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Back Matter

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International Monetary Fund
Published Date:
January 1966
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    Appendix: Unenforceability of Exchange Contracts: Fund’s Interpretation of Article VIII, Section 2(b)

    The following letter shall be sent to all members:

    The Board of Executive Directors of the International Monetary Fund has interpreted, under Article XVIII of the Articles of Agreement, the first sentence of Article VIII, Section 2(b), which provision reads as follows:

    Exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this Agreement shall be unenforceable in the territories of any member.

    The meaning and effect of this provision are as follows:

    • Parties entering into exchange contracts involving the currency of any member of the Fund and contrary to exchange control regulations of that member which are maintained or imposed consistently with the Fund Agrees ment will not receive the assistance of the judicial or administrative authoritie-of other members in obtaining the performance of such contracts. That is to say, the obligations of such contracts will not be implemented by the judicial or administrative authorities of member countries, for example by decreeing performance of the contracts or by awarding damages for their non-performance.

    • By accepting the Fund Agreement members have undertaken to make the principle mentioned above effectively part of their national law. This applied to all members, whether or not they have availed themselves of the transitional arrangements of Article XIV, Section 2.

    An obvious result of the foregoing undertaking is that if a party to an exchange contract of the kind referred to in Article VIII, Section 2(b) seeks to enforce such a contract, the tribunal of the member country before which the proceedings are brought will not, on the ground that they are contrary to the public policy (ordre public) of the forum, refuse recognition of the exchange control regulations of the other member which are maintained or imposed consistently with the Fund Agreement. It also follows that such contracts will be treated as unenforceable notwithstanding that under the private international law of the forum, the law under which the foreign exchange control regulations are maintained or imposed is not the law which governs the exchange contract or its performance.

    The Fund will be pleased to lend its assistance in connection with any problem which may arise in relation to the foregoing interpretation or any other aspect of Article VIII, Section 2(b). In addition, the Fund is prepared to advise whether particular exchange control regulations are maintained or imposed consistently with the Fund Agreement.

    Decision No. 446–4

    June 10, 1949

    IMF Pamphlet Series

    INTERNATIONAL MONETARY FUND PAMPHLET SERIES

    (All pamphlets have been published in English, French, and Spanish, unless otherwise stated)

    *1. Introduction to the Fund, by J. Keith Horsefield. First edition, 1964. Second edition, 1965. Second edition also in German.

    *2. The International Monetary Fund: Its Form and Functions, by J. Marcus Fleming. 1964. In English only.

    3. The International Monetary Fund and Private Business Transactions: Some Legal Effects of the Articles of Agreement, by Joseph Gold. 1965.

    4. The International Monetary Fund and International Law: An Introduction, by Joseph Gold. 1965.

    *5. The Financial Structure of the Fund, by Rudolf Kroc. First edition, 1965. Second edition, 1967.

    6. Maintenance of the Gold Value of the Fund’s Assets, by Joseph Gold. First edition, 1965. Second edition, 1971.

    7. The Fund and Non-Member States: Some Legal Effects, by Joseph Gold. 1966.

    8. The Cuban Insurance Cases and the Articles of the Fund, by Joseph Gold. 1966.

    9. Balance of Payments: Its Meaning and Uses, by Poul H0st-Madsen. 1967.

    *10. Balance of Payments Concepts and Definitions. First edition, 1968. Second edition, 1969.

    11. Interpretation by the Fund, by Joseph Gold. 1968.

    12. The Reform of the Fund, by Joseph Gold. 1969.

    13. Special Drawing Rights, by Joseph Gold. First edition, 1969. Second edition, with subtitle Character and Use, 1970.

    14. The Fund’s Concepts of Convertibility, by Joseph Gold. 1971.

    15. Special Drawing Rights: The Role of Language, by Joseph Gold. 1971.

    16. Some Reflections on the Nature of Special Drawing Rights, by J.J. Polak. 1971.

    17. Operations and Transactions in SDRs: The First Basic Period, by Walter Habermeier. 1973.

    18. Valuation and Rate of Interest of the SDR, by J.J. Polak. 1974.

    19. Floating Currencies, Gold, and SDRs: Some Recent Legal Developments, by Joseph Gold. 1976. Also in German.

    20. Voting Majorities in the Fund: Effects of Second Amendment of the Articles, by Joseph Gold. 1977.

    21. International Capital Movements Under the Law of the International Monetary Fund, by Joseph Gold. 1977.

    22. Floating Currencies, SDRs, and Gold: Further Legal Developments, by Joseph Gold. 1977. Concluding section also in German.

    23. Use, Conversion, and Exchange of Currency Under the Second Amendment of the Fund’s Articles, by Joseph Gold. 1978.

    24. The Rise in Protectionism, by Trade and Payments Division. 1978.

    25. The Second Amendment of the Fund’s Articles of Agreement, by Joseph Gold. 1978.

    26. SDRs, Gold, and Currencies: Third Survey of New Legal Developments, by Joseph Gold. 1979. Concluding section also in German.

    27. Financial Assistance by the International Monetary Fund: Law and Practice, by Joseph Gold. First edition, 1979. In English only. Second edition, 1980.

    28. Thoughts on an International Monetary Fund Based Fully on the SDR, by J.J. Polak. 1979.

    29. Macroeconomic Accounts: An Overview, by Poul H0st-Madsen. 1979.

    30. Technical Assistance Services of the International Monetary Fund. 1979.

    31. Conditionality, by Joseph Gold. 1979.

    32. The Rule of Law in the International Monetary Fund, by Joseph Gold. 1980.

    33. SDRs, Currencies, and Gold: Fourth Survey of New Legal Developments, by Joseph Gold. 1980.

    34. Compensatory Financing Facility, by Louis M. Goreux. 1980.

    35. The Legal Character of the Fund’s Stand-By Arrangements and Why It Matters, by Joseph Gold. 1980.

    36. SDRs, Currencies, and Gold: Fifth Survey of New Legal Developments, by Joseph Gold. 1981. In English and French. Spanish in preparation.

    37. The International Monetary Fund: Its Evolution, Organization, and Activities, by A.W. Hooke. 1981.

    38. Fund Conditionality: Evolution of Principles and Practices, by Manuel Guitián. 1981.

    39. Order in International Finance, the Promotion of IMF Stand-By Arrangements, and the Drafting of Private Loan Agreements, by Joseph Gold. 1982. In English and French. Spanish in preparation.

    40. SDRs, Currencies, and Gold: Sixth Survey at New Legal Developments, by Joseph Gold. 1983. In English. French and Spanish in preparation.

    *Out of print. Photographic or microfilm copies of all English editions, including numbers that are out of print, may be purchased direct from University Microfilms International, 300 North Zeeb Road, Ann Arbor, Michigan 48106, U.S.A., or, for those living outside the Western Hemisphere, from University Microfilms Limited, 30/32 Mortimer St., London, WIN 7RA, England.

    Copies (unless out of print) may be requested from:

    External Relations Department, Attention: Publications

    International Monetary Fund, Washington, D.C. 20431, U.S.A.

    Telephone number: 202 473 7430

    Cable address: Interfund

    There has been some litigation in Canada also. See Colmenares v. Imperial Life Assurance Co. of Canada, (1965) 51 D.L.R.(2d) 122; (1966) 54 D.L.R.(2d) 386.

    Brief of petitioners on a petition to the U.S. Supreme Court for a writ of certiorari to the Supreme Court of Louisiana in Pan American Life Insurance Co. v. Theye y Ajuria, p. 11.

    The Fund’s interpretation of this provision (Decision No. 446–4, June 10, 1949) is reproduced in the Appendix, p. 53. See also Selected Decisions of the Executive Directors and Selected Documents, 3rd issue (Washington, 1965; hereinafter cited as Selected Decisions), pp. 73–74.

    Richard R. Paradise, “Cuban Refugee Insureds and the Articles of Agreement of the International Monetary Fund,” University of Florida Law Review, Vol. 18 (1965), pp. 29–77, particularly pp. 37–38.

    Paradise, op. cit.

    This is not to say that all of the laws and decrees were relied on by the defendants in each of the cases.

    This translation has been quoted, notwithstanding some obvious infelicities, because it is the one used in most of the cases.

    American Journal of International Law, Vol. 55 (1961), pp. 822–24.

    Richard C. Allison, “Cuba’s Seizures of American Business,” American Bar Association Journal, Vol. 47 (1961), pp. 48–51.

    311 F.2d 424 (decided November 7, 1962).

    Id. at 427, fn. 8.

    221 F.Supp. 219 (decided July 15, 1963).

    Id. at 226.

    Id. at 229.

    311 F.2d 429 (decided October 17, 1962).

    Id. at 437 (rehearing denied December 20, 1962). See also 376 U.S. 779, 84 S.Ct. 1130 (1964).

    161 So.2d 70, 71.

    154 So.2d 450 (rehearing denied July 1, 1963).

    Id. at 453–54.

    161 So.2d 70 (decided February 24, 1964).

    In a footnote, the laws and decrees referred to are Laws Nos. 13, 568, and 851; Decree No. 1384; and Resolution No. 3 (id. at 71, fn. 2).

    161 So.2d 74. For the last proposition, the court’s citations were: “Menendez Rodrigues v. Pan American Life Insurance Company, 5 Cir., 311 F.2d 429, 432; Pan American Life Insurance Company v. Recio, Fla. App., 154 So.2d 197 (Florida); Pan American Life Insurance Company v. Raij, Fla. App. 156 So.2d 785 (Florida); Menandez v. Aetna Insurance Company, 5 Cir., 311 F.2d 437; Ahmen Bey Naguib v. Heirs of Moise Abner, abstract appears in J.T.M., No. 4003, Nov. 24/25, 1948; Kraus v. Zivostenska Banka, 187 Misc. 681, 64 N.Y.S.2d 208; Cermak, et al. v. Bata Akciova Spoiecnost, Sup., 30 N.Y.S.2d 782; Frank-man v. Ango-Prague Credit Bank (London office), 1 All E.R. 337; Frankman v. Ango-Prague Credit Bank, 2 All E.R. 1025; Zivnostenska Banka National Corporation v. Frankman, 2 All E.R. 671.” (Note that some names are misspelled.)

    After the decision of the Supreme Court in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964), the defendant petitioned the Supreme Court for a writ of certiorari to review the decision of the Supreme Court of Louisiana. Certiorari was denied, 377 U.S. 997, 84 S.Ct. 1922 (1964).

    156 So.2d 785, 786 (1963).

    164 So.2d 204 (rehearing denied June 10, 1964). Certiorari denied, 379 U.S. 920, 85 S.Ct. 275 (1964).

    83 Montg. Co. L.R. 71, 73 (decided December 2, 1963).

    204 Pa. Super. 176, 203 A.2d 505, 507 (decided September 17, 1964).

    203 A.2d 505, 510. Certiorari denied, 382 U.S. 827, 86 S.Ct. 62 (1965).

    151 So.2d 315 (decided March 26, 1963).

    164 So.2d 1 (decided February 24, 1964; rehearing denied April 8, 1964); order modified accordingly by District Court of Appeal, 163 So.2d 343 (1964); certiorari denied by U.S. Supreme Court, 379 U.S. 915, 85 S.Ct. 263 (1964).

    Id. at 2.

    On April 8, 1964 the Supreme Court of Florida denied a petition for rehearing which had been presented after the Supreme Court of Louisiana reversed the decision of the Louisiana Court of Appeal in the Theye y Ajuria case. The Florida court had referred to the Louisiana Court of Appeal decision in the latter case as a “similar case,” but on the petition for rehearing the Florida court held that the decision of the Louisiana Court of Appeal was not vital to its own decision, so that the reversal did not affect its decision (164 So.2d 1, 3).

    The plaintiff cited Stephen v. Zivnostenska Banka, National Corporation, 31 Misc.2d 45, 140 N.Y.S.2d 323 (1955), as authority.

    379 U.S. 915, 85 S.Ct.263 (1964).

    In Ahmed Bey Naguib v. Heirs of Moise Abner, the provision was not referred to. In Kraus v. Zivnostenska Banka, the Articles were mentioned by the court “in passing.” In Cermak et al. v. Bata Akciova Spolecnost, the court said that before considering the effect of the Articles, it would await the decision of some trailblazing appellate court or at least a case in which counsel briefed the issue and decision was necessary. There are dicta in Zivnostenska Banka National Corporation v. Frankman which seem to support the proposition of the Louisiana court, but they merely note the parallel effect of the governing law and Article VIII, Section 2(b), and do not say that the latter operates only within the ambit of the former. See Joseph Gold, The Fund Agreement in the Courts (Washington, International Monetary Fund, 1962), pp. 14–17.

    For example, Moojen v. Von Reichert, Gold (1962), op. cit., pp. 148–53, and the decision of April 9, 1962 of the Supreme Court of the Federal Republic of Germany; see also Joseph Gold, “The Fund Agreement in the Courts—VIII,” Staff Papers (International Monetary Fund), Vol. XI (1964), pp. 465–68, particularly p. 466.

    See Appendix, p. 53.

    This must not be taken to imply that the legal effect will necessarily be the same on both bases. For example, under the private international law of the forum, the effect may be invalidity in contrast to unenforceability under Article VIII, Section 2(b).

    For earlier discussions of “exchange contracts,” see Gold (1962), op. cit., pp. 83–84, 91–93, 96, 116–17, 146; and Gold (1964), op. cit., pp. 459, 467–68.

    See, for example, the majority opinion of the New York Court of Appeals in Banco do Brasil, S.A. v. A.C. Israel Commodity Co., Inc., 12 N.Y.2d 371, 190 N.E.2d 235, 239 N.Y.S.2d 872 (1963), discussed in Gold (1964), op. cit., pp. 468–73.

    F.A. Mann, “The Doctrine of Jurisdiction in International Law,” Académie de Droit International, Recueil des Cours, Tome 111 (The Hague, 1964, I), pp. 9–162.

    151 So.2d 315 (1963).

    311 F.2d 427, 428, fn. 9.

    221 F.Supp. 219, 229.

    This is not the same as saying that the contract calls for payment with assets situated in Cuba. The discharge of a contract in Cuba can be made with assets that are not situated in Cuba until they are brought there for the purpose of performance.

    J. Unger, “Life Insurance and the Conflict of Laws,” The International and Comparative Law Quarterly, Vol. 13 (1964), pp. 482–501, especially p. 497. Professor Unger points out that the author of the leading U.S. monograph on the subject (C. W. Carnahan, Conflict of Laws and Life Insurance Contracts, 2nd ed. (Buffalo, New York, Dennis, 1958), pp. 438–47) comes to the same conclusion.

    Crown Life Insurance Co. v. Calvo, 151 So.2d 687 (1963), quashed in part per Ugalde decision, 164 So.2d 813 (1964); Sun Life Assurance Co. of Canada v. Klawans, 162 So.2d 704 (1963), quashed in part per Ugalde decision, 165 So.2d 166 (1964); Trujillo v. Sun Life Assurance Co. of Canada, 166 So.2d 473 (1964); Confederation Life Association v. Brandao, 173 So.2d 515 (1964).

    Cf. the Zabaleta case, in which the parties had agreed on payment in Cuba but in which the plaintiff nevertheless succeeded in the Florida courts.

    According to the article “Insurance Claims—Cubans Raise a Storm,” Business Week, No. 1728, October 13, 1962, p. 120, the plaintiff returned to Cuba after filing his suit in the United States and went on paying premiums in pesos in Cuba. In the brief for the appellee on appeal to the Superior Court of Pennsylvania in the Varas case, this article is referred to (pp. 14–15) as explaining the passage in the opinion of the court in the Ugalde case (151 So.2d 315, 323) that reads as follows: “The courts of Florida were open to the Cuban citizen, while here, to seek redress …” (italics in the brief). Note that the plaintiff filed suit in Florida on November 6, 1961 and made a premium payment in pesos in Cuba on March 7, 1962. (See brief of appellant on appeal to District Court of Appeal of Florida, Third District, in the Ugalde case, p. 3; reply brief of appellant, p. 2, footnote; and brief of petitioner, Supreme Court of Florida, p. 24.)

    Cf. the opinion of the Court of Appeals of Paris in Moojen v. Von Reichert: “There is no doubt that, although the transfer was expressed in French francs, it could have an effect on the Dutch economy, for the Treasury of that country has an interest in the resident’s repatriation of the foreign currency obtained after selling the shares for a just price….” See also Gold (1962), op. cit., p. 146.

    Gold (1964), op. cit., pp. 460–64.

    However, the U.S. District Court in the Blanco case may have been reaching for a distinction in quoting the following passage from the appellee’s brief: “The 1948 law, for example, does not require that payment of obligations due Cuban nationals be made only in pesos. The law does require that, if an obligation is paid within the Republic of Cuba, then, and in that event only, the national currency of Cuba, pesos, must be accepted in payment of obligations” (311 F.2d 427, 428, fn. 9). Cf. petitioner’s brief to the Supreme Court of Florida in the Ugalde case: “The legal tender statute and decrees of 1948–1951 … are similar to those that have been adopted by this country with respect to our own currency. The exchange control measures imposed after 1959 …, although not having any present counterpart in United States law …” (p. 18).

    Law No. 851 and Resolution No. 3 deal with nationalization and fall into a third category.

    See F.A. Mann, The Legal Aspect of Money, 2nd ed. (London, Clarendon Press, 1953), pp. 33–39; Arthur Nussbaum, Money in the Law, National and International (Brooklyn, Foundation Press, 1950), pp. 45–59.

    See de Sayve v. de la Valdene, 124 N.Y.S.2d 143 (1953); Gold (1962), op. cit., p. 74.

    Selected Decisions, pp. 75–76; see also p. 82.

    Restrictions on payments and transfers for current international transactions introduced by a member before it gives notice that it is prepared to perform the obligations of Article VIII, Sections 2, 3, and 4, require the approval of the Fund for the maintenance of the restrictions after the notice becomes effective.

    See Bernard S. Meyer, “Recognition of Exchange Controls After the International Monetary Fund Agreement,” Yale Law Journal, Vol. 62 (1953), pp. 867–910, particularly p. 903.

    Principles of Life Insurance, published for Life Office Management Association, Vol. 1 by J. E. Greider and W. T. Beadles (Homewood, Illinois, Irwin, 1964), pp. 247–48.

    Subject to what is said below about covering the administrative cost of the insurance companies. It should be noted that the courts have had to decide for various reasons whether particular forms of insurance are predominantly for protection or for savings. See, for example, Penn Mutual Life Insurance Co. v. Lederer, 252 U.S. 523, 531, 40 S.Ct. 397, 400 (1920).

    International Monetary Fund, Balance of Payments Manual, 3rd ed. (Washington, 1961), p. 97.

    In Catz and Lips v. S. A. Union Versicherung, a Belgian court held that the transfer of insurance moneys was a capital transfer under Article VI, Section 3 (see Gold (1962), op. cit., pp. 30–31), but it is doubtful that life insurance was involved. In the Ugalde case, the appellant argued as follows in its brief to the Florida District Court of Appeals: “It may be that the purely insurance feature of an insurance contract is a service and that the premium payment is a payment for a current service within the definition of Article XIX (i)(l). The cash surrender value of a policy represents, however, not a payment for a service but a repayment on an investment much like an ordinary savings account. The establishment of a savings deposit is the most obvious kind of capital transaction. The transfer of such a deposit from one country to another is thus an international capital movement. The transfer from one country to another of the savings portion of an insurance policy—in this case the cash surrender value—is likewise an international capital movement” (p. 29). Paradise, op. cit., pp. 70–72, disagrees on the ground that there is no debtor-creditor relationship under an unmatured policy until the insured exercises the option to get the cash surrender value. His theory of a current transaction involves the idea of a current liability, but it is quite unusual to classify transactions according to the contingent or accrued character of the liability of a party to the transaction instead of according to the subject matter of the transaction. See Balance of Payments Manual, pp. 23–24.

    See fn. 33; Gold (1962), op. cit., pp. 77–78.

    19 Fla. Supp. 167; 154 So.2d 200 (1963).

    Certiorari was denied, 379 U.S. 871, 85 S.Ct. 15 (1964).

    Gold (1962), op. cit., pp. 62–66, and Gold (1964), op. cit., p. 464. In the Blanco and consolidated cases, the remark of the District Court that Cuban laws could not affect an obligation entered into before the laws were passed must be regarded as an obiter dictum. The laws were not entitled to recognition under Article VIII, Section 2(b), because the plaintiffs had become nonresidents.

    311 F.2d 427, fn. 8.

    Article II, Section 1.

    Article VI, Section 3.

    See fn. 67.

    Frantzmann v. Ponijen, Nederlandse Jurisprudentie (1960), No. 290; and Gold (1962), op. cit., pp. 113–18.

    Lessinger v. Mirau, Gold (1962), op. cit., pp. 90–91.

    White v. Roberts, 33 Hong Kong Law Reports (1949) 231–82; Annual Digest (1962) and Reports of Public International Law Cases, Year 1949, pp. 27–36; and Gold (1962), op. cit., pp. 87–90.

    Gold (1962), op. cit., pp. 93–94.

    173 N.Y.S.2d 509 (1958); 178 N.Y.S.2d 1019 (1958); 190 N.Y.S.2d 352 (1959); certiorari denied, 361 U.S. 895, 80 S.Ct. 198 (1959).

    Gold (1962), op. cit., pp. 97–100, 102–108.

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