Papers Relating to the Foreign Relations of the United States, 1926, Volume II

812.6363/1906

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

Washington, July 30, 1926.

Dear Mr. Ambassador: I enclose the original and three copies of another note relating to the Alien Land and Petroleum Laws. It is my idea that this note should be delivered immediately to the Minister of Foreign Affairs, unless you feel that on account of existing circumstances delivery should be deferred, and unless you wish to suggest some change in the note itself. …

. . . . . . . . . . . . . .

I am [etc.]

Frank B. Kellogg

[Enclosure]

The Secretary of State to the Mexican Minister for Foreign Affairs (Sáenz)

Excellency: I have the honor to refer to the correspondence which has passed between us on the subject of the alien land and petroleum laws. Since the receipt of Your Excellency’s note of March 27, 1926, I have taken occasion to review this correspondence, as well as to examine carefully the regulations subsequently issued for the enforcement of the petroleum law. It now seems to me appropriate and useful, in the interest of a complete understanding, for me to attempt a brief summary of the situation, as my Government sees it, at this juncture.

The correspondence discloses little, if any, variation or difference of opinion with respect to the statement of certain principles which we have agreed lie at the basis of our consideration of these matters. Let me enumerate these fundamental ideas or principles:

• First. Lawfully vested rights of property of every description are to be respected and preserved in conformity with the recognized principles of international law and of equity.
• Second. The general understanding reached by the Commissioners of the two countries in 1923, and approved by both Governments at the time of resumption of diplomatic relations between them, stands unmodified and its binding force is recognized.
• Third. The principle of international law that it is both the right and the duty of a government to protect its citizens against any invasion of their rights of person or property by a foreign government, and that this right may not be contracted away by the individual is conceded.
• Fourth. The principle that vested rights may not be impaired by legislation retroactive in character or confiscatory in effect is not disputed.

These basic principles have repeatedly been advanced by my Government, and in their general statement they have all been endorsed by the Mexican Government. The differences between us arise wholly from the practical interpretation and specific application of these general conceptions to the existing situation.

I regret to say that, viewed from the standpoint of interpretation and practical application, the attitude and declared intentions of the Mexican Government, as expressed in its notes, are calculated to defeat the legitimate expectations entertained as the result of the agreement touching the general principles, above mentioned, and, in the judgment of my Government, amount in many respects to a rejection thereof in so far as the particular matters under discussion are concerned.

In this connection it may be helpful to review in its broader outlines the course taken by our exchanges of views.

As long ago as November, 1925, my Government began to look with anxiety and apprehension upon the possible effect upon American vested rights of the legislative program of the Mexican Government based upon Article 27 of the Constitution of 1917. It will be recalled that during the pendency of the bill which was later enacted as the Alien Land Law, I caused to be presented to Your Excellency an Aide Memoire of a personal nature directing attention to these apprehensions.⁴⁵ Your Excellency’s reply assured me in substance that the pending legislation “respected in their entirety acquired rights”.⁴⁶ I then proceeded to explain in somewhat more detail the position of my Government, and was in turn informed by Your Excellency that these representations were premature, that the pending legislation was not retroactive or confiscatory, that acquired property rights were being respected and that your Government had “the firm intention of doing nothing but what is just, fair and allowable under international law”. The subsequent correspondence has been maintained on the part of this Government upon the faith of these assurances. As time passed and the alien land and petroleum bills were enacted into law, the idea was advanced by your Government that all apprehensions were groundless because in any event the power of the Executive was ample to protect vested interests through the issuance of appropriate regulations under the laws, and that such power would be exercised in that sense. In the note of Your Excellency, dated January 20, 1926,⁴⁷ it was said:

“It is known that the purpose of regulation is to determine the manner in which the laws which they regulate shall be applied, and it is certain that the Executive, in making use of the pertinent powers, will do so, taking into account not only the express content of the laws but also the precepts of international law and of justice and equity as well.

“Legislation in the subjects indicated will only be complete when the regulations shall have been issued, and only from the aggregate will it be possible to judge whether they violate or respect and protect the rights of the nation as well as private individuals, whether nationals or aliens.”

Reference is also made on this point to Your Excellency’s notes of February 12, 1926, and March 27, 1926.

May I now be permitted to point out by way of concrete illustration the manner in which, as it appears to my Government, the bases, upon which this entire discussion rests, are in danger of being in practice disregarded or rejected?

In the first place my Government finds itself unable to acquiesce in the fundamental conception of a vested interest as evidently entertained by the Mexican Government. Your Excellency has on several occasions virtually expressed property rights which are commonly regarded as vested in terms of a mere right of user or enjoyment, which might lawfully be interrupted or wholly taken away by laws or regulations affecting its future duration, or imposing conditions upon future enjoyment. For example, in Your Excellency’s note of February 12, 1926, it is stated:

“To grant a concession in exchange for an actual title is to confirm the latter, because the granting of the concession will have no other foundation than respect for the former; and although it is true that concessions are for a limited duration of time, on the one hand, to determine the period for the future exercise of a right is not to proceed retroactively, because it does not modify the effects already consummated of a right, but only applies a rule for future use, and, on the other hand, the period of a concession having expired, the latter may be extended or another obtained, wherefore in practice no prejudice is caused by the application of the precepts under consideration.”

Again in the note of March 27, 1926, speaking of the provision of the alien land law requiring foreign companies holding stock in Mexican companies to dispose of such corporate interests in excess of 49 per cent within the term of ten years, Your Excellency said that this “does not mean that the law is given retroactive effect in its application since it has to do with an act in the future and not with an act in the past”. Again in the note of February 12, 1926, referring to Article 4 of the alien land law it is stated:

“And since the same article refers to future rights, such as those arising from the death of an individual now living or the period of time subsequent to ten years, its effects can not be regarded as retroactive, since there was no acquired right but merely expectation of a right.”

Again in Your Excellency’s memorandum of December 5, 1925, it was stated:

“You will observe in the appropriate provisions of the organic law which I am commenting upon that a long period is given to foreigners to divest themselves of the excess of 50 per cent of their participation in such companies. Therefore the provision is not confiscatory, because the right is recognized, and it is merely its transformation which is required. This provision is not retroactive either, because it does not harm acquired rights since, as I said above, the form in which a foreigner holds a right may be changed by a sovereign nation as long as the right in its essence is respected. …

“A careful study of the law will be able to show that it cannot be retroactive and confiscatory in its several provisions since, even in the cases in which a period of time is established for certain effects of the law, these rights are not confiscated, but it is established that foreigners may divest themselves in prudent and ample periods.”

On the theory thus announced, the Mexican Government claims the right to convert unqualified ownerships into terms for years by the simple device of requiring the existing titles to be exchanged for concessions of limited duration. Owners of the soil who acquire their titles prior to May 1, 1917, are, by the provisions of Article 14 of the Petroleum Law and of the regulations issued thereunder, required, under penalty of forfeiture, to apply within one year for “confirmation” of their titles and to accept “concessions” for not more than fifty years from the time the exploitation works began. In these circumstances American nationals who have made investments in Mexico in reliance upon unqualified titles would be obliged to file applications virtually surrendering these vested rights and to accept in lieu thereof concessions of manifestly lesser scope and value. The use of the word “confirmation” in this relation is to say the least misleading. The operation would be nothing but a forced exchange of a greater for a lesser estate. That a statute so construed and enforced is retroactive and confiscatory, because it converts exclusive ownership under positive Mexican law into a mere authorization to exercise rights for a limited period of time, is in the opinion of my Government not open to any doubt whatever.

On the same theory it is sought to justify the provision of the alien land law calling upon foreign absolute owners of stock in Mexican corporations holding rural property for agricultural purposes to dispose of their corporate interests in excess of 49 per cent within the term of ten years. Here again a plainly vested interest through ownership of stock is divested by compelling the holder, without his desire or consent, to dispose of the same within a limited time under conditions which may or may not be favorable to the transfer.

The foregoing conception of the nature of a vested interest, with the results to which it leads in practical application, as I have indicated can not be accepted by my Government. It strikes at the very root of the system of property rights which lies at the basis of all civilized society. It deprives the term “vested” of any real meaning by limiting it to a retrospective significance. The very essence of a vested interest is that it is inviolable and can not be impaired or taken away by the state save for a public purpose upon rendering just compensation. No title can be secure if it is to be deemed vested only in the sense that it has been enjoyed in the past and that it is, therefore, subject to curtailment or destruction through the enforcement of laws enacted subsequent to its acquisition.

Pursuing this subject I now advert to the question of the rights to the oil deposits forming part of the subsoil. It is my understanding that the contention of the Mexican Government is substantially as follows:

That the owner of the surface whose title became vested prior to May 1, 1917, under Mexican laws then in force, acquired merely an optional right in the subsoil, and that consequently, until he had performed some act looking to an appropriation of the petroleum deposits he held no vested right therein.

The position thus taken by the Mexican Government is inseparably connected with what may be for convenience designated the Mexican doctrine of positive acts. That doctrine, of course, is without importance or application save where an inchoate or optional right is involved. Ex vi termini a vested interest demands the performance of no act of appropriation to support it. Obviously, therefore, if the owner of the surface prior to May 1, 1917, had a vested interest in the petroleum deposits in the subsoil, the doctrine of positive acts is without application.

It has been, and is, the position of my Government not only that the surface owner in those cases is the owner of certain subsoil deposits, including petroleum, as stated in my note of January 28, 1926, but that under any proper application of the doctrine of positive acts, the rights of American nationals claiming petroleum deposits under titles accruing prior to May 1, 1917, must in most, if not all instances, be effectively conceded. For this purpose I have emphasized the exceedingly comprehensive definition of positive acts laid down in the proceedings of the Commissioners in 1923; and I have also drawn attention to the express reservation made by the American Commissioners covering all rights of American citizens in the subsoil and petroleum deposits, which vested under the laws in force when the land was acquired. Your Excellency, to be sure, in his note of February 12, 1926, inadvertently stated that the understanding of the American Commissioners at the conference of 1923 was to the effect that titles acquired in accordance with the laws of 1884, 1892, and 1909 gave the surface owner nothing but an optional right, that is to say the liberty of appropriating for his own use the fuels, minerals and oils contained in the subsoil and that, therefore, until he had performed some act looking to such appropriation no right was acquired. A careful reading of the proceedings fails to reveal any statement by the American Commissioners accepting this view. On the contrary, they took special pains to spread upon the record of the proceedings the express reservation which I have mentioned. There certainly would have been no occasion for them to do this if they had accepted the view that the surface owner acquired no rights in the subsoil in the absence of the performance of positive acts looking to its appropriation.

An analysis of the mining laws of 1884, 1892, and 1909 has convinced my Government that by the very terms of these statutes American nationals who acquired lands prior to May 1, 1917, whether by fee ownership or leasehold, obtained not a mere optional right to the oil deposits contained therein but the “exclusive property” and hence a vested interest in such deposits.

But even if the Mexican laws as they stood prior to May 1, 1917, had not conferred upon the surface owner “exclusive property” in the oil deposits so that his right thereto could be held to be merely an optional one, nevertheless a proper application of the doctrine of positive acts would protect his rights. I venture to refer again to the comprehensive character of the definitions and to Your Excellency’s repeated acquiescence therein (notes of January 20, February 12 and March 27). The enumeration of specific positive acts is very sweeping indeed and concludes with the clause: “and in general any other act manifesting an intention of similar character”. Notwithstanding the definite assurances given by Your Excellency my Government is unable, after a careful examination of the petroleum law and regulations, to conclude that these assurances are to be fulfilled, and that all of the positive acts enumerated in the definition and all of the manifestations of intention referred to are to be given effect for the purpose of confirming titles. The intention referred to in the definition may obviously be manifested in various ways. It is perhaps enough to point out that in January, 1916,⁴⁸ and in the following months prior to the promulgation of the Constitution of 1917, many of these American surface owners, in response to circular No. 111 [11?] of the Department of Fomento, dated November 15, 1915,⁴⁹ directed specifically to companies or private persons engaged in the petroleum industry, registered and presented declarations, comprising among other data the name of the company, its domicile, its capital, and a description of the location of its property, its leases and fields. This listing of petroleum properties was a most public, solemn and official manifestation of the object for which the particular properties had been acquired. In many cases these lists of properties with the other data given were published by the Mexican Government.

Now Article 150 of the petroleum regulations provides that confirmation of the rights mentioned in Article 14 of the law shall be made without charge through concessions granted after the rights have been proved in the manner set forth in subsequent articles. Article 153 then states that the rights derived from contracts executed prior to May 1, 1917, shall be proved by documents legally valid, including:

“(a) Contracts of lease, exploitation or cession of rights to the subsoil or of promise of any of these operations made in a public instrument.”

It is not easy to imagine a promise of such operations made in a public instrument of a more definite or solemn nature than that furnished by the listing with the Mexican Government of property, contracts, leases and fields pursuant to the request of the Department of Fomento, dated November 15, 1915. Nevertheless subdivision (b) of Article 153 of the regulations specifies as the basis for confirmation of titles:

“Contracts of purchase and sale (compraventa) in which it appears that the arrangement was carried out for the purpose of exploiting petroleum, or contracts in which, by reason of the price agreed upon, it shall appear that the arrangement was carried out for the same purpose.”

Insistence upon this basis for confirmation not only ignores the manifestation of intention through official listing of petroleum properties as such, but is a distinct departure from and limitation upon the enumeration of positive acts made in the statement of the Mexican Commissioners of 1923, and confirmed in Your Excellency’s note of January 20, which enumeration includes among positive acts “the conclusion of any contract relative to the subsoil, the investment of capital in land with the object of extracting petroleum from the subsoil”. The understanding was clearly and unequivocally expressed that titles should be confirmed wherever investment of capital in land was made with the object of extracting petroleum from the subsoil, and the promise of such operations made in a public instrument filed in accordance with the circular of the Department of Fomento, is in the opinion of my Government, the best possible manifestation of intention. The requirement that the deed or lease of lands, or the lease of subsoil rights should on its face set forth the purpose for which the property is to be used is respectfully submitted to be a substantial departure from both the letter and the spirit of the undertaking as to positive acts.

My Government does not feel that it is just to require in any case that the deed or lease of lands, or the lease of subsoil rights, shall have set forth the purpose for which the property was to be used. It is unreasonable to expect that the seller should have included in the instrument of transfer a statement of the purposes for which the purchaser was acquiring the property or right. If the property or right was in fact acquired with the object of extracting petroleum from the subsoil, and that object was manifested in any of the ways alluded to by the Commissioners of 1923, it comes within the understanding then arrived at between the two Governments.

To sum up the situation with respect to petroleum deposits, it appears that the rights acquired therein by American nationals prior to 1917 are proposed to be dealt with in the following manner:

• First: By construing them to be merely optional rights instead of vested interests, in spite of the fact that the laws in force when they were acquired specifically conferred upon the surface owners “exclusive property” in the oil deposits “in all their forms and varieties”.
• Second: By cutting down the definition of positive acts so as to deprive the owners of all benefit arising from manifestations of intention which fall clearly within the original definition.

By this process, which my Government is deeply persuaded would be wholly unjustified, the owners of these subsoil deposits would be denied all protection, not only as holders of vested interests under the principles of international law and equity, but even if considered as holders of optional rights entitled to recognition by the performance of positive acts within the definition laid down by the Commissioners of 1923, and confirmed by Your Excellency.

My Government desires particularly to point out that even on the assumption that the subsoil rights under consideration were in their inception merely optional rights, as distinguished from vested interests (a position which has, however, never been conceded by my Government) it seems entirely within the power of the Government of Mexico by simple application of the doctrine of positive acts, as defined by the Mexican Commissioners in 1923, to confirm the titles in question without change. Your Excellency’s note of March 27, 1926, contained the following assurance:

“I take these purposes of the President of the Republic for my basis in extending to Your Excellency’s Government the assurances that in the regulations on the subject the rights to the subsoil held by American citizens who had performed any of the positive acts enumerated in my note of January 20 will be confirmed.”

The Supreme Court of Mexico, in the Texas case, and in the other amparo cases, already referred to, definitely decided that the titles to lands on which positive acts, the nature of which the Mexican Government has specifically set forth to this Government, had been performed prior to the going into effect of the Constitution of 1917, were not affected by the Constitution. Your Excellency has assured this Government that there can be no doubt that the regulations to be issued by the Executive will confirm the rights acquired in accordance with the laws of 1884, 1892 and 1909, provided any of the positive acts already enumerated shall have been executed or intentions of a similar character manifested. In behalf of your Government it was stated in the note of January 20th that Your Excellency must advise this Government “that the law (December 31, 1925) does not modify nor can it modify the decisions (decisions of the Supreme Court of Mexico) in question made and confirmed; to the contrary it renders the effects thereof universal through the provisions of Article 14.”

In this connection it would appear that the practice followed in the case of confirmation of rights of waters furnishes an instructive analogy. In Your Excellency’s note of March 27, 1926, it was stated:

“The cases of confirmation of rights to the subsoil are altogether analogous to those of the confirmation of rights of waters, with regard to which the title of confirmation is issued as will be done with regard to the said rights to the subsoil.”

This was followed by a reference to Article 74 of the regulations issued under the law of December 14, 1910, which “laid down all the requirements that should be met by an applicant for a confirmation of rights of waters”; and it is declared that “compliance with that provision and the others on the subject has not prejudiced any person whatever, but rather has served to avoid disputes among persons holding rights of waters”.

Article 31 of the Mexican Law of Federal Waters, December 1, 1910, provides that the rights which may have been granted or confirmed by the President of Mexico directly, or with the approval of Congress, are confirmed by operation of the law; and Article 74 of the regulations issued under that statute specifies the data to be furnished in order that confirmation of title may be established. I find there no suggestion of a change in the nature of the title. In other words, the practice under the 1910 law apparently affected a true confirmation of pre-existing titles in their entirety.

I can not refrain from re-emphasizing here the steadfast adherence of my Government to the principle stated in my note of January 28, 1926, and confirmed in terms by Your Excellency’s note of February 12, last:

“That when any Government attempts to dispossess foreigners of property rights which have already been lawfully acquired, the American Government with respect to its citizens has the absolute duty of making efforts and representations to prevent it.”

The exercise of this international right by a sovereign state in behalf of its own citizens can not be made to depend upon the will of another sovereign state. Under Article 2 of the Alien Land Law, as my Government understands it, every American citizen holding in Mexico agricultural lands, waters and their accessories, or concessions for mining or for the use of waters, or for taking combustible minerals from the subsoil, must enter into an agreement to consider himself a Mexican national in respect of his property rights, and not to invoke the protection of his Government. Thereafter by the very act of asking assistance of his Government, such citizen would forfeit his property. In Your Excellency’s note of March 27, 1926, I find this passage:

“I consider that even though an individual should renounce applying for the diplomatic protection of his Government, the Government does not forfeit the right to extend it in case of a denial of justice; but this is independent of the consequences that a private person may incur through failing to comply with an obligation assumed by him”

The second and underscored [italicized] portion of the foregoing sentence effectively nullifies the first. This Government can not, and does not, concede that the Mexican Government may exact from an American citizen, under pain of forfeiture, an undertaking of this character, the vital purpose of which would be to constitute the Mexican Government the sole judge of whether such citizen is, or is not, deprived of vested interests in violation of the law of nations.

In conclusion my Government has not failed to note the expressions of the Mexican Government concerning the underlying purpose and political significance of the proceedings of the American and Mexican Commissioners in 1923, which led to the recognition of the latter by the former. The statement of President Calles, transmitted to me in Your Excellency’s note of November 27, 1925, declares that these conferences “were confined to an exchange of views intended to find, if possible a way for the two countries to resume diplomatic relations”, and that they “did not result in any formal agreement other than that of the Claims Conventions, which were signed after the resumption of diplomatic relations”. This position was, however, modified in subsequent notes of Your Excellency, wherein the binding effect of the declarations made by the Mexican Commissioners was acknowledged (notes of February 12, 1926, and March 27, 1926). Your Excellency, in his note of February 12, 1926, states that the “conferences of 1923 were not a condition for the recognition of the Government of Mexico and consequently can never be given that character”. I can only say to Your Excellency in this connection that my Government continues to regard the proceedings of 1923 as a negotiation of the highest importance upon which two sovereign states may engage. The paramount issue was that of recognition. Without the assurances received in the course of that negotiation recognition could not, and would not, have been extended, and my Government confidently relies upon the fulfilment of the assurances then given.

Accept [etc.]

Frank B. Kellogg

Washington, July 31, 1926.

45. See telegram No. 254, Nov. 13, 1925, to the Ambassador in Mexico, Foreign Relations, 1925, vol. ii, p. 527.
46. See note of Nov. 26, 1925, from the Mexican Minister for Foreign Affairs, ibid., p. 538.
47. Ante, p. 605.
48. See Foreign Relations, 1916, pp. 741 ff.
49. Ibid., 1915, p. 891.