repudiation with all the wrong and reproach that term implies, as it would be if the repudiator had been a State or a municipality or a citizen.’[”]
“When the United States with constitutional authority, makes contracts, it has rights and incurs responsibilities similar to those of individuals who are parties to such instruments.” […] “No doubt there was in March, 1933, great need of economy.… But Congress was without power to reduce expenditures by abrogating contractual obligations of the United States. To abrogate contracts in the attempt to lessen government expenditure would not be the practice of economy, but an act of repudiation.”
“The fact that the United States may not be sued without its consent is a matter of procedure which does not affect the legal and binding [Page 919] character of its contracts. While the Congress is under no duty to provide remedies through the courts, the contractual obligation still exists and, despite infirmities of procedure, remains binding upon the conscience of the sovereign.”
“The Fourteenth Amendment in its fourth section, explicitly declares: ‘The validity of the public debt of the United States, authorized by law … shall not be questioned.’… We regard it (this provision) as confirmatory of a fundamental principle which applies as well to the Government bonds in question, and to others duly authorized by Congress, as to those issued before the amendment was adopted. Nor can we perceive any reason for not considering the expression ‘the validity of the public debt’ as embracing whatever concerns the integrity of the public obligation”
Now, if these opinions of the highest tribunal of the United States as to the constitutional meaning and scope of the Joint Resolution of June 5, 1933, are applicable to cases where the obligation exists as between the Government of the United States and private persons under its political jurisdiction, it is self-evident that there is a clearer and stronger reason for applying the principles and criterion stated in the above quoted passages, to international obligations assumed and existing in regard to other nations.
On the 26th, of the present month, the Canal annuity will again fall due and on that date two annuities would remain unpaid if measures were not taken by the Government of the United States to make payment in gold coin to the Republic of Panama, as stipulated in the Treaty of 1903. The decision of the Supreme Court makes it unquestionable that there is nothing which prevents the United States from making such payment in gold to the Republic of Panama and obviously there is nothing which can prevent the Republic from accepting such gold payment, subject of course to such pledges as the Republic has heretofore made in regard to the proceeds of the Canal annuity, which the Republic intends strictly to fulfill. The Republic of Panama will have to decline acceptance of payment if it is tendered in the present legal currency, as it was compelled to do on March 2, 1934, and it seems evident that the rejection of proffered payment, if not tendered in gold, after the recent decision of the Supreme Court of the United States, would have an effect which it is highly desirable to avoid.
In view of the above stated considerations the undersigned Minister of the Republic of Panama desires to stress the hope of its Government that appropriate measures will be taken by the Government of the United States to make payment in gold coin, as stipulated [Page 920] in Article XIV of the Treaty of 1903, of the two annuities due February 26, 1934 and February 26, 1935.
- A copy of this memorandum was transmitted to the Attorney General by the Acting Secretary of State on February 28.↩
- 48 Stat. 1730.↩
- Foreign Relations, 1934, vol. v, p. 620.↩
- 294 U. S. 330.↩