Foreign Relations of the United States Diplomatic Papers, 1937, The American Republics, Volume V

812.77/1200

Memorandum by Mr. Joseph R. Baker of the Office of the Legal Adviser⁷⁶

[Washington,] June 24, 1937.

The Department of State is informed by the Embassy of the United States at Mexico City that a decree, due to be published today, provides for the expropriation by the Mexican Government of the Mexican National Railways.

It is reported to the Department that this expropriation is to be made on the basis of provisions of the Law of Expropriations of November 23, 1936, and that it contemplates the expropriation, for purposes of public utility, of all the property of the Mexican National Railways, which will be taken over in conformity with the provisions of Article 7 of the law mentioned. This article provides that if an administrative action for revocation has not been taken, or if such action has been decided against the claims of the appellant, the seizure shall be immediately carried out by administrative authorities.

Article 5 of the law provides that the owners of property which is the subject of a decree of expropriation may, within fifteen days after notice to them of the issuance of the decree, resort to administrative action for revocation of the declaration of expropriation.

The decree is reported to provide that the properties, when seized, will be delivered to a special organization and that the Secretariat of Communications and Public Works will proceed according to its duty to the effect that, in accordance with the terms provided for in the expropriation law and with the intervention of the Secretariat of the Treasury, “it may fix the amount of the indemnification to which the Federal Government will be subject”. It is reported that the statement preliminary to the body of the decree sets forth that there are no private interests in the National Railways of Mexico other than those of the foreign creditors of the company “because the amount of those credits evidently absorbs the value of the properties which form the railway system” and, moreover, because “the majority of the stock of the Company belongs to the Federal Government”. The statement is said to continue with the prediction that “the measure will not cause injury to the creditors of the Company since the Federal Government will have to pay them their credits within the limit corresponding to the real value of the properties transferred to the Nation”.

Article 10 of the Law of Expropriations provides that the sum which shall be paid in compensation for property seized shall be based upon the assessed valuation of the properties. Exceptions made to this rule are cases of an increase or decrease in the value of the property since the date of the assignment of fiscal value and articles whose value has not been established by the tax offices.

It is provided in Article 11 of the law that in case of dispute as to the amount of compensation, apparently in the excepted cases last mentioned, the case shall be taken to the proper court.

Article 19 of the law provides that “the value of the compensation shall be paid by the State when the article expropriated passes to its control. When the article expropriated passes to the control of a person distinct from the State, this person shall pay the compensation”.

It is provided in Article 20 of the law that “the authority which carries out the expropriation shall fix the manner and terms in which the compensation must be paid, which shall never exceed a period of ten years”.

The large investments of citizens of the United States in the Mexican National Railways warrant the Department in displaying interest in the reported expropriation as directly affecting such investments and the Department is desirous of receiving from the Mexican Government a clarification of certain matters apparently involved in the decree. Accordingly, the Department requests to be advised:

(1) Whether it is to be understood from the terms of the decree that holders of stock in the Mexican National Railways, whether common or preferred, are to be barred from receiving any compensation for their interests;

(2) To what administrative action owners of interests in the Mexican National Railways may resort under Article 5 of the Law of Expropriation in an effort to revoke the declaration of expropriation;

(3) Is it the understanding of the Mexican Government that in accordance with the terms of Article 10 of the expropriation law the sum to be paid as compensation in this case is wholly or largely fixed by the assessed valuation of the property expropriated;

(4) If the answer to Question 3 is in the affirmative, what is the significance of the statement contained in the decree that the creditors will be paid within the limit corresponding to the real value of the properties seized;

(5) By whom will the real value referred to in Article 4 be fixed;

(6) To what court may the matter of compensation in this case be taken in accordance with the provisions of Article 11 of the Law of Expropriations;

(7) Does the first sentence of Article 19 of the Law of Expropriations mean that compensation shall be paid at the time when the property expropriated passes to the control of the State;

(8) Is it the intention of the Mexican Government to proceed immediately to the determination of the amount of compensation to be paid in this case and to pay such amount, and will it now indicate the approximate time of such payment;

(9) By what means and in what medium does the Mexican Government purpose to pay compensation;

(10) How, if at all, does the action taken by and contemplated in the decree affect such guarantees as the Mexican Government may have given respecting payment of the Mexican National Railways debt.

In relation to the foregoing inquiries, to which it is not doubted answers will be promptly forthcoming, the Department feels it should make a reservation covering all rights of citizens of the United States affected by the decree in question and place upon record its view that, in accordance with the generally accepted rules and principles of law extant throughout the world, persons whose property is expropriated for purposes of public utility are entitled to receive at the time of taking, just and adequate compensation for such property.

J[oseph] R. B[aker]

76. Copy handed by the Under Secretary of State to the Mexican Ambassador, June 24. See memorandum supra.