## Facts

- Allied Bank International, acting for itself and as agent for a syndicate of 39 banks, extended U.S. dollar loans to three Costa Rican banks wholly owned and controlled by Costa Rica through its Central Bank.
- The loans were evidenced by promissory notes payable in U.S. dollars in New York City.
- The notes contemplated that Costa Rica’s Central Bank would provide the dollars needed for payment.
- Costa Rica entered a severe economic and foreign-exchange crisis in the early 1980s.
- Costa Rica, through its Central Bank, issued decrees and regulations that suspended or restricted repayment of certain foreign-currency debts and required affected obligations to be restructured on new terms.
- The debtor banks stopped making payments on the notes, citing the Costa Rican measures.
- Allied declared a default and sued in the Southern District of New York for unpaid principal and accrued interest.
- The district court dismissed the action under the act of state doctrine.
- A Second Circuit panel initially affirmed on comity grounds, but on rehearing—after a U.S. Government amicus brief—the court vacated its prior decision and reconsidered.

## Issues

1. Whether the act of state doctrine barred a U.S. court from enforcing promissory notes payable in New York when the debtor banks relied on Costa Rican decrees that purported to suspend or restructure payment.
2. Whether comity required U.S. courts to recognize Costa Rica’s unilateral debt measures as a defense to payment, given U.S. law and public policy governing private international debt obligations.

## Decision

- The Second Circuit vacated its prior decision, reversed the district court’s dismissal, and remanded with instructions to enter summary judgment for Allied.
- The act of state doctrine did not preclude adjudication because the dispute concerned enforcement of private obligations whose place of performance was New York, not a challenge to the general validity of Costa Rica’s internal sovereign acts.
- The Costa Rican decrees were not entitled to comity because, as applied to New York-payable notes, they conflicted with U.S. law and public policy favoring negotiated restructurings that preserve the continuing enforceability of the underlying obligation.
- The notes remained valid and enforceable; the debtor banks were liable for unpaid principal and interest.

## Legal Principles

- The act of state doctrine does not require U.S. courts to give effect to foreign sovereign measures that purport to discharge or unilaterally alter private contractual debts when the obligations are payable in the United States and enforcement can be resolved under ordinary contract principles.
- Comity is discretionary and may be denied when recognizing a foreign sovereign act would conflict with clearly expressed U.S. law or public policy.
- U.S. policy supports negotiated international debt reschedulings that may alter payment terms but generally preserve the continuing validity and enforceability of the underlying private debt absent creditor consent.
- A foreign exchange or debt-control regime cannot, by itself, excuse performance of a contract whose specified place of payment is New York, where the asserted defense would operate extraterritorially on a U.S.-centered obligation.

## Conclusion

The Second Circuit required payment on New York-payable promissory notes notwithstanding Costa Rican decrees mandating unilateral suspension and restructuring, holding that neither the act of state doctrine nor comity displaced enforcement of the private debt under U.S. law and policy.


Allied Bank Int’l v. Banco Crédito Agrícola de Cartago, 757 F.2d 516 (2d Cir. 1985)