The first test of the new treaty involved Honduras. In 1908 opponents of President Dávila, probably supported by Guatemala and El Salvador, invaded the country. Nicaragua supported the Honduran president, and war seemed imminent. Perhaps motivated by the possibility of United States intervention, however, the parties agreed to submit the dispute to the new Central American court. The court ultimately rejected the Honduran and Nicaraguan complaints, but in the meantime the revolt collapsed, thus briefly restoring peace to Honduras.

Along with fighting off efforts to overthrow him, President Dávila made some attempts to modernize Honduras. He invited a Chilean officer to establish a regular military academy, which failed to survive beyond his time in office. Like his predecessor, Dávila encouraged the activities of the banana companies. The companies, however, were less than totally happy with him, viewing his administration as ineffective. In addition, rivalry among the companies became a factor in Honduran politics. In 1910 Dávila's administration granted the Vaccaro brothers a generous rail concession that included a provision prohibiting any rival line within twenty kilometers. This concession angered Samuel Zemurray of the newly formed Cuyamel Fruit Company. Zemurray had encouraged and even helped finance the 1908 invasion and was to continue to make trouble for the Dávila administration.