Libra Bank Ltd. v. Banco Nacional de Costa Rica

In December 1980, Libra Bank Ltd. (Libra) (plaintiff) served as the agent for a $40 million loan to the Banco Nacional de Costa Rica (Banco Nacional) (defendant). Costa Rica owned Banco Nacional. The loan agreement called for repayment in New York (NY), permitted enforcement litigation in NY, and called for NY law to apply. Banco Nacional made its first scheduled principal and interest payment on July 30 but made no further payments after an August interest payment. Banco Nacional attributed its nonpayment to an August 27 Costa Rican government decree limiting the repayment of private foreign debts and on a November government order restricting the use of foreign currency to pay external debt. Libra sued Banco Nacional and subsequently moved for summary judgment. Banco Nacional replied that summary judgment was inappropriate under the act-of-state doctrine because Libra attacked Costa Rican government actions undertaken in Costa Rica. Libra responded that the act-of-state doctrine was irrelevant because, among other things, the loan’s situs was in the United States (US) rather than Costa Rica. Additionally, Banco Nacional argued that the agreement’s provision regarding default interest was inapplicable because it called for Libra to choose between either the prime commercial rate charged by the Chase Manhattan Bank (Chase) or the London Interbank Offer Rate (LIBOR) rate; however, the default period was 22 months long, and there was no LIBOR rate for a period longer than one year. Per Banco Nacional, because the loan agreement contemplated a choice of interest rates yet only one option existed, the agreement’s default interest-rate provision was invalid. Banco Nacional contended that the court thus should use an alternate computation method that would involve successive one-month default periods for which both Chase and LIBOR rates existed. Libra responded that the court should apply the contractual calculation method for a single 22-month period using the Chase rate to effectuate the parties’ intent. The district court ruled against Banco Nacional, finding, among other things, that the act-of-state doctrine was inapplicable and that US law and policy favored enforcing the loan agreement despite Costa Rica’s currency-exchange rules. Banco Nacional then requested reargument, contending that a broad interpretation of the Articles of Agreement of the International Monetary Fund (IMF Agreement), which the US and Costa Rica signed, favored not enforcing the loan agreement.