Banco Nacional de Costa Rica is a bank wholly owned by the government of Costa Rica. It is subject to the rules and regulations adopted by the minister of finance and the central bank of Costa Rica. The bank borrowed $ 40 million from a consortium of private banks located in the United Kingdom and the United States. The bank signed promissory notes, agreeing to repay the principal plus interest on the loan in four equal installments, due on July 30, August 30, September 30, and October 30 of the following year. The money was to be used to provide export financing of sugar and sugar products from Costa Rica. The loan agreements and promissory notes were signed in New York City, and the loan proceeds were tendered to the bank there.
The bank paid the first installment on the loan. The bank did not, however, make the other three installment payments and defaulted on the loan. The lending banks sued the bank in U. S. District Court in New York to recover the unpaid principal and interest. The bank alleged in defense that the minister of finance and the central bank of Costa Rica had issued a decree forbidding the repayment of loans by the bank to private lenders, including the lending banks in this case. The action was taken because Costa Rica was having trouble servicing debts to foreign creditors. The bank alleged that the act of state doctrine prevented the plaintiffs from recovering on their loans to the bank. Who wins? Libra Bank Limited v. Banco Nacional de Costa Rica, 570 F. Supp. 870, 1983 U. S. Dist. Lexis 14677 (United States District Court for the Southern District of New York)