Mr. Justice White
delivered the opinion of the Court.
The issue in this case is whether the failure of respondents to return to petitioner Alfred Dunhill of London, Inc. (Dunhill), funds mistakenly paid by Dun-hill for cigars that had beén sold to Dunhill by certain expropriated Cuban cigar businesses was an “act of state” by Cuba precluding an affirmative judgment against respondents.
I
The rather involved factual and legal context in which this litigation arises is fully set out in the District Court’s opinion in this ease, Menendez v. Faber, Coe & Gregg, Inc., 345 F. Supp. 527 (SDNY 1972), and in closely related litigation, F. Palicio y Compania, S. A. v. Brush, 256 F. Supp. 481 (SDNY 1966), aff’d, 375 F. 2d 1011 (CA2), cert. denied, 389 U. S. 830 (1967). For present purposes, the following recitation will suffice. In 1960, the Cuban Government confiscated the business and assets of the five leading manufacturers of Havana cigars. These companies, three corporations and two partnerships, were organized under Cuban law. Virtually all of their owners were Cuban nationals. None were American, These companies sold large quantities of cigars to customers in other countries, including the United States, where the three principal importers were Dunhill, Saks & Co. (Saks), and Faber, Coe & Gregg, Inc. (Faber). The Cuban Government named “interventors” to take possession of and operate the business of the seized Cuban concerns. Interventors continued to ship cigars to foreign purchasers, including the United States importers.
This litigation began when the former owners of the Cuban companies, most of whom had fled to the United States, brought various actions against the three American importers for trademark infringement and for the purchase price of any cigars that had been shipped to importers from the seized Cuban plants and that bore United States trademarks claimed by the former owners to be their property. Following the conclusion of the related litigation in F. Palicio y Compania, S. A. v. Brush, supra, the Cuban interventor and the Republic of Cuba were allowed to intervene in these actions, which were consolidated for trial. Both the former owners and the interventora had asserted their right to some $700,000 due from the three importers for postintervention shipments: Faber, $582,588.86; Dunhill, $92,949.70; and Saks, $24,250. It also developed that as of the date of intervention, the three importers owed sums totaling $477,200 for cigars shipped prior to intervention: Faber, $322,000; Dunhill, $148,600; and Saks, $6,600. These latter sums the importers had paid to interventora subsequent to intervention on the assumption that inter-ventora were entitled to collect the accounts receivable of the intervened businesses. The former owners claimed title to and demanded payment of these accounts.
Based on the “act of state” doctrine which had been reaffirmed in Banco Nacional de Cuba v. Sabbatino, 376 U. S. 398 (1964), the District Court held in F. Palicio y Compania, S. A. v. Brush, supra, and here, that it was required to give full legal effect to the 1960 confiscation of the five cigar companies insofar as it purported to take the property of Cuban nationals located within Cuba. Interventora were accordingly entitled to collect from the importers all amounts due and unpaid with respect to shipments made after the date of intervention. The contrary conclusion was reached as to the accounts owing at the time of intervention: Because the United States courts will not give effect to foreign government confiscations without compensation of property located in the United States and because under Republic of Iraq v. First Nat. City Bank, 353 F. 2d 47 (CA2 1965), cert. denied, 382 U. S. 1027 (1966), the situs of the accounts receivable was with the importer-debtors, the 1960 seizures did not reach the preintervention accounts, and the former owners, rather than the interventors, were entitled to collect them from the importers — even though the latter had already paid them to interventors in the mistaken belief that they were fully discharging trade debts in the ordinary course of their business.
This conclusion brought to the fore the importers’ claim that their payment of the preintervention accounts had been made in error and that they were entitled to recover these payments from interventors by way of set-off and counterclaim. Although their position that the 1960 confiscation entitled them to the sums due for pre-intervention sales had been rejected and the District Court had ruled that they "had no right to receive or retain such payment,” interventors claimed those payments on the additional ground that the obligation, if any, to repay was a quasi-contractual debt having a situs in Cuba and that their refusal to honor the obligation was an act of state not subject to question in our courts. The District Court rejected this position for two reasons. First, the repayment obligated was more properly deemed situated in the United States and hence remained unaffected by any purported confiscatory act of the Cuban Government. Second, in the District Court’s view, nothing had occurred which qualified for recognition as an act of state:
“[TJhere was no formal repudiation of these obligations by Cuban Government decree of general application or otherwise. . . . Here, all that occurred was a statement by counsel for the interventors, during trial, that the Cuban Government and the inter-ventors denied liability and had refused to make repayment. This statement was made after the interventors had invoked the jurisdiction of this Court in order to pursue their claims against the importers for post-intervention shipments. It is hard to conceive how, if such a statement can be elevated to the status of an act of state, any refusal by any state to honor any obligation at any time could be considered anything else.” 345 F. Supp., at 545.
The importers were accordingly held entitled to set off their mistaken payments to interventors for preintervention shipments against the amounts due from them for their post-intervention purchases. Faber and Saks, because they owed more than interventors were obligated to return to them, were satisfied completely by the right to setoff. But Dunhill — and at last we arrive at the issue in this case — was entitled to more from interven-tors — $148,000—than it owed for postintervention shipments — $93,000—and to be made whole, asked for and was granted judgment against interventors for the full amount of its claim, from which would be deducted the smaller judgment entered against it.
The Court of Appeals, Menendez v. Saks & Co., 485 F. 2d 1355 (CA2 1973), agreed that the former owners were entitled to recover from the importers the full amount of preintervention accounts receivable. It also held that the mistaken payments by importers to inter-ventors gave rise to a quasi-contractual obligation to repay these sums. But, contrary to the District Court, the Court of Appeals was of the view that the obligation to repay had a situs in Cuba and had been repudiated in the course of litigation by conduct that was sufficiently official to be deemed an act of state: “[I]n the absence of evidence that the interventors were not acting within the scope of their authority as agents of the Cuban government, their repudiation was an act of state even though not embodied in a formal decree.” Id., at 1371. Although the repudiation of the interventors' obligation was considered an act of state, the Court of Appeals went on to hold that First Nat. City Bank v. Banco Nacional de Cuba, 406 U. S. 759 (1972), entitled importers to recover the sums due them from interventors by way of set-off against the amounts due from them for postintervention shipments. The act of state doctrine was said to bar the affirmative judgment awarded Dunhill to the extent that its claim exceeded its debt. The judgment of the District Court was reversed in this respect, and it is this action which was the subject of the petition for certio-rari filed by Dunhill. In granting the petition, 416 U. S. 981 (1974), we requested the parties to address certain questions, the first being whether the statement by counsel for the Republic of Cuba that Dunhill’s unjust-enrichment claim would not be honored constituted an act of state. The case was argued twice in this Court. We have now concluded that nothing in the record reveals an act of state with respect to interventors’ obligation to return monies mistakenly paid to them. Accordingly we reverse the judgment of the Court of Appeals.
II
The District Court and the Court of Appeals held that for purposes of this litigation interventors were not entitled to the preintervention accounts receivable by virtue of the 1960 confiscation and that, despite other arguments to the contrary, nothing based on their claim to those accounts entitled interventors to retain monies mistakenly paid on those accounts by importers. We do not disturb these conclusions. The Court of Appeals nevertheless observed that interventors had “ignored” demands for the return of the monies and had “fail[ed] to honor the importers’ demand (which was confirmed by the Cuban government’s counsel at trial).” This conduct was considered to be “the Cuban government’s repudiation of its obligation to return the funds” and to constitute an act of state not subject to question in our courts. Menendez v. Saks & Co., 485 F. 2d; at 1369, 1371. We cannot agree.
If interventors, having had their liability adjudicated and various defenses rejected, including the claimed act of state, with respect to preintervention accounts, represented by the Cuban confiscation in 1960, were nevertheless to escape repayment by claiming a second and later act of state involving the funds mistakenly paid them, it was their burden to prove that act., Concededly, they declined to pay over the funds; but refusal to repay does not necessarily assert anything more than what interventors had claimed from the outset and what they have continued to claim in this Court — that the pre-intervention accounts receivable were theirs and that they had no obligation to return payments on those accounts. Neither does it demonstrate that in addition to authority to operate commercial businesses, to pay their bills and to collect their accounts receivable, inter-ventors had been invested with sovereign authority to repudiate all or any part of the debts incurred by those businesses. Indeed, it is difficult to believe that they had the power selectively to refuse payment of legitimate debts arising from the operation of those commercial enterprises.
In The “Gul Djemal,” 264 U. S. 90 (1924), a supplier libeled and caused the arrest of the Gul Djemal, a steamship owned and operated for commercial purposes by the Turkish Government, in an effort to recover for supplies and services sold to and performed for the ship. The ship’s master, “a duly commissioned officer of the Turkish Navy,” id., at 94-95, appeared in court and asserted sovereign immunity, claiming that such an assertion defeated the court’s' jurisdiction. A direct appeal was taken to this Court, where it was held that the master’s assertion of sovereign immunity was insufficient because his mere representation of his government as master of a commercial ship furnished no basis for assuming he was entitled to represent the sovereign in other capacities. Here there is no more reason to suppose that the inter-ventors possess governmental, as opposed to commercial, authority than there was to suppose that the master of the Gul Djemal possessed such authority. The master of the Gul Djemal claimed the authority to assert sovereign immunity while the interventors claim that they had the authority to commit an act of state, but the difference is unimportant. In both cases, a party claimed to have had the authority to exercise sovereign power. In both, the only authority shown is commercial authority.
We thus disagree with the Court of Appeals that the mere refusal of the interventors to repay funds followed by a failure to prove that interventors “were not acting within the scope of their authority as agents of the Cuban government” satisfied respondents’ burden of establishing their act of state defense. Menendez v. Saks & Co., 485 F. 2d, at 1371. Nor do we consider Underhill v. Hernandez, 168 U. S. 250 (1897), heavily relied upon by the Court of Appeals, to require a contrary conclusion. In that case and in Oetjen v. Central Leather Co., 246 U. S. 297 (1918), and Ricaud v. American Metal Co., 246 U. S. 304 (1918), it was apparently concluded that the facts were sufficient to demonstrate that the conduct in question was the public act of those with authority to exercise sovereign powers and was entitled to respect in our courts. We draw no such conclusion from the facts of the case before us now. As the District Court found, the only evidence of an act of state other than the act of nonpayment by interventors was “a statement by counsel for the interventors, during trial, that the Cuban Government and the interventors denied liability and had refused to make repayment.” Menendez v. Faber, Coe & Gregg, Inc., 345 F. Supp., at 545. But this merely restated respondents’ original legal position and adds little, if anything, to the proof of an act of state. No statute, decree, order, or resolution of the Cuban Government itself was offered in evidence indicating that Cuba had repudiated its obligations in general or any class thereof or that it had as a sovereign matter determined to confiscate the amounts due three foreign importers.
Ill
If we assume with the Court of Appeals that the Cuban Government itself had purported to exercise sovereign power to confiscate the mistaken payments belonging to three foreign creditors and to repudiate interventors’ adjudicated obligation to return those funds, we are nevertheless persuaded by the arguments of petitioner and by those of the United States that the concept of an act of state should not be extended to include the repudiation of a purely commercial obligation owed by a foreign sovereign or by one of its commercial instrumentalities. Our cases have not yet gone so far, and we decline to expand their reach to the extent necessary to affirm the Court of Appeals.
Distinguishing between the public and governmental acts of sovereign states on the one hand and their private and commercial acts on the other is not a novel approach. As the Court stated through Mr. Chief Justice Marshall long ago in Bank of the United States v. Planters’ Bank of Georgia, 9 Wheat. 904, 907 (1824):
“It is, we think, a sound principle, that when a government becomes a partner in any trading company, it divests itself, so far as concerns the transactions of that company, of its sovereign character, and takes that of a private citizen. Instead of communicating to the company its privileges and its prerogatives, it descends to a level with those with whom it associates itself, and takes the character which belongs to its associates, and to the business which is to be transacted.”
Cf. Sloan Shipyards v. United States Fleet Corp., 258 U. S. 549, 567-568 (1922). In this same tradition, South Carolina v. United States, 199 U. S. 437 (1905), drew a line for purposes of tax immunity between the historically recognized governmental functions of a State and businesses engaged in by a State of the kind which theretofore had been pursued by private enterprise. Similarly, in Ohio v. Helvering, 292 U. S. 360, 369 (1934), the Court said: “If a state chooses to go into the business of buying and selling commodities, its right to do so may be conceded so far as the Federal Constitution is concerned; but the exercise of the right is not the performance of a governmental function .... When a state enters the market place seeking customers it divests itself of its quasi sovereignty pro tanto, and takes on the character of a trader .. . .” It is thus a familiar concept that “there is a constitutional line between the State as government and the State as trader . . . .” New York v. United States, 326 U. S. 572, 579 (1946). See also Parden v. Terminal R. Co., 377 U. S. 184, 189-190 (1964); California v. Taylor, 353 U. S. 553, 564 (1957); United States v. California, 297 U. S. 175, 183 (1936).
It is the position of the United States, stated in an amicus brief filed by the Solicitor General, that such a line should be drawn in defining the outer limits of the act of state concept and that repudiations by a foreign sovereign of its commercial debts should not be considered to be acts of state beyond legal question in our courts. Attached to the brief of the United States and to this opinion as Appendix 1 is the letter of November 26, 1975, in which the Department of State, speaking through its Legal Adviser agrees with the brief filed by the Solicitor General and, more specifically, declares that “we do not believe that the Dunhill ease raises an act of state question because the case involves an act which is commercial, and not public, in nature.”
The major underpinning of the act of state doctrine is the policy of foreclosing court adjudications involving the legality of acts of foreign states on their own soil that might embarrass the Executive Branch of our Government in the conduct of our foreign relations. Banco Nacional de Cuba v. Sabbatino, 376 U. S., at 427-428, 431-433. But based on the presently expressed views of those who conduct our relations with foreign countries, we are in no sense compelled to recognize as an act of state the purely commercial conduct of foreign governments in order to avoid embarrassing conflicts with the Executive Branch. On the contrary, for the reasons to which we now turn, we fear that embarrassment and conflict would more likely ensue if we were to require that the repudiation of a foreign government’s debts arising from its operation of a purely commercial business be recognized as an act of state and immunized from question in our courts.
Although it had other views in years gone by, in 1952, as evidenced by Appendix 2 (the Tate letter) attached to this opinion, the United States abandoned the absolute theory of sovereign immunity and embraced the restrictive view under which immunity in our courts should be granted only with respect to causes of action arising out of a foreign state’s public or governmental actions and not with respect to those arising out of its commercial or proprietary actions. This has been the official policy of our Government since that time as the attached letter of November 26,1975, confirms:
“Moreover, since 1952, the Department of State has adhered to the position that the commercial and private activities of foreign states do not give rise to sovereign immunity. Implicit in this position is a determination that adjudications of commercial liability against foreign states do not impede the conduct of foreign relations, and that such adjudications are consistent with international law on sovereign immunity.”
Repudiation of a commercial debt cannot, consistent with this restrictive approach to sovereign immunity, be treated as an act of state; for if it were, foreign govern-merits, by merely repudiating the debt before or after its adjudication, would enjoy an immunity which our Government would not extend them under prevailing sovereign immunity principles in this country. This would undermine the policy supporting the restrictive view of immunity, which is to assure those engaging in commercial transactions with foreign sovereignties that their rights will be determined in the courts whenever possible.
Although at one time this Court ordered sovereign immunity extended to a commercial vessel of a foreign country absent a suggestion of immunity from the Executive Branch and although the policy of the United States with respect to its own merchant ships was then otherwise, Berizzi Bros. Co. v. S. S. Pesaro, 271 U. S. 562 (1926), the authority of that case has been severely diminished by later cases such as Ex parte Peru, 318 U. S. 578 (1943), and Mexico v. Hoffman, 324 U. S. 30 (1945). In the latter case the Court unanimously denied immunity to a commercial ship owned but not possessed by the Mexican Government. The decision rested on the fact that the Mexican Government was not in possession, but the Court declared, id., at 35-36:
“Every judicial action exercising or relinquishing jurisdiction over the vessel of a foreign government has its effect upon our relations with that government. Hence it is a guiding principle in determining whether a court should exercise or surrender its jurisdiction in such cases, that the courts should not so act as to embarrass the executive arm in its conduct of foreign affairs. 'In such cases the judicial department of this government follows the action of the political branch, and will not embarrass the latter by assuming an antagonistic jurisdiction.' United States v. Lee, supra, 209; Ex parte Peru, supra, 588.
“It is therefore not for the courts to deny an immunity which our government has seen fit to allow, or to allow an immunity on new grounds which the government has not seen fit to recognize. The judicial seizure of the property of a friendly state may be regarded as such an affront to its dignity and may so affect our relations with it, that it is an accepted rule of substantive law governing the exercise of the jurisdiction of the courts that they accept and follow the executive determination that the vessel shall be treated as immune. Ex parte Peru, supra, 588. But recognition by the courts of an immunity upon principles which the political department of government has not sanctioned may be equally embarrassing to it in securing the protection of our national interests and their recognition by other nations.” (Footnote omitted.)
In a footnote the Court expressly questioned the Berizzi Bros, holding, and two concurring Justices asserted that the Court had effectively overruled that case.
Since that time, as we have said, the United States has adopted and adhered to the policy declining to extend sovereign immunity to the commercial dealings of foreign governments. It has based that policy in part on the fact that this approach has been accepted by a large and increasing number of foreign states in the international community; in part on the fact that the United States had already adopted a policy of consenting to be sued in foreign courts in connection with suits against its merchant vessels; and in part because the enormous increase in the extent to which foreign sovereigns had become involved in international trade made essential “a practice which will enable persons doing business with them to have their rights determined in the courts.” Appendix 2 to this opinion, infra, at 714.
In the last 20 years, lower courts have concluded, in light of this Court’s decisions in Ex parte Peru, supra, and Mexico v. Hoffman, supra, and from the Tate letter and the changed international environment, that Berizzi Bros. Co. v. S. S. Pesaro, supra, no longer correctly states the law; and they have declined to extend sovereign immunity to foreign sovereigns in cases arising out of purely commercial transactions. Victory Transport, Inc. v. Comisaria General, 336 F. 2d 354 (CA2 1964), cert. denied, 381 U. S. 934 (1965); Petrol Shipping Corp. v. Kingdom of Greece, 360 F. 2d 103 (CA2), cert. denied, 385 U. S. 931 (1966); Premier S. S. Co. v. Embassy of Algeria, 336 F. Supp. 507 (SDNY 1971); Ocean Transport Co. v. Government of Republic of Ivory Coast, 269 F. Supp. 703 (ED La. 1967); ADM Milling Co. v. Republic of Bolivia, Civ. Action No. 75-946 (DC Aug. 8, 1975); Et Ve Balik Kurumu v. B. N. S. Int’l Sales Corp., 25 Misc. 2d 299, 304 N. Y. S. 2d 971 (1960); Harris & Co. Advtg., Inc. v. Republic of Cuba, 127 So. 2d 687 (Fla. Ct. App. 1961). Indeed, it is fair to say that the “restrictive theory” of sovereign immunity appears to be generally accepted as the prevailing law in this country. ALI, Restatement (Second), Foreign Relations Law of the United States, § 69 (1965).
Participation by foreign sovereigns in the international commercial market has increased substantially in recent years. Cf. International Economic Report of the President 56 (1975). The potential injury to private businessmen — and ultimately to international trade itself— from a system in which some of the participants in the international market are not subject to the rule of law has therefore increased correspondingly. As noted above, courts of other countries have also recently adopted the restrictive theory of sovereign immunity. Of equal importance is the fact that subjecting foreign governments to the rule of law in their commercial dealings presents a much smaller risk of affronting their sovereignty than would an attempt to pass on the legality of their governmental acts. In their commercial capacities, foreign governments do not exercise powers peculiar to sovereigns. Instead, they exercise only those powers that can also be exercised by private citizens. Subjecting them in connection with such acts to the same rules of law that apply to private citizens is unlikely to touch very sharply on “national nerves.” Moreover, as this Court has noted:
“[T]he greater the degree of codification or consensus concerning a particular area of international law, the more appropriate it is for the judiciary to render decisions regarding it, since the courts can then focus on the application of an agreed principle to circumstances of fact rather than on the sensitive task of establishing a principle not inconsistent with the national interest or with international justice.” Banco Nacional de Cuba v. Sabbatino, 376 U. S., at 428.
See also id., at 430 n. 34. There may be little codification or consensus as to the rules of international law concerning exercises of governmental powers, including military powers and expropriations, within a sovereign state's borders affecting the property or persons of aliens, However, more discernible rules of international law have emerged with regard to the commercial dealings of private parties in the international market. The restrictive approach to sovereign immunity suggests that these established rules should be applied to the commercial transactions of sovereign states.
Of course, sovereign immunity has not been pleaded in this case; but it is beyond cavil that part of the foreign relations law recognized by the United States is that the commercial obligations of a foreign government may be adjudicated in those courts otherwise having jurisdiction to enter such judgments. Nothing in our national policy calls on us to recognize as an act of state a repudiation by Cuba of an obligation adjudicated in our courts and arising out of the operation of a commercial business by one of its instrumentalities. For all the reasons which led the Executive Branch to adopt the restrictive theory of sovereign immunity, we hold that the mere assertion of sovereignty as a defense to a claim arising out of purely commercial acts by a foreign sovereign is no more effective if given the label “Act of State” than if it is given the label “sovereign immunity.” In describing the act of state doctrine in the past we have said that it “precludes the courts of this country from inquiring into the validity of the public acts a recognized foreign sovereign power committed within its own territory.” Banco Nacional de Cuba v. Sabbatino, supra, at 401 (emphasis added), and that it applies to “acts done within their own States, in the exercise of governmental authority.” Underhill v. Hernandez, 168 U. S., at 252 (emphasis added). We decline to extend the act of state doctrine to acts committed by foreign sovereigns in the course of their purely commercial operations. Because the act relied on by respondents in this case was an act arising out of the conduct by Cuba’s agents in the operation of cigar businesses for profit, the act was not an act of state.
Reversed.
APPENDIX 1 TO OPINION OF THE COURT
The Legal Adviser, Department of State, Washington, November SB, 1975.
Dear Mr. Solicitor General:
In the case of Alfred Dunhill of London, Inc. v. The Republic of Cuba, which is before the Supreme Court on petition for a writ of certiorari, No. 73-1288, the Court has requested the parties to discuss whether its holding in Banco Nacional de Cuba v. Sabbatino, 376 U. S. 398, should be reconsidered.
The Department of State believes that the question of whether the Sabbatino case should be reconsidered involves matters of importance to the foreign policy interests of the United States and requests that its views be conveyed to the Supreme Court.
The views expressed herein are in addition to the arguments presented in the brief amicus curiae which the United States is filing in the Dunhill case. As urged in that brief, we do not believe that the Dunhill case raises an act of state question because the case involves an act which is commercial, and not public, in nature. Moreover, since 1952, the Department of State has adhered to the position that the commercial and private activities of foreign states do not give rise to sovereign immunity. Implicit in this position is a determination that adjudications of commercial liability against foreign states do not impede the conduct of foreign relations, and that such adjudications are consistent with international law on sovereign immunity.
In the event, however, that the Court reaches the question whether the Sabbatino holding should be reconsidered, we believe that the following considerations should be called to the Court's attention:
Since Sabbatino was decided in 1964, the Department of State has on two occasions expressed to courts in the United States its views concerning act of state adjudications. First, in the Sabbatino case itself, on remand, the Executive Branch declined to make a determination under the Hickenlooper Amendment, 22 U. S. C. 2370 (e)(2), "that application of the act of state doctrine is required in this case by the foreign policy interests of the United States.” Banco Nacional de Cuba v. Farr, 272 F. Supp. 836, 837 (S. D. N. Y.), aff’d, 383 F. 2d 166 (C. A. 2), certiorari denied, 390 U. S. 956. Having taken note of the Executive Branch’s position, the district court in Farr applied the Hickenlooper Amendment and held that a Cuban decree of confiscation violated customary international law. 272 F. Supp., at 838.
Second, in First National City Bank v. Banco Nacional de Cuba, 406 U. S. 759, the Department of State informed the Supreme Court that general foreign relations considerations did not require application of the act of state doctrine to bar adjudication of a counterclaim when the foreign state’s claim arises from a relationship between the parties existing when the act of state occurred, and when the amount of relief to be granted is limited to the amount of the foreign state’s claim. Relying on the precedent of Bernstein v. N. V. Nederlandsche Amerikaanshe, Etc., 210 F. 2d 375 (C. A. 2), where the Department had advised that the act of state doctrine need not apply to a class of cases involving Nazi confiscations, the Department in First National City Bank concluded that the act of state doctrine need not be applied “in this or like cases.”
Significantly, the Farr, Bernstein and First National City Bank cases each involved an Executive Branch determination which opened the way for U. S. courts to review an act of state on the merits under international law. In each of these cases, the claim or counterclaim in question alleged that an act of state violated customary international law. Thus, at least on a case-by-case basis, the trend in Executive Branch pronouncements has been that foreign relations considerations do not require application of the act of state doctrine to bar adjudications under international law.
This trend is mirrored in other countries. Apart from the cases cited by Mr. Justice White in Sabbatino, 376 U. S., at 440 n. 1, there have been several recent decisions where foreign courts have reviewed state acts under international law. English law, from which our act of state doctrine derives, does not require British courts to abstain from reviewing state acts under international law. As far as can be determined, this exercise of the judicial function in foreign jurisdictions has not caused serious foreign relations consequences for the countries concerned.
The present case is similar to Bernstein, Farr and First National City Bank, This Department is of the opinion that there would be no embarrassment to the conduct of foreign policy if the Court should decide in this case to adjudicate the legality of any act of state found to have taken place and to make such adjudication in accordance with any principle of international law found to be relevant.
In general this Department’s experience provides little support for a presumption that adjudication of acts of foreign states in accordance with relevant principles of international law would embarrass the conduct of foreign policy. Thus, it is our view that if the Court should decide to overrule the holding in Sabbatino so that acts of state would thereafter be subject to adjudication in American courts under international law, we would not anticipate embarrassment to the conduct of the foreign policy of the United States.
Sincerely,
Monroe Leigh.
APPENDIX 2 TO OPINION OF THE COURT
May 19, 1952.
My dear Mr. Attorney General :
The Department of State has for some time had under consideration the question whether the practice of the Government in granting immunity from suit to foreign governments made parties defendant in the courts of the United States without their consent should not be changed. The Department has now reached the conclusion that such immunity should no longer be granted in certain types of cases. In view of the obvious interest of your Department in this matter I should like to point out briefly some of the facts which influenced the Department’s decision.
A study of the law of sovereign immunity reveals the existence of two conflicting concepts of sovereign immunity, each widely held and firmly established. According to the classical or absolute theory of sovereign immunity, a sovereign cannot, without his consent, be made a respondent in the courts of another sovereign. According to the newer or restrictive theory of sovereign immunity, the immunity of the sovereign is recognized with regard to sovereign or public acts (jure imperii) of a state, but not with respect to private acts (jure gestionis). There is agreement by proponents of both theories, supported by practice, that sovereign immunity should not be claimed or granted in actions with respect to real property (diplomatic and perhaps consular property excepted) or with respect to the disposition of the property of a deceased person even though a foreign sovereign is the beneficiary.
The classical or virtually absolute theory of sovereign immunity has generally been followed by the courts of the United States, the British Commonwealth, Czechoslovakia, Estonia, and probably Poland.
The decisions of the courts of Brazil, Chile, China, Hungary, Japan, Luxembourg, Norway, and Portugal may be deemed to support the classical theory of immunity if one or at most two old decisions anterior to the development of the restrictive theory may be considered sufficient on which to base a conclusion.
The position of the Netherlands, Sweden, and Argentina is less clear since although immunity has been granted in recent cases coming before the courts of those countries, the facts were such that immunity would have been granted under either the absolute or restrictive theory. However, constant references by the courts of these three countries to the distinction between public and private acts of the state, even though the distinction was not involved in the result of the case, may indicate an intention to leave the way open for a possible application of the restrictive theory of immunity if and when the occasion presents itself.
A trend to the restrictive theory is already evident in the Netherlands where the lower courts have started to apply that theory .following a Supreme Court decision to the effect that immunity would have been applicable in the case under consideration under either theory.
The German courts, after a period of hesitation at the end of the nineteenth century have held to the classical theory, but it should be noted that the refusal of the Supreme Court in 1921 to yield to pressure by the lower courts for the newer theory was based on the view that that theory had not yet developed sufficiently to justify a change. In view of the growth of the restrictive theory since that time the German courts might take a different view today.
The newer or restrictive theory of sovereign immunity has always been supported by the courts of Belgium and Italy. It was adopted in turn by the courts of Egypt and of Switzerland. In addition, the courts of France, Austria, and Greece, which were traditionally supporters of the classical theory, reversed their position in the 20jg to embrace the restrictive theory. Rumania, Peru, and possibly Denmark also appear to follow this theory.
Furthermore, it should be observed that in most of the countries still following the classical theory there is a school of influential writers favoring the restrictive theory and the views of writers, at least in civil law countries, are a major factor in the development of the law. Moreover, the leanings of the lower courts in civil law countries are more significant in shaping the law than they are in common law countries where the rule of precedent prevails and the trend in these lower courts is to the restrictive theory.
Of related interest to this question is the fact that ten of the thirteen countries which have been classified above as supporters of the classical theory have ratified the Brussels Convention of 1926 under which immunity for government owned merchant vessels is waived. In addition the United States, which is not a party to the Convention, some years ago announced and has since followed, a policy of not claiming immunity for its public owned or operated merchant vessels. Keeping in mind the importance played by cases involving public vessels in the field of sovereign immunity, it is thus noteworthy that these ten countries (Brazil, Chile, Estonia, Germany, Hungary, Netherlands, Norway, Poland, Portugal, Sweden) and the United States have already relinquished by treaty or in practice an important part of the immunity which they claim under the classical theory.
It is thus evident that with the possible exception of the United Kingdom little support has been found except on the part of the Soviet Union and its satellites for continued full acceptance of the absolute theory of sovereign immunity. There are evidences that British authorities are aware of its deficiencies and ready for a change. The reasons which obviously motivate state trading countries in adhering to the theory with perhaps increasing rigidity are most persuasive that the United States should change its policy. Furthermore, the granting of sovereign immunity to foreign governments in the courts of the United States is most inconsistent with the action of the Government of the United States in subjecting itself to suit in these same courts in both contract and tort and with its long established policy of not claiming immunity in foreign jurisdictions for its merchant vessels. Finally, the Department feels that the widespread and increasing practice on the part of governments of engaging in commercial activities makes necessary a practice which will enable persons doing business with them to have their rights determined in the courts. For these reasons it will hereafter be the Department’s policy to follow the restrictive theory of sovereign immunity in the consideration of requests of foreign governments for a grant of sovereign immunity.
It is realized that a shift in policy by the executive cannot control the courts but it is felt that the courts are less likely to allow a plea of sovereign immunity where the executive has declined to do so. There have been indications that at least some Justices of the Supreme Court feel that in this matter courts should follow the branch of the Government charged with responsibility for the conduct of foreign relations.
In order that your Department, which is charged with representing the interests of the Government before the courts, may be adequately informed it will be the Department’s practice to advise you of all requests by foreign governments for the grant of immunity from suit and of the Department’s action thereon.
Sincerely yours,
For the Secretary of State:
Jack B. Tate
Acting Legal Adviser
Part III of this opinion is joined only by The Chief Justice, Mr. Justice Powell, and Mr. Justice Rehnquist.
When the prior owners sued the importers, the interventors and the Republic of Cuba brought separate litigation against the prior owners’ attorneys seeking to restrain the further prosecution of the actions brought by the prior owners. The interventors were there held entitled to the proceeds of sales made to American buyers after intervention but the prior owners' trademark litigation was permitted to continue. F. Palicio y Compania, S. A. v. Brush.
Prior to intervening in this lawsuit, interventor-respondent Pinera had replaced the original interventora as to the five companies on whose behalf he has pursued this suit. For convenience’ sake we will refer to those representing the tobacco businesses as “inter-ventors” both in discussing their conduct prior to the lawsuit and in discussing the single interventor’s conduct as a party to the lawsuit.
The District Court also disagreed with interventors that there was insufficient evidence to show that they had actually received the sums assertedly paid them by the importers. Neither could the District Court agree that the importers, if they were entitled to the funds at all, were entitled to be repaid only in pesos. The Court of Appeals did not disturb these holdings.
The Court of Appeals rejected the importers’ contention that the Hickenlooper Amendment to the Foreign Assistance Act of 1964, 22 U. S. C. §2370 (e)(2), precluded interventors from invoking the act of state doctrine. The correctness of that judgment i^' not before us in this litigation.
Our order granting certiorari directed counsel to brief $nd argue two questions:
“1. Can statements by counsel for the Republic of Cuba, that petitioner’s unjust enrichment counterclaim would not f>e honored, constitute an act of state?
“2. If so, is an exception to the act of state doctrine created, under First National City Bank v. Banco Nacional de Cuba, 406 U. S. 759 (1972), where petitioner’s counterclaim does not exceed the net balance owed to Cuba on its claims by petitioner’s codefend-ants, and where all claims and counterclaims arise out of the subject matter in litigation in this case?”
When the case was restored to the calendar for reargument, 422 U. S. 1005 (1975), the Court directed:
“In addition to other questions presented by this case, counsel are requested to brief and discuss during oral argument: Should this Court’s holding in Banco Nacional de Cuba v. Sabbatino, 376 U. S. 398 (1964), be reconsidered?”
In addition to the present petition the Court has before it the petition of the interventors. Republic of Cuba v. Saks & Co., No. 73-1287, challenging, on the ground that the intervention successfully seized the accounts receivable and that the $477,000 properly belonged to them, the propriety of permitting even a setoff, and the conditional cross-petition of the importers, Saks & Co. v. Republic of Cuba, No. 73-1289, challenging the propriety of the judgment against them and in favor of the owners for the $477,000 due on preintervention shipments. Today we deny these petitions, post, p. 991.
The traditional formulation of the act of state doctrine is that in Underhill v. Hernandez, 168 U. S. 250, 252 (1897):
“Every sovereign State is bound to respect the independence of every other sovereign State, and the courts of one country will not sit in judgment on the acts of the government of another done within its own territory. Redress of grievances by reason of such acts must be obtained through the means open to be availed of by sovereign powers as between themselves.”
Their entitlement to the 1477,000 derived under this theory from the initial act of state — i. e., the intervention of the owners' business. All parties agree that intervention is to be given effect with respect to all of the owners' tangible property in Cuba at the time of intervention. The Court of Appeals held, however, that since the accounts receivable were not in Cuba at the time of intervention, the intervention did not reach them. The dissent points to a statement by trial counsel that when Dunhill's money arrived in Cuba after the intervention “the Cuban government took this money and under the act of state doctrine it belongs to the Cuban government,” The statement was made during counsel's closing argument in the District Court and is not and does not purport to be a {actual representation that a second act of state occurred. Indeed in his brief in this Court the same counsel states “counsel’s in-court statements were 'no more than statements of a litigating position,’ ” Brief for Respondents 16, and “The statement of . . , a lawyer is not proof of anything.” Id., at 17 n. 8. Indeed, if counsel’s statements were proof of anything, petitioner would have been entitled to cross-examine him under oath. As a legal argument that the original act of state automatically matured when Dunhill’s money arrived in Cuba and transformed the account receivable from an intangible to a tangible asset, the statement was rejected by the Court of Appeals, which held that the original intervention did not seize the accounts receivable from the prior owners even with respect to accounts later paid by Dunhill. Finally, we are unwilling, absent proof, to infer from the fact that Cuba seized the assets of the cigar business from Cuban nationals that it must necessarily have intended to make and did make a later discriminatory and confiscatory seizure of money belonging to the United States companies. Indeed, respondents have argued vigorously before this Court that no international law issue is raised precisely because “[a] 11 of the acts of the Cuban sovereign have been directed at its nationals . . .” and “there was no intent to divest Dunhill of ownership.” Brief for Respondents on Reargument 4r-5. In supporting its conclusion that Cuba necessarily did intend to seize Dunhill’s money when it arrived in Cuba, the dissent quotes a remark by counsel — in the third brief filed in this Court by respondents — that they had contended below that the “refusal to acquiesce in the quasi-contractual obligation sought to be imposed by a foreign court, was ... an act of state.” Once again, this is merely a statement of respondents’ incorrect litigating position that the failure to pay Dunhill established a refusal by Cuba to acquiesce in an admitted obligation and was therefore an act of state. The litigating position is incorrect because, as stated supra, at 691, respondents have never admitted an obligation to Dun-hill and therefore their failure to pay Dunhill, without more, is inadequate to establish a sovereign repudiation of such an obligation.
“The Anne, 3 Wheat. 435, reaffirmed by The Sao Vicente, 260 U. S. 151, is enough to show that the immunity could not have been successfully set up by a duly recognized consul, representative of his sovereign in commercial matters, in the ordinary course of his official duties, and there seems no adequate reason to presume that the master of the Gul Djemal had any greater authority in respect thereto. Although an officer of the Turkish Navy, he was performing no naval or military duty, and was serving upon a vessel not functioning in naval or military capacity but engaged in commerce .... He was not shown to have any authority to represent his sovereign other than can be inferred from his position as master ...” (Emphasis added.) 264 U. S., at 95.
There the commander of a successful revolution, in control of the city of Bolivar, refused a passport to Underhill. Upon suit by Underhill for his detention, this Court refused to inquire into the propriety of the detention because “[t]he acts complained of were the acts of a military commander representing the authority of the revolutionary party as government, which afterwards succeeded and was recognized by the United States.” 168 U. S., at 254.
The dissent, assuming that the Republic of Cuba purported to exercise sovereign powers in refusing to return Dunhill’s money, asserts that there is no distinction between the refusal to honor its obligation to return DunhilPs money and the original expropriation of the cigar businesses; and that the case therefore does not involve a purely commercial act. The dissent is wrong. Cuba’s debt to Dunhill arose out of the conduct by Cuba’s agents of a commercial business for profit. The same may not be said of conventional expropriations of foreign assets located ab initio inside a country’s territorial borders. Dunhill was continuing to buy cigars from the interventora after intervention and Dunhill knew when the payments were made that the interventora would receive them. Menendez v. Saks & Co., 485 F. 2d 1355, 1367-1368 (CA2 1973). The debt would never have arisen if Cuba’s agents had not gone into the cigar business and sold to Dunhill. This case is therefore no different from any case in which a buyer overpays for goods sold by a commercial business operated by a foreign government — a commonplace event in international commerce.
The letter also takes the position that sovereign immunity, as such, does not prevent entry of an affirmative judgment on a counterclaim arising out of the same “transaction or occurrence that is the subject matter of the claim of the foreign state,” and inferentially that the act of state doctrine is likewise unavailable as a method of avoiding such an affirmative judgment. In light of our conclusion that repudiation by a sovereign of a commercial debt is not an act of state, we do not reach the State Department’s alternative position. The letter also takes the position that the overruling of Sabbatino, so that acts of state would hereafter be subject to adjudication in American courts under international law, would not result in embarrassment to the conduct of United States foreign policy. We need not resolve this issue either.
“This salutary principle was not followed in Berizzi Bros. Co. v. The Pesaro, 271 U. S. 562, where the court allowed the immunity, for the first time, to a merchant vessel owned by a foreign government and in its possession and service, although the State Department had declined to recognize the immunity. The propriety of thus extending the immunity where the political branch of the government had refused to act was not considered.
“Since the vessel here, although owned by the Mexican Government, was not in its possession and service, we have no occasion to consider the questions presented in the Berizzi case. It is enough that we find no persuasive ground for allowing the immunity in this case, an important reason being that the State Department has declined to recognize it.” 324 U. S., at 35 n. 1.
Mr. Justice Frankfurter, joined by Mr. Justice Black, said:
“The fact of the matter is that the result in Berizzi Bros. Co. v. The Pesaro, supra, was reached without submission by the Department of State of its relevant policies in the conduct of our foreign relations and largely on the basis of considerations which have steadily lost whatever validity they may then have had. Compare the overruling of The Thomas Jefferson, 10 Wheat. 428 (1825), by The Genesee Chief, 12 How. 443 (185[2]). The views of our State Department against immunity for commercial ships owned by foreign governments have been strongly supported by international conferences, some held after the decision in the Pesaro case. See Lord Maugham in Compania Naviera Vascongado v. The Cristina [1938] A. C. 485, 521-523. But the real change has been the enormous growth, particularly in recent years, of ‘ordinary merchandising’ activity by governments. See The Western Maid, 257 U. S. 419, 432. Lord Maugham in the Cristina thus put the matter:
“ ‘Half a century ago foreign Governments very seldom embarked in trade with ordinary ships, though they not infrequently owned vessels destined for public uses, and in particular hospital vessels, supply ships and surveying or exploring vessels. These were doubtless very strong reasons for extending the privilege long possessed by ships of war to public ships of the nature mentioned; but there has been a very large development of State-owned commercial ships since the Great War, and the question whether the immunity should continue to be given to ordinary trading ships has become acute. Is it consistent with sovereign dignity to acquire a tramp steamer and to compete with ordinary shippers and ship-owners in the markets of the world? Doing so, is it consistent to set up the immunity of a sovereign if, owing to the want of skill of captain and crew, serious damage is caused to the ship of another country? Is it also consistent to refuse to permit proceedings to enforce a right of salvage in respect of services rendered, perhaps at great risk, by the vessel of another country?’ [1938] A. C. 485, 521-522.
“It is my view, in short, that courts should not disclaim jurisdiction which otherwise belongs to them in relation to vessels owned by foreign governments however operated except when ‘the department of the government charged with the conduct of our foreign relations,’ or of course Congress, explicitly asserts that the proper conduct of these relations calls for judicial abstention. Thereby responsibility for the conduct of our foreign relations will be placed where power lies. And unless constrained by the established policy of our State Department, courts will best discharge their responsibility by enforcement of the regular judicial processes.” Id., at 40-42.
Austria: Collision with Foreign Government-Owned Motor Car (Austria) Case, [1961] 40 Int'l L. Rep. 73 (Sup. Ct.). Belgium: “Socobel” v. Greek State, [1951] 18 Int’l L. Rep. 3 (Trib. Civ. Brussels). Canada: Penthouse Studios, Inc. v. Republic of Venezuela, [1970] 8 D. L. R. 3d 686 (Quebec Ct. App., 1969). England: Thai-Europe Tapioca Service v. Government of Pakistan, [1975] 1 W. L. R. 1485 (C. A.). Philippine Admiral v. Wallem Shipping, [1976] 1 All E. R. 78 (P. C.). Egypt: Federated People’s Republic of Yugoslavia v. Kafr El-Zayat Cotton Co., [1951] 18 Int’l L. Rep. 225 (Civ. Trib. Alexandria) France: Administration des Chemins de Fer Iraniens v. Société Levant Express Transport, 73 Revue Générale de Droit International Public 883 (Sup. Ct. 1969). Germany: Claim against the Empire of Iran Case, [1963] 45 Int’l L. Rep. 57 (Fed. Const. Ct.). Greece: Papaevangelou v. United States Government (Athens First Instance Ct., Apr. 23, 1960). Hong Kong: Midland Investment Co., Ltd. v. Bank of Communications, [1956] 40 H. K. L. Rep. 42, 23 Int’l L. Rep. 234 (S. Ct.). Italy: United States v. Soc. I. R. S. A., 86 II Foro Italiano Part I, 1405 (Sup. Ct., en banc, Mar. 13, 1963). Pakistan: Gammon-Layton v. Secretary of State, U. S. A., P. L. D. 1965 (W. P.) Karachi 425. Philippines: Carried Lumber Co. v. United States of America (Ct. App. Manila, Sept. 24, 1974). Yugoslavia: Zarko v. Office of International Trade Fairs, U. S. Department of Commerce (Dist. Ct. Zagreb, June 10, 1966).
In Banco Nacional de Cuba v. Sabbatino, 376 U. S. 398, 428 (1964), the Court noted in the context of the act of state doctrine: “It is also evident that some aspects of international law touch much more sharply on national nerves than do others; the less important the implications of an issue are for our foreign relations, the weaker the justification for exclusivity in the political branches.”
Schmitthoff, The Unification or Harmonisation of Law by Means of Standard Contracts and General Conditions, 17 Int’l & Comp. L. Q. 551, 563-564 (1968). See also A. Lowenfeld, International Private Trade 1-2 (1975); Gal, The Commercial Law of Nations and the Law of International Trade, 6 Com. Int’l L. J. 55, 64 (1972); H. Trammer, The Law of Foreign Trade in the Legal Systems of the Countries of Planned Economy, in The Sources of the Law of International Trade 41 (Schmitthoff ed. 1964) (hereinafter Sehmitthoff); V. Knapp, The Function, Organization and Activities of Foreign Trade Corporations in the European Socialist Countries, Schmitthoff 52; A. Goldstajn, International Conventions and Standard Contracts as Means of Escaping from the Application of Municipal Law — I, Sehmitthoff 103; T. lonasco & I. Nestor, The Limits of Party Autonomy — I, Schmitthoff 167; and Schmitthoff, Introduction, Schmitthoff ix.
The dissent states that the doctrines of sovereign immunity and act of state are distinct — the former conferring on a sovereign “exemption from suit by virtue of its status” and the latter “merely [telling] a court what law to apply to a case.” Post, at 725-726, 726. It may be true that the one doctrine has been described in jurisdictional terms and the other in choice-of-law terms; and it may be that the doctrines point to different results in certain cases. It cannot be gainsaid, however, that the proper application of each involves a balancing of the injury to our foreign policy, the conduct of which is committed primarily to the Executive Branch, through judicial affronts to sovereign powers, compare Mexico v. Hoffman, 324 U. S., at 35-36 (sovereign immunity), with Banco Nacional de Cuba v. Sabbatino, supra, at 423, 427-428 (act of state), against the injury to the private party, who is denied justice through judicial deference to a raw assertion of sovereignty, and a consequent injury to international trade. The State Department has concluded that in the commercial area the need for merchants "to have their rights determined in courts” outweighs any injury to foreign policy. This conclusion was reached in the context of the jurisdictional problem of sovereign immunity. We reach the same one in the choice-of-law context of the act of state doctrine.
Since First National City Bank was decided, the Department of State has taken the position in the sovereign immunity area that even where a counterclaim exceeds the foreign state’s claim, the courts may adjudicate the counterclaim if it arises from the same "transaction or occurrence that is the subject matter of the claim of the foreign state.” S. 566, 93d Cong., 1st Sess., § 1607 (1); see, ALI, Restatement, Foreign Relations Law of the United States, Second, §70 (2) (b). In our view, the adjudication of counterclaims against a foreign state, arising from the same transaction, occurrence or subject matter as the claim of the foreign state, does not pose foreign relations difficulties.
See, e. g., In The Matter of Minera El Teniente, S. A., 12 Int’l Legal Materials 251 (Superior Ct. Hamburg, 1973) (a foreign state’s act of expropriation that violates international law will not be recognized by German courts if the subject matter of the litigation has a substantial contact with Germany); Braden Copper Co. v. Le Groupement d’Importation des Métaux, 12 Int’l Legal Materials 187 (Ct. of Extended Jurisdiction Paris, 1972) (rejecting sovereign immunity of a state trading company that marketed expropriated copper); Compagnie Française de Crédit et de Banque v. Consorts Atard, Clunet, J. du Droit Int’l, 98 (1971), p. 86 (France: Cour d’Appel Amiens, 1970) (foreign expropriation decrees will not be recognized in France absent the payment of prompt, adequate and effective compensation); Crédit Foncier d’Algerie et de Tunisie v. Narbonne, Clunet, J. du Droit Int’l 96 (1969), p. 912 (France: Cou[r] de Cassation, 1969) (acts of expropriation not recognized in France unless equitable compensation is first determined); Obe[r]sfer Gerichtshof (Austrian Supreme Court), decision of 22 December 1965, Osterr. Juristenzeitung 21 (1966), p. 204, Clunet, J. du Droit Int’l, 94 (1967), p. 941 (an expropriation without compensation violates international law, but no recovery against purchasers of expropriated property); N. V. Assurantie Maatschappij de Nederlanden van 1845 v. P. T. Escomptobank, 33 Int’l L. Rep. 80 (D. Ct. The Hague, 1962) (rejecting act of state defense where there is a violation of international law).
Banco de Vizcaya v. Don Alfonso de Borbon y Austria, [1935] 1 K. B. 140, 50 T. L. R. 284; Re Helbert Wagg & Co. Ltd., [1956] Ch. 323, 346; 1 Lauterpacht, Oppenheim’s International Law, 267-268 (8th ed. 1955). See also Republic of Peru v. Peruvian Guano Co., [1887] 36 Ch. D. 489 and Republic of Peru v. Dreyfus Brothers & Co. [1888] 38 Ch. D. 348, where British courts, under international law, refused to give effect to Peruvian laws annulling acts of the preceding Peruvian government; cf. Buttes Gas and Oil Co. v. Hammer [1975] 2 W. L. R. 425, at 434-435.
26 Dept. State Bull. 98A-985 (1952).