## Facts

- U.S. citizen investors purchased peso- and dollar-denominated certificates of deposit (CDs) issued by Bancomer, a Mexican bank, in 1981.
- Purchases were arranged by telephone with Bancomer’s Mexico City office; funds came from deposits in Mexico or checks drawn on New York banks delivered to Bancomer’s New York agency.
- Bancomer’s New York agency transmitted funds to Mexico via interbank transfer and was not authorized to accept deposits.
- The CDs stated that Mexico was the place of deposit and the place of payment of principal and interest, though payments were sometimes routed to New York banks for convenience.
- The CDs totaled about $2.1 million; most matured in February 1983 and carried high interest rates.
- In August–September 1982, Mexico issued decrees restricting foreign currency use, nationalizing banks (including Bancomer), and imposing exchange controls requiring payment of foreign-currency obligations in pesos at an official, government-fixed exchange rate.
- When the CDs matured, plaintiffs were paid in pesos at the official rate rather than receiving the expected dollar value measured at a market rate; plaintiffs claimed losses exceeding $900,000.
- Plaintiffs sued in the Southern District of New York for breach of contract; the district court dismissed on act of state grounds, and plaintiffs appealed.

## Issues

1. Whether the act of state doctrine bars adjudication of contract claims challenging the effects of Mexican exchange-control and bank-nationalization decrees, given the situs of the debt.
2. Whether the decrees should be treated as commercial conduct rather than sovereign acts, taking the case outside the act of state doctrine.
3. Whether the IMF Articles of Agreement or another clear international agreement creates an exception permitting a U.S. court to deny effect to the Mexican decrees.

## Decision

- The Second Circuit affirmed dismissal of the complaint.
- The court held the act of state doctrine barred relief because Bancomer’s obligations under the CDs were situated in Mexico.
- Enforcing plaintiffs’ contract theory would require a U.S. court to deny legal effect to Mexican sovereign decrees regulating domestic currency and banking.
- The court rejected plaintiffs’ arguments that the decrees were commercial acts and that IMF provisions supplied an applicable treaty-based exception.

## Legal Principles

- Under the act of state doctrine, U.S. courts will not adjudicate claims that require invalidating or refusing to recognize a foreign sovereign’s official acts performed within its own territory.
- For act of state analysis involving debt obligations, the situs of the debt commonly turns on the place of performance and contractual designation of the place of payment.
- Where a contract specifies that payment is due in the foreign state, incidental transmission of funds to the United States for convenience does not shift the situs to the United States.
- Currency controls and bank nationalization are sovereign regulatory acts, not merely commercial conduct, for purposes of act of state analysis.
- A treaty-based exception requires a clear, unambiguous international agreement directing a contrary result; general IMF provisions did not compel U.S. courts to disregard Mexico’s exchange-control decrees in this setting.

## Conclusion

Because the CDs required deposit and payment in Mexico, Mexico was the situs of the obligations, and Mexico’s exchange-control and nationalization decrees were sovereign acts within its territory; the act of state doctrine therefore barred U.S. courts from granting contract relief that would negate the decrees’ effect.


Braka v. Bancomer, S.N.C., 762 F.2d 222 (2d Cir. 1985)