Papers Relating to the Foreign Relations of the United States, With the Address of the President to Congress December 5, 1916
File No. 819.77/238
The Secretary of War to the Secretary of State
Washington , April 29, 1916 .
Sir: Referring to your letter dated March 24th, last,1 inclosing a translation of a note dated February 28, from the Panama Minister, regarding the legal status of the Panama Railroad Company, and to my acknowledgment dated the 31st ultimo,1 I now inclose herewith a copy of a communication addressed by General Goethals, Governor of The Panama Canal, to the Washington Office of the Canal, dated the 19th instant, with reference to this matter, together with a copy of the inclosure therein referred to, both of which are self-explanatory. General Goethals’ letter and accompanying report appear to cover the subject quite fully and completely, and I trust will be of assistance to you.
Very respectfully,
Governor Goethals to Chief of Office, The Panama Canal
April 19, 1916 .
Sir: The receipt is acknowledged of your letter of the 29th ultimo, inclosing translation of a note from the Panaman Minister regarding the legal status of the Panama Railroad Company, on which the Secretary of War desires a full report.
The Panaman Minister’s note was referred to Judge Frank Feuille, Special Attorney, for report, and I forward herewith his complete report, which fully covers the situation.
I desire, however, to emphasize the fact that the activities conducted by the Panama Railroad Company are not in competition with the merchants of Panama, since, by an agreement with the Republic of Panama, sales are not made to others than employees of the Canal or Railroad or members of the military forces, without special permission from the proper official of the Republic of Panama, except so far as relates to the sale of supplies to passing ships. The latter was undertaken with the authority of Congressional legislation, to safeguard the interests of commerce against the rapacity of the Panaman merchants. The Railroad, in its sales to ships, sells at a profit, in order to avoid, if that be possible, the condition complained of by the Panaman Minister.
I concur in Judge Feuille’s conclusions that, in view of the concessions to the Panama Railroad Company and of the provisions of the Treaty of 1903, the claims of the Panaman Minister are groundless, and that there is nothing open to arbitration.
Respectfully,
Special Attorney Feuille to Governor Goethals
Sir: I am in receipt of your reference of the 6th instant with the accompanying documents, your file No. 489, on the legal status of the Panama Railroad. You desire a full report from me.
The Panamanian Minister in Washington, in a communication dated February 28, 1916, to Mr. Lansing, Secretary of State, raises a number of issues respecting the status of the Panama Railroad and its power to engage in certain activities, and the Minister suggests that these issues be adjusted by arbitration if necessary.
The questions he desires to submit to arbitration are the following:
First Main Question
Does the Panama Railway Company exist as a legal corporation conformable to the charter granted it by the Legislature of the State of New York on April 7, 1849?
Subsidiary questions flowing from the main question:
- (a)
- If the railway company does exist, are the contracts and concessions awarded to it by the Republic of Colombia in force, or no?
- (b)
- May the company engage in industrial or commercial business other than that of transportation by land and by sea?
- (c)
- What are the taxes and duties from which the said company is exempted by the existing contracts and concessions?
- (d)
- If the company does not exist, what are the obligations under which the Republic of Panama lies toward the Government of the United States, sole owner of the railway?
Second Main Question
Is it, or not, the right of the Republic of Panama, under Article VIII of the Canal Treaty, immediately to recover full ownership of the land in Manzanillo Island lying outside of the Canal Zone and on which there stands no building belonging to the Canal or the railway?
It is true that the Government of the United States is the owner of the Panama Railroad Company, but it does not necessarily follow that the company ceased to exist as a corporate entity when the United States acquired the ownership. As long as the corporation is not dissolved by express declaration of the stockholders or by proceedings in the State of New York, instituted in accordance with the laws of the State, no one can question the legal existence of the Panama Railroad Company. The company was organized under a special act of the Legislature of New York, and only the sovereign power of that State has a right to say whether or not the company has done anything to forfeit its charter. The stockholders also may terminate the existence of the company, by formal declaration.
As the Republic of Panama cannot question the legal existence of the Panama Railroad Company, there does not seem to be anything to submit to arbitration on that score.
The activities of the Panama Railroad, other than the transportation of freight, are carried on mostly in the Canal Zone. Whatever the railroad company may do in the Canal Zone is not subject to question on the part of the Republic of Panama. In connection with this I would say that the commissary and subsistence business of the Panama Railroad is conducted in the Canal Zone, although some of the goods are delivered in the two Panaman cities to employees of the Canal and the railroad, and others entitled to commissary privileges. The right of the Panama Railroad to conduct commissaries, and even to fatten cattle in the Canal Zone, is one that cannot be disputed by the Panaman Government, and consequently there is no issue here that could be properly submitted to arbitration.
The Panama Railroad Company is authorized by its charter to operate a railroad across the Isthmus, and to purchase and navigate steam and sailing vessels, as may be proper and convenient, to be used in connection with the railroad. The charter also authorizes the corporation to purchase from the concessionaires, all the rights, privileges and immunities granted to them by [Page 951] the Republic of New Granada, and also to purchase the lands granted to said concessionaires by the said Republic, and to receive conveyance of and hold the same in like manner as the said concessionaires then did or could do, and to lease or sell and convey any of said lands which the company may deem necessary, to retain and to build and construct all buildings, piers, docks, basins, and harbors on said land, as the corporation may deem expedient, in like manner as the said concessionaires could do under the said grant.
It will thus be seen that the Panama Railroad is authorized by its charter to engage in all of the activities authorized by the grant from the Republic of New Granada, now Colombia, to the original concessionaires, William H. Aspinwall, John L. Stevens, and Henry Chauncey.
By the terms of the concession which was assigned to the Panama Railroad Company by the concessionaires, the company is not only authorized to maintain and operate a railroad, with all the accessories that may be necessary to its proper management, but in addition the company was granted the privilege of using the ports of the two ends of the railroad and to construct and maintain docks, piers, warehouses, and establishments of all kinds, needed in the operation of the railroad and of the other utilities authorized by the grant.
I may say that the railroad company was expressly authorized to establish and maintain hotels or inns, by virtue of Article 27 of the concession of 1850. The Spanish text uses the word Posada. The English text of this article, as given by Mr. Bristow in his report to the President, uses the word Board, but the translation is inaccurate. Posada means an inn or lodging house or hotel.
All of the property of the Panama Railroad Company is exempt from the payment of taxes, national, state, departmental, and municipal, by the express terms of the grant.
The Panama Railroad Company has not only operated the road, its steam and sailing vessels, docks, piers, harbors, warehouses and other accessories relating to traffic generally, but it has maintained hotels, commissaries, ice plant, and electiric light plants, for many years, long prior to the execution of the Canal Treaty between the United States and the Republic of Panama. The Government of Colombia and the Government of Panama, and the various political subdivisons of the two sovereignties, have dealt with the Panama Railroad in connection with all of the utilities and services above-mentioned, without question.
When Panama entered into the Canal Treaty with the United States, the former relinquished all of its rights in the Panama Railroad Company to the latter, by virtue of Articles 8 and 22 of the Canal Treaty. The rights surrendered included not only those existing at the time, but all rights that might arise in the future, including all reversionary interests in, or claims of Panama to, the property or rights of the railroad company, so that the title of the United States to said property, upon the consummation of the contemplated purchase, should be absolute so far as concerned the Republic of Panama, excepting the rights of the Republic specifically secured under the treaty. It follows that the Republic of Panama at the present time has no right or claim against the railroad, except that accorded to the Republic by virtue of the Canal Treaty.
The Republic of Panama, having surrendered all of its rights in the Panama Railroad Company, present, future, and reversionary, to the United States under the terms of the Canal Treaty, it follows that the Republic of Panama cannot exercise any control over the railroad company by taxation or otherwise that would interfere with the full ownership of the United States in the railroad property and the free use thereof by our Government. This proposition is self-evident.
All of the activities complained of by the Panaman Minister have been conducted by the Panama Railroad Company for over a half century; that is to say from the time the railroad first began to operate across the Isthmus. These various activities have been considerably enlarged, due to the construction of the Canal by the United States under the Canal Treaty. The United States, being the owner of the Panama Railroad, and the owner of the Canal that is being constructed, had a right under the treaty to utilize the Panama Railroad Company as an aid in the construction of the Canal, and it has the same right now to utilize the railroad in all of its activities in the operation of the Canal. Here again it would seem that there is no issue that could properly be submitted to arbitration.
[Page 952]There are some statements of fact in Minister Morales’ communication that should be referred to, as they are misleading.
He complains that the railroad company is competing with private business enterprises, and is using the railroad to destroy competition, yet the only case he cites is that of the transportation of ice manufactured by the Panama Railroad commissary. He states that the Panama Railroad Company charges itself sixty cents for hauling the ice, while another manufacturing company in Colon is charged $10.00 a ton for transporting the ice. The obvious purpose of a charge of sixty cents is to assist in the cost accounting and other bookkeeping operations of the railroad. As a matter of fact it is all for the benefit of the Panama Canal, and the railroad company is used as the agency of our Government. This proposition is self-evident.
I may say, however, that the Panama Railroad Company has not established gambling houses, nor does it contemplate establishing gambling houses, as Mr. Morales suggests the company might do.
I am unable to agree with the view of the Panaman Minister that the Island of Manzanillo will revert to the Republic of Panama upon the termination of the cession to the Panama Railroad Company. Article 8 of the treaty, which Mr. Morales quotes in full, militates against his position. By virtue of that article, the Republic of Panama granted to the United States all rights which it then had or thereafter might acquire, to the property of the Panama Railroad, as the result of the transfer of sovereignty from the Republic of Colombia to the Republic of Panama over the Isthmus of Panama. It is true that Article 8 does exclude from the grant the public lands situated outside of the zone described in Article 2 of the treaty which were included in the concessions to the French Canal Company and the Panama Railroad Company, and not required in the construction or operation of the Canal. These revert to the Republic of Panama. But there is a very important exception here. Any property owned or in the possession of the French Canal Company or the Panama Railroad Company within the cities of Panama or Colon, or the ports or terminals thereof, at the time the treaty was made, passed to the United States. The City of Colon, with the exception of four hectares reserved by the Government of Colombia in the concession, was in the actual possession of the Panama Railroad Company at the time that the Canal Treaty of 1903 was made. Therefore, by force of Article 8, the rights of Colombia or Panama in the City of Colon passed to the United States.
Mr. Morales omitted all reference to Article 22 of the treaty. It reads as follows:
The Republic of Panama renounces and grants to the United States the participation to which it might be entitled in the future earnings of the Canal under Article XV of the concessionary contract with Lucien N. B. Wyse now owned by the New Panama Canal Company and any and all other rights or claims of a pecuniary nature arising under or relating to said concession, or arising under or relating to the concession to the Panama Railroad Company or any extension or modification thereof; and it likewise renounces, confirms and grants to the United States, now and hereafter, all the rights and property reserved in the said concessions which otherwise would belong to Panama at or before the expiration of the terms of ninety-nine years of the concessions granted to or held by the above-mentioned party and companies, and all right, title and interest which it now has or may hereafter have, in and to the lands, canal, works, property and rights held by the said companies under said concessions or otherwise, and acquired or to be acquired by the United States from or through the New Panama Canal Company, including any property and rights which might or may in the future, either by lapse of time, forfeiture or otherwise, revert to the Republic of Panama under any contracts or concessions, with said Wyse, the Universal Panama Canal Company, the Panama Railroad Company and the New Panama Canal Company.
The aforesaid rights and property shall be and are free and released from any present reversionary interest in or claims of Panama and the title of the United States thereto upon consummation of the contemplated purchase by the United States from the New Panama Canal Company, shall be absolute, so far as concerns the Republic of Panama, excepting always the rights of the Republic specifically secured under this treaty.
The article just quoted puts it beyond question that Panama renounced and granted to the United States all Of the rights and property reserved in the concessions to the French Canal Company and the Panama Railroad Company which otherwise would belong to Panama at or before the expiration of the terms of each of said concession including all right, title, and interest which Panama then had or might thereafter have, in and to the lands, canal works, property, and rights held by the two companies under their concessions or otherwise. Certainly the reversionary interests of Colombia or of Panama in the City of Colon were included in the clause of Article 22 which refers to any property and rights which might or may in the future, either by lapse of time, forfeiture, or otherwise, revert to the Republic of [Page 953] Panama under any contracts or concessions with the two companies. And all of these rights and all of the property, passed to the United States free and released from any present or reversionary interest in or claim of Panama, and the title of the United States thereto became absolute upon the consummation of the purchase by our Government from the French Canal Company and the Panama Railroad Company of all of the right of the said companies.
The Island of Manzanillo was granted to the Panama Railroad Company by Article 10 of the amended concession from the Republic of Colombia, dated 1867. The Colombian Government reserved four hectares from the grant, for the construction of public buildings for offices, school houses, jails, and for other public uses. The Island of Manzanillo was to revert to the Colombian Government upon the expiration of the railroad company’s concession. This is one of the reversionary interests held by the Colombian Government which passed to the United States by virtue of Article 22 of the Canal Treaty. The Panaman Government has divided the four hectares of land in the City of Colon into one hundred four lots, of which only the following are occupied by government buildings:
| Lot No. | Used for— | |
| 183 | School | |
| 254 | } | Municipal Palace |
| 256 | ||
| 258 | ||
| 601 | } | Market |
| 603 | ||
| 605 | ||
| 607 | ||
| 609 | ||
| 611 | ||
| 613 | ||
| 658½ | Fire station |
In all eleven and one-half lots actually occupied with buildings for public purposes out of the one hundred four lots reserved by the Colombian Government for such purposes. The lots owned by the Panaman Government in Colon, with the exception of the eleven and one-half lots above-mentioned, have been leased to private parties, and until the recent fire in Colon, they were occupied to a considerable extent by inhabitants of the red-light district of Colon, with the consent of the Panaman authorities.
The Panaman Government now has under lease from the Panama Railroad Company eighteen lots, besides a large area occupied by Slifer Park, and the space on the back part of the island occupied by the municipal slaughter house. This makes practically twenty parcels of land occupied by Panamanian authorities under leases or permission from the railroad company. They pay a nominal rental of $1.00 per annum on eight lots; $25.00 per annum on one lot; $60.00 per annum on three lots; and $96.00 per annum on four lots; these latter rentals being practically nominal in amounts. The only lots for which they are paying the regular rate of rental are 1143 and 1145, occupied by the jail, and lots 1789 and 1791, reserved for municipal building. For these lots the Government of Panama pays a rental of $50.00 per annum each on Nos. 1143 and 1145, and $200.00 per annum on No. 1789, and $100.00 per annum on No. 1791.
The necessity for the leasing of lots from the Panama Railroad by the Panamanian authorities does not seem apparent, in view of the fact that that Government has so many lots to spare of its own in the City of Colon, which it is now leasing to private parties, and which it might utilize for public buildings, as contemplated by Article 10 of the Colombian concession to the Panama Railroad.
The Panama Railroad had been leasing lots in the City of Colon for periods of fifteen to twenty-five years prior to the recent fire. Leases for fifteen years were given to parties who desired to construct lumber buildings, and for twenty-five years to those who agreed to put up masonry, brick, or concrete buildings. The leases contained no provision authorizing the railroad to cancel them. At the end of the period prescribed in the lease the lessee was obliged to remove the improvements placed there by him, unless the Panama Railroad wished to keep them, in which event the railroad company was to pay for the improvements, and in case of disagreement of parties, the value of the improvements was to be assessed by arbitrators.
[Page 954]Since the recent fire in Colon, the Panamanian Government has issued a decree requiring all buildings to be constructed of masonry, brick, or concrete. In order to facilitate a compliance on the part of the people of Colon with the Panamanian decree, the railroad company agreed to renew all leases in the burned area and grant the lessees a full period of twenty-five years under the lease, beginning from the date of the renewal. A provision was inserted, however, to authorize the railroad company to cancel the lease at any time, by paying the lessee for the value of the improvements placed thereon.
There have been numerous fires in Colon. Many of them, however, occurred prior to the date of the Panama Canal Treaty, when it was difficult to fight fires, owing to the fact that the City had no water works. The present water works system was constructed by the Government of the United States, under the Canal Treaty.
I am of the opinion that there is no merit in the complaint of the Panamanian Minister, and I recommend that our State Department be so advised.
Respectfully,