EFFECT ON CONTRACTS AND CONCESSIONS [§ 131 of its location and operation and design, with the territory transferred, should, rather than any other circumstance, be the test of substitution. Doubtless the contractual obligations of the former The relation of the United States, upon the acquisition of the Philippine Islands, to a contract previously concluded between the Spanish Government and the Manila Railway Co. (Ltd)., a British corporation, and providing for the construction and operation of a railway in the Island of Luzon, became the subject of an opinion by Mr. Griggs, Atty.-Gen., July 26, 1900. See 23 Ops. Attys.-Gen., 181, Moore, Dig., I, 395; also Opinion of Mr. Knox, Atty.Gen., 23 Ops. Attys.-Gen., 451. The Spanish Government had granted to the corporation a concession for 99 years, and had guaranteed 8 per cent. per annum on the total investment made, payable in quarterly installments. The entire sum guaranteed was to be paid from the Philippine treasury, two thirds of which, according to the understanding of the Attorney-General, were to be paid wholly from moneys belonging to the local funds of the Philippines and one third from the royal or peninsular funds of Spain in the Philippine treasury, as a subsidy recognized by the general policy of Spain as chargeable to itself. Upon the cession of the islands to the United States the company demanded of it payment of the quarterly installments of the guaranty, beginning with that due Mar. 1, 1899. The Attorney-General was of opinion that an identical contract beween the United States and the company was not created by the ratification of the treaty of Paris", and did not then exist, for the following reasons: (a) that the agreement was the personal and indivisible contract of Spain and the concessionaire; (b) that it was of an executory character, "not concerning the public domain owned by Spain, but containing many personal obligations of Spain and of other parties" (c) that it was entered into, not for the exclusive local benefit of the Island of Luzon, but also to enable the Spanish Government "to govern more easily and conveniently the subject colonies, for the general benefit of Spain as well as their own.' The Attorney-General declared, however, that as the Provinces of the Philippines had retained and would continue to retain the chief benefits of the railway, and as the local revenues out of which the guaranty was to be paid were in the hands of the Philippine Government, and as the road was a most necessary piece of property, two thirds of which were bought, as it were, by a guardian for the use of his ward, the price to be paid as to two thirds from the funds of the ward, there was a "general equitable obligation" upon the Philippine Provinces to make some fair arrangement with the company as to the two thirds benefit. He declared that they could not justly take advantage of the disappearance of Spain to retain what she had procured for them on the credit of their funds, and deny all liability for the price. The law officer, Division of Insular Affairs, War Department, was of opinion that the United States was not, in the absence of any stipulation in the treaty of peace, bound by the contract, because he regarded it as the personal obligation of Spain, and one which had not been made a lien upon the revenues of the Island of Luzon. Magoon's Reports, 177. The argument of the Attorney-General that because the railway was beneficial to Spain as an instrument for the retention of military control over the Philippines and not of exclusive benefit to the country traversed, there was reason to deny an obligation on the part of a new sovereign to accept the burden of its predecessor, is not convincing. The implication that a possible use of the line for a purpose deemed adverse to local interests made the railway a detriment rather than a benefit is not satisfactory. Nor is the circumstance that the concession possessed an executory character calling for the performance of acts by the grantor, believed to have been decisive of the question of substitution. It is difficult to accept the suggestion that the contract was one designed to impose upon the grantor any fiscal obligations in case of loss of sovereignty over the territory within which the railway was to be operated. An undertaking so obviously adverse to its own interests is one which it would hardly be reasonable to impute to Spain a willingness or purpose to have assumed. sovereign towards private parties within and especially associated with a particular portion of its domain may obviously be of a character such as to survive a change of sovereignty. This is true when, for example, a State becomes the trustee of funds for the benefit of religious or philanthropic work conducted by a particular organization within the bounds of territory ceded to a foreign State.1 When in consequence of a transfer the new sovereign is deemed to be substituted for the old, the problem presents itself respecting the terms on which the transferee may reasonably terminate the contract. The precise question is whether the new sovereign stands in this respect on a better footing than its predecessor. The acceptance of the burden of an existing contract or concession implies that the exercise of any right to terminate the agreement is fettered with a corresponding obligation to make full response to every equitable demand of the other contracting party. The measure of its loss due to the act of termination, whether or not to be deemed a breach of contract, would seem to require judicial or other impartial scrutiny and fair estimation.2 The very scope of such a burden must raise doubt as to whether the transferees of territory have acknowledged a duty so to respect generally even those contracts and concessions which have been peculiarly associated with the newly acquired domain. Instances where the new sovereign has regarded itself free to terminate at will and on its own terms certain classes of concessions have their significance; and they raise the question whether there is to be 1 In the so-called Pious Fund Case between the United States and Mexico, the arbitral award of Sir Edward Thornton as umpire, Nov. 11, 1875, was based upon the theory that the Mexican Government being the successor to a trust fund for the maintenance of Roman Catholic missions in the Californias was obliged, upon the cession of Upper California to the United States, to pay an equitable portion of the proceeds of the fund to the Bishop of Upper California, the successor within American territory to the previous beneficiary. See J. B. Scott, Hague Court Reports, 48-53; Moore, Arbitrations, II, 1348-1352. In the arbitration of the Pious Fund Case before a Court of Arbitration assembled at the Hague under the Convention of 1899, and pursuant to a protocol of May 22, 1902, counsel for the United States relied upon the same principle. See Replication of the United States, 12-13; also supplemental brief in behalf of the United States, by G. W. McEnerney, 33-34. The award of the Tribunal did not touch upon this point, inasmuch as the application of the principle of res adjudicata sufficed for the grounds of the decision. For the text of the award cf. J. B. Scott, Hague Court Reports, 3. 2 In the estimation of damages the difficult question as to prospective losses may present itself. This gives rise to inquiry respecting the correct test to be applied in measuring the damages arising from a breach of contract, the sufficiency of evidence in support of an alleged loss, as well as the interpretation of the agreement. EFFECT ON CONTRACTS AND CONCESSIONS [§ 131 found in practice or theory a reasonable and just basis for such freedom of action.1 Numerous conventions concluded within the one hundred and twenty-five years prior to The World War have announced the acceptance by the transferee of concessions and contracts granted or undertaken by the transferor.2 These instances have recorded a trend of practice distinctly favorable to the contention that a sense of obligation has induced such action. Probably the reason impelling even a conqueror so to burden itself in a treaty of peace has been the belief that the public interests of the territory transferred would be thereby benefited rather than harmed, and that rights analogous to those of private property would likewise be respected. There does not, however, appear to have been habitual 1 One aspect of American procedure may here be observed. In construing the relevant Acts of Congress (the Act of Mar. 3, 1887, Ch. 359; 24 Stat. 505), the Supreme Court of the United States has declared that the Court of Claims is without jurisdiction in cases where the liability of the United States on a contract entered into by its predecessor as sovereign over territory transferred is asserted by a claimant as a result of an express provision of an assumption contained in a treaty, or is sought to be enforced as a necessary consequence of the cession made by a treaty. The latter tribunal is deemed, however, to possess jurisdiction of claims based on contracts originally made with the former sovereign of the ceded territory, and assumed by the United States after the transfer, either expressly or by implication. Eastern Extension, Australasia and China Telegraph Co., Ltd. v. United States, 231 U. S. 326, reversing 48 Ct. Cls. 33. Declared Mr. Justice Hughes in the course of the unanimous opinion of the court: "But, if the claim of the appellant were deemed to rest exclusively upon the transfer of sovereignty, upon the theory that thereby under the principles of international law an obligation in its favor was imposed upon the United States, the claim would still, in our judgment, be excluded by the statute from the consideration of the court below." (333.) In the course of the opinion of the lower court it was declared by Chief Justice Peelle that "when the United States succeeded to the sovereignty of Spain over the [Philippine] islands they were under no more obligation to continue the contracts for public or private service of individuals or corporations than they were to continue in office officials appointed by the Spanish Government.' 48 Ct. Cl. 33, 45. Inasmuch as that tribunal lacked and did not seek to exercise jurisdiction to adjudicate on the question as to the effect of the change of sovereignty produced by the treaty of cession, the language quoted may be regarded as merely a dictum. See also Eastern Extension, Australasia & China Telegraph Company, Ltd. v. United States, 251 U. S. 355, 362. Concerning the inability of a British court to determine the effect of annexation of territory by Great Britain upon concessions granted by the prior sovereign, see Cook v. Sprigg (1899), A. C. 572; Moore, Dig., I, 410. 2 See group of treaties from that of Campo Formio of October, 1797, to that of Constantinople of Sept. 16 (29), 1913, contained in Coleman Phillipson, Termination of War and Treaties of Peace, 326-330; also collection in Moore, Dig., I, 385–387. Also see discussion in A. B. Keith, Theory of State Succession, 66-72; A. S. Hershey, in Am. J., V, 285, 294-296; E. M. Borchard, Diplomatic Protection, § 83; West Rand Central Gold Mining Co. v. the King (1905), 2 K. B. 391; Am. J., I, 217. After the Spanish-American War in 1898, the American peace commissioners at Paris rejected certain Articles tendered by the Spanish commis recognition by treaty or otherwise of any duty to accept and maintain contractual obligations regarded by the new sovereign as certainly detrimental to the territory transferred. Practice has thus indicated soundly although roughly the basis of a useful distinction. Without attempting classification of the situations in which a contract has been regarded as locally detrimental, attention is called to the significance of various pleas by which a new sovereign may urge that an agreement possesses such a character.1 sioners in respect to contracts entered into for public works and services. They did so for the reason that the "extent and binding obligation of these contracts are unknown", at the same time disclaiming any purpose of the Government "to disregard the obligations of international law in respect to such contracts as investigation may show to be valid and binding upon the United States as successor in sovereignty in the ceded territory.' Senate Doc. 62, 55 Cong., 3 Sess., Part II, 240, 241, 262, Moore, Dig., I, 389-390. The treaty of peace with Germany of June 28, 1919, sheds little light on the solution of the general problem, doubtless because of the circumstance that contracts and concessions granted by German authority within and with respect to territory ceded by Germany, were almost entirely held by nationals of Germany, or possibly by those of its allies in the war. Thus the provisions of that treaty permitting the Allied and Associated Powers to retain and liquidate the interests, rights and properties of German nationals within territories detached by cession, served to place those powers in the position of obligees as well as obligors, according to their election. Art. 297 (b); also Section 2 of Annex following Art. 303. It may be observed that Germany also, by Art. 258, renounced all rights of its own or its nationals by virtue of any agreement, to representation upon or participation in the control or administration of commissions, State banks, agencies or other financial or economic organizations of an international character, exercising powers of control or administration, and operating in any of the States of its enemies or in Austria, Hungary, Bulgaria or Turkey, or in the dependencies of those States, or in the former Russian Empire. Moreover, by Art. 260, Germany undertook, upon the demand of the Reparation Commission, to possess itself of any rights and interests of German nationals in any public utility undertaking or in any concession operating in Russia, China, Turkey, Austria, Hungary and Bulgaria, or in the possessions or dependencies of those States or in any territory formerly belonging to Germany or its allies to be ceded by it or them to any Power, or to be administered by a Mandatory under the Treaty, and within six months of such demand to transfer such rights and interests to the Reparation Commission. Provision was also made in the same Article for German indemnification of German nationals thus dispossessed, and for crediting Germany on account of sums due by it for reparation with the value of what might be transferred to the Commission. See also Arts. 211 and 212 of the treaty of peace with Austria, of Sept. 10, 1919. 1 Numerous treaties of the nineteenth century containing provision for the maintenance of contracts and concessions of the old sovereign have made cleai the design to confine the obligation of the transferee to bear burdens deemed beneficial to the territory concerned, by referring to the arrangements to be respected as those contracted for the "public interests" of what was ceded. See, for example, Art. VIII of the Treaty of Zurich of Nov. 10, 1859, Brit. and For. State Pap., XLIX, 366; Moore, Dig., I, 385. The numerous provisions for the maintenance of contracts relating to railroads seem to confirm the opinion that the construction and operation thereof is not to be regarded as other than beneficial to the territory which they traverse. Cf., for example, Art. XVI, treaty between Turkey and Bulgaria Sept. 16 (29), 1913, Am. J., VIII, Supp. 27, 35; Coleman Phillipson, Termination of War and Treaties of Peace, 440, 445. EFFECT ON CONTRACTS AND CONCESSIONS [§ 131 A contract or concession may be deemed adverse to the territory transferred because of the purposes of the undertaking, or by reason of the terms of the agreement, or on account of the method by which performance is contemplated. On any one of these grounds the new sovereign may differ from the opinion entertained by its predecessor in a given case. The reasonableness of such a difference may not, however, suffice to indicate the existence or scope of the duty to be imposed upon the transferee.1 If the detriment to the territory concerned is to permit the transferee as a successor to the contract to enjoy complete freedom of action in the matter of cancellation, it must be due to the fact that the very nature of the agreement is such as to forbid the conclusion that it could be reasonably deemed beneficial if a change of sovereignty took place. The detrimental aspect of the contract must be an obvious and certain result of the change of sovereignty. In such case it is not unjust to charge the concessionaire with anticipation of the character which his concession would necessarily assume upon a transfer of the territory, and, therefore, with contemplation of the natural and logical attitude of any transferee. On the other hand, if the detriment to the territory is one attributable solely to the special public policy of the particular transferee, in contrast to that of the transferor, rather than to the failure of the latter to retain its sovereignty or to a circumstance indissolubly connected with the change thereof, the situation is otherwise. The application of the foregoing distinction is easily illustrated. A contract the object of which is to frustrate or impede the attempt by force or otherwise to effect the change of sovereignty which actually results, is one which must be regarded as hostile to the territory transferred as soon as that change takes place. Doubtless other classes of agreements may be fairly placed in the same category. A concession for a purpose distinctly beneficial to the territory transferred may have been lawfully granted on terms which in the judgment of the new sovereign appear to have been unduly advantageous to the concessionaire and correspondingly burdensome to 1 "In this last case, however [respecting the cancellation or modification of a concession deemed injurious to the public interest], the question of compensation arises, inasmuch as it would be inequitable that a concessionaire should lose without compensation a right duly acquired, and whose conditions he had duly fulfilled, because the new government differed from the old in its view as to what was, or was not, injurious to public interest, even though the opinion of the new government were obviously the true one." Report of Transvaal Concession Commission, Apr. 19, 1901, Blue Book, South Africa, June, 1901 [Cd. 623], 6-8, Moore, Dig., I, 411, 413. |