Railway construction concession to Philippine Railway Co.

Legal basis and incorporated authorities

The concession is grounded on authorization to grant public utility franchises and concessions under section seventy-four of an Act of Congress approved July first, nineteen hundred and two.
The guaranty framework is grounded on authorization under sections four and five of an Act of Congress approved February sixth, nineteen hundred and five.
The concession contract incorporates all other terms and provisions of section seventy-four of the July first, nineteen hundred and two Act and sections four and five of the February sixth, nineteen hundred and five Act, with the same effect as if set forth in full.

Policy, purpose, and legislative intent

Section 4 states that public good requires speedy enactment of the bill.
Section 4 expedites passage in accordance with section two of “An Act prescribing the order of procedure by the Commission in the enactment of laws,” passed September twenty-sixth, nineteen hundred.
The grant is designed to authorize the grantee to construct, equip, maintain, and operate railways in specified islands while providing an interest guaranty for first-lien bonds.

Covered rail lines, territories, and scope

Section 1 (Concessionary grant) authorizes the grantee and its successors/assigns to locate, construct, furnish, maintain, and operate railways in the Philippine Archipelago specifically covering the Islands of Panay, Negros, and Cebu.
The franchise authorizes the main rail lines as follows (with approximate distances):
- Panay: a line from Iloilo (Province of Iloilo) in a northerly direction, forking to Capiz, to a terminal on Bay of Capiz, and to Bataan on the north coast of Panay (approximately one hundred miles).
- Negros: a line from the harbor of Escalante on the northeast coast westerly following the coast to Himamailan (approximately one hundred miles).
- Cebu: a line running north from Cebu to Danao on the east coast and south from Cebu to Argao on the east coast, with an option to construct a line across the island from Carcar or Sibonga to the west coast and thence along the coast between Dumanjug and Barili (approximately ninety-five miles).
Section 1 allows branch lines to reach traffic points within a reasonable distance from the main lines, subject to consent of the Governor-General.
Section 1 limits branch-line cost inclusion: the cost of branch lines shall not be included in the cost of construction as defined in the concession’s cost paragraph.

Franchise duration, operational obligations, and construction deadlines

The grantee is authorized to construct, equip, maintain, and operate the authorized railways in perpetuity.
The grantee must begin surveys within sixty days after written demand by the Governor-General.
The grantee must submit detailed reports of definite plans, surveys, specifications, and complete maps and profiles within six months after demand (or at a later time permitted by the Governor-General).
The Governor-General must fix and determine the final route within two months after submission.
The grantee must construct and complete and put in operation an average of not less than one hundred miles of main track per annum after approval of final plans.
Section 1 permits extension of time of completion by the Governor-General for good cause shown.
The railways must be operated as commercial railways for transportation of freight, passengers, express, and mail.
On demand of the Governor-General, the railway must give preference of carriage over the lines (or parts thereof) to business offered by the Government of the United States or the Philippine Islands.

Rail standards, equipment, and permitted use

Section 1 sets the track gauge for all lines at three feet six inches, to ensure uniform gauge.
The construction, equipment, and rolling stock must be first class and equal in quality to the best American practice; the gauge specification may be modified with approval of the Governor-General.
The railways must use steam power, except that the Governor-General’s consent allows operation by electricity or other equivalent power.
Section 1 requires the grantee and its contractors/subcontractors, so far as possible, to give preference to satisfactory laborers found along the railway lines.
Section 1 requires all labor employment to be under the reasonable direction of the Governor-General.
Section 1 requires material quality to be first class and adapted to local conditions, equal to best American practice for railroads of similar gauge.
The concession provides for the grantee’s right, with preference and regulation framework, to construct and maintain telegraph/telephone/electrical transmission lines over the railway right of way.

Right of way, land acquisition, and telecommunication rights

Section 1 grants the grantee a right of way through public lands of the Philippine Government for railroad construction and operation to the extent of one hundred feet in width.
Section 1 includes within the granted right of way the necessary ground for depots, machine shops, station buildings, workshops, water stations, warehouses, terminals, including wharves and dock fronts, and also switches, side tracks, and turntables.
Section 1 authorizes extra lands beyond one hundred feet when found necessary for railroad purposes.
The right of way and rights to related quarrying/gravel pits require approval of the Governor-General as part of the definite plans.
The grantee may open and work quarries and gravel pits and take earth, stone, timber, and other materials from certain public lands, but only for:
- public lands available for homestead settlement or for sale under the Public Land Act; or
- timber lands of the Philippine Government;
- the quarry/material-taking authority does not apply to lands used and assigned for other public purposes and does not apply to “friars’ lands.”
Section 1 allows crossing or occupying parts of public roads, alleys, avenues, and squares, and acquiring title to other municipal or provincial lands necessary for the railways, subject to agreed terms or determination by the Governor-General upon failure of agreement.
Section 1 provides that lands or rights of use and occupation granted revert to the respective governments upon termination, revocation, or repeal of the concession.
The grantee may acquire lands from corporations or private individuals by purchase, contract, lease, grant, or donation.
Section 1 allows condemnation (eminent domain) for right of way, bridges, terminals (including wharves and docks), sidings, stations, engine houses, water stations, and other necessary structures, while restricting occupancy in:
- provinces/cities/towns/municipal boundaries when lands are in actual use for provincial, governmental, or municipal purposes; and
- city/town/municipality lands without consent of proper authorities, unless the Governor-General consents.
Section 1 requires condemnation to be exercised in accordance with laws in force in the Philippine Islands at the time of exercise.
Section 1 grants the right to construct and operate telegraph, telephone, and electrical transmission lines over the right of way for railway operations, and with Governor-General consent, for public service and commercial purposes subject to requirements for reserving wire capacity and government line operation rights.
The grantee must erect and maintain poles with sufficient space to permit the Philippine Government, at its expense, and the United States Government to place and operate four wires for telegraph, telephone, and electrical transmission between railway termini for any purpose.
The Philippine Government reserves the right to construct, maintain, and operate its own telegraph/telephone/electrical lines over the right of way for commercial, military, or governmental purposes without unreasonably interfering with the grantee’s railway-related systems.
Section 1 requires the grantee to furnish suitable telegraph offices and operators at its stations for public use when directed by the Governor-General, with payment of reasonable compensation.

Financial framework and interest guaranty

Section 1 defines “actual total cost of construction and equipment” for purposes of determining first-lien bonds and the guaranty.
The “actual total cost” includes land for buildings, right of way, and railway purposes; materials and labor (including employee transportation, tools/implements/plant/animals); marine and fire insurance on construction materials/machinery; engineering/survey/supervising expenses in the Philippine Islands (with legal expenses for acquiring land borne by the grantee upon demand by the Philippine Government); expenses/outlays and damages from rebellion, ladronism, outlawry, earthquakes, or acts of God/elements/accidents; equipment necessary for operation; and all other outlays and expenses actually incurred in construction and equipment.
The cost definition also includes:
- interest at four per centum per annum upon sums expended from respective dates until issue and delivery of the bonds; and
- interest less any net earnings arising from operation during construction.
For contractor’s profit and organizing/general expenses, an additional amount of fifteen and one-half per centum of actual total cost is added.
Plans and work require Governor-General approval and are subject to inspection; bills and construction accounts are subject to audit by the Philippine Government.
Imported materials used in construction and equipment admitted free of duty, under Philippine Government rules, but this free-duty rule does not extend to material or supplies after the line portions are already constructed and equipped.
Section 1 guarantees interest for thirty years from the date of issue and delivery of the described bonds.
The interest guaranty is at four per centum per annum on first-lien bonds issued up to an amount of ninety-five per centum of the actual total cost of construction and equipment, for railways completed in accordance with approved definite plans as determined in the cost paragraph.
If the grantee defaults, the Philippine Government will pay the interest upon demand.
The grantee must covenant to pay interest on all bonds whose interest is guaranteed as it becomes due and payable and to fulfill mortgage covenants securing such bonds.
Guaranteed bonds must be secured by an absolute first lien evidenced by mortgage or deed of trust on the railroads and the related property (including franchises, earnings, rents, revenues, and income) then owned and thereafter acquired.
The required instruments securing liens in favor of the Philippine Government must be executed and delivered to the Philippine Government or a trustee designated by it; failure to execute such instruments does not impair the foreclosure remedy secured by the U.S. Acts, concession, or other instruments.
Section 1 expressly limits Philippine Government exposure: the Government is not obligated to pay any part of the principal of guaranteed-interest bonds, nor any other bond principal or grantee obligation; bonds are not deemed bonds or obligations of the Philippine Government and are not treated as issued by it or under its authority.

Remedies for default, government supervision, and protected operations

If the grantee breaches conditions or obligations on construction and allows the breach to continue for upward of four months after written notice by the Philippine Government, the Government may, at its option, at the grantee’s cost and expense, perform acts necessary to ensure construction, equipment, completion, or fulfillment.
The resulting cost and expense becomes a debt of the grantee presently payable and a lien on the railways, franchises, and related property, subject only to the first mortgage securing the first-lien bonds.
The lien created under the remedies provision is enforceable by foreclosure as if secured by a second mortgage.
The concession states that the Government’s remedy is an additional remedy and does not exclude other remedies or rights of action.
The Philippine Government, through auditing, engineering, and railroad bureaus and other agencies fixed by law, may inspect books, accounts, vouchers, and papers by monthly or other regular inspection, or special inspection if necessary, to verify financial reports and enable enforcement of grantee obligations.
Until construction and completion of the railways, and if the grantee is not then in default, the Philippine Government undertakes to protect the grantee in the use and enjoyment of the railways and property covered against acts of ladrones, insurgents, rebels, and outlaws.

Earnings application and bond issuance approvals

After construction and equipment, the grantee must apply gross earnings in this order:
1. necessary operating expenses (including reasonable expenses of the corporation) and amounts due the Philippine Government under the annual payment paragraph;
2. necessary and ordinary repairs;
3. betterments and extraordinary repairs expressly consented to in writing by the Governor-General; and
4. payment of interest on the bonds whose interest is guaranteed by the Philippine Government.
The Secretary of War must approve the form of bonds, mortgages, deeds of trust, liens, guaranties, and other instruments, and also approve the legality of the grantee’s organization and compliance with required laws and the concession.

Payments, taxes in lieu, and regulation of rates

Section 1 requires the grantee to pay annually for thirty years an amount equal to one-half of one per centum of gross earnings for each preceding year; after that thirty-year period, and for fifty years thereafter, the annual amount becomes one and one-half per centum of gross earnings for each preceding year.
After eighty years, the annual percentage and amount are fixed by the Philippine Government.
When payments are promptly and fully made, the annual payments are in lieu of all taxes of every name and nature on the grantee’s capital stock, franchises, right of way, earnings, and all other property owned or operated under the concession.
Section 1 authorizes the grantee to fix, charge, and collect just and reasonable compensation for carriage of freight and passengers, but effective regulation must be exercised first by the Philippine Government and on appeal by the Secretary of War of the United States.
The railway lines are designated as post routes and military roads subject to governmental use for postal and military services and subject to reasonable regulations restricting charges for government transportation imposed by the Philippine Government with Secretary of War approval.

Corporate presence, traffic connections, and formalities

The grantee must maintain at all times an office and domicile in the Philippine Islands, and must have a representative and agent fully qualified to treat with the Philippine Government and on whom process may be served in judicial proceedings.
The representative/agent receives and addresses notices, demands, tenders, deliveries, and communications binding upon the grantee and its successors and assigns.
The grantee must permit other railways (now constructed or later constructed) to form traffic connections or arrangements with it on fair and equitable terms determined by the Governor-General if disagreement arises, upon petition of either party; on appeal, determination is by the Secretary of War.
The concession states no stock or bonds may be issued except in exchange for actual cash or for property at a fair valuation equal to the par value.
The grantee may not declare stock or bond dividends.
The franchise is subject to amendment, alteration, or repeal by the Congress of the United States.

Execution, approvals, and required security

Section 2 authorizes and directs the Governor-General to execute the concessionary contract on behalf of the Philippine Government after approval by the Secretary of War, and to receive one triplicate copy when fully executed.
Section 2 requires delivery of a bond in the sum of three hundred thousand dollars in a form and with sureties acceptable to the Secretary of War or Governor-General before reception of the executed contract.
Section 3 authorizes proper Philippine Government officers to perform functions relating to the railways, their construction, securities, and obligations under the specified Acts and the concessionary contract.
Section 5 conditions franchise operability on execution and delivery of the contract and bond and full compliance within sixty days after passage.

Procedural expedition and construction of the grant

Section 4 expedites passage under the Commission’s legislative procedure rule in section two of the September twenty-sixth, nineteen hundred procedural act.
The concession grants the grantee authority to act perpetually to properly maintain and operate the railways as common carriers suitable to local conditions.
The defined term “grantee” includes the grantee’s successors and assigns.
The concession contract is executed by the Governor-General on behalf of the Philippine Government and accepted by the grantee under its corporate seal and board authorization.