Memorandum of Conversation, by the Under Secretary of State (Welles)

The Mexican Ambassador called to see me today upon his return from Mexico. He told me that he was charged by President Cárdenas to inform this Government that an arrangement between the Cities Service Corporation and the Mexican Government in settlement of the properties expropriated from the American company was now about to be completed along the general lines of the agreement with the Sinclair Company. President Cárdenas felt that it was highly undesirable for this expropriation controversy to continue any longer and consequently suggested that the Mexican and United States Governments each appoint a commissioner to undertake the immediate consideration of the valuation of all of the properties expropriated from American owners which had not already been covered by agreements and to determine likewise the method of payment of the values which might be determined. I remarked that one of the fundamental difficulties of this proposal from our standpoint was that no assurance whatever was given that the terms would be reached in any prompt fashion and that if, as was to be presumed in advance, the American and Mexican commissioners did not agree, the two governments and the owners of the properties would find themselves worse off than they are now with no hope of any prompt or effective compensation. The Ambassador said that President Cárdenas was entirely willing to fix a very brief period, even as short as two months, with the further understanding that if the two commissioners could not agree, the decision should be left with a third commissioner or umpire. I said that I would give consideration to the suggestion made.

The Ambassador then mentioned the plan suggested by Señor Legorretta which provided essentially that the two governments and the owners of the expropriated properties agree that compensation to the amount of the valuation of the properties be provided by the issuance by Mexico of bonds, one-third to be subscribed by a group of private bankers whom Señor Legorretta was to organize, one-third by the oil companies and one-third by a governmental agency of the United States, obviously the Federal Loan Agency. [Page 1028] If this were agreed to, the Mexican Government would ask the companies to appoint a board of technical experts which board would in reality undertake the operation of the properties and have a veto power in the event of any disagreement between the Mexican Government and the directors selected by the bondholders and in this way would bring about more or less what the oil companies have been clamoring for from the beginning, namely, control of management. The Ambassador said that the significance of Señor Legorretta’s plan was that it had not provided for any satisfactory manner of determining the valuation of the properties and that if the two governments would agree as to the appointment of the suggested commissioner, this obstacle would be overcome and make possible the use of Señor Legorretta’s plan or some plan similar to it. I merely stated that I would give the full question every consideration and said that I had no doubt the Secretary of State would desire to study the proposal carefully before making any comment.

S[umner] W[elles]