## Facts

- A syndicate of sixteen banks, with Libra Bank Limited as agent, loaned $40 million to Banco Nacional de Costa Rica, S.A., a bank wholly owned by Costa Rica.
- The loan financed Costa Rican sugar exports and was documented by a written loan agreement and promissory notes.
- The agreement required repayment in four installments from July to October 1981, payable in New York to a New York bank, governed by New York law, with Banco Nacional consenting to New York jurisdiction.
- Banco Nacional made the first principal and interest payment in July 1981 and an interest payment in August 1981, then made no further payments.
- Banco Nacional attributed nonpayment to Costa Rican government measures (including an August 1981 decree and a November 1981 order) restricting foreign-currency use for certain external debt payments.
- Plaintiffs alleged Banco Nacional removed about $2.5 million from New York accounts to avoid attachment and sought an order requiring return and deposit of those funds as security.
- Plaintiffs sued in the Southern District of New York for unpaid principal and interest and moved for summary judgment; Banco Nacional’s principal merits defense invoked the act of state doctrine.

## Issues

1. Whether the act of state doctrine barred a U.S. court from enforcing a New York–governed, New York–payable loan when Costa Rican decrees restricted repayment.
2. Whether the debt’s situs for act-of-state purposes was New York or Costa Rica.
3. Whether a default-interest clause allowing selection between Chase prime and LIBOR was enforceable where no single LIBOR quote covered the entire default period.
4. Whether the court should compel Banco Nacional to return and deposit $2.5 million allegedly withdrawn from New York accounts to avoid attachment.

## Decision

- Summary judgment was granted for the plaintiff banks on liability for the unpaid amounts due under the loan agreement and notes.
- The act of state doctrine did not bar enforcement because the Costa Rican measures effectively impaired a debt whose situs was in New York rather than property located within Costa Rica.
- The court held the debt’s situs was New York, emphasizing the New York place of payment, New York choice-of-law clause, consent to New York jurisdiction, and Banco Nacional’s substantial New York assets at the relevant time.
- The default-interest provision was enforced; the absence of a single LIBOR quotation for the full default period did not defeat the clause, and the Chase prime rate could be applied under the contract’s terms.
- Plaintiffs’ motion to compel return and deposit of the alleged $2.5 million transfer was denied for lack of sufficient proof warranting that relief.

## Legal Principles

- The act of state doctrine generally does not preclude adjudication where the challenged foreign sovereign measure purports to affect property interests situated in the United States rather than within the foreign state’s territory.
- For debt obligations, situs may be determined by contract and performance terms and related contacts, including place of payment, governing law, consent to jurisdiction, and the debtor’s assets within the forum.
- U.S. courts may enforce New York–governed commercial debt notwithstanding foreign exchange-control measures when the obligation is payable in New York and the relevant property interest is treated as located there.
- A default-interest clause remains enforceable when the contract provides alternative market benchmarks and one benchmark is administratively unavailable for the full period; the court may apply the operative contractual alternative consistent with the parties’ agreement.
- Extraordinary provisional relief regarding asset movements requires adequate proof of conduct justifying such an order.

## Conclusion

The court enforced a syndicated foreign loan payable in New York and governed by New York law, holding that Costa Rica’s exchange-control measures did not trigger the act of state doctrine because the debt’s situs was New York; it awarded summary judgment for principal and interest, upheld the default-interest mechanism, and denied a separate request to compel repatriation and deposit of allegedly withdrawn New York funds.


Libra Bank Ltd. v. Banco Nacional de Costa Rica, S.A., 570 F. Supp. 870 (S.D.N.Y. 1983)