818.51/1072: Airgram

The Minister in Costa Rica (Scotten) to the Secretary of State

A–575. Reference the Department’s airgram A–396 of April 3, 1943, 3:40 p.m.

(1) The three judges of the Appellate Section of the Supreme Court do not sit in the Cassation Section of that Court; it being made up of five other judges.

(2) The lawyers of the United Fruit Company do not know whether the Cassation Section will uphold the decision of the Appellate Section. They point out, however, that three of the five decisions rendered in the lower courts were favorable to the Company, but that the decision of the Appellate Section was unanimously against the Company in the two suits decided by it. They also state that recourse to Cassation is not an appeal with complete review of the case, but a limited recourse for revising errors of law and some errors of fact, and that the Cassation Section sustains the judgement of the Appellate Section in a substantial majority of cases.

(3) The lawyers for the Company have referred the matter of denial of justice to the office of the General Counsel for the Company in Boston, but they state that they are convinced the litigation instituted [Page 126] in these suits is purely speculative, and that the legal and equitable position of the Company is sound.

(4) The lawyers of the United Fruit Company believe that much litigation and confusion might arise as a result of an adverse decision by the Court of Cassation. They state that the courts in Costa Rica might adopt the viewpoint that any contract executed in dollars is subject to review on the grounds that any contract prior to 1934 contemplated the gold clause. They specifically mention the payment of dividends, interest, royalties or principal on dollar obligations dated prior to 1934. With respect to the confusion that might arise the attorneys feel that an adverse decision in this case would upset established monetary policy of the United States, making the establishment of future monetary policy more difficult.

They also point out that Costa Rica is enjoying the advantages of payment of its own gold dollar bonds in the present money of the United States rather than in the currency which existed prior to 1934. Or, in other words, Costa Rica is taking advantage of American monetary legislation to reduce its own debts without wishing to concede the same advantage to debtors located within Costa Rica.

The Fruit Company lawyers also feel that courts in other countries of the American Republics may attempt to extend the principle, which would be established by an adverse decision in this case, to any dollar contracts entered into prior to 1934 on the theory that such contracts contemplated payment in dollars of the gold content existing on the date of the contract. In this connection it should be pointed out that Señor Gutiérrez,51 attorney for one of the plaintiffs in these cases, has left for Colombia with the intention of instituting similar suits against the United Fruit Company in that country.

(5) The National Bank of Costa Rica is relieved of its obligation to redeem banknotes of the Banco Internacional de Costa Rica, in gold, by internal legislation. In September 1914, conversion of these notes was temporarily suspended by the Constitutional Law of the Banco Internacional de Costa Rica, Article IX, which stated: “…52 their conversion shall begin one year from the date of the signing of the peace, or previously if the Executive so rules.” However, convertibility was not authorized, and various new laws were passed prolonging the suspension of convertibility until Law No. 19 of April 11, 1921, according to which all banks were obliged to exchange their banknotes in accordance with Article 34 of the Banking Law. However, paragraph 2 of Article 1 of this law stated: “The Banco Internacional de Costa Rica shall be excluded from the provisions of this law, and its banknotes shall be convertible in a manner established by a forthcoming [Page 127] law.” This law never appeared. In Law No. 64 of March 28, 1933, it was stated: “Within a period of two months from the publication of this law, the Caja de Conversión shall pay its banknotes in accordance with their text; and after this period in banknotes of the Banco Internacional de Costa Rica conforming, on day of payment, to the official exchange rate fixed by the Special Board of Exchange Control”. The banknotes of the Caja de Conversión read: “Banco Internacional de Costa Rica—Caja de Conversión—x Colones in gold coin of the United States of America or drafts on New York in the option of the administrator at a rate of one dollar for each four colones.”

This law was superseded by Law No. 16 of March 5, 1936. Article 3 of the Artículos Transitorios of this law states:

“The Issue Department (of the Banco Nacional de Costa Rica) shall take charge of the assets and liabilities of the Caja de Conversión, which shall be liquidated.

“Within a period of three months of the effective date of this law, the Issue Department shall redeem the banknotes of the Caja de Conversión in accordance with the regulations of Law No. 64 of March 28, 1933; after this period it shall exchange them for banknotes of the Bank, at par, that is for face value in colones.”

(6) The United Fruit Company has been unofficially informed that the Government does not intend to bring suit. However, this does not bind any future Government not to do so. I have also been assured by the President that his Government will not sue the Fruit Company.

I have noted that the Department authorizes me “to express discreetly and informally” the Department’s views to the President. In view of the seriousness of the present situation, and the distinct likelihood that an adverse decision will be rendered by the Court of Cassation, and in view of the fact that, in accordance with the Department’s instructions Nos. 230 of July 4, 1942 and 336 of August 10, 1942,53 I have already “informally” set forth the Department’s views in the course of several conversations with the President on this subject, I feel that the Department may wish its representations made by means of a formal note. This might serve the dual purpose of impressing upon the President the preoccupation of the Department, and at the same time give him valuable backing which he could use in the conversations which he necessarily must have with the judges in the Court of Cassation. I am fully aware of the delicate issues involved and the Department’s traditional reluctance to intervene in private lawsuits; nevertheless, the serious effect which an adverse decision in these cases would have upon our interests, not only in [Page 128] Costa Rica but also in many other countries, is such that the Department may feel justified in adopting a firm stand at this time.

  1. Francisco de Paula Gutiérrez Mangel.
  2. Omission indicated in the original airgram.
  3. Neither printed.