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Cornell University Library
HE2791 .C393 1887
The Central Pacific Railroad Company in
olin
3 1924 030 125 557
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The km\ki Pacific Railroad Company
IN EQUITABLE ACCOUNT WITH
The Ui^ited States,
GROWING OUT OF THE
ISSUE OF SUBSIDY BONDS IN AID OF CONSTRUCTION.
A REVIEW OF THE TESTIMONY AND EXHIBITS
i
FREBENTBD BEFORE THE
PACIFIC RAILWAY COMMISSION,
APPOINTED ACCORDING TO THE
ACT OF CONGRESS, APPROVED MARCH 3d, 1887.
By ROSCOE CONKLING and
WILLIAM D. SHIPMAN,
Of Counsel for the Central Pacific R. B. Co.
|lefD-Sork:
HENRY BESSEY, PRINTER,
No. 47 Cedar Street.
1887.
s
CONTENTS.
Page
I. The public policy that led to the passage of the Act of
Congress, approved July 1, 1862, entitled "An Act to aid
in the construction of a railroad and telegraph line from
the Missouri River to the Pacific Ocean, and to secure to
the Government the use of the same for postal, military
and other purposes," 5 to 19
II. Contract between the United States and the Central Pacific
Railroad Company, formed by the passage of the Act of
Congress of 1862, the acceptance of its terms and the
manner of its performance, 19 to 26
III. Change of Contract by the Act of Congress of 1864, . 37
IV. The diflBculty of construction and the great coat of the
Central Pacific Road, 28 to 41
V. Observance by the Central Pacific of its obligations to
the Government, . . 41 to 54
VI. Dividends, . 64 to 66
VII. Cost of the War in Utah 66, 67
VIII. Contracts let to Charles Crocker & Co., and the Contract
and Finance Company, for the construction of the Central
Pacific Railroad from Sacramento to Promontory, . . 67 to 72
f IX. Contract and Finance Company, . . 72 to 80
X. The purchase and building of roads consolidated with
the Central Pacific of California, . . 81 to 86
XI. Purchase of the stock of the California Pacific Rail-
road .... 86,87
XII. Diverting traffic from aided to non-aided lines, • 88 to 95
XIII. Influencing legislation, . . .. 95 to 104
XIV. Disastrous effects of the " Thurman Bill" on the indebt-
edness of the Central Pacific to the Government, . 104 to 120
XV. The indebtedness of the Central Pacific to the United
States, ... 130 to 134
To THE Commissioners appointed by the President
OF the United Stater under the provisions of the
Act of Congress, entitled "An Act authorizing
AN investigation of the books, accounts and
METHODS OF RAILROADS WHICH HAVE RECEIVED AID
FROM THE United States, and for other purposes."
Approved March 3, 1887.
-"J
The Central Pacific Railroad Company submit this statement,
and ask that it may accompany your report to the President :
The public policy that led to the passage or the Act
OP Congress, appeotbd July 1, 1862, entitled "An Act to
" AID IN THE construction OF A RAILROAD AND TELEGRAPH LINE
" PROM THE Missouri River to the Pacific Ocean, and to
" secure to the Government the use op the same fob
" postal, military and other purposes."
The project of a road to connect the .Mississippi with the
Pacific Ocean was first brought into public notice by Mr. Asa
Whitney, who, from 1844 to 1860, agitated the scheme in
addresses to State Legislatures and popular meetings. His
proposition was to construct a road by the sale of the public
lands along its line, and he asked from Congress a free grant of
alternate sections for a width of thirty miles on each side to be
given to himself and his heirs and assigns for that purpose.
His design was to commence at Prairie du Chien, on the
Mississippi, crossing the Rocky Mountains at South Pass, and
fixing the principal Pacific terminus on Vancouver Sound, with a
branch from some convenient point west of the mountains to San
Francisco. Among the objects he desired to accomplish was, to
make the route of Asiatic commerce to Europe through the
United States.
2
To that end, in the spring of 1844 he embarked from China
for New- York with the determination to devote his life to the
work of establishing a means of cheap and easy communication
across our continent between the European population on one si e
of us, and all Asia, with its seven hundred millions of people, on
the other.
To him, undoubtedly, belongs the credit of having first formu-
lated a practicable scheme for the construction of a trans-conti-
nental railway ; though, in 1836, John Plumbe, a Welshman by
birth, a civil engineer by profession, called, at Dubuque, Iowa,
the first public meeting foi- the purpose of agitating the subject
of building a trans-continental railway.
In 1837 Dr. Hartley Carver published, in the Neic-Tork Courier
and Enquirer, an article advocating the construction of a Pacific-
Railroad.
But it has been recently claimed by Mr. E. V. Smalley, in his
"History of the Northern Pacific Railroad," that as early as 1834,
(possibly 1833,) Dr. Samuel Bancroft Barlow, of Granville, Mass.,
advocated the construction of a railroad from New-York to the
mouth of the Columbia River, by direct appropriations from the
Treasury of the United States.
In the Senate of the United States, in the Session of 1842-43,
in the consideration of the " Oregon question," Senator Servier
held that not only lands should be granted to settlers, and forts-
built and garrisoned for their protection, but, if necessary, a rail-
road should be made from the Missouri to the Columbia, over
which immigrants might be conveyed in two or three days.
Senator Linn spoke upon the facility with which travel and
transportation might be effected across the continent by means of
ordinary roads at present and by railroads hereafter.
Senator McDuffie opposed these projects for the encouragement
of settlers, and ridicided the idea that steam could ever be em-
ployed to facilitate communication across the continent between
the Columbia countries and the States of the Union.
When Mr. Whitney began his active work in connection with
the project, our Oregon possessions were all we controlled on the
Pacific Coast, and the location of the western terminus was lim-
ited accordingly. Later during his efforts we were in possession
of all the coast from the Straits of Fuca to San Diego.
In the fall of 1849 a Pacific Railroad Convention met at St.
Louis, and was presided over by Stephen A. Douglas.
It condemned Whitney's project, although, at the second ses-
sion of the 28th Congress, in the winter of 1844-45, Mr. Douglas
reported favorably on a memorial in favor of a Pacific Railroad
presented by Mr. Whitney.
It will be remembered that a trans- continental railroad was for
many years earnestly advocated by Mr. Benton, of Missouri,,
both in his place in the Senate and in popular addresses.
The discovery, in 1847, of gold in California, and the conse-
quent settlement of that country by a large emigration from th&
Atlantic and Western States, from Europe and Australia, which
commenced in 1849, brought the matter more prominently before
the Government and hastened its action.
In 1851 Senator Gwin gave notice in the Senate of the United'
States of a bill for the construction of a Pacific Railroad, and iup
1852 Senator Douglas reported a bill on the same subject.
On May 1st, 1852, the Legislature of California passed "An
Act (/ranting the right of way to the United States for railroad'
purposes." The preamble to the Act is as follows :
Whereas, The interests of this State, as well as those of the whole nation,,
require the immediate action of the Government of the United States for the
construction of a national thoroughfare connecting the navigable waters of
the Atlantic and Pacific Ocean, for the purposes of national safety in the,-
event of war, and to promote the highest interests of the Republic.
In March, 1853, Congress made an appropriation of one hun-
dred and fifty thousand dollars, to defray the expense of the
necessary surveys ; and in that year six parties were organized
and sent out by the War Department.
In 1854, Congress made two more appropriations of forty
thousand dollars and one hundred and fifty thousand dollars
respectively, for deficiencies, and for continuing the work ; and
then three additional parties were organized.
The determination of the relative practicability of the several
routes of railroad was entrusted by the Honorable Jefferson Davis,
then Secretary of War, to Captain Humphreys, of the United
States Army, who made an elaborate report, which is on file in
the War Department.
(See Report of Jefferson Davis, Secretary of War, to Congress,
February 2Vth, 1855.)
It will be seen in the review that is here presented, that the
passage of the Act of 1862 was not forced from an unwilling
Congress by the solicitation of the Union Pacific Railroad Com-
pany or the Central Pacific Railroad Company, or by any one on
their behalf. It was not a measure conceived in any sudden
•emergency ; although, no doubt, its passage was hastened by the
oonimencement of 'the civil war, the danger to our Pacific posses-
sions, and the necessities of the nation; but the whole subject had
been well considered for several years before that bill received
the sanction of Congress, and the approval of President Lincoln.
The attention of Congress had been called to the necessity of
aiding the construction of a trans-continental road, by messages
from three Presidents, Pierce, Buchanan and Lincoln.
Both the Republican and Democratic Conventions adopted
resolutions in their platforms of 1856, pledging the parties to aid
in appropriate legislation. The Democratic party, at their
National Convention, held at Charleston, South Carolina, April
23, 1860, adopted the following preamble and resolution :
Whereas, One of the greatest necessities of the age, in a political, com-
mercial, postal and military point of view, is the speedy communication
tetween the Pacific and Atlantic Oceans ; therefore.
Be it Resolved, That this party do hereby pledge themselves to use every
•means in their power to^procure the passage of some bill, to the extent of
•the Constitutional authority of Congress, for the construction of a Pacific
Railroad from the Missouri River to the Pacific Ocean, at the earliest prac-
iticable period.
On June 11th, 1860, the Convention at Chicago that nominated
Abraham Lincoln for the Presidency
Besohed, That a railroad to the Pacific Ocean is imperatively demanded
by the interests of the whole country. That the Federal Government ought
to render immediate and efficient aid in its construction, and that preliminary
ithereto a daily overland mail should be promptly established
Prior to 1860, the Legislatures of eighteen States had passed
a-esolutions in favor of a railroad to the Pacific.
Apart from the question of preserving to the Union the
Pacific Coast States and Territories, and extending to the people
the protecting hand of the Government which had become neces-
sary from the events occurring in the early history of the war,
it was a matter of the highest statesmanship to furnish this
means of communication between the Missouri River and the
Pacific Ocean, and to open to civilization and settlement the
country between such points.
Mr. Whitney's original plan was, that the United States should!
furnish aid to build from the Mississippi River to the Pacific ; but
in the seven or eight years that had elapsed from the time that
he had first called attention to the enterprise to the passage of
the Act of 1862, private capital had been invested to furnish rail-
roads brtween the Mississippi and the Missouri. When the Union
Pacific Company commenced construction in the latter part of
1864, a railroad was in operation from Hannibal, in Missouri, to
Saint Joseph, on the Missouri River, and by means of such road
and by vessel from Saint Joseph to Omaha the Union Pacific re-
ceived the material for the construction of its first one hundred
miles. In IseVthe lines of the Chicago and North Western Com-
pany were completed to Council Bluffs. But beyond the Missouri,
and through that territory which forms the State of Nebraska, there
was a large amount of unoccupied land capable of the highest
cultivation. It will not be forgotten that one-half of the ter-
ritory of the United States is west of the Missouri, and that be-
tween that river and the Sacramento, a distance of 1,800 miles,
there is not a single navigable stream. All this territory east of
the Sierra Nevada Mountains was, before the laws aiding the
Pacific Railroads, totally unimproved and uninhabited save by
United States troops and Indians.
When the subject of the construction of a trans-continental
railway was first proposed, the Mississippi River practically con-
stituted our western frontier, and Texas was engaged in her war
of independence. The matter had been broached in Congress be-
fore that State had come into the Union. When Mr. Douglas
introduced his first bill for the construction of a railway, the war
with Mexico had not begun. When the Mexican war was closed
there was not a single mile of railroad west of the Mississippi ;
and it was not until 1859 that the railroad system of the country
10
was connected with the Missouri River by the completion of the
Hannibal and St. Joseph Railroad.
The most interesting history of the events preceding the con-
struction of the Pacific Railroads is to be found in the " Report
on Trans-continental Railways, 1883," made by Col. O. M. Poe,
United States Engineer and Brevet Brigadier General, to General
W. T. Sherman, and we are indebted to Col. Poe for many of the
facts above stated.
Those who then controlled the legislation of the nation saw that
it would add to the strength of the United States as an exporter
of food to turn the lands of Nebraska into cornfields, and
to bring into use such portions of the country between the Mis-
souri River and the Sierra Nevada Mountains as were suitable for
agricultural or grazing purposes : that they were but helping
the destinies of the United States, that it might feed the manu-
facturing population of the Old World. They recognized
the truism that the nation that has food to sell is the most
independent and powerful. Having control of the bread and
meat required by the populations of England, France and
Germany, it could regulate the value of the manufactured goods
it was compelled to purchase from those countries, and they recog-
nized the authority of an eminent political economist, that money
expended by a nation in the construction of works of public utility
enrich the country.
It has been well and no doubt truthfully said, that if Rome
had been able to produce the food necessary to feed her legions,
the Cfflsars would still be governing the world.
The late Lord Beaconsfield, when, as Mr. Disraeli, he became
the leading statesman of England, saw great danger to the
people of Great Britain from depending upon the United
States for so large a portion of their food supply. He saw,
also, the jeopardy to its Asiatic possessions from the con-
tinual failure of the rice crops in India, and he resolved to en-
courage it to become a producer and. exporter of wheat. It was
one of his quaint sayings, that England was an Asiatic instead of
a European power. And so he brought his eminent abilities to
determine whether England could not obtain its bread from Hin-
dostan instead of America ; whether its millions of subjects in
Asia could not be guarded from the risks of famine in their de-
11
pendence on one article of food, for whose matui'ity a scant rain-
fall was insufficient, by adding another more easily and certainly
produced, and containing elements that would improve the phy-
sique of the race, and so furnish to India an article that could be
readily used in exchange in the place of her silver.
To this end he consulted with and obtained the experience of
the Duke of Wellington, whose long residence in India peculiarly
fitted him to advise, and from the information so obtained, the
Government of England, of which the Earl of Derby was then
the Premier, and Mr. Disraeli, Chancellor of the Exchequer, in
conjunction with the aid and assistance derived from the house
of Rothschild, conceived and carried into effect the construction
of railroads to the higher altitudes in India, where wheat could
be cultivated. And to accomplish the end in view the English
Government guaranteed the interest at the rate of five per
centum on 6200,000,000, the contemplated cost of the railways
then designed.
However detrimental the result of Mr. Disraeli's plan has
proved to the farmers of this country, it is gratifying to Eng-
lishmen to remember that he lived some years after it had come
to its complete success ; for we see by returns made to Parlia-
ment, that in 1877 and 1878, the exports of wheat from India to
England were so large, as to materially reduce the demand on
this country.
Our legislators were also anxious to carry out what in reality
was the day dream of Mr. Benton, who said :
That he hoped he might live to see a train of cars thundering down the
Eastern slope of the Rocky Mountains, bearing in transit to Europe the teas,
the silks and spices of the Orient.
It may be added, that but for the construction of the Suez Canal,
the vision of the Missouri Senator would have been realized.
There were other causes that induced Congress to pass the Act
of 1862.
The first gun was fired on Sumter Friday, April 12, 1861, and
the fort was evacuated Sunday, April 14, 1861.
The battle of Bull Run was fought July 21, 1861.
On November 8, 1861, the Commander of the United States
Sloop San Jacinto arrested and took off the English Steamer
12
Trent, on the high seas, Messrs. Mason and Slidell, who were then
the accredited ministers of the Confederate Government to the
respectiT!* courts of England and France.
Immediately after the last date, the Asiatic Fleet of Great
Britain found the Harbor of Victoria, Vancouver's Island, a
favorite place of rendezvous, and the fleets of Russia then in the
Pacific assembled at San Francisco, and the General commanding
the United States troops stationed at Benecia, the Presidio, Alca-
traz and Angel Island, in California, was superseded, his loyal
intent to the Government being questioned.
It will be seen there were two forces that threatened the
supremacy of the United States Government on the Pacific Coast ;
the danger of foreign invasion, and of civil commotion.
As was said by Mr. Campbell in the House of Representatives,
on April 8, 1862 :
In a recent imminent peril of a collision with a naval and commercial rival,
one that bears us no love, we ran the risk of losing, at least for a time, our
golden possessions on the Pacific for want of proper land transportation.
And Mr. Stevens, of Pennsylvania, said :
In case of a war with a foreign maritime power, the travel by the Gulf
and Isthmus of Panama would be impracticable. Any such European power
could throw troops and supplies into California much quicker than we could
by the present overland route. The enormous cost of supplying our army in
Utah may teach us that the whole wealth of the nation would not enable us
to supply a large army on the Pacific Coast. Our Western States must fall
a prey to the enemy without a speedy way of transporting our troops.
It is but history to say, that if at this time we had become in-
volved in a war with England, we could only have retained our
possessions on the Pacific by the friendship and aid of Russia.
It was of the utmost importance to the Treasury and the people
of the United States to retain the allegiance, trade and good
will of the people of the Pacific, and especially of California.
In 1854 the gold shipped to New- York was 146,289,000. This
shipment fell off year by year until 1859, when it was $39 831 000-
in 1860, $35,661,000 ; in 1861, $34,486,000 ; in 1862, $25,080 OOo'
Although the total shipment of gold from California in 1862
was $49,376,000, all over $25,080,000 was diverted from New-
York by shipments from San Francisco direct to England in
13
consequence of the increasing risks of transportation caused by
Confederate cruisers, and the raising of insurance rates to five per
cent, to cover war risks.
In December, 1862, the "Ariel," from New-York to Aspinwall,
was captured by the Alabama and bonded. On her return, she
did not bring the specie awaiting her at Aspinwall, which was of
the value of about $550,000, but it was forwarded to New-York
by the United States gunboat " Connecticut."
All these causes led to the passage of the Act of 1862.
As evidencing the tone and temper of the nation, and of
Congress, towards this work, and the necessity for the legislation
then proposed, we quote briefly from the debates in the Senate.
We should say, in anticipation, that in 1860, General Samuel R.
Curtis, then Chairman of the Pacific Railroad Committee in the
House of Representatives, reported that the aggregate amount
which was paid by the Government for the transportation of
mails, military and naval stores from the Mississippi River to the
Pacific Ocean reached more than six million dollars per annum.
In 1862 Mr. Campbell, of Pennsylvania, then Chairman of the
House Committee on the Pacific Railroads, after having obtained
from the War, Navy, Indian and Postal Departments the amounts
which those Departments were paying for transportation across
the continent, reported the sum aggregated more than $7,300,000
per annum.
It was then anticipated by Congress that the amount of bonds
to be issued for the main line and certain branches at the
Missouri end would be about sixty-five million dollai-s, and that
the interest would be about three million eight hundred thou-
sand ; and, as one of the Senators said, subtract three million
eight hundred thousand from seven million five hundred thousand
and you have a remainder of three million seven hundred thou-
sand, which would go to make up a sinking fund for the repay-
ment by this Company of the principal of the bonds, besides
paying the actual interest on the bonds.
Why these anticipations were not fulfilled, we will hereafter
notice. '
But to return to the debate in the Senate. On the lYth of
June, 1862, the bill being again under discussion, Mr. Wilson, of
Massachusetts, made the following remarks :
14
I have little eonfidenee in the estimates made by Senators or members of
the House of Representatives as to the great profits which are to be made
and the immense business to be done by this road. I give no grudging vote
in giving away either money or land. I would sink one hundred milhona of
dollars to build the road, and do it most cheerfully, and think I had done a
great thing for my country if I could bring it about. What are seventy-five
or a hundred millions in opening a railroad across the central regions of this
continent, which will connect the people of the Pacific and the Atlantic and
bind them together f
And on the same day he used the following language :
As to the security the United States takes on this road, I would not give the
paper it is written on for the whole of it. I do not suppose it is ever to come back
in any form except in doing on the road the business we need, carrying our
mails and munitions of war. In my judgment we ought not to vote for the
hill with the expectation or with the underManding that the m,oney which we
advance for this road is ever to come back into the Treasury of the United
States. I vote for the bill with the expectation that all we get out of tlae
road (and I think that is a great deal) will be the mail carrying and the car-
rying of munitions of war and such things as the Government needs, and I
vote for it cheerfully with that view. I do not expect any of our money
back. I believe no man can examine the subject and believe that it will
<;ome back in any other way than is provided for in this bill ; and that pro-
vision is for the carrying of the mails and doing certain other work for the
Government.
Mr. Wilson but spoke the sentiments of the leading Senators and
Representatives who voted for that bill. The wishes of the people,
the perils of the Government, the carrying out of its purposes in
connecting the eastern and western sides of the continent, which it
was supposed at that time private capital was utterly unable and
unequal to accomplish, and the consequent facilities to the Gov-
ernment for the movement of the mails and munitions of war
and the pacification and control of the Indians, and the defence of
our Pacific possessions, was a sufficient inducement, if all the aid
granted to the Companies who were to co-operate with the Gov-
ernment in the building of the road, was never returned into the
Treasury in any other form.
On the same subject, Mr. Clark, of New Hampshire, said:
The Senator from Massachusetts may be entirely right, that the Govern-
ment may never receive back this money again ; audit may be that we make
ithe loan for the purpose of receiving the services. But it will be well to
15
"take a mortgage, to secure the bnilding of the road through, and then to
■secure the performance of those services •which we expect them to perform
in the transmission of mails and munitions of war after the road is built. I
think we had better adopt the amendment of the Cominittee. It will make
dt safer for the Government ; safer in this regard, that we shall have the
TOad built, and have the service performed.
Further on in the same debate, Mr. Clark used the following
language :
Whether I am right or not, I do not build the road because I think it is to
be a paying road. I build it as a political necessity, to bind the country
together and hold it together ; and I do not care whether it is to pay or not.
Here is the money of the Government to build it with. I want to hold a
portion of the money until we get through, and then let them have it all.
Mr. Ten Eyck, of New-Jersey, used the following language :
The great object of the Pacific Railroad Bill is to have a national means
of communication across the Continent. That is the idea which the public
have entertained for years past, and the only idea ; a great national measure
to cement the Union, to bind with a belt of iron the Atlantic and Pacific,
***** This is the inducement which the old States have in
•doing what they believe will be for the benefit of the common country, to
the prejudice of the Treasury, so to speak, yet, the general returns may be
beneficial in the long run.
Mr. Collamer, of Vermont, said :
This bill carries the idea, and in this section provides for the repayment
of the loan, as gentlemen call it. In a subsequent section it is provided
that the payment shall be made in the carrying of the mail, supplies and
military stores for the Government, at fair prices, and also five per cent, of
the net proceeds or sums to be sut apart for the Government. That is all
the provision there is in the bill for repayment.
Mr. Latham, of California, in the course of the same debate,
said :
The loan of the public credit at six per cent, for thirty years for sixty-five
millions, with absolute security by lien, with stipulations by sinking fund
from profits for the liquidation of the principal, official reports and other
authoritative daita, show that the average annual cost, even in times of peace,
in transportation of troops, with munitions of war, subsistence and Quarter-
master supplies, may be set down at seven million three hundred thousand
dollars. The interest upon the credit loan of sixty-five millions will be
annually three million nine hundred thousand dollars, leaving a net excess
of three million four hundred thousand dollars over the present cost, appeal-
ing with great force to the economy of the measure, and showing, beyond cavil
or controversy, that the Government will not have a dime to pay on account
of its credit, nor risk a dollar by authorizing the construction of this work.
Mr. McDouga], of California, said :
As I have had occasion before to remark, the Government is now paying-
over seven millions per annum for the services which this road is bound to
perform. That is about one hundred per cent, more than the maximum
interest upon the entire amount of bonds that will be issued by the United
States when the road is completed. The Government is to-day on a peace
establishment, without any war necessity, paying for the same services one
hundred per cent, more than the entire interest on the amount of bonds
called for by the bill. Besides that, it is provided that five per cent, of the
net proceeds shall be paid over to the Federal Government every year.
Now let me say, if this road is to be built, it is to be built not merely with
the money advanced by the Government, but by money out of the pockets
of private individuals. * * * * It is proposed that the Govern-
ment shall advance sixty millions, or rather their bonds at thirty years, as
the road is completed, in the course of a series of years ; that the interest at
no time can be equal to the service to be rendered by the road as it pro-
gresses ; and that the Government really requires no service except a com-
pliance on the part of the Company with the contract made. It was not
intended that there should be a judgment of foreclosure and a sale of this
road on a failure to pay. We wish it to be distinctly understood that the
bill is not framed with the intention to have a foreclosure. * * ♦ »
In case they failed to perform their contract, that is another thing. That is
a stipulation ; that is a forfeiture, in terms of law ; a very different thing
from a foreclosure for the non-payment of bonds. The calculation can be
simply made, that at the present amount of transportation over the road,"
supposing the Government did no more business, that that alone would pay
the interest and the principal of the bonds in less than twenty years, making
it a direct piece of economy if the Government had to pay for them all.
However, I am not disposed to discuss this matter. I say it was not under-
stood that the Government wa*s to come in as a creditor and seize the road on
the non-payment of interest. It is the business of the Government to pay
the interest because we furnish the transportation.
Mr. Sargent, then a member of the House, in the course of
the debate there on this question, used the following language r
When the road is fully completed and we are experiencing all the security
and commercial advantages which it will afford, the annual interest will be
less than four millions, and that sum will be bat gradually reached year
\1
■after'year. The War Department has paid out, on an average, five millions
per y^r^for the last five years, for transportation to the Pacific Coast, and
the mails cost one million dollars more at their present reduced rates. The
fiaving to the Government would be two millions a year on these items alone.
Hereafter we will point out that the failure to realize the an-
ticipations of the Senators and Representatives who voted for
this bill cannot be ascribed to these corporations. We say, with
all due respect, that if the Government of the United States had
performed its part of the contract, it would have "been fully reim-
bursed for the amount of interest it has paid," and have had a
fund now in hand for the retirement of bonds loaned.
As illustrating the situation presented on the part of the Central
Pacific, and although we shall have occasion again to comment upon
the case of The United States against The Union Pacific Railroad
<IIompany, its inspiration, purposes, and the effect of its decision,
we call attention to the language of Mr. Justice Davis, who then
fipoke for the Supreme Court of the United States, reported in
1 Otto, 91 U. S., at page 79, (October, ISYS,) and following. Any
history of the Pacific Railroad would be incomplete without citing
the language of this great jurist :
Many of the provisions in the original Act of 1863 are outside of the usual
■course of legislative action concerning grants to railroads, and cannot be
properly construed without reference to the circumstances which existed
when it was passed. The war of the Rebellion was in progress, and, owing
to complications with England, the country had become alarmed for the
safety of our Pacific possessions. The. loss of them was feared, in case those
■complications should result in an open rupture ; but, even if this fear were
groundless, it was quite apparent that we were unable to furnish that degree
of protection to the people occupying them which every Government owes
to its citizens. It is true the threatened danger was happily averted, but
wisdom pointed out the necessity of making suitable provision for the future.
This could be done in no better way than by the construction of a railroad
■across the continent. Such a road would bind together the widely separated
parts of our common country, and furnish a cheap and expeditious mode
for the transportation of troops and supplies. If it did nothing more than
afford the required protection to the Pacific States, it was felt that the
Government, in the performance of an imperative duty, could not justly
withhold the aid necessary to build it ; and so strong and pervading was this
opinion, that it is by no means certain that the people would not have
justified Congress if it had departed from the then settled policy of the
country regarding works of internal improvement, and charged the Govern-
ment itself with the direct execution of the enterprise. This enterprise was
viewed as a national undertaking for national purposes ; and the publ
mind was directed to the end in view, rather than to the particular means
of securing it. Although this road was a military necessity, there were
other reasons active at the time in producing an opinion for its completion
besides the protection of an exposed frontier. There was a vast unpeoplea
territory lying between the Missouri and Sacramento Rivers, which was-
practically worthless without the facilities afforded by a railroad for the
transportation of persons and property. With its construction, the agricul-
tural and mineral resources of this territory could be developed, settlements
made where settlements were possible, and thereby the wealth and power of
the United States largely increased ; and there was also the pressing want,
in time of peace even, of an improved and cheaper method for the trans-
portation of the mails and of supplies for the army and the Indians. It was
in the presence of these facts that Congress undertook to deal with the
subject of this railroad. The difficulties in the way of building it were great,
and by many intelligent persons considered insurmountable. * *
Of necessity there were risks to be taken, in aiding with money or bonds an
enterprise unparalleled in the history of any free people, the completion of
which, if practicable at all, would require, as was supposed, twelve years ;
but these risks were common to both parties. Congress was obliged to
assume its share, and advance the bonds, or abandon the enterprise, for,
clearly, the grant of lands, however valuable after the road was finished,
could not be available as a resource for building it.
And as a matter of convenience for the argument, we cite
at this time the language of Mr. Justice Miller, in delivering
the opinion of the Supreme Court of the United States, in the
case of the United States vs. The Union Pacific Railroad Com-
pany et al., at the October term, 1878. (98 U. S. p. 619.)
There are many matters alleged in the bill in this case, and many points
ably presented in argument which have received our careful attention, but
of which we can take no special notice in this opinion. We have devoted
so much space to the more important matters that we can only say that under
the view which we take of the scope of the enabling statute, they furnish
no ground for relief in this suit. The liberal manner in which the Govern-
ment has aided this Company in money and land is much urged upon us as
a reason why the rights of the United States should be liberally construed.
This matter is fully considered in the opinion of the Court, already cited in
the case of the United States vs. The Union Pacific Railroad Company, (91
U. 8. 72,) in which it is shown that it was a wise liberality for which the
Government has received all the advantages for which it bargained and
more than it expected. In the feeble infancy of this child of its creation,
when its life and usefulness were very uncertain, the Government, fully
alive to its importance, did all that it could to strengthen, to support and to
sustain it. Since it has grown to a vigorous manhood it may not have dis-
19
played the gratitude wliicli so much care called for. If this be so, it is hut
another instance of the absence of human affections which is said to charac-
terize all corporations. It must, however, he admitted that it has fulfilled
the purpose of its creation and realized the hopes which were then cherished,
and that the Government has found it a useful agent, enabling it to save
vast sums of money in the transportation of troops, mails and supplies, and
in the use of the telegraph. A Court of Justice is called on to inquire, not
into the balance of benefits and favors on each side of this controversy, hut
into the rights of the parties as established by law, as found in their
contracts, as recognized by the settled principles of equity, and to decide-
accordingly.
II.
Contract between the United States and the Centeai,
Pacific Railroad Company, formed by the passage of
the Act of Congress of 1862, the acceptance of its
Teems, and the manner of its performance.
By the passage of the Act of 1862, and the acceptance of its
terras by the Central Pacific Railroad Company, a contract was
created between it and the Government, by which the Company
undertook to construct a railroad and telegraph line, from the
Pacific Coast, at or near San Francisco, or the navigable waters of
the Sacramento River to the eastern boundary of California,
provided that the said Company should reach the boundary be-
fore it met the line of the Union Pacific; the Union Pacific
being authorized, with the consent of the State of California, to
construct through California, until it met the track of the Central
Pacific, and if the Central Pacific should first arrive at the
boundary of said State, then it might continue the construction
of its railroad and telegraph line eastward, to such point as it
might connect with the Union Pacific.
In aid of such construction the United States agreed to donate
every alternate section of public land designated by odd numbers,
to the amount of five alternate sections per mile, on each side of
said road on the line thereof, within ten miles of each side of the
road not sold, reserved or otherwise disposed of ; the title of said
land to be vested in the Company when it should have completed
forty consecutive miles of railroad and telegraph ; and that on
completion of said section, the Secretary of the Treasury should
20
issue to the Company bonds of the United States, payable thirty
years after date, bearing six per cent, per annum interest, payable
semi-annually, to the amount of sixteen of said bonds per mile,
but from the Western base of the Sierra Nevada Mountains, [such
point to be fixed by the President of the United States,] the
bonds to be issued should be at the rate of $48,000 per mile for
one hundred and fifty miles eastwardly ; and between the
mountainous sections at the rate of $32,000 per mile ; the
Central Pacific to complete fifty miles of said railroad and tele-
graph line within two years of filing their consent to the provi-
sions of this Act, and fifty miles each year thereafter; the entire
line between the Missouri River and the Sacramento to be com-
pleted so as to form a continuous line of railroad, and ready for
use by the first day of July, 1876.
The Act provides that the issue of said bonds and delivery to
the Company shall ipso facto constitute a first mortgage on the
whole line of the railroad and telegraph, together with the rolling
stock, fixtures, and property of every kind and description, and
in consideration of which, said bonds may be issued.
That the grants of the said lands and bonds are made upon
condition that said Company shall pay said bonds at maturity,
and shall keep its said railroad and telegraph line in repair and
use, and shall at all times transmit dispatches over said telegraph
line and transport mails, troops and munitions of war, supplies
and public stores on said i-ailroad for the Government whenever
required to do so by any department thereof ; and that the Govern-
ment shall at all times have the preference in the use of the same
for all the purposes aforesaid at fair and reasonable rates of com-
pensation, not to exceed the amount paid by private parties for
the same kind of service ; and all compensation for services
rendered for the Government shall be applied to the payment of
said bonds and interest until the whole amount is fully paid ; and
after said railroad is completed, until said bonds and interest are
paid, at least five per centum of the net earnings of said road
shall be annually applied in the payment thereof.
These are the express terras of the contract on the face
of the agreement. But there was an implied, if not an ex-
press understanding between the contracting parties, as voiced
in the various debates in both branches of Congress, that in ad-
21
dition to the five per cent, of the net earnings to be paid annually
after the completion of the road, the Government would look
only to the performance of that portion of the contract by which
the Railroad Company undertook to do its telegraph business and
transport its mails, troops and munitions of war, and public
stores, for the repayment of the principal and interest of the
bonds.
From those debates, and especially from such portions which
we have heretofore referred to, it is evident that not a single vote
was cast in favor of the passage of this Act with any expectation
that the Government would receive from the Railroad Com-
panies iu re-imbursement one dollar in addition to the five per
cent., and the services rendered in such transportation.
It will be remembered that Senator Wilson, of Massachusetts,
said :
As to the security the United States takes in this road, I would
not give the paper it is written on for the whole of it. I do not sup-
pose it is ever to come back in any form except in doing on the road the
business we need, carrying our mails and munitions of war. We ought not
to vote for the bill with the expectation or with the understanding that the
money which we advance is ever to come back into the Treasury of the
United States. I vote for the bill with the expectation that all we get out
of the road (and I think that is a good deal) will be the mail carrying and
the carrying of munitions of war, and such things as the Government needs.
I believe no man can examine the subject and believe it will come back in
any other way than is provided for in this bill, and that provision is for the
carrying of the mails and doing certain other work for the Government.
Mr. Howard, of Michigan, the Chairman of the Senate Com-
mittee on Pacific Railroads, who reported the bill of 1862, said :
When the road shall have been completed, assuming the bonds issued to
be .'^62,880,000, the maximum estimate and the entire interest will be but
.'j;3,773,800 per annum. The present able Chairman of the House Committee
took occasion to inquire directly of the Government the exact cost to the
Government of the transportation provided for by this bill, and found it to
be $7,357,000, or about one hundred per cent, more than the full charge of
interest against the Government when the road shall have been completed.
I now call the attention of Senators to this consideration, or rather to this
pregnant fact, not to be ignored or avoided, that the difference between the
interest (|3, 773,800) and the present cost, ($7,357,000,) with the five per
cent, reserved to the Government by the bill, would necessarily pay the
Gomrnment bonds and interest years before the Government bonds would
mature.
3
22
Mr. CoUamer said :
The bill carries the idea, and this section provides for the repaj-ment of
the loan, as gentlemen call it. In a subsequent section, it is provided that
the payment shall be made in the carrying of the mails, supplies and military
stores for the Government at fair prices, and also five per cent, of the net pro-
ceeds or sums to he set apart for the Oovernment. That is all the raovi-
BION THERE IS IN THE BILL FOR REPAYMENT.
Mr. Wade said :
Sir, your money will not be lost. In a pecuniary point of view, it will he a
gain to this Government, to make these facilities for settling this wilderness.
It will strengthen us in a military point of view. It will strengthen the
Union, which is more than all. It will do more for the country than we
have done for any number of years past.
In tlie House of Representatives, Mr. Campbell said :
I have shown that the army and navy transportation and postal service to
the Pacific Coast cost the Government annually $7,357,781. Take then the
annual interest from the annual expenditure, and we have left a sinking
fund of $3,465,701, a sum more than sufiBcient to extinguish the bonds before
they become due, or what is the same thing in efEect, saved to the Govern-
ment by cheapening expenditure in that direction.
Mr. Phelps, of California, said :
The gentleman from Pennsylvania has shown us by authentic figures that
the cost of transporting military and naval stores and the mails to the Pacific
Coast amounts to seven millions per annum, and that of this sum an amount
more than large enough to pay the interest on the bonds to be issued under
this bill would be saved by the construction of this road.
Mr. Kelly said :
Can there be any question that our country can bear such an augumenta-
tion of its annual expenditure, or will it harm, if posterity, being blessed by
this work, should, perchance, have to pay the principal of the credit
invested.
Mr. Sargent said :
The bonds will be issued slowly, few at a timfe, as the work progresses. It
will be probably two years before any bonds will be issued, for surveys have
to be made. » * * ip)jg -whole amount of interest to be paid up to
1806 will be but $168,000, and up to 1867, but $504,000 ; and when the road
is fully completed, and we are experiencing all the security and commercial
23
.Advantages which it will afford, the annual interest will he less than
$4,000,000. The War Department has paid out, on an average, $5,000,000
per year for the past five years, for transportation to the Pacific Coast, and
the mails cost $1,000,000 more, at their present reduced rates. The saving
•of the Government would be two millions per year on these items alone.
***** The Mormon war cost millions to the Government —
probably one-third the amount contemplated by this bill — and a very large
proportion of that cost was in the item of transportation, and much of it on
account of the necessary delay in military movements, without railroads over
such distance. That war never could have occurred, toith a railroad across
the continent. With such a road you would avoid Indian wars, which cost
millions to the Government, through the Territories traversed by it.
Mr. White, of Indiana, expressed the views certainly then en-
tertained by a majority of the Representatives. He said :
Now, sir, I contend, that although this bill provides for the repayment of
the money advanced by the Government, it is not expected that a cent of the
money will ever be repaid. If the Committee intended that it should be re-
paid, they would have required it to be paid out of the gross earnings of the
road, as is done with the roads in Missouri, Iowa and other States, and not
the net earnings. There is not, perhaps, one Company in a hundred, where
the roads are most prosperous, that has any net at all. I undertake to say
that not a cent of these advances will ever be repaid, nor do I think it desi-
rable that they should be repaid. The road is to be the highway of the
nation, and we ought to take care that the rates provided shall be moderate.
I think, therefore, that this will turn out a mere bonus to the Pacific Rail-
joad, as it ought to be.
The amount of bonds actually issued to the two corporations,
the Union and Central Pacific, was $55,092,192, but it was esti-
mated in these debates, as we have seen, that the amount required to
be issued would be about sixty-five millions ; and that several of the
speakers stated that the Government was then paying seven million
three hundred thousand dollars per annum for the service which the
TJnion and Central Pacific Railroad Companies were required by the
Act to perform ; and as about one-half of that sum would pay the
annual interest, there would be enough of the annual compensa-
tion remaining to pay off and discharge the principal of the bonds
within twenty years from the completion of the road.
The Central Pacific Railroad Company tried in good faith to
comply with the contracts it had entered into by accepting the
terms of the Act of 1862.
24
In the debate on the amendment of 1864 Mr. Thaddeus Ste-
vens said :
Certain it is that upon the California side of the line they have gone to
work with excellent zeal. * * * The Company have raised already upon
that side of the mountains over fifteen millions of dollars.
It managed, by the sale of such portions of its stock as it could
dispose of, and by contracting debts on the individual credit of
its promoters, to build thirty-one miles of its road, from Sacra-
mento to Newcastle. But until the passage of the Act of July
2, 1864, it was unable to construct beyond that point for lack of
the necessary funds.
On the 8th day of January, 1863, it commenced the construc-
tion of its road at the City of Sacramento.
The City of San Francisco had been instructed by an Act of
the Legislature to subscribe for six hundred thousand dollars of
the stock of the Central Pacific, and to issue its bonds for that
amount in payment.
The City of Sacramento was authorized to subscribe for thi-ee
hundred thousand dollars of stock ; and the County of Placer
for two hundred and fifty thousand dollars.
The State of California had enacted that it would pay the
interest on one million five hundred thousand of the bonds issued
by the Central Pacific for the period of twenty years.
The citizens of San Francisco resisted the subscription author-
ized by the Legislature, and the contest which resulted in the
Courts, in addition to the cost of the litigation, besides causing
embarrassing and ruinous delay, seriously affected the financial
credit of the Central Pacific, and caused such a depreciation of
its stock as to render it unmarketable.
The people of San Francisco were afraid that the City would
become liable for a portion of the debt incurred by the Central
Pacific in the construction and equipment of its road, and although
the highest tribunal of the State sustained the validity of the
legislation by which the municipality was directed to subscribe
for and pay for the stock, and although various writs of mandamus
were issued commanding the officers of the City to subscribe for
and to issue the bonds in payment of the stock, the Railroad
Company found it for its interest to compromise the litigation by
accepting from the City a donation of four hundred thousand
25
dollars of its bonds, and releasing it from its obligation to make
the directed subscription.
The litigious spirit manifested by the authorities of San Fran-
cisco had its effect on those controlling the finances of the other
Counties and of the State of California, and until the com-
promise had been made with the City, the promised aid from the
State and Counties of Sacramento and Placer was not available.
The promoters had used their own private credit in building
the thirty-one miles. They could not have the work of construc-
tion accepted by the United States until they had forty con-
secutive miles completed. The Company was therefore unable
to obtain the assistance, either in the way of bonds or lands
contemplated in the Act of 1862. The Government then held
the prior lien, and it was expected would take the property.
This delay, as shown in the testimony of Governor Stanford,
was fraught with most momentous results to the interests of the
corporation, as well as to the advancement of the City of San Fran-
cisco. If the aid that had been promised by the State of California
and the Counties of San Francisco, Sacramento and Placer had
been cheerfully yielded, after the necessary legislative authority
had been obtained, the Company could, in the winter of 1863-64,
have constructed several miles, of the most costly character, of its
work over the Sierra Nevadas. It was an unusually fine and open
winter, the temperature being mild and the fall of snow light.
The cost of the work that winter, in comparison with the
same work in the succeeding winter, would no doubt have
been from twenty to twenty-five per cent. less. And at this •
time the Union Pacific, not being able to find means to carry out
its contract, formed by its acceptance of the Act of 1862, had not
commenced the work ; and there can be no doubt, that if the
Central Pacific had been enabled to continue its construction
eastward, without any delay after it arrived at Newcastle, the
junction of the two roads would have been made nearly five hun-
dred miles further east than it was.
It is needless to describe what the financial condition of the
Central Pacific would have been under such circumstances, or how
much better able it would have found itself to respond to the
demand of the Government now made, which it did not anticipate
when it accepted the terms of the Act of 1862.
But this contest with the State and County authorities was not
26
limited, as we have seen, to a mere deprivation of money to the
amount lost in the compromise, but, in addition to the evils of the
delay, it had the effect of raising a danger signal to all who might,
under other circumstances, have subscribed to the stock of the
Central Pacific Railroad Company, or aided in its work of con-
struction.
Not only the capitalists of California, but those of New- York,
Philadelphia and Boston, the last being most prominent at that
time in aiding the railroads, reasoned that if the City of San
Francisco, whose citizens and business men were so much
interested in the success of the construction of the Central
Pacific Railroad, and whose future prosperity would be so much
controlled by it, were not willing to subscribe to its stock, and
would rather pay a forfeit of four hundred thousand dollars than,
by the payment of two hundred thousand dollars more, becoming
the owner of six hundred thousand dollars worth of stock, subject
to the liabilities created by the Constitution and laws of California,
and to the future exigencies and engagements of the Company,
it was sufficient warning for others not so interested to avoid
subjecting themselves to the perils of stockholders in the corpo-
ration.
As a part of the history of the Central Pacific enterprise it will
be well to note here the language used by the Legislature of Cali-
fornia when, on April 4th, 1864, it passed an Act guaranteeing
the interest on 1,500 bonds of the Central Pacific :
Whereas war now exists, and is in immediate and vigorous prosecution
between the Government of the United States and certain States which have
rebelled against its authority ; and whereas the Congress of the United States
has for military and other purposes granted aid for the construction of the Cen-
tral Pacific Railroad, which aid is insufficient to complete the work as speed-
ily as is necessary ; and whereas it is important, in view of the present state
of war and the further (future) danger thereof, that the said railroad be con-
structed as soon as possible to repel invasion, suppress insurrection and
defend the State against its enemies, therefore the people of the State of
California, represented in Senate and Assembly, do enact as follows, etc., etc.
27
III.
Change of Contract by the Act op Congress op 1864.
The Union Pacific found itself unable to construct any portion
of its road under the Act of 1862, and did not commence build-
ing until some time in the spring of 1865, and in that year
completed forty miles. It [numbered among its corporators
the most wealthy men of the nation, but the terms offered by
the Act of 1862 were not] sufSciently inviting. The Central
Pacific, although attempting to|comply with the Act of 1862,
found that in the tone and temper of capitalists it was impossible
to build their road even with the aid as therein granted ; and,
therefore, their contract was|changed by the passage of the Act of
1864, which permitted the Railroad Companies to issue their first
mortgage bonds on the respective railroad and telegraph lines to
an amount not exceeding the'amount of the bonds to be issued by
the United States, and of even tenor, date, time of maturity, rate
and character of interest, and that the lien of the United States
bonds should be subordinate to that of the bonds of said Com-
panies authorized to be issued on their respective roads, property
and equipments, except as to that provisioji of the Act of 1862,
relating to the transmission of dispatches and the transportation
of mails, troops, munitions of war, supplies and public stores for
the Government of the United States ; and that the aid provided
to be gi-anted by the Act of 1862, should be given upon the
completion of twenty consecutive miles instead of forty, and that
the Government should retain only one-half of the compensation
for services rendered to it by the Company to be applied in pay-
ment of the bonds issued instead of the whole ; and that the
Central Pacific should|be {required to complete only twenty miles
in one year in place of fifty.
With this increased aid, and the improved credit of its pro-
moters, the Central Pacific'was enabled to move out from New-
castle, eastward, and to build its road to Promontory Point, where
it made a connection with the Union Pacific, on May 10th, 1869,
nearly seven years and two^monthsjess than the time provided in
the contract.
28
IV.
The Difficulty of Construction and the Geeat Cost of
THE Central Pacific Road.
The manner in which this construction was pei-formed, the
difficulty of its performance over and through the Sierra Nevada
Mountains, the obstacles encountered in its construction in the
winter months, the great cost of the work, the difficulty of ob-
taining supplies of men and machinery, and of water on the
desert lands in Nevada, is graphically told in the evidence
of Mr. Stanford, the President of the road, Mr. J. H. Stro-
bridge, the Superintendent of Construction, Mr. Arthur Brown,
the Superintendent of Bridges and Buildings, Mr. L. M. Clement,
the Assistant Chief Engineer in charge of the work, and of Mr.
Alfred E. Davis — all of which was taken before the United States
Pacific Railway Commission at San Francisco.
For convenience and by way of illustration we copy here a
portion of the testimony of these witnesses.
Mr. L. M. Clement, the engineer in charge of the work, said,
in a sworn statement :
At the beginning of the construction, the Company, knowing the political
and commercial necessities demanding the rapid completion of the railroad,
determined that nothing which was in their power to prevent should for a
single day arrest its progress. With this determination in view, all ener-
gies were bent, notwithstanding the physical obstacles and financial difficul-
ties to be overcome.
The financial difficulties were not lessened by the opinions then prevailing
to the effect that the obstacles were insurmountable, that the railroads then
constructed were bagatelles as compared with the difficulties to be met in
constructing the Centra] Pacific Railroad ; that not only was it impossible to
construct a railroad across the Sierras -via Donner Pass, but owing to the
great depth of snow, it would be impracticable to operate, and, if built, must
be closed to traffic in the winter months.
As the Company was confined to the use of American rails, the prices
raised 80 per cent., from 41 to 76 dollars per ton. The average prices dur-
ing the building of the road were $91.70 per ton at the Eastern rollingmills.
The rails had to be transported to San Francisco via Cape Horn or the
Isthmus, thence by schooners to Sacramento, the initial point of the road.
Shipments ma Panama as late as the year 1868 cost for transportation $51.97
per ton, making the cost at Sacramento $143.67, not including the cost of
29
transfer from San Francisco. Delays and the losses of sliips made it neces-
sary to use the Isthmus route, and for locomotives transported by that route
the Company paid as freight as high as |8,100 for one locomotive. On a
shipment of 18 locomotives the transportation charges were $84,866.80, or
$4,692.50 each. The Company paid for two engines -170,753. The payment
was necessary to avoid delay. The first ten engines purchased cost upwards
of $190,000, the second ten upwards of $315,000. The demand for power
was great to overcome the high mountain gradients. Labor shared in the
advance in prices. California's laborers were mostly miners accustomed to
work in placer mines, which was more to their liking than the discipline of
railroad work. They were indifferent, independent, and the excitement of
the discovery of the Comstock lode was upoI^them, where any able bodied
man commanded four or more dollars per diem. There was not sufficient
labor then on the Pacific Coast to construct the Central Pacific, and such as
could be obtained could not be depended on. The first mining excitement
meant the complete stampede of every man and the abandonment of the
work.
Each day brought up propositions which must be solved without delay,
80 that the construction might advance.
As the snow line was reached, the depth of snow increased towards the
summit, from a few inches to over fifteen feet on a level from actual meas-
urement. The ground was kept bare for the graders by shovelling ; upwards
of one-half of the labor of the entire grading force being expended in remov-
ing snow. Not only was this necessary, but to make excavations, the space
to be occupied by the embankments was cleared and kept clear of snow ;
otherwise the melting of the snow under the broad bases of the high em-
bankments would have caused serious settlements, which, on ascending
gradients, already of 105 and 116 feet per mile, would, in cases, increase the
gradient beyond the tractive power of the engine. It required an army of
men to clear away and keep clear after a storm for a small gang of graders.
Rock cutting could not be carried on under snow drifts, varying in depth
from 30 to 100 feet. It was decided, no matter what the cost, that the
remaining tunnels should be bored during the winter. To reach the faces
of the tunnels, the snow drifts were tunneled, and through these all rock
was removed.
Retaining walls in the canons were built in domes excavated in the snow,
the wall stones raised or lowered to their places in the dome through a shaft
in the snow. All the force, numbering thousands, could not be worked in
the tunnels and in the retaining walls ; the surplus men, with their tools,
luggage, &c., were hauled beyond the summit, skipping the line now covered
with deep snow, and active work begun in the caSons of the Truckee River.
That no delay, even here, should result from the unfinished gap, twenty
miles of rails with their fastenings, a locomotive and cars sufficient for work-
ing were, by oxen and horses, hauled over the summit and down into the
canon of the Truckee River.
It was deemed wise to do some of the work in the lower mountains crossed
by the railroad in Utah, so that when the track reached those points there
30
should be no delay. About one car load of tools and material was wagoned
from Wadsworth to the Promontory Mountains, at a cost of |5,400. Every-
thing was expensive ; barley and oats ranged from $300 to $280 per ton ;
hay, $120 ; all other supplies in Utah in the same ratio.
Along the Humboldt River much of the line was constructed daring the
winter ; earthy material that could ordinarily be excavated by the pick and
shovel, were frozen to such a depth as to require blasting. This frozen
material made expensive embankments, requiring constant attention when
the frost was leaving it, to maintain the roadway in condition for the trans-
portation of material to the front.
As early as it was possible in the following y ear to again attack the work
in the heavy snow belt region, the forces were returned to the granite clifEs
and caBons. This army of men shoveled off snow to gain time ; miles of
line were thus made ready for the drill and powder ; $67,500 worth of
powder in a single month being used, a sum sufficient to construct and equip
three miles of ordinary railroad at the present time.
During the winter months there was constant danger from avalanches,
and many laborers lost their lives.
When possible to reach the threatening combs of great masses of compact
snow leaning over the granite bluffs, they were removed by powder.
When the forces were concentrated, the progress in the solid granite
ledges was slow but certain. The track was kept close up to the grading
forces, and never lagged when it was possible to provide track material,
power or rolling stock, either by steamships or sailing vessels.
For many days, owing to the hardness of the rock in the vicinity of Cisco,
it seemed impossible to drill into it a sufficient depth for blasting purposes,
shot after shot fired as if from a cannon, perseverance alone conquered.
That was before the powerful explosives were invented, and the many
other improvements made for railroad construction purposes in the last
twenty years.
The Company, at the summit of the Sierras, Donner Pass, manufactured
nitro-glycerine, but it was too dangerous for general use.
Transportation of material, tools, etc., was then an important factor in
construction. There were then no such powerful engines as of the present
day, which can haul two of the then most powerful ones and their loads ; no
cars to carry 50,000 pounds of load.
All material for construction, excepting timber, had to come from the
Atlantic States, via the Isthmus or Cape Horn to San Francisco, there light-
ered for ascending the Sacramento River to Sacramento, and thence hauled
over the Central Pacific so far as completed, and, when needed, wagoned
beyond the end of the track. Trains returned empty. There was not one
inhabitant to ten miles between the east crossing of the Truckee River and
Bear River in Utah.
With the exception of a few cords of stunted pine and juniper trees, all
the fuel was hauled from the Sierra Nevada Mountains. Not a coal bed on
the line of the Central was then known, and the only one yet discovered is
a poor quality of brown lignite.
31
Water was scarce after leaving the Truckee and Humboldt Elvers, and
during the entire construction vras hauled for steam and general use of the
grading forces.
Thousands of dollars vpere expended in well boring. Tunnels were bored
into the mountains east of Wadsworth to develop small springs, and when
water was found it was carefully protected, so very precious was it, and
conveyed in some cases over eight miles in pipes to the line of the road.
There was not a tree that would make a board on over five hundred miles
of the route, nor satisfactory quality of building stone. The country afforded
nothing entering into the construction of the superstructure of a railroad
which could be made available.
The maximum haul for ties was 600 miles, and of rails and other ma-
terials and supplies the entire length of the Central Pacific Railroad, or 740
miles.
Cars were transported on ships, in pieces, to San Francisco, and lightered
for Sacramento, and there put together.
California had no means of manufacturing for railroad building. Only 14
years priorto the beginning of the construction of this railroad was there any
considerable emigration directed to this coast.
A quarter of a century has made great changes. Once the possibility of
constructing a railroad across the mountain ranges and deserts proven, and
emigration started west, capital was less timid of the probable future of
railroad enterprise, and means were furnished for constructing other trans-
continental roads ; and by the aid of machinery, powerful explosives, and
experience, they can now be constructed at comparatively light cost. It is
probable, that had the road been constructed during the five years preceding,
it would not have cost more than 66 per cent, of what it actually did cost.
The principal elements, materials, transportation and labor, were very
much cheaper. Bails averaged 51 per cent, less ; transportation, 63 per cent,
less. All elements excepting labor was a large per centage less.
If constructed five years subsequent, it would have cost about 75 per cent,
of the actual cost. Had the whole time allowed for construction of the
Centra] Pacific Railroad been used, it is not an easy problem to determine
for how much less the road could have been built. Advantage of the
markets could then have been taken, contractors would have been willing to
undertake the work, if a reasonable time for completion were allowed, so
that they would not be required to perform any of the work during the
winter months, where mercury freezes, and in deep snows ; in fact, all the
advantages of seven additional years.
Mr. Strobridge, the Superintendent of Construction, stated on
oath :
The work was pushed with the utmost vigor; all the men were hired that
could be found, and no effort or expense was spared to complete the road aa
quickly as possible. In this way it was finished and in operation from Sac-
32
ramento California, to Ogder., Utali, about seven years sooner than was
required by Act of Congress.
Very higb prices were paid for powder, and all tools and supplies used on
the work, and nothing was spared that would hasten its completion ; and
the work was pushed regardless of the season.
The winter of 1865-66 was a very wet one, making the roads on the clay
soils of the foothills nearly impassable for vehicles. Large numbers of pack
animals had to be brought into use, and on them were carried nearly all
supplies, even hay and grain, over steep mountain trails to the construction
camps.
As illustrating the iinpassability of the roads, the stage running from end
of track to Virginia City was stuck in the mud, and left standing in the
street at Gold Run for six weeks, the passengers being carried in the mean-
time by saddle train, from the railroad at Colfax to Dutch Flat.
The building of the railroad during this time was prosecuted with energy,
but at much greater cost than would have been in the dry season. During
the winter of 1866-7 and also of 1867-8, there were unusually heavy snow-
falls in the upper Sierra Nevada, where the road was then under construc-
tion.
In many instances our camps were carried away by snow slides and men
were buried, and many of them were not found until the snow melted the
next summer.
In the spring of each year the men were taken back from the Truckee
into the mountains, and an average depth of ten or twelve feet of snow was
cleared away before grading could be commenced. The total snow fall of
the season was about forty feet ; and the depth of hard, settled snow in mid-
winter was eighteen feet on a level in Summit Valley and Donner Pass ;
over which we hauled on sleds, track material for forty miles of railroad,
three locomotives and forty cars, from Cisco to Donner Lake, where all was
reloaded on wagons and hauled over miry roads to Truckee, a total distance
of twenty-eight miles, at enormous cost. In this way the road was forced to
the east slope of the Sierra Nevadas.
In crossing the deserts east of the Truckee River, water for men and ani-
mals was hauled at times forty miles. It was necessary to have the heavy
work in the Palisade Canon done in advance of the main force ; and 3,000
men with 400 horses and carts were sent to that point, a distance of 300 miles in
advance of the track. Hay, grain and all supplies for these men and horses
had to be hauled by teams over the deserts for that great distance, there
being no supplies to be obtained on the entire route.
The winter of 1868-69 was one of severe cold. The construction was in
progress in the upper Humboldt Valley, where the ground was often frozen
to a depth of two and three feet, and material required blasting and treat-
ment like rock, which could have been cheaply moved in a more favorable
time.
The entire cost of the railroad, had it been built with less speed, and as
such railroads are usually constructed, would have been fully seventy per
cent, less than its actual cost, as it was built with rapidity of construction
33
the main consideration, and without regard to any outlay that could hasten
its completion.
The railroad from Newcastle, on the west slope of the Sierras, to Wads-
worth, at the beginning of the Nevada deserts, 157 miles, was built between
February, 1865, and July, 1868, more than three years, with a force averag-
ing 11,000; and at times reaching 13,000 men.
The railroad from Wadsworth to Ogden, about 555 miles, was built between
July, 1868, and May, 1869, about ten months, with a force averaging 5,000
men. If the country between Newcastle and Wadsworth had been of the
same average diflBculty as that between Wadsworth and Ogden and between
Ogden and Omaha, the labor that was put upon the Central Pacific Railroad
would have built it to a point far east of Omaha in the same time, the work
from the east slope of the Sierra Nevadas to Ogden being more than an ave-
rage of that from Ogden to Omaha.
Mr. Aethue Beown, Superintendent of Bridges and Build-
ings, set forth in his affidavit :
I submit a brief outline of the construction of the snow sheds over the
Sierra Nevada Mountains, on the line of the Central Pacific Bailroad, as
well as the conditions which made them a necessity. As Superintendent of
Bridges and Buildings, that work was assigned to myself. The excessive
snow belt, where the road crosses the Sierra Nevada Mountains, extends
from a point near Blue Canon, on the western slope, to Cold Stream Canon,
on the east, a distance of about forty miles, having its maximum depth near
the summit. The snow fall for the season has been known from actual
measurement to be nearly fifty feet. In the fall of 1866 the road was
opened to Cisco. The experience in keeping the road open through the
following winter, led to the construction of the snow sheds. Although every
known appliance was used to keep the road clear from snow that winter,
including the largest and best snow plows then known, it was found impos-
sible to keep it open over one-half of the time, and that mostly by means of
men and shovels, which required an army of men on hand all the time at
great expense. It was decided, after various discussions by the Directors,
that the only positive means of protecting the road was by means of snow
sheds and galleries, although the expense of building a. shed nearly forty
miles in length was appalling, and unprecedented as an extra in railroad con-
struction. In the summer of 1867 we built some experimental sheds. The
snow shed building was commenced in earnest in the spring of 1868. Owing
to the short season in which the work had to be done (less than five months)
it was decided to cover all the cuts, and the points where the road crossed
the great avalanches beyond the summit, with the idea that the high em-
bankment on the road could be kept clear of snow. As the road was then
rapidly progressing up the Valley of the Humboldt, it became » matter of
the most vital importance that the sheds should be so far finished that the
supplies and building materials for construction ahead should not be inter-
rupted, as the connection was to be made in the spring of 1868. We, there-
34
fore, had to gather men from all quarters and pay kigh wages : carpenters,
$4.00 per day ; and suitable laborers about $2.50 to $3.00. We employed
about 2,500 men, with six trains with locomotives distributing material.
The expense was considerably increased by the fact, that we had to keep
the road clear for traflBc, which was great, owing to the large amount of
building material forwarded to the front, and to avoid accident, which
consumed about 30 per cent, of the time, consequently increasing the cost in
that proportion. Besides, we had, by commencing in the spring , to shovel from
six to eight feet of snow before we could put in foundations for sheds. In
the fall we continued until snow stopped us entirely, although we had been
shoveling snow for nearly two months. The expense of shoveling snow,
and the difficulty of getting men at reasonable wages to remain on the work,
owing to the snow, bad weather, &c. , added very much to the cost. As there
were not sufficient saw mills to supply the necessary material, we had to
resort to round and hewn timber, which had to be got from the woods and
brought to the track at great expense. The galleries are built along the side
of the mountains, where the slope of the roof conforms with that of the
mountains, so the snow can pass over easily. Some of these galleries run
back on the slope of the mountains several hundred feet from the centre line
of the road. In other places massive masonry walls were built across ravines
to prevent the snow from striking the sheds at right angles. The snow
sheds and galleries were finished in the fall of 1869. In them was used
65,000,000 feet, B. M., of timber, and 900 tons of bolts, spikes, &c. The
total length of sheds and galleries, when finished, was about 37 miles, but
there were several pieces built afterwards, bringing it up to nearly forty
miles, at a cost of about $1,500,000. For several years the loss from fires
was considerable, as several miles were burned down, and had to be rebuilt.
Water trains are now constantly kept on hand for sprinkling down the sheds
twice a week, thus preventing their destruction by fire. A number of the
tunnels through the same mountains had to be timbered at a great expense.
As most of it had to be got out in the winter time, and as it was impossible
to keep the roads open, we had to employ men and bring timber to the
tunnels on hand sleds.
1 am quite familiar with all the extraordinary exertions put forth in all
departments of this work, and especially the almost superhuman efforts put
forth by Mr. Strobridge, Superintendent of Construction, in keeping the men
at work on the rock work and tunnels, and shoveling snow at great depth
during the fall and winter.
I consider, from my experience, that, if time could have been spared to
take advantage of the proper seasons, it could probably be duplicated now
for less than forty per cent, of its original cost.
In the very able report on Trans-continental Railways, hereto-
fore noticed, made by Col. O. M. Poe, of the Engineers' Corps,
to General Sherman, he says of the construction of the Central
and Union Pacific :
35
Literally an army of workmen were employed— 25,000 men and 6,000
teams — and tlie route presented a busy scene. The woods rang with the
strokes of the axe and the quarries with the click of steel. The streams
were bordered with lumbermen's camps and choked with floating logs, and
materials, supplies and equipment for the Central Pacific were scattered from
New- York, via Cape Horn and San Francisco, to the tery end of the track
advancing eastward.
Without undertaking in any way to detract from or underrate
the services performed by the Union Pacific in the accomplish-
ment of its contract, it will be remembered that the Central
Pacific labored under great disadvantages which were not shared
l>y the Union Pacific, and that the work of its construction
was much m.ore costly. At the time that the Union Pacific had
reached the one hundredth mile post, west of Omaha, it was in
direct railway communication with the rail mills and manufac-
tories of the Eastern States. Before that time its supplies were
shipped by rail from Chicago to Saint Joseph, and thence by the
Missouri River to Omaha. It could obtain its supplies daily, if it
wished, and in such quantities as it desired. But the Central Pacific
was separated by two oceans, and twenty thousand miles, from
the source of the materials required for the construction of its
road. It could not predict, within two months of the time, when
the rails it had ordered from the Eastern rolling mills would
reach the western end of its track ; and in addition, it was sub-
jected in the receipt of its supplies to the chances of shipwreck,
of vessels putting into way ports on the South Atlantic or South
Pacific for repairs. Its work of construction was attended with
drawbacks and disappointments, and great expenses that were
not shared by the Union Pacific Company. It had to pay war
rates of insurance, ranging from five to seventeen per cent., from
which tax the Union Pacific was free. And when pressed for
time, or to remedy a loss of material that had occurred in the
transit around Cape Horn from New- York, it was compelled to
send rails or locomotives across the isthmus of Panama. It was
subjected to burdens from which the Union Pacific was totally
free, as is shown by the testimony of Mr. Clement, Mr. Stro-
bridge and Mr. Brown, heretofore noticed.
Being at such a distance from its base of supplies, it was com-
pelled to keep material for nearly a year's construction constantly
in transit. It had upon the ocean for the greater part of the
36
time it was engaged in the construction of its road, materials
valued at from one to three millions of dollars, upon which
it was incurring an interest account, ranging for most of the time
from twelve to fifteen per cent, per annum. We have it in evi-
dence before the Commission, that the rails used in this work cost
at the point of production from $74 to $115 in cash per ton. 500
tons were purchased at $262 in Central Pacific stock, with $5 addi-
tional added for delivery in New-York or Boston ; and that the ave-
rage price paid in New- York during the entire work was $80 a ton.
The freight from New- York to San Francisco, around Cape Horn,
averaged $17.50 per ton ; insurance was from five and a half to
seventeen per cent. It will therefore be seen, that the cost to the
Central Pacific of rails in San Francisco, at the lowest rate of insur-
ance, without interest, was $101.50 per ton. To this must be joined
the cost of transportation from San Francisco to the western end
of the Central Pacific, vs^hich averaged two dollars per ton ; and
the cost of moving to the point of construction being added,
makes it entirely safe to calculate that the average cost of the
rails used on the Central Pacific was not less than $125 per ton
laid in the track.
These enormous prices and expenses, added to the general
character of the country through which the Central Pacific was
built, and the difficulty of obtaining fuel, and the long distance
over which water was transported for the use of the engines en-
gaged in construction and of men employed, is one of the reasons
why, joined to others discussed hereafter, this Company exhausted
the proceeds of all the aid granted to it in bonds by the United
States, and such portion of the lands as it had sold at the com-
pletion of the road to Promontory, and the proceeds of the first
mortgage bonds which it had issued, and all the aid which it
received from the counties of California, and the proceeds of its
bonds, the interest on which for twenty years was guaranteed by
the State of California, and the moneys received from the sale
of the stock of the Central Pacific, in the construction and equip-
ment of the aided road between Sacramento and Promontory
Point, and the purchase from the "Union Pacific of the road
between Promontory and Ogden, so as to comply with the Act
of Congress, that the common terminus and point of junction
should be fixed at Ogden, and that at the completion of such
37
construction and purchase it was several millions of dollars in
debt.
The charge, so often made, that the promoters of the Central
Pacific made great profits in the construction of the road, is
utterly refuted. When it was finished they could not have
paid their dehts from the assets then remaining. The Secretary
of the Company has shown the faithful expenditure of every
dollar received prior to the completion of the road — that it was
all consumed in construction and equipment.
'So one who reads the evidence given before the United States
Pacific Railway Commission will deny that the promoters of
the Central Pacific enterprise labored earnestly and manfully
not only to fulfill their contract with the Government, but to
comply with its wishes for an earlier completion of the road; and
they did it without regard to their own pecuniary advantage, be-
lieving that the Government would treat them equitably in the
premises.
The Government and the people were very anxious for the
fruition of the scheme that had so long held a prominent place in
the public mind. The early events of the war had shown the
peril of not having frequent and rapid communication between
the Atlantic and Pacific States ; and the Companies having the
work in charge did all that lay in their power to gratify the pop-
ular desire for its early completion, without regard to the cost to
themselves.
Before the roads were fully finished the Government com-
menced to realize benefits from the partial fulfillment of the con-
tract, in its facilities for transportation of mails, and of troops and
munitions of war to its various forts, and by its opportunity of
communicating with the commanding officers by telegraph.
These benefits and advantages to the Government increased
with the further progress of the road, until it was finished.
When the Union and Central Pacific connected their tracks
they had performed all their part of the contract to the best of
their ability. They had accomplished the great work that had
filled so large a space in the public thought ; and they put the
easements and facilities which their lines afforded at the disposi-
tion of the Government, to the great advantage of the nation,
and the protection of its territory.
The " glad tidings " that were telegraphed from Promontory by
4
38
the Presidents of these two Companies, on the 10th day of May,
1869, to the victorious General of our Armies, at that time Presi-
dent of the United States —
We have performed our contract with the Government, and there is now
continuous connection by rail from the Missouri River to the Sacramento,
and from the Atlantic Ocean to the Pacific —
vcas second only in its importance to the pregnant message sent
from Appomatox by this same gallant soldier to President Lincoln,
when the unity of the nation was assured by the surrender of
General Lee arid his army.
They had done the work that was given them to do ; and in
spite of all criticism to the contrary, they had done it well.
But from that moment, when the Government was notified of
the performance of the contract, when the advantages so hope-
fully anticipated by the Senators and Representatives who voted
for the passage of the Act of 1862, and the amendment of 1864,
were at the disposition of the Government, it commenced to dis-
regard all its obligations under the contract, and to lay its heavy
hand on the corporations who had accomplished this gi-eat na-
tional work.
This is a statement that can only be made with shame and
mortification by a citizen respecting his Government ; but it is
the truth ; and justice in behalf of those whom the Government
is oppressing requires that it should be said.
It is this persistent and willful disregard of all its contract ob-
ligations on the part of the Government in its dealings with the
Central Pacific, that gives this Company the right to come to the
people's representatives assembled in Congress, to make known
its grievances, to present its equities, and to demand appropriate
relief.
As the Central Pacific had been true in all its obligations to
the Government in the construction of its part of the national
highway, so it has continued faithfully to observe all the obliga-
tions it entered into when it filed its acceptance of the terms of
the Acts of 1862 and of 1864.
In July, 1864, on the very day the contract between the Govern-
ment and the Union and Central Pacific was amended, Congress
passed an Act subsidizing the Northern Pacific Road, the effect of
which was necessarily to take from the Central Pacific the busi-
39
ness north of California. And in July, 1866, while the construc-
tors of the Central Pacific were bending all their energies, as we
have heretofore shown, and seeking every aid within human reach
to tunnel the rocks of the Sierra Nevada Mountains, to remove the
masses of compact snow, to cut down the timber and clear a suitable
bed for their rails, the Government subsidized still another road, the
Southern Pacific, the building of which could only result in taking
away from the Central a large portion of the trans-continental traffic
intended for California, and which the construction of the Union
and Central was intended to control, and to compel the Central
Pacific, for its own protection, to purchase it, and to limit its
ability to respond to the demands of the Government, and to de-
•crease the amount of the net earnings which, under its contract,
it was obligated to render to the Government.
It will not, of course, be contended that if Congress, acting for
the best interests of the nation, thought it wise to subsidize these
roads, it should have refrained, because of the contract it had
made with the Central and Union Pacific ; but its action in this
respect certainly does raise many equitable considerations, which
should be considered and determined in the settlement of the
questions now existing between it and the corporations.
And such would appear to be the view adopted by Congress
in the passage of the Act of March 3, 1887, authorizing the ap-
pointment of a Commission to investigate the books, accounts
and methods of railroads which have received aid from the United
States, and directing the Commissioners —
To inquire if the United States, since the Union and Central Pacific Railroad
Companies accepted the terms proposed by Congress for the construction of
the Pacific Railroads, has granted aid in lands forbuilding competing parallel
railroads, and if so, how many said roads, and to what extent such compet-
ing lines have impaired the earning capacity of the Pacific Railroads.
The testimony taken by the Commission to enable it to answer
this inquiry, shows a loss to the Central Pacific from 1881 to 1886
of about $17,000,000. We will refer to this testimony hereafter.
The people of the United States have benefited by the com-
petitive rates from which this loss resulted. The profits of the
Central Pacific on its through traffic have been almost totally
•destroyed, and its ability to meet its pecuniary engagements to
the Government greatly lessened. The action of the Government
40
in creating these factors to share the overland business m.ust be
considered a violation of the contract of 1862, made in the public
interest, for which the Central Pacific is entitled to compensation,,
commensurate with the damage.
An impartial judgment on the acts and motives of the men
who constructed the Central Pacific is difficult to be obtained
from those who were not familiar with the peculiar trials, draw-
backs and hardships to which they were subjected during the
term of such construction. .
After the lapse of time we are apt to underrate the obstacles
that attended an effort successfully accomplished.
Even seven years after the road was completed, the embarrass-
ments of its constructors had partially faded from the public
mind, as we learn from the following extract from the letter of
Mr. Huntington, dated April 3, 1876, to Senator Edmunds^ which
was printed by order of the Senate :
The relations between the Government and the Pacific Railroad Compa-
nies, growing out of the Acts of 1863 and 1864, whereby the United States,
in time of war, advanced its bonds, in order to insure and hasten the con-
struction of a railroad and telegraph line between certain points on the Mis-
souri River and the Pacific Ocean, and especially the pecuniary obligations
created thereby, have again been pressed upon the attention of Congress and
of your Committee.
The spirit and aim of those Acts, it is well known, was to establish, with-
out the direct agency of the nation, railroad communication across the Con-
tinent, and this object has been attained under the terms and conditions then,
made, but years ahead of the allotted time. Commonplace as the achievement
may seem now, at the time of its inception it was deemed a work so novel, so
hold and vast, that tut few believed in its success, while there was a general
apprehension, both in tJie public mind, and among their representatives, that it
might be long delayed or fail altogether.
A Committee room in the Capitol, or the Chamber of either
branch of Congress, is not conducive to a just decision of any
controversy between the Central Pacific and the Government. It
should have been heard on the Sierra Nevada Mountains in the
winters of 1865-66, 1866-6'7, or 1867-68, during the times when,^
according to the testimony of Civil Engineer Clement, Construc-
tor Strobridge, and Bridge-builder Brown, it seemed that the
efforts of man to construct a track over these mountains was
apparently being successfully resisted by the determined force of
the elements.
41
The physical and financial energy and ability so auspiciously
•displayed to overcome the impediments encountered, can scarcely
be well considered or determined under the dome of the Capitol.
V.
Observance by the Central Pacific op its Obligations to
THE Government.
But it is now said that the Central Pacific Railroad Company
has not been mindful of the obligations imposed upon it by the
laws of -the United States under which it received aid for the
construction of its road.
It will be difficult certainly for the most avowed enemy of this
Company to substantiate the proposition.
In what have its managers failed ? They constructed their road,
as we have heretofore shown, without any regard to their ultimate
profit. They constructed it as if they were performing a national
instead of a private work, and were more anxious for the interests
of the nation than their own.
No matter what a thing cost, no matter what amount
could be saved by delay, they pushed along, in season and
out of season, (as the testimony before the Commission shows,)
to insure the final completion of the work, and to open it for the
public use as soon as human aid could render it possible.
If they had kept to the rigid terms of their contract, and had
opened the road, as its letter required them to do, on the first
day of July, 1876, instead of on the 10th of May, 1869 ; if they
had availed themselves of their opportunities of buying in the
cheapest market at a favorable time, instead of exhausting all
their resources, as they did, and when the first through train was
run over the road, owing a debt they could not have met
if they had been pressed to pay it, they would, out of the sum of
more than fifty millions in gold which they expended in the con-
struction of the road from San Jos6 to Promontory, have saved
at least twenty millions.
Is there any evidence in this of their being unmindful of their
obligations to the Government? They sacrificed the immense
sum they might have saved to show the practicability of
4-2
the work which had received the assent of Congress, and to
demonstrate that, contrary to the opinions of the most able en-
gineers of England, France, Germany and Austria, they were
enabled to do their part in the construction of a road over the
Sierra Nevada Mountains, and over the desert lands between
those mountains and the Missouri River in an incredibly short
space of time, and to successfully operate the same to the ad-
vantage of the public, the benefit of the nation, and to render
it a commercial success.
It may be that those who read this statement will remember
the criticisms of the leading London journals, that no other
people but those of the United States would ever have conceived
of so wild a project as the building of a road to connect the
frontier of the Atlantic States with the Pacific Ocean ; and here
it may be said, that their success in showing the practicability
of a road over and through the mountain passes and the
desert lands in one-half of the territory of the United States, was
of much greater benefit and advantage to the nation than all the
aid which the Government rendered to them. The result of their
efforts is shown in there being five trans-continental roads in
successful operation at the present time.
In what other respect have these Companies failed in their
obligations to the Government ?
Have not the United States all that they bargained for ?
It was avowed in the debates prior to the passage of the bill
of 1862, and declared in the bill itself, that the aid granted to
the Companies was made upon condition — •
That the said railroad and telegraph line shall be kept in repair and in use,
and the said Company shall at all times transmit dispatches over said tele-
graph line, and transport mails, troops, munitions of war, supplies and
public stores upon said railroad for the Government, whenever required to
do so by any department thereof ; and that the Government shall, at all
times, have preference in the use of the same for the purposes aforesaid, at
fair and reasonable rates of compensation, not to exceed the amounts paid
by private parties for the same kind of service.
Has not the Government the benefit of this condition to the
fullest extent whenever it chooses to use the railroad, instead of
seeking for a cheaper mode of transit around Cape Horn or over
the Isthmus of Panama ? Has there been any failure of the
Company in its obligations in this respect ?
43
The purpose stated in the title of the bill is,
To secure to the Government the use of the same for postal, military and
other purposes.
The road and all its equipment has-been at all limes open to
the use of the Government whenever its sense of economy would
enable it to pay the same rates as were paid by private citizens
for the same services, instead of sending its business around Cape,
Horn, or through foreign countries, in defiance of the terms
of its contract with the Company.
It stipulated for the payment of five per cent, from the time
of the completion of the road. When the last section of the
road was provisionally accepted by the Government this debt
ridden corporation, the Central Pacific, asked for the bonds and
lands that were due to it in accordance with the terms of the
contract. The answer was. No. Your road is not completed.
We have a report of the Board of Civil Engineers that we
have appointed, who say you must spend nearly five millions
of dollars to finish the road in the manner we require ;
and until it is so completed you cannot have the balance
of the aid that is promised ; and in addition to that we
insist, as security that the road will be completed to the entire
satisfaction of the Government, that you deposit with the Secre-
tary of the Treasury four millions of your first mortgage bonds,
and we will retain, in addition, as further security, all the
lands which you are entitled to under the Act of 1864. But,
nevertheless, in the meantime, although your road is not com-
pleted so as to entitle you to payment, you must still render to
us five per cent, on the net earnings from the time that you run
the first train over the road, from the time we have the full use
of it in every respect.
The Central and Union Pacific demurred to this arrangement.
But when the Supreme Court of the United States, differing as
it did from the views expressed by the Court of Claims, and by
the Circuit Court for the Northern District of California, re-
versed the judgment, and held that the United States was techni-
cally correct, and could, if it chose, persist in its inequitable de-
mand, the Central Pacific at once obeyed the law and paid to the
Government the amount which it claimed as five per cent, upon
the net earnings from the time the last spike was driven.
44
And so when the contract was changed by the passage of the
so-called Thurman Act, which the Central Pacific believed violated
every principle of the law of contracts, it being advised and believ-
ing that the alteration of the original contract by the legislative
department was beyond its- authority, and that the Act was in-
valid, submitted the matter to the Courts, and when, against what
might be said to have been the indignant protest of Mr. Jus-
tice Strong, Mr. Justice Bradley and Mr. Justice Field, the
Court sustained the validity of the Act ; the Central Pacific
complied with it, and is still complying with it, although
to the great detriment of the corporation and the Government,
whose anticipations of benefit have not been realized, because the
change was not based on sound principles.
Where is the evidence that the Central Pacific corporation has
not kept its part of the contract, or that it has in any way failed
to comply with any of its obligations to the Government ? It has
rendered to the Government all that was demanded in the con-
tract, the building of the road, and in about one-half the time
that the law allotted.
Whenever the rights of the United States have been ascer-
tained, the Central Pacific has accorded those rights, and has
cheerfully and promptly yielded to the demands of the Treasury
upon it.
It is the merest perversion of language to say that this Com-
pany has in any way failed in its obligations towards the Govern-
ment.
But while there is no evidence to sustain such a charge against
the Central Pacific Railroad Company or its officers, we find
abundant evidence in the Executive departments of the Govern-
ment to refute it.
The Attorney-General, in his report to the Senate at the first
session of the 48th Congress, said :
Mrst. The Central Pacific Railroad Company lias fully and promptly com-
plied with the requirements of said Act. (Meaning the Act of Congress
generally known as the Thurman Act.) (See Ex. Doc. No. 131, p. 2.)
At the same session, in answer to further inquiry, the Attorney-
General said :
In further reply to the inquiry of the Senate, I have the honor to state
45
that I am informed by the Secretary of the Interior that the Central Pacific
has met and paid the demands of the Commissioners of Railroads, reserving
all its rights. (Ex. Doc. 134, p. 3.)
William H. Armstrong, United States Commissioner of Rail-
roads, in his report for 1882, says :
Able and expert accountants of this oflBce have investigated and reported
upon the business, financial condition, and the proportion of net earnings
due to the Government for the past year. The results are shown in detail
tinder the proper headings. Free access has been accorded to the books and
accounts of the several subsidized roads whenever requested. Detailed
statements of the earnings and expenses, financial condition and physical
character of the various land grant roads have been compiled from examina-
tion of the returns made, and are herewith submitted. As a rule, the ac-
counts of the road are kept in a thoroughly comprehensive and business-like
manner. (Report of 1882, p. 5.)
Again, he says :
Under the Act of May 7, 1878, the bookkeeper of this ofiice checked the
books and accounts of the Company (The Central Pacific Railroad Company)
in San Francisco, with a view to the ascertainment of the twenty-five per
cent, of the net earnings for the year ending, December 31, 1881. Twenty-
five per cent, of the net earnings of the subsidized portion of the road was
found to amount to |1, 038,935.34. The transportation for the Government
during the year amounts to $959,785.33, leaving a balance due the United
States of 179,149.91. A statement was rendered, and payment demanded
October 30, 1883. A check for th6 amount was sent to the Treasurer of the
United States, by the Vice-President of the Company, October 30, 1883.
The Company has therefore paid to the Government all its accrued indebted-
ness to this date. (Same Report, p. 36.)
The same Commissioner, in his report for the year 1883, says :
In accordance vrith the Act of May 7, 1878, the books and accounts of this
Company (The Central Pacific Railroad Company) were checked by the
bookkeepers of this Bureau, in San Francisco, California, with a view to the
ascertainment of twenty-five per cent, of the net earnings of that portion of
the road, 860.66 miles, subsidized with the bonds of the United States, for
the year ending December 31, 1883. The amount founddue was |793,930.34 ;
against which the Company have performed transportation services on aided
and non-aided lines, all of which have been retained by the Government,
amounting to $1,051,863.46, leaving a balance due the Company that year of
$358,943.23. The Central Pacific Railroad Company has promptly paid all
balances found to be due to the United States, after statements have been
rendered by this oflSce. (Report of 1883, p. 43.)
46
The same Commissioner, iu his report for 1884, says :
The property and accounts of the several railroads have been examined.
The Companies (the Pacific Railroad Companies) have freely accorded all
proper facilities for the inspection of their property, and the examination of
their books. (Report of 1884, p. 8.)
General Joseph E. Johnston, Commissioner of Railroads, in
his report for 1885, says :
The lease to the Southern Pacific Company has not affected the obligations
of the Central Pacific Railroad Company to the United States, of course. The
accounts of the Company were examined in San Francisco. » * *
The property of the Company was also examined, and found to be in good
condition. The principal workshops at Sacramento are thoroughly equipped,
and capable of making all the engines required by the whole system. The
service of the road is excellent, ditches ample, road bed well raised, and
bridges sound. (Report of 1885, p. 1.)
And again, in the same report :
The accounts of the Companies, under the supervision of this office, have
been carefully examined, especially those of the Companies that were
aided with the bonds of the United States, and the officers readily furnished
all necessary facilities. The property, including railroad, rolling stock,
workshops, is in good working order. The portion of this road, (the Central
Pacific, between West Oakland and Roseville Junction, 159 miles, was found
to be in the usual good condition, so characteristic of this Company's railroads.
(Report of 1885, pages 3 and 43.)
Theophilus French, United States Auditor of Railroad Accounts,
in his report for 1879, says :
This Company (the Central Pacific Railroad Company) has rendered such
reports as have been required, and submitted its books and accounts for
examination. * * * The engineer's report shows, in considerable detail,
the condition of the property covered by the lieu of the United States. * *
* The equipment of the road is iu good condition, and ample. * * » * •
The ferry service between Oakland and San Francisco * * * is to be com-
mended. The passenger service on the road is unexceptionably good.
(Auditor's Report, 1879, pages 34 to 37. )
It is in order to refer here to the current testimony of the time
for the impression made, even upon those who were not favorable
to the owners of the Union and Central Pacific Roads, by the
manner in which the managers of those Companies had performed
their contract with the Government.
47
When the Act of May V, 1878, was before the Senate, the Act
known as the " Thurman Bill," by which the contracts between
the Government and the Union and Central Paciiic Railroad
Companies were changed, without the consent and against the
pi-otest of the contracting parties, who, in reliance on the good
faith of the Government, had built this national highway ; Mr.
Bogy, the Senator from Missouri, who favored this violation of
the rights of the Railroad Companies, was compelled to yield the
following tribute. He said :
I look upon the building of the railroad from, the waters of the Missouri to the
Pacific Ocean, at the time particularly in which it was built, during the war,
as perhaps the greatest achievement of the human race on the earth. lam old
enough to remember when the scheme of a railroad from the waters of the
Missouri to the Pacific Ocean was looked upon as a wild dream, as a thing
nearly impossible, if not entirely impossible of accomplishment. Yet it toas
accomplished. And, in truth and in fact, it was accomplished at a compara-
tively small cost to the Government. The lands donated to the road were not
wortJi a cent without a railroad. The Government had an empire lying west,
between the waters of the Missouri and the Pacific Ocean — an empire which has
sprung into great States and Territories from that day — a country which has
become of great advantage, and which would have been utterly worthless without
the railroad. It has bound to this portion of the confederacy the Pacific Coast
with bands of iron, and no one can tell what might have been the destiny of that
section during the war, if it had not been for the railroad. * * I give to the
men who originated and carried through this great enterprise all possible credit
for doing a great thing, at the critical moment, in a very short space of time.
That the Company has been more than mindful of its obli-
gation to the Government is proved by its reception to the Com-
missioners appointed under the Act of March 3, 1887. The
President of the Company and its officers were advised, previously
to the arrival of the Commissioners at San Francisco, that they
owed no duty to the Government which was involved in the inspec-
tion of their books and accounts by these Commissioners. They
were then advised by counsel, as has since been determined by the
opinions of Mr. Justice Field and of Judge Sawyer, Circuit Judge
of the United States for the Northern District of California, and
of District Judge Sabin, that they were under no legal obliga-
tions to submit "their books and papers, accounts and methods "
to the inspection of this Commission, or to submit themselves
or their employees to oral examination. But so anxious were they
48
not to subject -themselves to the charge of being wanting in any
obligations to the Government, and being willing that the various
Departments, both executive and legislative, might see that they did
not shrink from any investigation into its affairs, that they have
placed all the records of the aided Companies, and of all others that
they control, within the inspection of the Commissioners and their
large number of experts and accountants, and have answered all
questions, irrespective of the laws and rules of evidence which it
pleased the Commissioners to propound to them, until it came to
the point of exposing their confidential relations with their at-
torneys and agents, the answers to which would not have con-
cerned the Government, or borne in any way upon its pecuniary
interests in the premises, as we will hereafter more fully show.
They have submitted to this demand upon them rather than
be thought to conceal any portion of their affairs from their
creditor.
Senator Stanford, the President of the Central Pacific Railroad
Company, in the testimony given before the Commission says, in
substance, that during his administration as President of the
Central Pacific Railroad Company, from its incorporation to the
present time, there has never been any desire or intention, or any
act done, permitted or suffered, with his knowledge, by which it
has be^n intended to disregard the rights of the United States as a
contracting party with the Central Pacific, and that in his judg-
ment no such result has obtained from any act done by the Com-
pany whi<ih could in the ordinary course of business have been
prevented. •
Mr. Miller, Secretary of the Company, who has been connected
with its affairs from 1862, says :
Not in any single instance during my twenty-five years' connection with,
the affairs of the Central Pacific has its business been so handled, or its
property managed, with the intent on the part of its directors or officers to
infringe or impair the interests of the United States.
And Mr. Crocker and Mr. Huntington have testified to the same
effect.
We might close our remarks on this branch of the inquiry at this
point. But it becomes necessary, with reference to determining
the true position between the Government and the Central Pacific,
4y
and the maintenance of those equities which are claimed by the
Company, to examine how far the United States has performed
its part of the contract.
It was certainly no part of its terms that the United States
should subsidize another trans-continental line in 1864, or still
another in 1866.
The effect of this departure from the spirit of the contract we
will notice more fully hereafter. For it necessarily results, that
from the building of those lines, the five per cent, and twenty-five
per cent, of its net earnings which the Central Pacific is required
now to pay annually into the treasury is not sufficient by nearly
half a million to meet the annual interest on the bonds issued by
the Government.
When the Act of 1862 was passed, it was the expectation of
both parties to the contract, that the business which the Govern-
ment would give to the Companies would be sufficient, not only
to discharge the interest upon the bonds, but to create a sinking
fund for the discharge of the principal within twenty years.
And when the amendment to the contract was passed in 1864,
one-half the compensation was to be used, so far as would suffice,
for the same purpose.
It was part of the contract, as formed by the passage of the
Act of 1864, that the Central Pacific should receive in cash one-
half of the compensation for work done for the Government ;
that it should not be required to surrender any portion of its
earnings, other than the five per cent, of the net receipts, until
the maturity of the bonds, if at all.
But from a reading of the Act of 1862, although perhaps it is
somewhat immaterial to state the proposition at this time, the Gov-
ernment never expected to demand any payment from the Company
for the discharge of either principal or interest of the bonds, ex-
cepting the performance of the services described in that Act.
There was not the slightest expectation on the part of either the
Government or the Company that any portion of the earnings of
the Companies would be rendered to the GoYernmeut, excepting
the compensation for the transportation done for it.
But it would seem, by the evidence taken before the Commis-
sion, that the Government has withheld the transportation,
which, by the Act of 1862, and the Act of 1864, it contracted to
employ the Central and Union Pacific to do.
50
Disregarding its obligations to those Companies, it has chosen
other routes of transit, often paying more for the service in cash.
As is shown in the evidence of Mr. Gray, the General Freight
Agent, and of Mr. Miller, the Secretary, it has sent the public
stores and supplies around Cape Horn and across the Isthmus of
Panama, and of late a portion of its business between points in
the Atlantic States and points in the Pacific States has been done
for some distance by a foreign corporation, the Canadian Pacific
Railroad.
It is not straining the testimony to say, that the proof shows
that the United States has not of late given any of its transpor-
tation business to the Union or Central Pacific, excepting to local
points on those lines, but has diverted its business to the lines
competing with the Union and Central.
We wish we might stop here with the illustrations of the bad
faith exhibited by the Government to the Central Pacific Railroad
Company. Not only has the Government refused to perform its
contract, in giving its business of transportation to the Central
Pacific, as that contract required it to do, at the same price that
it paid to other and competing lines, but it has absolutely refused
to send it by the Central Pacific, an aided line, when its rates
Were the lowest it could obtain.
On this subject, the United States Auditor of Railway Accounts
says :
The Qoverument lias taken away business across the State of Nevada, and
has also given transportation to the Northern Pacific, the Southern Pacific,
the Achison, Topeka and Santa Fe, the Atlantic and Pacific and the Canadian
Pacific, all rival roads, and is paying them full rates, when they could get it
done for less rates by the aided Central Pacific.
The effect of this departure by the Government from the plain
terms of the contract, may be best understood, when it is stated
that the action of the Government in the subsidizing of rival lines
and transferring the business of the Government to them, has re-
sulted to the present time in decreasing the receipts of the Cen-
tral Pacific over seventeen millions of dollars, within three mil-
lion dollars of the entire amount of aid derived by the Company
from the loan of the bonds of the Government ; and this conse-
quence is an equity to be considered and allowed in stating the
account between the Government and this Company.
51
It is shown hy the books of the Central Pacific, that all the
business done for the Government by that Company, in the
transportation of freight, for the sixteen years between 1870 and
1885, inclusive, amounts to but $1,098,047. That the cost for the
same service which would have been paid, at the rates charged to
the United States prior to the completion of the Central Pacific
Railroad, would have been $10,721,218.
And by a table annexed to the deposition of Mr. Miller, the
Secretary of the Central Pacific, it appears, that in addition to
tlie $1,098,047 paid to the Central Pacific, the total amount paid
to the Union Pacific for the same sixteen years was $4,f)42,706,
making the payment to both Companies $5,740,753. That at the
rate formerly paid by the United States for such services, the
charge would have been $61,161,703, making a saving to the
United States during those sixteen years by the construction of
the Union and Central Pacific Railroads of $55,421,554, which is
$411,362 more than the principal of the bonds issued by the United
States to the Union Pacific, the Central Pacific and the Western
Pacific.
But, in addition to this saving in the transportation of freight
for the same sixteen years mentioned above, the United Stales
paid to the Central and Union Pacific for the transportation of
troops and passengers moving on the business of the Government
$4,616,053.
Taking the reports made to the War Department by various
Quartermasters, it is shown that for the services rendered,
included in the last mentioned figures, there would have been
paid by the United States before the construction of the railroad
$49,178,967, making a saving to the Government of $44,562,914,
which, added to the amount saved on transportation of freight,
leaves in the Treasury of the United States over one hundred
millions of dollars, between the amount paid to the Railroad
Companies and the amount it would have paid for like services
if the railroad had not been built.
But this does not state the entire financial benefit to the United
States. On the 21st of October, 1868, the Post Office Depart-
ment contracted with Wells, Fargo & Co. for the transportation
of the United States mails between the western terminus of the
Union Pacific and the eastern terminus of the Central Pacific, for
the term of one year, from October 1st, 1868, until the two
52
railroads should meet, at the rate of $1, 750,000 per annum, sub-
ject to reduction pro rata for every section of fifty miles of rail-
road completed. This contract expired on the 9th day of May,
1869, when the Union and Central effected a junction.
But the Government did not deal so liberally with the Railroad
Companies. The entire distance of the services, performed by
Wells, Fargo & Co., was 1,095 miles ; but for the neavly 1,900
miles over which the Union and Central carried the mails of a very
much larger bulk than that moved by Wells, Fargo <fc Co., and
which has been and is constantly increasing, the Government has
paid to the Union and Central from July 1st, 1868, to December
31st, 1885, as compiled from the reports of the Postmaster-Gen-
eral for the several years, $10,606,507.22. At the rate paid for
the tardy service, and the small volume of mails transported for
the same length of time prior to the completion of the roads, the
Government paid $49,970,780.49, leaving a saving to the Post
Office Department of $39,364,273.29, making the entire saving to
the United States for the sixteen years following the completion
of the road, an amount exceeding one hundred and thirty-nine
millions of dollars. And this saving was effected in one-half the
time that the bonds loaned to these Companies had to run, or, in
other words, leaving fourteen years to run before the maturity of
these bonds. Computing at the same rate, the entire saving to
the Government at that time will be about $260,000,000. The
Commissioner of Railroads, in his Report for 1883, says :
" The saving to the Government has greatly exceeded the
current interest it has paid."
Shall it be said, in view of such an enormous financial benefit
to the Government, and its failure to accord to those who con-
tracted with it, and who have been the factors to produce this
result, the benefits that were promised from its transportation
and business, that there are no equities to be considered in de-
termining the present relation of tlie Central Pacific Railroad
Company and the Uiiited States ? As the Commissioner hereto-
fore quoted from said, in his Report for 1883 :
" All these considerations appeal with great force to the liberality
of Congress" and we add, but more to its sense of justice.
53
There should be no unkind feeling on the part of the
Government or any of its departments towards the men and the
corporations causing this saving to its Treasury.
These men should not be met with vituperation or disdain ; there
are equities in their position which it would be infamous in the
Government to disregard. They should be treated with justice.
The United States invited these men, using the language of
Mr. Justice Davie, to aid them in performing a national work.
They have done more than their part ; but the Government has
failed in the most valuable part of its engagement.
Not only this, but it has changed the contract by the mere
might of its legislative power, compelling these men to meet an
obligation before it was due. It does not afEord these men even
the advantage of a respectful or impartial hearing. They are
met by the Government and its organs with aspersion and con-
temptuous abuse.
In addition to retaining all the earnings of the Company
from Government transportation upon the aided road, the Gov-
ernment has refused to pay for the services rendered on connecting
railroads built by private capital, now amounting to about two
millions, the loss of which and payment of interest, and the
pledging of securities to borrow an equal amount, subjects the
Company to great embarrassment.
The question as to the liability of the Government to pay the
Company the money earned on the unaided roads has been de-
termined by the Court of Claims, and the judgment of that Court
has been affirmed by the Supreme Court of the United States.
The Court, in that case, speaking through Mr. Justice Woods,
said :
The subsidy bonds granted to the Company being granted only in respect
to the original road, are a lien on that portion only ; and the five per cent.
of net earnings is only demanded on the net earnings of said portion.
And, citing from the opinion of Mr. Justice Bradley in a pre-
vious case, the following :
With this decision in view, it would be impossible to hold with any show
of reason that the compensation for services rendered the United States,
which, by the same section, is required to be applied to the payment of the
same bonds, included compensation for services rendered by a road the con-
struction of which had not been aided by the issue to the Company of Gov-
5
54
ernment bonds. As the contract between tlie United States and the Bail-
road Company, contained in the Acts of July 1, 1862, and July 2, 1864, has
been interpreted by this Court to authorize the retention by the Government
of compensation for services only on the road which the United States aided
in building, the construction which the appellant seeks to put upon the
second section of the Act of May 8, 1878, would not only render that section
a breach of faith on the part of the United States, but an invasion of the
constitutional rights of the appellee. We. are bound, if possible, to so construe
the law as to lay it open to neither of these objections. The construction
contended for by the appellee preserves the good faith of the Government.
But notwithstanding that decision, although rendered at the
October term of 1885, the Government still refuses to make pay-
ment to the Company for the services performed on the unaided
road, and still retains in its Treasury nearly $2,000,000, on which
the Company is losing the same rate of interest it is charged by
the Government, $120,000 per annum.
There is no reasonable pretext for the Government refusing to
obey the judgment of the highest Court.
It has drawn from the Central Pacific every dollar which it is
by law authorized to receive, and its refusal to accord to the
Central Pacific its rights, as declared by the highest tribunal, of
the country, is an act unworthy of any civilized government. It
has used its power to make a forced loan, and to retain the pro-
perty of a citizen ; as was said by Mr. Justice Bradley, it has as-
serted the principle that might makes right, and is guilty of acts
of oppression that we should condemn, but not wonder at if per-
formed by the authorities of a petty Central American State or by
a ruler in Algiers.
VI.
Dividends.
The Commissioners are charged to inquire whether any di-
vidends have been unlawfully declared by the Directors, or paid
to the stockholders of such Company, and if so, to what extent,
and whether the amount thereof may not be recovered from the
Directors unlawfully declaring the same, or the persons who have
unlawfully received the same.
As an original proposition, it would seem as if this was a
matter that rested between the stockholders and the corporation,
and not between the Government and the Company.
But the opinions of the Supreme Court of the United States,
in the case of the United States vs. The Union Pacific Railroad
and others, (98 U. S., p. 569,) decides :
That tlie United States has two distinct relations to the Railroad Company,
viz. : the legislative and visitorial' power of the Government creating the
corporation, and the relation growing out of the contract formed on the
charter and its amendments.
The suit in that case was brought under the statute of March
3, 1873, and asked for a decree in favor of the Union Pacific
Railroad Company, for money due for capital stock, for money
or property received from it on fraudulent contracts, and for
money or property which ought, in equity, to belong to the
Company.
It was held that the bill exhibits no right to relief on the part of the
United States, founded on the charter contract ; that the Company has con-
structed its road to completion, keeps it in running order, and carries for the
Government all that is required of it. It owes the Government nothing that
is due, and the Government has the security which by law is provided.
Such is the position of the Central Pacific Railroad Company
towards the Government at this time. In its relation of debtor
and creditor, the United States has that security upon the prop-
erty of the Company which it demanded. Nothing is now due
or payable ; and it has no concern with the disbursement of the
earnings of the road, until some default occurs in the payments
which are fixed by the contract, or in the forced changes thereto
made by statutes.
It will be remembered that the Central Pacific Railroad Com-
pany was not completed on the proceeds of the bonds furnished
by the Government. That aid, granted by the passage of the
Act of 1864, if disposed of at that time, the price of gold being
2.90, would have yielded but $9,605,407 ; but, as after the close
of the war, the credit of the Govei-nment improved, and by
selling the bonds to the best advantage that the haste in which
the road was constructed enabled it to do, something over
twenty millions was realized, which was less than two-fifths of
the cost of the road from Sacramento to Ogden. But, after all,
56
the assets which the Central Pacific had for the completion of
the aided road, including the proceeds of such portion of its
stock which had been sold, were, as we have heretofore shown,
entirely insufiicient ; it was heavily in debt, which it could not
have retired if it had been pressed to do so at that time.
In the course of the investigation a witness was asked by one
of the Commissioners : What effect would it have had on the
Central Pacific Railroad Company's property, if, instead of
dividing eighteen millions, between 1871 and 1884, among its
stockholders, it had been applied to bettering the condition of its
road, and extending its earning capacity ? Do you not think,
that if this had been done, the road would have been in better
shape to repay its debt to the Government than it is now ? That
is the position assumed by the Commission on behalf of the
Government, and may be answered here : The Central Pacific has
discharged all its financial obligations to the Government as they
arose. It is not in default. It has rendered to the Government
everything the contract required in keeping its road in good
condition, in yielding it to the use of the Government whenever
demanded. It has paid the Government all that it agreed to pay,
all that has been extorted from it by legislative hostility in adding
to its contract burden ; and the Government having provided the
manner in which the principal and interest of the bonds should
be paid, must take its satisfaction in that way. The mortgage,
which the Act of 1862, Sec. 5, says should ipso f ado exist in favor
of the United States on the issue and delivery of the bonds to the
Company, is not upon the tolls, income, rents or profits of the
Company, except to the extent of five per cent, of its net earnings,
but is " on the whole line of railroad and telegraph, together with
the rolling stock, fixtures and property of every kind and descrip-
tion, and in consideration of which said bonds may be issued."
In the mean time, the road belonging to the corporation, it has
a right to divide from time to time among its stockholders all its
surplus earnings — all the earnings not required for the performance
of its contract, or the law which impairs that contract ; and the
Act of 1862 recognized this right, up to ten per cent, per annum,
as a remuneration to the stockholders.
But the Central Pacific Railroad Company, from its incorpora-
tion to 1884, paid more than the amount mentioned by the Examin-
ing Commissioner. The total payments were $34,308,055, or about
57
2.65 per cent, per annum. Of this amount, ten millions were
earned from a profit on leased lines, and about four millions from
other non-aided roads not included in the leases, and about twenty
millions from the aided roads during the mining prosperity in
Nevada, and before its earnings were crippled and interfered with
by the competitive lines subsidized by the United States, and
during the time that the Government was unable to divert its
business fi'om it to an unaided line. But for those lines, one of
which the Central owners, for their own protection, were forced to
purchase and complete, the financial ability of the Central Pacific
to comply with the demands of the Government would have been
essentially different from what they are now.
It will not be denied that those who put their money into this
enterprise were entitled to large dividends for the risk that was
incurred.
He would have been a bold man who had predicted, when Sher-
man was crossing Georgia, and when the Central Pacific was
trying to scale the Sierra Nevada Mountains, that any person who
invested in the stock of the Central Pacific would ever again
see his money, leaving out of question the risk which each
subscriber or purchaser took of being liable for the debts con-
tracted by the Company to aid in the construction prior to the
receipt of the bonds of the Government, or the sale of its own
bonds.
As was said by Senator Trumbull, in the debate preceding the
passage of the Act of 1864 :
All that Congress proposes to do is to do enough and only enough to induce
capitalists to build this Pacific Railway. We shall be indebted to them when
they do that. » * * ^11 we want is to obtain the construction of
this road ; that is what is of national importance. « * * gjj.^
this is not an ordinary enterprise. The Senator says large inducements are
held out. Why, sir, it is a great undertaking. It is for the building of a
railroad through a wilderness country and over mountains where, unless
there is some inducement, capitalists will not be likely to construct the road.
* * * It is a great enterprise. It is great, certainly, in one par-
ticular. It is great in the hazards which are run by those who may embark
in it.
Mr. Wilson said :
I want to be a liberal in money. * * * If<by the liberality of
this Government, either by money or land, we can induce capitalists to put in
58
the money necessary to complete the road, we shall have acJiieved something
for the country.
Mr. "Washburne said, in the House of Rej^resentatives :
I do not believe there is one man in five hundred who vrill invest his
money and engage in building this road as the law now stands, and we must,
therefore, hold out inducements for them to join in the undertaking. We
must grant the facilities which are needed. * * * We want
this road, stretching from the granite hills of New-England to the golden
sands of California. When completed, it will far outshine in grandeur and
usefulness the famed Appian Way. It will be the greatest and most useful
work done by man.
The $2.65 per annum, which the dividends to stockholders
averaged, does not cover the vehole time in which their money
was invested, and it is entirely fair to calculate that the average
returns would not be over two per cent, per annum.
But can the Government with any reason complain of the re-
turns made to the stockholders, when contrasted with its own
dividends upon the bonds which it has advanced to the Company
and the interest that it has paid ?
The advances to the Central and Union Pacific Railroad Com-
panies are of the par value of . . . $55,092,192 00
It has paid for interest up to the first of January,
1886, for the Union Pacific, $29,043,327 21
For the Central and Western, 29,299,156 21
58,342,483 42
$113,434,675 42
It has received from the Central Pacific, for
five per cent, of the net earnings, from 1869
to June 30, 1878, 1,871,430 00
It has received one-half transportation charges
on aided lines of the Central Pacific, from
18G7 to June 30, 1878, .... 1,745,59847
And since the last mentioned date the pay-
ments under the Thurman Act require-
ments have been sufficient to increase the
amount to 10,427,238 11
And this amount is increased by the two millions due to the
Company for services on unaided lines, which, as the debtor is ex-
69
ecution proof, may, for the purpose of this statement, be reckoned
as a payment.
It has saved, as previously shown, in the transportation of
freight, troops and passengers, over one hundred million dollars.
Saved in transportation of United States Mails for the same
sixteen years, $39,364,2'73.25 — making a total of $154,586,885.78.
In addition to this saving of money it has, by the building of
these roads, pacified the Indians along the line, so that some of its
forts have been abandoned and its troops withdrawn ; and what
is of more consequence than the amount that has been received or
retained, or will be retained in the Federal Treasury is, that the
settler can now sow and reap without incurring the risk of an attack
from hostile Indians, and can return from his day's labor without
finding his home in ashes and his wife or children murdered or bru-
tally outraged ; and the lives of the young men previously sent to
garrison the frontier forts are no longer the prey of the tomahawk
or bullet of the savage. And in addition, when occasion arises for
moving the troops of the United States, instead of marching
twenty miles a day, they are now moved five hundred miles in
the same time.
Quoting the language of General Sherman, in his report for
1883, p. 46 :
These roads enable us to send soldiers to threatened points at the rate of
five hundred miles a day, thus overcoming the space in one day which used
to require a full month of painful marching.
And by the building of these roads and those feeders concerning
which so much fault has been found, joined to its eastern connec-
tions, the entire ai-my of the United States can be moved to any
point within its territory inside of a week of the time that the
order for its transportation is given.
If we review the histcry of the world, if we read Creasy's ac-
count of the fifteen decisive battles, from Marathon to Waterloo, and
learn how the destinies of nations have been affected, and civiliza-
tion advanced or retrograded, and maps changed by delay in the
movement of armies, can we imagine that any nation, ancient or
modern, would have grudged the little aid loaned by the United
States to these subsidized roads to produce such a result, and
60
which has been repaid one and one-half times within twenty-one
years ?
In the chronicles of the reign of Elizabeth, we are told that
when her Council met to determine how the attack of the Spanish
Arraada should be repulsed, it was proposed to prevent the land-
ing of the troops of the King of Spain by a muster of all the in-
habitants of England at a given point. Sir Walter Raleigh, who
took part in that discussion, said that such a measure was not
feasible ; that if the fleet composing the Armada appeared off the
Lizard, and it was feared that their landing was to be prevented
at that point, they could, in six hours sailing, make a landing off
Portland, but it would take six days marching to move troops
between those points.
In the last report made by General Sherman, as General of the
Army, (Report of 1883, p. 5, et seq.,) he says :
I now regard tlie Indian as substantially eliminated from the problem of
tte army. There may be spasmodic or temporary alarms, but such Indian
■wars as have heretofore disturbed the public peace and tranquillity, are not
probable. The army has been a large factor in producing this result ; but it
is not the only one. Immigration and the occupation by industrious farmers
and miners of the lands vacated by the aborigines, has been largely instru-
mental to that end. But the railroad, (the italics are the General's,) which
used to follow in the rear, now goes forward with the picket line, in the
great battle of civilization with barbarism, and has become the greater cause.
I have, in former reports, for the past fifteen years, treated of this matter,
and now, on the eve of withdrawing from active participation in public
affairs, I beg leave to emphasize much which I have spoken and written
heretofore. The recent completion of the last of the four great trans-conti-
nental lines of railway has settled forever the Indian question, the army
question, and many others which have heretofore troubled the country.
* * * I regard the building of these roads as the most important event
of modern times, and believe they account fully for the peace and good order
which now prevails throughout our country. A vast domain, equal to two-
thirds of the whole United States, has been thus made accessible to the immi-
grant, and in a military sense, our troops may be assembled at strategic points,
and sent promptly to the place of disturbance, checking disorders in the bud.
General Grant, when Acting Secretary of War in 1867, said in
his Report for the fiscal year 1867-68 :
During the last summer and summer before, I caused inspections to be
made of the various routes of travel and supplies through the territory be-
tween the Missouri River and the Pacific Coast. The cost of maintaining
troops in that section was so enormous that I desired, if possible, to reduce
it. This I was enabled to do, to some extent, from the information obtained
by these inspections ; but for the present the military establishment between
the lines designated must be maintained at a great cost per man. The com-
pletion of the railroads to the Pacific will materially reduce the cost, as well
as the number of men to be kept there. T?ie completion of these roads will
also gofa/r toward a permanent settlement of our Indian difficulties. There is
good reason to hope that negotiations now going on with the hostile tribes of
Indians will result, if not in permanent peace, at least in a suspension of hos-
tilities until the railroads are pushed through that portion of the Indian ter-
ritory where they are giving the most trouble. (Report of Secretary of
War, 1867-68, Vol. I., p. 3.)
Quartermaster-General Meigs, in his report, dated November
8, 1865, (see Report of the Secretary of War, 1865-66, Vol. I, p.
113,) commenting on the cost of transportation over the Plains,
shows that a bushel of corn cost —
12.79 at Fort Riley.
9. 44 at Fort Union.
5.03 at Fort Kearney.
9.26 at Fort Laramie.
10.05 at Denver.
17.00 at Salt Lake City.
He states that —
The cost of transportation for military stores westward across the Plains
by contract during the fiscal year ending June 30, 1865, amount to
$6,338,856.37.
"This expenditure," the Quartermaster-General continues, "would be
reduced by the opening of railroads, by a sum which would aid materially in
paying interest upon the cost of their construction,"
At the same time, the cost of transportation of a pound of corn,
hay, clothing, subsistence, lumber, or any other necessary of the
troops, from the base of supplies at Fort Leavenworth, was as
follows :
To
Fort Riley, per pound, .
2.46
cents
Fort Union, "
. 14.35
Fort Kearney, "
6.44
Fort Laramie, "
. 14.10
Denver, "
. 15.53
Salt Lake City, "
. 27.84
62
Supplies in those days had to be carried with the troops, and
could not be obtained on the line of march. The maintenance
of marching bodies of men was thus greatly increased as they
continued westward. The settlement and development of the
West, consequent upon the completion of the railroad, enabled
the army to purchase its supplies near at hand, at a cost in which
transportation bore no material part.
The cost of the transportation of grain alone, used by the army
on the Plains in 1865, was $3,323,829.37. (See Report of Colonel
S. L. Brown, Division of Regular Supplies, in Report of Secretary
of War, 1865, Vol. I, p. 251.)
The Quartermaster-General, in his report for 1866, page 302,
states, on this subject :
The supply of the posts on the Plains with forage has always imposed a
heavy financial burden upon this department. The Missouri River has for
years marked the limit of the cereal-producing region of the West, and grain
transported from that point, when it reached the garrisons stationed near the
Eocky Mountains, had reached an enormous price. The cost of foraging one
horse equalled the cost of feeding a dozen animals in the States.
The record kept in the Comptroller's Department of the Cen-
tral Pacific shows that a single Indian war has cost more than
the whole amount of bonds issued to the Pacific Railroads.
The Pacific Railroad Committee of the Senate, in a report
dated February 19, 1869, made the following statement on this
subject :
What is the cost of our Indian wars as compared with the cost of the Pa-
cific Railways, which will speedily end the Indian wars? A compilation
from the official records of the Government shows that these wars for the
last thirty-seven years have cost the nation twenty thousand lives and more
than $750,000,000. In the years 1864-65 the Quartermaster's Department
spent $38,374,288 for military service against the Indians. * * * The
Chairman of the House Committee on Indian Affairs estimated recently that
the present current expenses of our warfare with the Indians was one million
dollars a week — $144,000 a day. (40th Congress, 3d Session, Senate Rep.
Com. 219.)
The statesmanship that incurred the liability to induce the
Pacific Railroad Companies to build the highway that has saved
80 many lives and so much treasure needs no defence.
The men who voted to use the lands and credit of the G-overn-
63
raent for tliis purpose were worthy successors of those who
pledged the resources of the nation for its independence ; but
the Iiistorian who shall relate the wisdom shown by the people's
representatives ip obtaining this highway, resulting so much to
the grandeur and dignity of the nation, will have to fortify with
incontrovertible evidence his further statement that the whole
power of the Executive and Legislative branch of the Govern-
ment was used within a few years after the completion of this
great work to persecute and harass the men who, in the language
of the Senator from Missouri, "had performed the greatest
achievement of the human race on the earth."
While Generals Grant and Sherman were convincing our
bretliren of the South that successful resistance to the perpetuity
of this Union was impossible, these railroad builders were at the
same time bending their matchless energy to cement the fruits of
the victories of these generals, by uniting the remote sections
of our continent, and subduing to the purposes of civilization
vast ranges that had been trodden only by the savage and the
buffalo. Look westward of the Missouri, and you see the
wilderness receding fast before the advancing tide of life and
civilization, vast harvests waving round the blackened stumps of
a pathless forest, and cottages, barns and mills rising amidst the
haunts of the wolf and the bear.
By their subsequent efforts in building railroads, running
north and south, they have brought the people of the Northern
and Southern States into closer and more fraternal relations than
they ever before knew.
But at the time of which we were speaking, when they were
serving the political purposes of the Government, in connecting
the Missouri with the Pacific, and making one-half of the territory
of the United States habitable, they were also solving the
engineering doubts, so often expressed, as to the physical ability
of constructing a railroad over the Sierra Nevada Mountains.
They were opening a safe and speedy highway across this
continent, that might be used between the Old World and the
Empire of China, with India, Japan, New-Zealand, the continent
of Australasia,, and the many fertile isles of the South Pacific.
Some of the fruits of their peaceful victories maybe seen at the
wharves of San Fianci^co, on the arrival of one of the huge
64
steamers that ply between that port and Hong Kong or Yokohama.
You will see, alighting from such vessels, men bearing authority
from the Emperor of China to represent his interests with the
Governments of Washington, London or Paris. You will see
British diplomats, who in fifteen days will be in conference with
chiefs in London on the affairs of the English Colonies in the
Pacific.
You will see oificers of the French and German navies, who
have been summoned by their respective Ministers of Marine to
report at headquarters. You see unlading from the steamers the
products of China and Japan — tea, silks and various manufac-
tures of Asiatic labor — to be distributed between San Francisco
and the Mississippi. All these results, emanating from the in-
domitable courage and perseverance of these men, who were not
slothful in business, but were fervent in the spirit of their great
works — serving the Lord by their grand achievement.
But if you would know more of the benefits that have been
derived from the construction of this first overland road, you
must pass over it.
You will see trains of cars carrying emigrants who are seeking
homes on the fertile lands of the Far West.
You will see that these travellers are well cared for, and are
contented, that the railroad companies have devised a car in
which they may journey to their destination in health and com-
fort, and then contrast their lot with those of the emigrant
crossing the same country for the twenty years preceding the
completion of these roads.
As Mr. Sargent so graphically said from his place in the House
of Representatives :
" With such a road you avoid Indian wars. You would save the lives of
citizens, who now take their weary way across the Territories, falling victims
to savage onslaught. You can follow the emigrant trail from Missouri to
California and never lose your way, for the route is Iroadly marked with the
hones of men and beasts, of broken wagons and abandoned property."
The " Tragedies of the Plains," as they were termed by early
California writers, may be referred to in describing the hardships
and cruel treatment of emigrants from the frontier States to
California before the construction of these railroads.
One case was reported of a party, including women and chil-
(55
dren, whose mules had been poisoned by the Indians, and who
were slowly toiling westward, carying such stores as they could
pack, until they were rescued by the wagons and teams of other
emigrants overtaking them.
Another, of an entire party being killed by the Indians, except
a mother, and son of about ten years of age ; she ended her life
with a pistol shot to avoid a worse fate, the boy escaping to tell
the story.
Another, of the destruction of an entire family, except two
women, mother and daughter, who were taken and kept prisoners
for several years, when they escaped to the trail, and were brought
into one of the California settlements, both having during their
imprisonment borne children to their captors.
Instances of shocking events of this character were of such
frequent occurrence, that it will take more space than we can
spare to enumerate even a small portion of them.
Disease wasted the lives of many of these unfortunate emi-
grants ; scarcity of water, food of poor quality and insufficient in
quantity, tending to fill many graves. Families might be seen
camped in and under their wagons, all laid low with fever, and
having but a scant supply of water to cool their heated bodies.
A touching story was told in Sacramento in 1850. An emigrant
wagon was being used as a place of shelter by a man and
woman on the levee of that city, their team being picketed near
by; a fire had been made .to cook their evening meal; the
woman sat by the fire, and the tears were trickling down her
cheeks ; in answer to an inquiry as to the cause of her grief, she
replied : " When we left Missouri we were four, but two little
graves on the Humboldt contain my two little girls — my only
children."
The condition of emigrants, then and now, would be sufficient
warrant for the Government aid, loaned or given, to accomplish
such a result, and which some of the legislators who voted for the
bill predicted. Shortly after the road commenced to be operated
as a trans-continental line, a passenger on the train of the Central
Pacific, going eastward through the Humboldt Valley, might
have been seen sitting on the platform of a car. The ' day was
hot and the road very dusty, so that he was soon covered with the
alkaline soil of that region. Still, for some hours, he kept his
place, and, being asked the reason, said : " In the last three hours
66
I have ridden over a space that some years ago, when on my way
to California, I traversed with my wagon and poor tired mules in
three weeks. Some days," he said, " we did not move at all, and
generally not more than four miles in a day. We were trying to
get the animals in condition that they might pull the wagons over
the * Sierra Nevada.' "
Are not the men whose energy has accomplished so much, who
performed this great work in so short a time, as if by magic, who
have thus conduced to the convenience, safety and commercial
advantage of all the world, and more especially of our own
citizens, entitled to some favorable consideration at the hands of
the people's representatives in the determination of the present
controversy ? And are they not entitled to such dividends or
pecuniary reward as results from their skill in handling the en-
terprise ? '
They will receive no more in the way of dividends ; the com-
petitive lines aided by the Government will prevent that.
VII.
Cost op the Wab in Utah.
The cost of the war in Utah was frequently alluded to in the
debates preceding both the passage of the Act of 1862 and of
1864.
A search of the records of the War Department does not dis-
close any tabulated statement giving the amount actually paid
out, but a recent letter from the Acting Secretary of War states
that the following articles were furnished by the United States
for the use of the expedition to Utah :
33 Ambulances.
39 Light Wagons.
988 Baggage Wagons.
6,447 Mules.
354 Horses, in addition to the horses furnished for the mounted corps, and
for the transportation of supplies for the army.
And for tlie depots at Fort Kearney and Fort Laramie, on the route, 3,938
wagons, 33 mules and 49,896 oxen.
The contract of Messrs. Russell, Majors & Waddell, dated
January 16, 1858, shows the following rates per 100 pounds per
67
1 00 miles, for the transportation by them of freight for the
United States, varying with the season of the year :
January and February, . $4 00.
March, . . . . 3 90.
April to September, . 1 80.
September, . . . 3 20.
October, . . . . 3 00.
November and December, 4 50.
Freight not exceeding 10,000,000 pounds, and an increase of 25 per cent,
to be allowed on freight from 10,000,000 to 15,000,000 pounds, and 35 per
cent, for quantity beyond 15,000,000 pounds.
It will not be of practical utility to make a detailed estimate
of the value of the outfit above mentioned, nor have we suffi-
cient information to state the total amount paid for transportation.
Soon after the termination of the campaign it was estimated at
from twelve to fifteen millions of dollars, and army circles have re-
ceived as true the statement that the entire expense to the
Government was not much less than thirty million dollars more
than the amount of bonds loaned to the Central and Western
Pacific.
This expedition made the fortunes of the Mormons ; they sold
for the use of the troops their spare agricultural products at
enormous prices, and acquired the outfit of the expedition with
but small outlay. The financial result to the Mormons induced
Brigham Young to say that he had made war successfully on the
United States.
At this time, of course, such an expedition is entirely unneces-
sary, but without the building of the Pacific Railroads the control
of the Mormons would have been as costly as of the Indians.
VIII.
CONTEACTS LET TO ChAELES CeOOKEE & Co. AND THE CONTRACT
AND Finance Company fob the Consteuction of the Cen-
tral Pacific Raileoad feom Saceamento to Peomontoet.
The officers of the Central Pacific Railroad Company have
been unsparingly denounced for their action in letting these con-
tracts ; but it will be seen, on a fair review of their situation at
that time, it was the wisest and most advantageous thing that
could be done for the interests of the corporation and the Gov-
ernment, and that it was the only practical way in which the road
could then have been built.
The immigration to California commenced in 1849, and for the
succeeding five years it was peopled with a rapidity unknown in
history. California became a State on the 9th of September,
1850, so that at the time of the passage of the Act of Congress
of 1862, it had been within the Union a little short of twelve
years.
The promoters of the Central Pacific were, speaking compara-
tively, old residents, in a country which had had an American
population for less than thirteen years. Large fortunes at that
time had not been accumulated, and they were acquainted with all
the men in California who had money to invest or to loan. The
banking capital, of course, could not be great. There were not a
great many men who had any surplus not required for daily use
in their business. The directors would willingly have let the
contract to parties not interested in their corporation if such per-
sons could have been found. Or the corporation would have
constructed the road within its own organization if it could have
commanded the necessary funds. For the lack of finding these,
Mr. Crocker proposed to take a contract for the construction of
the first eighteen miles of the road, and for that purpose resigned
his seat in the Board of Directors, to which he had been elected
at its organization, he believing, and the directors agreeing, that
he would be more useful to the purposes of the Company in the
speedy construction of the road, as a contractor than as a
director.
But from the handling of the first shovelful of earth at the
City of Sacramento until Mr. Crocker completed his labor as a
contractor, at or near the eastern boundary of the State of Cali-
fornia, it was not contemplated that any profits should be made
in the work of construction. The idea was to get the road
through in the quickest possible time, so as to give the Govern-
ment its use as early as possible, and that the promoters should,
if possible, retain their interest in the corporation at the time
the work was completed.
It is in evidence that the firm of Charles Crocker & Co. was
formed, but at such formation Mr. Crocker had no partner. His
intention was, as he proceeded with the work and demonstrated
69
its practicability, to invite others to join Mm ; but in this he ap-
pears to have been disappointed. His financial position as con-
tractor was not sufficiently inviting to attract an associate with
•capital.
When the work on the mountains commenced, when, in the
language of the Superintendent of Bridges, the snow had to be
removed to a depth of twenty to thirty feet, so as to find a rest-
ing place for the timbers used for trestle and bridge purposes,
that they might be stored upon the ground that had been cleared
from snow and not be liable to be washed away by a thaw, Mr.
Crocker found that he had probably assumed a task beyond his
■financial strength. So we find him complaining of his burien to
the directors. It would seem that the work of grubbing and clear-
ing the line of track, removing trees and stumps at a cost of
from two to five thousand dollars a mile, so that the embankment
■of the railroad could be made upon it, threatened to engulf him.
And we can imagine his cry to the other promoters of the road :
^' save me, or I perish."
Mr. Stanford testifies :
But it very soon became apparent that no ordinary rules that would gov-
ern between contractors would answer the purpose of the rapid construction
of the road ; that sacrifices must be made which the Company could afford.
Taut a contractor, looking to profits out of his contract, could not. Mr.
^Drocker become^apprehensive about his personal liabilities.
He was then told to go on with the work without regard to the
terms of the contract, and that the directors would " see him
through." Some portions of the road on the western side of the
mountains had been let to small contractors. Some had per-
formed their contracts ; some had not. Mr. Crocker assumed
the contracts of those who were derelict, and did the woi'k at the
price at which it had been let. But it was evidently impossible
to obtain contracts from responsible people for building over the
mountains ; and if such contracts had been let, it would simply
have resulted in delay and expense to the corporation ; for the
contractors could not have performed their agreement. It was a
new work. Nothing like it had been seen in this country, or, I
may say, in any other. The great railroad building over the
Mount Cenis route in Switzerland, and over the Tyrol in Austria,
great feats of engineering, as they were claimed to be, and as
70
they undoubtedly were ; sink into utter insignificance in com-
parison with the construction of a road over, or I may say
through, the Sierra Nevada Mountains. On the Swiss or Aus-
trian roads they are not protected by miles of snow-sheds and
galleries ; nor are their mountains terraced from the base to
nearly the apex with a series of retaining walls to prevent the
avalanches of snow demolishing the snow-sheds, or proving
graves for the builders ; for the tracks upon those lines have no
such protection. They were but few who believed in the prac-
ticability of the work, or who thought it could be successfully
carried to completion.
It would have been utterly futile to have attempted to bind
any contractor, not interested in the future of the Company, to
perform that work. The corporation was not in a position to
agree to make payments at fixed dates. Mr. Crocker understood
its position. He undertook the work, knowing that he would
get his pay just when the corporation could raise it, and not be-
fore. No other solvent contractor would have made any such
arrangement, nor could any solvent contractor have been obtained
to accept the contract which Mr. Crocker undertook.
From sections one to eighteen, that is, from the levee at the
City of Sacramento to the 18th mile post, Mr. Crocker undertook
to perform the work for $400,000 ; $250,000 in cash, $100,000 in
the bonds of the Company, and $50,000 in stock.
Those who are familiar with the condition of Sacramento in
1862 and 1863, know that the construction of the road for that
eighteen miles was very expensive. The testimony of Mr. Davis,
an old resident of California, and of late years the President of a
Railroad Company, shows what had to be done to build an em-
bankment for the track, and to prevent its being washed away by
the overflow of the Sacramento River, after it was built.
The grades of the City of Sacramento, for some distance from
the Sacramento River, have been raised about nine feet, so as to
bring them on a level with the altitude, of the Central Pacific
track, which it was found necessary to adopt to keep it above
the reach of the high water of the Sacramento River, in the rainy
season. In addition, the approaches to the American River had
to be protected, so that by the overflow of that river, the abut-
ments of the railroad bridge should not be endangered. So that
this eighteen miles could not be constructed from the amount
71
that was allowed in the contract made with Mr. Crocker ; and it
is certain that if he escaped from its performance without loss,
he took no profit.
But it is claimed that Mr. Crocker and the directors of the
Central Pacific made large pi-ofits in building the road over the
mountains. It must be admitted that ultimately, after many
years of waiting, they did realize some profit from the retention
of the stock, which Mr. Crocker took in part payment of his
work ; but to make that "stock of value they had to spend years
to develop business on the road, and to build at their own cost
and risk branch roads to bring traflic to the main line.
For the 106 miles, from section 32 to 138, which means from
Newcastle to the Truckee River, near the State line, there was
paid to Mr. Crocker, as is shown by the books of the corporation,
$8,227,980, which is at the rate of $77,622 per mile ; and there was
also paid to him $14,657,996 in stock of the Company.
So far as the stock payment was concerned, it cut no figure at
the time as an asset for building the road. It could not be sold,
it could not be bartered, and was useless as a collateral.
We have it from the evidence of Mr. Stanford, that when the
road had been constructed to the State line, the Company had
spent all its available resources, and all the securities that could be
issued on that part of the work, including the bonds loaned by
the Government, and were in debt for obligations incurred upon
that portion of the work, and the same result is proved by refer-
ence to the statistics now on file in the Treasury Department in
relation to the construction of this road.
It is very certain, from the information we have as to the cost
and character of the work, the rapidity, and the consequent want
of economy with which it was done, that the sum of $8,227,980
did not cover the entire outlay. The balance was assumed by
Charles Crocker and the directors who came to his rescue. The
estimate has been made by Mr. Stanford, and no doubt correctly,
that thecost of the work done between the 31st and 138th miles
for the reception of the track equalled, in day's work, the whole
cost of grading a railroad from Truckee to Chicago, a distance of
nearly twenty-one hundred miles.
It undoubtedly was the intention, when this contract from New-
castle to the 138th mile was let to Mr. Crocker, that the directors
should not be interested in it ; but they were forced to assume
72
the position they did, and to share with Mr. Crocker what was
at that time thought to be a loss on the work. It is gratifying
to know that 'their courageous attitude resulted in their being
rewarded with a profit, instead of meeting a deficiency. But
when Mr. Crocker's labors were concluded, he and his associates
were face to face with a position that called for the assumption
of a large amount of indebtedness, which could not at that time
be met with the stock of the Company which they held, or with
any quantity of such stock. "'
After the completion of the road, Mr. Crocker deposited the
stock which he had received from his various contracts, with the
Contract and Finance Company, and it was divided among the
stockholders of that Company, subject to the debts he had
incurred.
IX.
Contract and Finance Company.
The extreme financial pressure, under which the work entrusted
to Charles Crocker So Co. was performed, and the difiiculty of in-
ducing people of means to become members of a private partner-
ship, led to the formation of the Contract and Finance Company.
It was supposed by the Directors of the Central Pacific, that
by granting the contract to a corporation, upon liberal terms, to
complete the road from the State line to the connection with the
Union Pacific ; the owners of capital in the eastern cities might
be induced to become stockholders in such corporation, and, in
this way, to insure the completion of the work, of which, at that
time, the Directors of the Central Pacific had very grave doubts.
It was not, as Mr. Stanford says, a matter of profit to the pro-
moters of the Contract and Finance Company ; it was a plan to
prevent, if possible, the utter failure of the enterprise.
Mr. Huntington testifies, that in his correspondence with Mr.
Hopkins, when the latter asked him how much of the stock in
the Contract and Finance Company they should take, he replied :
" Take as much as you are forced to, and as little as you must."
At that time, if it could have been done, the promoters of the
Central Pacific were entirely willing to yield their interest in the
work, if other or more responsible parties would undertake it.
73
and comply with the terms of the contract made between the
corporation and the Government. It was with them more a
matter of pride, that the undertaking should not fail by reason
of their financial weakness, than any question of profit. It
was their last hope, their last resort to invite capitalists to
aid in the work ; and it may be truthfully said, that the
formation of this Construction Company was quite as much in
the interests of the Government as of its promoters ; for, as is
shown, the cash payments made to the Contract and Finance
Company did not enable it to perform its contract to construct
the road from the eastern boundary of California to Promontory
by about three and a half millions of dollars.
The Central Pacific Railroad Company could not give to the
Contract and Finance Company anything more than it had. It
could not in any way injure or militate against the interests of
the Government. The Contract and Finance Company must
complete a section of twenty consecutive miles or the Central
Pacific could not receive the proceeds of the Government bonds
for that distance, nor could the corporation issue its own bonds
in advance of such completion, beyond the terms of the Act of
1865.
It was bound to return value within the terms of the contract
to the Central Pacific, for what was paid to it. But, notwith-
standing this contract with which so much fault has been found,
it is seen that not the owner of a single dollar was willing to risk
it in assuming the responsibility of sharing its supposed profits.
Three of the capitalists of California of that day have given
their views and their experience, Mr. D. O. Mills, Mr. Lloyd
Tevis and Mr. Horace W. Carpentier. They were all oifered an
interest in that contract, but they declined, because they did not
believe that there was any profit in it, or that the railroad would
pay when it was constructed, and because they feared to assume
a position that would make them liable for the debts of the rail-
road corporation as owner of its stock. The feelings of capital-
ists to the men engaged on this work is expressed in a homely
way by Mi\ A. E. Davis, himself a railroad builder, that they
were thought to be insane. " We thought they were a little off.
Yes, sir ; that is what we all thought."
Mr. Huntington states, and as he is supported by the evi-
dence of Mr. Stanford, Mr. D. O. Mills and others, it was im-
74
possible to induce the capitalists of the money centres of the
Atlantic to become interested in that contract. Money was at
that time in such great demand that its use commanded high
rates. The currency of the country was during the entire time
of the construction of this road in a very inflated condition.
The Government was a great borrower. When the Amended
Act of 1864 was passed, General Grant had been repulsed at Cold
Harbor, and it took 2.90 of the Government paper to buy a dollar
in gold ; and at the end of the same year the price of gold was
$2.43^. The bonds of the Government issued before the war,
which it sold at 22 premium, were selling at about 80. The
public debt at the time of the passage of the Act of 1864 was
$1,740,690,489.48, and there was still authority in the Secretary
of the Treasury, under the various Acts of Congress, passed up to
that time, to borrow a further amount of $622,284,625.
In California, where the promoters of the Central Pacific had
to raise money for the work of construction, money was in great
demand. The bonds issued by the State of California, bearing
seven per cent, interest, which was promptly paid in gold, were
selling at 'Jl^, a discount of 28^ per cent.
The Central Pacific was compelled to pay for all its labor and
supplies, purchased in California, in gold. It needed a large
amount. Money borrowed from the Atlantic Cities was of neces-
sity in currency. Gold had to be purchased- and drawn for from
California, thus materially increasing the financial burdens of the
Central Pacific. These causes rendered uncertain in the minds of
the owners of capital what they would receive in re-imbursement
for their investment.
Added to all this was the doubt, that at this time so generally
prevailed, whether, if the road was constructed, it could be
commercially operated — the doubt as to the existence of fuel
along its line. It was known that there was not a single
navigable stream from the Missouri to the Sacramento, and for
stretches of hundreds of miles there was some question as to
whether water could be obtained sufficient and suitable to gene-
rate steam on the locomotives.
Futile as was the effort of letting the contract to Charles
Crocker & Co., and to the Contract and Finance Company, to
relieve the financial pressure on the Central Pacific, it would have
been ciiminally negligent on the part of the directors of that
V5
Company, if they had not resorted to these devices ; especially
is this true of the formation of the Contract and Finance Com-
pany.
At the end of 1866, as appears in a report made by the Depart-
ment of the Interior to the House Committee on Pacific Railroads,
the Central Pacific had expended in the construction of its road
$12,000,000.
At that time, 1i miles of its road had been accepted by the
President, and it received bonds from the Treasury on
1 miles @ $16,000, $112,000
67 " " 48,000, 3,216,000
$3,328,000
It had issued its own bonds to the same amount, net-
ting 3,328,000
$6,656,000
These bonds being estimated at 70 cents, the average
of the entire issue produced $4,659,200
The bonds issued by it, on which the State of Cali-
fornia guaranteed the interest, had netted . . 980,000
The bonds received from the City of San Francisco
had produced 300,000
The bonds from Sacramento, ..... 190,000
Bonds from Placer, 160,000
$6,289,200
Leaving the balance between this amount and $12,000,000 to
be carried by Charles Crocker and his associates.
On the 25th of October, of that year, there had been
issued to the Central Pacific of the aid-bonds, . $4,922,000
Which had been sold for 3,546,478
An equal amount of first mortgage bonds had been
issued by the Company, netting .... 3,546,478
All the money had been spent on the work, and the Company
and contractors were heavily in debt. Besides there was a large
amount of material on the ocean, in transit from New- York ;
76
probably averaging at that time not less than $2,000,000, and the
situation is well expressed by Mr. Miller, the Secretary of th&
Central Pacific, when he said :
When the road was completed to the State line, the Company had ex-
pended the proceeds of all the United States bonds it had received, and all
the proceeds of all the County bonds, and of all its own bonds it was au-
thorized to issue up to that point, and had a floating debt of over five million
dollars.
It may seem at this time a very unimportant announcement
to say that this corporation is carrying a floating debt of five
millions, but it was a very serious position to be in when it was
laying its track along the Truckee River, with its available assets
entirely exhausted.
The Contract and Finance Company was incorporated in No-
vember, 1867.
An impartial review of the management of the Central Pacific
during the construction of its road, and the doings of its pro-
moters and contractors, must concede that the engineering talent,
so well and skillfully exhibited, was equalled by the great finan-
cial ability displayed in borrowing and contriving the necessary
funds for prosecution of the work without delay, and its comple-
tion. The figures just presented account, without further ex-
planation, for the imperative necessity of incorporating the Con-
tract and Finance Company.
It was supposed that the terms of this contract would leave a
large profit to the Construction Company, but such anticipations
were not realized. We have before us its outcome, and we see that
the caution of those to whom an interest in that contract was
offered was well founded. For Mr. Brown, the Manager and
Secretary of the Contract and Finance Company, tells us that
after the Company had fulfilled its contract in the construction
of the road to Promontory it had spent all its cash assets ; that it
was in debt exceeding three and a half millions of dollars, and
that the only remaining asset was twenty-three millions of the
stock of the Central Pacific Railroad Company.
It is very certain from all the evidence we have that no
market could be found for it, and that no considerable portion
of it could have been sold for ten cents on the dollar. There-
fore, if the Contract and Finance Company had been com-
pelled at that time to meet its indebtedness, it was bankrupt.
If a market had been found for this stock at ten cents on the
dollar, it would still have been owing about a million and a half
of dollars, without any assets of any kind to have met such
indebtedness.
Such is the outcome of those contracts which maybe said to be
historic ; it shows that the corporation and the individuals who
are supposed to have gutted, destroyed and crippled the Central
Pacific Railroad Company, brought themselves beyond the verge
of bankruptcy in fulfilling their conditions.
It is equally true of this contract, as I said before with respect
to the contract let to Charles Crocker & Co., that after years of
patient waiting in the one case, from 1866 to 1881, and in the other
from 1869 to 1881, after from twelve to fifteen years of anxiety and
embarrassment, after bearing the burden of millions of dollars of
debt without any present means of liquidating in times of bank-
ruptcy or disaster, the stockholders of this Construction Company
did realize some profit. But, as actions speak louder than words,
and as men's views are expressed in their acts, we have indubitable
evidence of what was the value set upon the stock of this cor-
poration in 1871, two years after the Central Pacific Railroad
Company had been completed and had been in active operation.
For, at this time, when other roads had been consolidated with
the aided roads ; when the Central Pacific, by consolidation, was
the owner, in addition to the road between Ogden and San Jose,
of a branch and profitable line to Oakland ; of the Oakland and
Alameda ferries ; of several hundred miles of the California and
Oregon Road, and of the San Joaquin Valley Road from the
connection on the line of the Central Pacific at Lathrop to
Goshen, we find that the stock owned by Mr. Charles and Mr. E.
B. Crocker was sold to Huntington, Hopkins and Stanford, at
twelve cents on the dollar, and was sold, not for cash, but on a
long credit.
Now the stock belonging to the Contract and Finance Com-
pany, twenty-three millions, sold at this time at twelve cents on
the dollar, two years after it had completed its contract, would
not have sufiiced to pay its debt of three and a half millions and
the two years' interest which had accrued. But in 1873, two
years after this sale and four years after the completion of the
road, the purchasers were compelled to return to Mr. Crocker the
stock they had bought from him, because they could not pay for
it. It was not, in their estimation, for their interest to endeavor
to borrow the money and keep the stock which they had bought
at twelve cents on the dollar, even with the anticipation of the
dividend of three per cent., which was declared on September 13,
18'74.
But we may be answered, that in the mean time, these gentlemen
had put a higher estimate on the stock of that Company, by
acquiring the stock that was represented in the suit brought by
Lambard and others, and in the suit brought by Brannan, for which
it is alleged they paid several hundred dollars per share. The
settlement with those represented in the Lambard suit was agreed
upon in the year 1870, Hhortly after the completion of the road,
and the price was fixed for the stock of Brannan at the same time.
By reason of litigation that prevented settlement, it was not paid
until some time later.
The plaintiffs in those suits were stockholders in the Central
Pacific, and undoubtedly had a right to an accounting. And
we may say it was unfortunate for the interests of the directors
of the Central Pacific that it was not then made. That it
was not, was because the directors could not afEord, in
view of their then financial embarrassment, to render an
account. They had but one thing to conceal at that time : Not
their wealth, not any money that they had made in the perform-
ance of their duties as directors or trustees ; but, in view of their
great indebtedness at that time, they could not afford to show
their poverty. It was the current belief, that out of the twenty-
seven millions of bonds which had been issued by the Govern-
ment, that out of the grants of land which, as Mr. Bogy, of Mis-
souri, said were not worth a cent without a railroad, that out of
bonds issued by the corporation, secured by a first mortgage upon
its property, and from the aid granted by the counties along its
main line in California, the directors had made enormous fortunes.
And it was this popular delusion that gave them credit, and per-
mitted them, without security, to float and carry the many millions
which they then owed. They could not afford to open their
books to complaining stockholders. It would have been ruin to
them to have then disclosed to their creditors, that to meet the
indebtedness they had been compelled to incur or to assume,
for what the road had cost above the proceeds of their own
79
bonds, and of the bonds in aid of the work, they had only the
unavailable assets of the stock of the Central Pacific, which they
could not sell, to realize the amount of such indebtedness. Such
exposure would have resulted in their undoing ; and, therefore,
it was wisdom on their part to incur further indebtedness for
the moneys required to settle the demands of these stockholders.
But, certainly, the Government is in no condition to com-
plain of these contracts, or of the stock that was issued in their
performance. As we have said before, the Government has all
that it bargained for. It has the road as security for the debt
due to it, if there is any, subject to the lien agreed upon in the
amended contract of 1864. It has had the use of the road, and
has already saved by its completion up to the present time fifty
per cent, more than it will be required to pay in the discharge of
principal and interest at the time of the maturity of the bonds. It
had no concern with the stock of the Company. It found the Cen-
tral Pacific an existing corporation.* It enlisted its aid for the per-
formance of a national undertaking. There never was any doubt
but at the completion of that undertaking the property of the
corporation would be owned by its stockholders, subject to its
indebtedness.
And that is just the position to-day. The promoters of the
road were enabled to sell but little stock. Most of the stock that
was subscribed and paid for was by them. The few who came in
to help them, who faltered by the way, and who were ready to
lay down their bui'den, were relieved by these promoters ; so that
when the road was finished, with the exception of the stock
owned by Lambard and others, much of which, it may be said,
was traded for services, and did not bring a dollar into the coffers
of the corporation, the promoters and directors of the Company
were the owners of all its stock. There has not been a share of
stock illegally issued, nor a single share for which the corpora-
tion did not receive full commercial value at the time it was
issued.
But it may be further said, that these men, being the owners of
all the stock, and, as such, the owners of all the property of the
corporation, it could make no difference to any one whether the
symbol of their ownership was expressed by the issue of certificates
for one thousand shares, or for a hundred thousand shares, or for
a million. Those who dealt with them in relation to the transfer of
80
such stock would determine how much property was represented,
and how much each share was worth. So we find, under the Act
of 1862, theUnion Pacific was authorized to issue a certain number
of shares, of the par value of one thousand dollars each ; but by
the Amendment of 1864, they were authorized to issue the stock
in shares of one hundred dollars each, instead of one thousand, and
that the shares should be one million in number, instead of one
hundred thousand.
The number of shares of stock issued by a corporation, with
the sanction of those who are its owners, cannot make any more
difference than if a man bought a thousand acres of land, and
desired to have the title transferred to him by one hundred deeds,
each conveying ten acres, instead of by one deed for a thousand
acres.
But, as was said by Mr. Justice Miller in The TJnited States vs.
The Union Pacific Railroad Company, (98 IT. S., 619 :)
It is difficult to see any right which the Government has as a creditor, to in-
terfere between the corporation and those with whom it deals. It has been
careful to look out for itself in the making of the contract. It has the
rights which that contract gives. What more can it ask ? * * *
The Government made its contract, and bargained for its security. It had
a first lien on the road by the original Act of Incorporation, which would
have made its lien safe in any event. But in its anxiety to secure the con-
struction of the road, an end more important to the Government than any
one else, and still anore important to the people whom it represented, it
postponed this lien to another mortgage, that means might be raised to com-
plete it.
The Government surely cannot sustain any wrong by the num-
ber of shares of stock issued. The corporators were entitled to
all the surplus earnings of the Company, and whether it is divided
into ten, one hundred or one thousand parts, certainly does no
harm to the creditors, who do not share in the distribution.
But if it should be found, that after allowing the equities claimed
by the Central Pacific, concerning which Congress has directed
the Commission to examine and report, that any material sum is
due to the Government, and it should pay off the original lien and
become the owner of the property, the stock not being entitled
to its protection, would in no way determine or interfere with
its right to the ownership of the property.
81
The Purchase at5d Building of Roads Consolidated with
THE Oknteal Pacific, op California.
The Central Pacific, with the assent of Congress, assigned its
right to construct all that portion of the aided road, from the City
of San Jos6 to the City of Sacramento ; but the assignees were
unable to perform the work, and after there had been several fail-
ures of contractors, the promoters of the Central Pacific arranged
with the assignees to turn the organization over to them, and they
finished and equipped the road in accordance with the require-
ments of the Act of Congress.
At the time of the connection with the Union Pacific, the aided
road consisted of a line from the City of San Jose, fifty miles
south of San Francisco, to Promontory.
The trans-continental business, both in freight and passengers,
■could reach San Francisco by a transfer at the City of Sacramento
to the steamboats then plying the waters of the Sacramento,
and owned by the corporation known as the California Steam
Navigation Company ; or, being carried to San Jose, they could
be transferred to the San Francisco and San Jose Railroad
Company, and would reach San Francisco, a distance of 1 77 miles,
which route, from San Jos6 to San Francisco, was impeded by a
grade of H2 feet to the mile.
To utilize the construction of the Western Pacific, it became
necessary to connect it with the City of Oakland, and from there
use the ferry to San Francisco.
The distance from Niles to San Francisco, 30. '2 miles, makes
the transit in this way, 139.57 miles, against the distance by way
of San Jose, 177 miles, making a saving by this route over that
by San Jose, of thirty-six and a half miles, and avoiding the
heavy grades on the latter. To accomplish this result, and avoid
paying ferriage on the business of the aided road, it was necessary
•to purchase the lines of the San Francisco and Oakland, and the
San Francisco and Alameda Railroads and their ferries.
When the main line was finished, it afforded but little conveni-
ence to people, either in the northern or southern parts of the
State of California; to afford the proper accommodation, to
82
increase its revenue, and to invite immigration and settlement, it
was necessary that feeders should be constructed. Accordingly
the promoters and stockholders of the Central Pacific organized
the Company called the San Joaquin Valley Company, for the
purpose of building a line of railroad from Lathrop, a point on the
Western Pacific Railroad, about eight miles south of Stockton, to
Goshen, in the County of Tulare, a distance of 146.3 miles.
This road was built by the Contract and Finance Company with
money furnished by the stockholders of that Company, and was
paid for in the bonds and stock of said Railroad Company.
It may be said of this contract as of many others that were let
to the different construction companies in which the Directors of
the Central Pacific have been stockholders, that they built the
road with moneys furnished by themselves, and had the road for
their outlay. In other words, they paid to the Construction
Company the bonds and stock of the railroad so constructed, and
waited until such time as they could develop sufficient business
on the road built, to induce the public to buy the bonds or the
stock. If the country through which the railroad ran developed
sufficient business, then the project was a success ; if it did not,
then the operation was a loss. These gentlemen took all the re-
sponsibility ; any loss occurring was necessarily theirs, and of
right the profits belonged to them.
But it is said that they violated a well known rule of equity in
dealing with themselves, that they were trustees, and that they
were representing both sides of the contract.
The answer is, that they did not find anybody else to deal with.
They could not find any one who would take the chances of build-
ing a road through what was then an almost uninhabited country,
and accept the bonds and. stock of the road in payment. And
when it is said they were trustees, if they did occupy such rela-
tion, it was merely technical, for they represented only their own
interests on both sides, there being no one else concerned in the
transaction. They became the incorporators of the Company that
was to build the road, subscribed for its stock, and were the only
subscribers. Therefore it is difficult to see how any one was
wronged by their action. The rule of equity invoked, which has
its origin in the injunction, no man can serve two masters, cer-
tainly did not apply to them, because they were acting in their own
interest, and were not charged with the duty of caring for others'
83
rights, there being no other persons interested in tlie subject
matter.
To perfect the railroad system of the West Coast, for military
and postal uses, to serve the people in the northern part of the
State, and to make a connection at Portland, which became neces-
sary for the protection of the Central Pacific after aid had been
given to the Northern Pacific, the promoters of the Central
Pacific incorporated the California and Oregon, to run from a
point on the main line of the Central Pacific, known as Rose-
ville, to the northern boundary of the State of California, with
such extension into the State of Oregon as its directors might
afterwards deem proper.
By an Act of Congress, entitled '' An Act to grant lands to
" aid in the construction of a railroad and telegraph line from
" the Central Pacific in California to Portland in Oregon," there
was granted to this Company, to secure the safe and speedy
transmission of the mails, troops and munitions of war and public
stores over said line of railroad, every alternate section of public
land, not mineral, designated by odd numbers, to the amount of
twenty alternate sections per mile, ten on each side of said rail-
road line.
The directors of this Company proceeded with the work of
construction to the State line, expecting to connect with the road
of the " Oregon and California Company," which was commenced
at the City of Portland, and was intended to connect with the Cen-
tral Pacific at the California line ; but owing to the failure of the
original promoters and their successors it was not completed until
it came into its present ownership. This work of enormous diffi-
culty and cost has at last been achieved, thus giving connection
by rail between the Cities of San Francisco and Portland, and
direct railroad communication between Puget Sound and the
City of Mexico.
We do not want to interrupt this branch of the argument by
indulging at this moment in reflection on the benefit and ad-
vantage of the efibrts of these men to the United States. It is
just twenty-five years since the passage of the Act of 1862, when
thinking and intelligent men scofied at the idea that a road could
be constructed or operated over the wastes between the Missouri
and the Sacramento. But the eflforts of these men demonstrated
84
that such a thing was practicable ; and there are now live separate
lines connecling the Athnilio with the Pacific. '
But in addition, the effortss of the same men have served to con-
nect our great forests and ship building facilities of the Northern
Pacific with the lormer capital of the Aztecs. The efforts of these
men have brought the Capital of the Nation very close to the
Territory of Alaska, and proved the wisdom of the purchase recom-
mended by that foremost statesman of our time, Governor Seward ;
and we can now visit, explore and enjoy that wonderful country
which, less than ten years ago, we deemed to be a terra incognita,
and add to our wealth by engaging in its fisheries or the deVelop-
■ment of its mines.
We do not think we go beyond the limits of our position,
when we inquire whether the i'evr aged men, who have produced
this result, are not woi'thy of some greater recognition than the
persecution they seem to have been subjected to at the hands of
the Executive and Legislative Departments of this Nation, ever
since it became apparent that they would succeed in the full per-
Ibrmance of their contract made with the United States, to con-
nect, by a railroad, the waters of the Missouri with those of the
Pacific.
The road between Niles and Oakland, already spoken of, was
consolidated with the Western Pacific. The Western Pacific and
the Central Pacific wcie then consolidated into a new corporation,
and with the new corporation there was consolidated the San
Francisco, Oakland and Alameda Railroad Company, which had
been formed by the amalgamation of the San Francisco and
O^ikland and the San Francisco and Alameda — and the San
Joaquin Valley Kailroad Company and the California and Oregon
Railroad Company, under the name of The Central Pacific Rail-
road Company,
The stock of the original Central Pacific Railroad Company of
California, of the Western Pacific, of the San Francisco Bay
Railroad Company, of the San Francisco, Oakland and Alameda
Railroad Company, of the San Joaquin Valley Railroad Company,
and of the California and Oregon Railroad Company, were retired
-and exchanged for $51,373,700 of the stock of the new Central
Pacific Railroad Company :
85
For the stock of the Central Pacific of California, . $40,570,100
For the stock of the Western Pacific, . . . 7,900,000
For the stock of the California and Oregon, . . 1,838,300
For the stock of the San Joaquin Valley, . . 305,000
For the stock of the San Francisco, Oakland and
Alameda, 760,300
The entire capital stock of the last mentioned consolidated
Company being the same as that of the Central Pacific Railroad
Company of California, one hundred millions.
None of the roads consolidated with the Central Pacific of
California have ever been a burden on the earnings of the main
line ; and the policy of consolidation, to put them all under one
management, and run them all in one system, was certainly wise
management in saving cost of superintendence, and, to some ex-
tent, of motive power and equipment.
If we may judge from the questions put by the Commissioners to
witnesses that appeared before them, they were under the impres-
sion that these different lines were represented by too much of the
capital stock. As we have heretofore said, that is a matter which
concerned only the stockholders, and no bona fide stockholder has
been heard to complain. All those who own stock at present,
bought in view and with the full knowledge of what had been
issued, and the purposes for which it had been issued. And cer-
tainly, from the position that the Government occupies in this
matter, it has no cause of complaint.
The surplus earnings were divided among the stockholders, and
whether those earnings were divided upon the basis of an issue of
fifty millions instead of five millions, does not in any way inter-
fere with the rights or the security of the G-overnment.
After this consolidation various roads were built by the di-
rectors of the Central Pacific, thi-ough one or other of the Con-
struction Companies. Many of them were leased to the Central
Pacific, but as the result shows, as heretofore stated, at a net
profit of something over ten millions. • All such roads have been
feeders to the main line or aided road. So that, in this respect, as
iu all the other acts of the Company, the position of the Govern
ment has not been damaged.
The only work undertaken by ^the directors of the Central
Pacific which has in any way withdrawn any of the revenues
7
86
from the aided road has been the construction of the Southern
Pacific, which they were forced to undertake in consequence of
the legislation of Congress providing for such a road, and which,
if they had not undertaken it, would have resulted much more
^disastrously to the revenues of the Central Pacific, as we state
hereafter, and as the testimony before the Commission shows, that
unless the directors of the Central Pacific Road had concluded to
undertake its construction for the purpose of protecting the
earnings of the Central, the Government would have guaranteed
or endorsed eighty or one hundred million of the bonds of the
-corporation represented by the late Thomas A. Scott, to be used
in such construction.
XI.
Purchase of the Stock of the California Pacific Railroad.
The California Pacific Railroad formed the shortest line from
Sacramento to San Francisco. It was a distance of eighty-five
miles, as compared with 137, the route of the Western Pacific via
Oakland, and as against 177 miles on the Western Pacific, by way
of San Jos6, with the impediment on this line of a grade of mnety-
two feet to the mile, a short distance south of San Francisco.
The testimony of Mr. Jackson, the former Pj-esident of the Cali-
fornia Pacific, shows that passengers coming from points east of
Sacramento, ticketed to San Francisco by the Western Pacific,
would abandon the coupons for transportation from Sacramento,
and would buy tickets over the California Pacific, thereby saving
about three hours time, and about fifty miles in distance.
The California Pacific, as Mr. Jackson also tells us, was engaged
in the year 1871 in seeking aid of prominent capitalists in London
and Frankfort, to incorporate a Company, and furnish means to
build irom Marysville,a point on its line, by way of the Beokwith
Pass, to a connection with the Union Pacific. It was from these
circumstances that the promoters and directors of the Central
Pacific thought it to their interests, and to the interests of their
creditors, and among them the Government of the United States,
to secure the control of this line.
They did not use any money belonging to the Government for
such purpose. They did not in any way impair the lien of the
87
Government upon the aided road. The public had already adopted
that line as the most convenient and satisfactory mode of
transit between the political and the financial capital of the State;
and, apart from the danger to the financial success of the entire
main line aided by the Government, it was the part of wisdom to
control the shorter transit, to give those who came from points
east of Sacramento the benefit of the shorter route to their desti-
nation, San Francisco.
At the time of this purchase, passengers over the California
Pacific were taken by rail to Vallejo, and from there to San Fran-
cisco by steamer. The directors of the Central Pacific improved
this route, by building a branch line to Benecia, using a ferry from
that point to the shores of Contra Costa County, and by rail to
Oakland, so as to make the transportation from Ogden to Oakland
without change of cars, decreasing the time of travel over one
hour.
These accommodations and the saving of time resulted, as do all
such improvements of travel, in an increase of business, and in that
way the aided lines were benefited. Certainly they did not
sustain any damage.
This road was leased to the Central Pacific, certainly not to
the disadvantage of the Government, if we are to give any cre-
dence to the wailings and lamentations of the owners of a minority
of the stock. Tiie lease was a financial benefit to the Central
Pacific corporation, while it was just and fair to the lessors.
The advantages of this course will be further illustrated,' if
another trans-continental road should enter California to compete
for through business to San Francisco. Even so far as the
Atchison, Topeka and Santa Fe has penetrated into California,
running cars as it does by arrangement with the Southern Pacific
to Oakland, the advantages of controlling the California Pacific in
the saving of time are already manifest. The Government, by its
actions, has testified to the wisdom of this purchase, by its very
properly directing that the mails tor San Francisco be transported
over the California Pacific, instead of by the longer route over the
aided Western Pacific.
88
XII.
Diverting Traffic from aided to non-aidbd Linbs.
It is said that traffic has been diverted from the aided to the
Don-aided roads. That is true only in one case, and for that the
Government, and not the directors, is responsible.
As to the roads built in California that are not included in
the system of the Southern Pacific Railroad Company, all have
tended to increase the earnings of the aided line ; and this is also
true of such business as the Southern Pacific gathers in California,
and delivers to the Central Pacific at Goshen.
But, as we say, the diversion of the through business from the
aided line to the Southern Pacific is not the fault of the Central
Pacific. The Government forced this property on the promoters
of the Central Pacific. It subsidized the line, provided it was
built within a certain time, and it must have known that if two
roads were to do the transportation business for the limited
population upon the Pacific coast, the one would necessarily
divert patronage from the other.
We say, that the Government forced this road upon the Central
Pacific. When the Central Pacific was first completed from
Sacramento to Ogden, it was in a crippled financial condition. It
had, from the great difficulties of construction, and from the con-
dition of the markets for labor and material-s at the time at which
it was constructed, and from the unparalleled haste of such con-
struction, spent enough money in said construction to have paid
for the building of two such roads.
The testimony of the contractors and employees who did the
work of construction from Newcastle to Ogden is, that that
road could have been constructed five years after its completion
for about thirty per cent, of the money that it cost. Seventy
cents out of every dollar expended was the cost of the great
speed with which it was built, and of the war prices of material
and the Government tax thereon.
The Central Pacific could not avail itself of the cheaper markets
of the world. It could not buy its iron in Wales or Belgium.
It could not ship its material to San Francisco under a foreign
flag. It was forced to purchase American rails at an average of
89
over eighty dollars per ton, instead of English rails at an average,
including duty, ot fifty dollars a ton. It was forced to pay $17.50
freight from New-York to San Francisco, when it could have
shipped for less than $10 from Cardiff to San Francisco. It was
forced to pay a war insurance for goods shipped under the American
flag as high as 17 per cent., when it could have obtained the same
guarantee for goods shipped under the English flag for less than
three per cent. It paid to the Government on many of the locomo-
tives purchased, a war tax of $960. It paid for two engines that it
was forced to buy in an emergency, so that the work of construc-
tion might not be delayed, $70,752. The first ten engines that it
bought cost upward of $191,000; the second ten upward of
$215,000.
The freight via Cape Horn on the first locomotive purchased
by the Company was $2,282.25. By reason of certain material
being delayed in coming around Cape Horn it was compelled to ship
some locomotives across tlie Isthmus of Panama. It paid freight
on one locomotive $8,100. On a shipment of eighteen locomotives
by the same route it paid as transportation charges, $84,886.80,
being $4,692 each.
Such examples might be continued indefinitely, but they are
sufficient to show why the Central Pacific was, as I have stated,
financially crippled when its last spike was driven.
If the California Pacific had proceeded unchecked with its
scheme to connect with the Union Pacific by way of Beckwith
Pass, it would have made such connection certainly for less than
fifty cents on the dollar of the bonded and aided debt of the
Central Pacific. And it was this knowledge, joined to the ad-
vantages the Central Pacific expected to derive in its local traffic
Irom acquisition of a majority of the capital stock of that Com-
pany, that induced the promoters of the Central Pacific to ac-
quire it.
And so with the Southern Pacific. With the easier grades upon
that route, the aided roads were in no condition to stand the con-
test with the Southern Pacific Railroad in adverse possession, nor
could they take the risk of allowing it to be built by Mr. Scott,
or others in the interest of the Pennsylvania Railroad, with
moneys furnished by the Government.
It was not a choice for the Central Pacific, whether it would
construct this channel for the diversion of business from the
90
Central Pacific. Had it not done so, it would have been con-
structed by the Pennsylvania Road or its allies.
In evidence of our statement, that the Central Pacific was
financially crippled, we refer to the debate that took place before
the House Committee on Pacific Railroads, during the session of
18V5. Thomas A. Scott, then President of the Pennsylvania
Railroad Company, appeared before that Committee, seeking
further aid for the Texas Pacific, so that it might build its road
into California. Mr. Huntington, on behalf of the Central Pacific,
opposed this project, and told the Committee that the Central
Pacific was bound to build this road for its own protection. Mr.
Scott retorted, that they could not build it, that their finances
were in a desperate condition, that they were carrying a floating
debt of fourteen millions.
Although Mr. Scott's statement was somewhat extravagant, it
was so near the truth as to be far from pleasant to those who were
representing the Central Pacific.
If the Southern Pacific had been operated as a rival road from
the time of its completion, there would n6t have been any net
earnings of the Central Pacific.
With such a competitor, it is more than doubtful whether the
Central Pacific would pay operating expenses and fixed charges.
But by the course adopted, the Central Pacific has controlled
this great element of danger, and has kept the aided roads in good
condition, financially and physically, and they never were in better
condition than they are to-day to perform the contract with the
Government under which aid was obtained, keeping its road in a
state of usefulness, at all times ready to yield all the service to the
Government in the transportation of troops, munitions of war,
public stores and the mails, whenever the Government felt that it
could aflford to pay for the services of a first-class road, instead of
sending its business around Cape Horn or through a foreign terri-
tory.
The Commissioner of Railroads, in his report dated September
13th, 1887, says :
I inspected the road and its principal branches in June and July. This
property, including track, road-bed, bridges, culverts, station buildings,
■workshops and tools, was in excellent condition. The ditches are ample,
road-bed well raised, and ties and rails accurately and firmly laid. In the
extensive and well equipped shops at Sacramento any work can be done that
91
a first class railroad can require, and those at Carlln and Wadsworth are
placed and equipped to make repairs becoming necessary on the road.
There is a good library at each station.
We leave this branch of the inquiry by saying, that in every act
of the directors of the Central Pacific, whether in connection with
the business of that Company directly, or whether as promoters
or directors of local lines, they have not been the cause in any
way of diverting business from the aided line, or in any way in-
juring the position of the Government.
And we say further, without fear of successful contradiction, that
every invasion of the contract made between that Company and
the Government, whether we review the contract by the terms of
the Act of 1862, or the Amended Act of 1864, or by the spoliation
of the Company under the Act of May 7th, 1878, known as the
Thurman bill — every departure from the terms of that contract,
whether implied or expressed, has been on the part of the Govern-
ment of the United States.
It granted in aid of the construction of the road the land spe-
cified in the Act of 1864 ; but it has prevented the Company from
enjoying the benefit of the grant, by refusing to issue patents for
the land, and the Company is now claiming that it has been dam-
aged by such refusal to the extent of at least $500,000. It kept
back a considerable amount of the aid-bonds after the road was
being operated as a through line, on the ground that it was not
completed according to the terms of the contract ; but it forced
the Company to pay it five per cent, on its net earnings, though
by the terms of the Act of 1862 such per centage was not paya-
ble until after the i-oad was completed. By retaining these bonds
it forced the Company to borrow money to the amount that such
bonds would have produced, and to pay for such loans interest
ranging from twelve to fifteen per cent, per annum.
It has refused its transportation to the Company, and has ac-
tually paid more for the service than the amount at which it
would have been performed by the Company. It has had its
mails, troops, munitions of war and public stores transported over
non-aided lines within the control of the Central Pacific Railroad
Company, and has refused to pay for such service even after the
Supreme Judicial Tribunal of the nation has pronounced that the
Company^was entitled to such payment.
92
We do not know tliat tlie limes are propitious to obtain a fair or
equitable consti-\iction of this contract by any of the departments
of the Govei'nment, otlier than the judicial. And it becomes
eveiy citizen of the United States to congratulate himself, that
there is one department of his Government upon which he can
rely ; that there is one tribunal that is governed by certain fixed
principles, and is not swayed by the political passions or interests
of the hour; although it may I'equire an amendment to the Consti-
tution to force the other Departments of the Government to yield
obedience to its mandates.
If the relations that exist between these railroad companies
and the Government are to be used by the party in power
to perpetuate itself, or by the party out of power to dis-
possess its opponent, then no decisive result will ever be ob-
tained, no satisfactory solution will ever be arrived at in any dis-
cussion of the question between the Executive and Legislative
Departments of the Government and its contractors, the Union
and the Central Pacific Railroad Companies.
In all the testimony gathered by the various examining officers
of the Government, derived either from the books and accounts of
these lailroad companies, or by oral examination of their friends
or enemies, and in all that may be reported from the unauthor-
ized and illegal inquiry under the auspices of the Commission
appointed by the President, in pursuance of the Act of March 3d,
3 887, not one tittle of evidence has been introduced, or will be
found, to impeach the correctness of the conduct of either of these
Companies in their relations toward tlie Government.
We go further, and say on behalf of the Central Pacific, that you
cannot charge the managers of this road with any act that would
not be sustained by the Courts, in the conduct of a guardian
towards his ward.
The characteis of the presiding officers of the Union and Central
Pacific Railroad Companies are the equals of those of any citizen.
There are no two men, in their public and private life, more actu-
ated by lionest and worthy motives, tlian Charles Francis Adams
and Leland Stanford; and if ever their acts and intentions are
weighed by any impartial tribunal, they will be found to be in ac-
cord with the high character they bear.
Mr. Stanford was the first Republican Governor of California.
He was its " war" Governor. And he did more than any other man
93
■within the Slate of California, by his firm, intelligent and wise ac-
tion as Governor, in preventing strife and bloodshed during the
€arly days of the rebellion, and keeping the State true to the
Union. As was said by Mr. Campbell, of Pennsylvania:
" Thanks to the loyal people of Calif ornia, Oregon and Washing-
ton, loe have not been called upon to quell rebellion on the shores
of the Pacific^
The opinion of the Legislature of California, as to the services
and character of Mr. Stanford, was expressed after his terra of
oflBce as Governor had expiied, in the following resolution,
adopted by both houses of the Legislature by unanimous concur-
rence :
" JVo. 3. Concurrent resolution, adopted December 15th, 1863:
" Hesolved, By the Assembly, the Senate concurring, that the
" thanks of the people are merited and are hereby tendered to Le-
" land Stanford, for the able, upright and faithftd manner in
*' which he has discharged the duties of the office of Governor of
" the State of California for the past two years." (Statutes of
California, 1863-64, p. 542.)
When the men who are controlling these two Companies come
to Congress with the statement, that in a contract they have
made with the Government they have been wronged, that there
are equities in their favor which should be considered : when they
say they entered into a contract with the Government, in which
certain things were expressed, and that between the lines of that
contract more was implied, and that effect should be given to the
implied as well as the express terms of the contract, they are, at
least, entitled to a respectful and impartial hearing by the repre-
sentatives of the people. They should not have the doors of the
inquiry chamber closed in their faces. They should not be made
the victims of unreasonable or unconstitutional legislation.
The legislative department has not been ordained by our Con-
stitution, or by any principle of natural right or justice, to con-
strue a contract to which the Government is a party.
As was said by Mr. Hamilton in his celebrated communication
to the Senate, under date of January 20th, 1795 :
When the Government enters into a contract with an individual it deposes,
as to the matter of the contract, its constitutional authority, and exchanges
94
the character of le^slator for that of a moral agent, with the same rights
and obligations as an individual.
Its promises may be justly considered as excepted out of its power to legis-
late, unless in aid of them. It is in theory impossible to reconcile the idea
of a promise which obliges, with a power to make a law which shall vary
the effect of it. (3d Hamilton's Works, pages 518, 519.)
Our fathers, and they were wise men in their generation, left
the contests between the governing power and the governed to
the calm, placid and mediating equity of the courts provided by
the Constitution.
The constructors of the Central Pacific say: We entered into
a contract to assist in the performance of a national undertaking,
which was supposed and declared at the time to be an impossi-
bility ; we risked the results of our labors for two score or more
of years in aiding the Government to reclaim the territory between
the Missouri and the Sacramento and to more effectually guard it8
Pacific possessions ; we put into it our worldly substance and
risked our lives by exposure to the elements amidst the rigorous
winters of the Sierra Nevadas, to carry out in good faith the
contract we had made, and to do it in half the time allotted.
We come now and say to you that in making that contract we re-
lied on your statement, that you would give to these two roads the
patronage of the Government, which had averaged for many years
not less than $7,300,000, and which you expected would largely
increase in the future j and that the revenue from this source we
expected, and as you expected, and as was so announced in
the debates in Congress, would cover the credit which you ad-
vanced to us, and the interest that you were to pay for our use of
such credit; and we say that you have so far fallen short in your
coTitract with us as to render to us your business amounting to
but one-tenth part of the promised compensation, and although
you agreed to pay us for doing all your business reasonable
and lair compensation, and the same rates paid to us by our other
pati'ons, yet that you have so far disregarded your obligations in the
premises as to keep from us all the transportation you controlled
which you could ship by any other line, not even giving to
us the preference at the same prices ; and we show you that by
our efforts and the use of our capital you have already saved by
the performance of our contract, and retained in your Treasury
over $139,000,000; and in the language of the General comr
95
manding your armies, the Indian as a problem has been ob-
literated from army tactics, by I'eason of opening the vast ter-
ritory between the Missouri and the Sacramento to settlement
and civilization ; all of which has been accomplished by the due
fulfillment of our part of the contract entered into with you.
When we come to you, as the governing power of the nation,
to represent these facts, and the advantages which you enjoy, and
will continue to enjoy, we say they are matters which should
engage your earnest attention, and we ought not to be met
■with vituperation or invective.
XIII.
Inpluencing Legislation.
The Commission appointed under the Act of Congress of March
3d, 1887, were charged to inquire —
What amount of money or other valuable consideration, such as stock,
bonds, passes, &c., have been expended or paid out by said Companies,
whether for lawful or unlawful purposes, but for which suflBcient and de-
tailed vouchers have not been given or filed with the records of said
Company ?
This branch of the inquiry forms question No. 20, which the
Commissioners printed and sent to the officers of Companies which
had received aid from the United States.
Mr. Stanford, President of the Central Pacific, made answer in
writing, as follows :
In answer to interrogatory No. 30, I have to say, that the Company, in its
settlement with the Government, proposes to claim nothing as expenses in
determining the net earnings in which the Government has an interest, for
which the Company does not famish full and satisfactory vouchers. It is
entirely immaterial to the Government, and the Government can have no
interest in knowing what amount of money has been expended for which the
vouchers on file are not suflBcient in detail or otherwise. I would, however,
remark, that all items of expenditure, for which detailed vouchers are not on
file, have from time to time been approved by the directors and stockholders
of the Company.
Question 21 of the printed questions reads:
Further to inquire and report whether said Companies, or either of them, or
96
their oflBcers or agents, have paid any money or other valuable consideration,
or done any other act or thing for the purpose of influencing legislation.
Mr. Stanford answered the question as follows :
In ansvrer to interrogatory No. 31, I have to say, in behalf of the Central
Pacific Railroad Company, that no deduction vrill be made from that portion
of the net earnings belonging to the United States, on account of any expen-
diture for which detailed and satisfactory vouchers are not furnished. We
will account to the Government as if no suck expenditures had been made.
On the oral examination of Mr. Stanford by the Commission,
vouchers for money paid to him by the Company were shown to
him, and he was aslied by the Chairman of the Commission to
explain.
The examination took the following form :
" Q. Mr. Stanford, will you please look at the voucher, and ex-
plain to the Commission, in detail, the character of the expendi-
ture covered by the amount named in the bill ?"
this voucher was February 7th, 1876, and it was
for general expenses to December 31st, 1875.]
Mr. Stanford examined the voucher for some time, and was
asked by his counsel :
Q. Have you any recollection of the contents of that voucher?
A. No, sir; I don't remember. I presume it is made up of a
great many items, but I have no recollection of this particular
voucher.
The Chairman. — Q. How did you make up that sum?
A. Well, except they have my voucher, I could not tell, because
I don't remember. But I used to pay out money for the Com-
pany, one way and the other, and after a time I would pass in
my accounts, or rather, my vouchers, and it would be made up by
somebody connected with the office, presented and allowed to me ;
and I presume this is one of that kind.
Q. Have you any accounts, showing any detailed statement,
from which you took that sum of money, in order to give a
voucher to the Company ?
A. None at all.
Q. For what purpose would you make expenditures ?
A. Well, I can tell you generally. Our accounting offices for
a long time were at Sacramento, and I used to be in San Fran-
cisco doing business for the Company, a great deal of the time.
In those days I borrowed money, paid out interest, renewed notes,
and sometimes paid commissions for large amounts. Everything
I paid out for the interest of the Company would be made up
and presented, and I would be credited for the aggregate.
97
Q. Did you make any explanation to the Company, at the time
that you presented tlie voucher ?
A. I have no doubt that I did.
Q. What explanation did you give to the Company ?
A. Well, as I don't remember the items of the voucher, I can-
not remember, of course, the explanation I may have given to the
Company. I don't think I went into details. I think I said I
found it necessary to expend, in the general interest of the Com-
pany, so much, and I do not think that they ever questioned me
particularly as to the wisdom of the expenditures.
Q. Was any part of the $171,000, the sum named in this bill
that I have handed to you, and which you have paid, expended
for the purpose of influencing legislation ?
Mr. Cohen, of counsel for the Central Pacific, said : " We object
to the question, for the reason that the witness says he does not
remember what constituted the items composing this voucher.
For that reason, we advise him to decline answering further ques-
tions with respect lo this voucher. Our advice is also founded
upon the fact, that the Company is willing to account to the Gov-
ernment for its proportion of any voucher that is produced, or any
entry upon the books that is unexpl.iined, and, therefore, we can-
not see that it will make any difference what the Company did
with the money, whether it threw it into the sea, or wasted it in
any manner or form ; and speaking for myself, as counsel, and be-
lieving that I express the views of my clients, I say that I regard
these questions as simply seeking to pander to a public scandal,
and that they cannot have any bearing upon the purposeH or ob-
jects entrusted to this Commission."
liy the Chairman :
Q. I repeat my question : Was any part of the sum named in
the voucher submitted to you paid to any agent or individual for
the purpose of influencing legislation ?
Before the witness made answer, the Chairman said :
" If you don't know it you can answer the question."
A. I told you, I don't know anything about this ; but then I
shall act upon the advice of my counsel. I do not suppose it can
make any possible difference so long as we account for the money.
The Government cannot have any more than the money, and the
Company is willing to account for that, if you are not satisfied
with the vouchers.
Q. Do you decline to answer my question ?
A. Under the advice of counsel, I do, any further than I have
answered it.
The witness further said :
" I state that I never corrupted or sought to corrupt any mem-
98
ber of any Legislature, or any member of Congress, or any public
official, nor have I ever authorized or allowed any agent ot mine
80 to do."
It is in evidence before the Oommission, that all the expendi-
tures made by Mr. Stanford, for which there are no detailed
vouchers, have been approved by the Board of Directors and
' atified by the stockholders.
Now it will be seen, that the witness, being examined twelve
years after the money had been expended, having no recollection
of the purpose of the expenditure, was, by the action ot this
Board, pretending to exercise judicial functions, forced into the
position of being compelled, under the advice of his counsel, to
decline further reply.
It may be said, that it appeared when the matter was sub-
mitted to the Circuit Court of the United States, upon the appli-
cation of the Commission to compel the witness to answer, that
this particular voucher had already been scrutinized by the
Government Auditor of Railroad Accounts ; that he had refused
to allow it as a proper deduction from the gross earnings of the
Company, and that in settling with the Government the amount
of this voucher was treated as money on hand, and the United
States received its proportion, which was covered into the Federal
Treasury in the manner provided by law.
The questions put by the Commission were calculated to put
this witness in a false position. He had sworn he could not re-
collect the purposes for which the sum of money, or any part of it,
represented by this voucher, had been expended, and when, disre-
garding the truthfulness of his reply, he was asked whether any por-
tion of it had been spent for the purpose of influencing legislation,
the counsel representing him would have been untrue to their
duty if they had not assumed the responsibility and advised him
to decline to answer further.
But an answer to the question which the counsel advised this
witness not to make was really contained in his first reply, that
he did not remember the purposes for which this money had been
expended.
" Influencing legislation " has a wide and diverse meaning.
Every American, who cares for his birthright, and who under-
takes to perform the duties of citizenship, influences legislation
when he declares his preference for one candidate for a legislative
office above another. His neighbor, who goes forth to represent
him in the local Legislature or in Congress, to whom he has stated
his views on the current questions of the day, which will form
the subject of enactment, is influenced in his course by such ex-
pression, and in this way, every voter for a successful candidate
may be said to influence legislation.
It is the right and the duty of every citizen to influence legisla-
tion ; and the more interested he is in the subject matter, the
higher becomes the duty to use his influence to obtain such laws
as his necessities justly demand. The duly of determining upon
the propriety of a proposed statute, is with the legislative body.
As the necessities arise for interfering in legislative acts, the
purpose of which is not announced before a Legislature meets,
and as the persons interested in such subject may be distant
from the State House, or from ihe National Capital, it is proper
to employ agents, who reside at the Capital of the Slate or of
the Nation, to represent those who may be interested in the
enactments proposed.
The payment of money to influence legislation may be made
with the most perfect propriety. ' Effective service by intelligent
agents, cannot be procured gratuitously before a legislative de-
partment more than before the judicial department.
In England the business of parliamentary agents is recognized
and respected. Those having business with the Legislature of
Great Britain are represented by agents, just as suitors in Court
are represented by counsel ; and although the business of agents
of this character in this country is not as highly esteemed as in
England, it would be better for the community if it were so.
There is no more valid reason why one should not properly
employ an agent to promote the passage or defeat of a pending
measure than that he should be debarred from the employment of
counsel to prosecute or defend in a Court of justice.
It is said that the Central Pacific has disbursed a large sum
for such service.
It was proved before the Commission that the parliamentary cost
of explaining to Committees and obtaining the neessary legislation
for the Brighton Railway averaged over . £4,800 per mile.
Of the Manchester and Birmingham, . . 5,000 " "
100
Of the Blackwall Railway, .... £14,400 per mile.
That the solicitors' bills for the Southeastern
Railway was a total of ... • £240,000
The expenditures of the Central Pacific are insignificant, as
compared with the cost of the same services required for obtaining
the necessary legislation from the English Parliament But what-
ever amount has been spent by the Central Pacific for the purpose
of influencing legislation, the Government is the responsible cause
for the largest portion of such expenditure. Long before the last
rail was laid, and continuously since, this Company has been
subjected to the most nagging and ceaseless persecution at the
hands of the officers of the various Departments and of Congress.
And it has been to ward off the hostile effects of such adverse
action that this Company has been compelled to employ agents
and attorneys to explain their true position to officers of the
Departments and to members of Congress, and the necessity for
such expenditure has recurred with every change in the incumbents
of the difierent Departments and their subordinates, and with the
election of each Congress.
Take the case in hand. The witness, Mr. Stanford, is President
of a railroad system extending from Portland, Oregon, to the Salt
Lake Valley, and from the City of San Francisco to the City of
New-Orleans, covering a distance of nearly five thousand miles.
The interests of the corporations he represents are liable to be
the subject of legislative enactments in the States of Oregon,
California and Nevada, and in the Territories of Utah, Arizona
and New-Mexico, and the States of Texas and Louisiana; and the
net earnings of the whole system are liable to be controlled by
the by-laws, resolutions and ordinances passed in every county
and every municipality in each one of those States and Territories
through which any portion of this railroad system may penetrate,
and the interests of all such corporations, and especially of the
Central Pacific, are liable to be seriously affected by the legislation
in Congress and by the rules adopted for the government of the
difierent executive Departments with which these Railroad Com-
panies have business.
It therefore becomes the duty of the President or managers of
such Companies to watch and to influence the legislation of all
101
these tribunals, that the corporate interests may not be adversely
affected.
It is just as much the duty of the managers or directors of a
corporation to do this, as it is to defend any action that may be
brought against it, and for such purpose to employ and pay for
the services of intelligent agents, to protect it against hostile
legislation, as it would be to employ and pay for the services of
counsel, learned in the law, to protect it against an unjust judg-
ment.
To defeat proposed unjust and hostile legislation, a resort must
be had to the services of those who are not known to be in the
employment of the corporation whose interests they guard.
The plans and purposes of the authors of drastic measures
would not become known to the directors of the corporation, if
their agents heralded their employment.
Corporations, like governments, must work with secret agents,
and when the business of such an agent becomes public, his use-
fulness is at an end.
To have informed the Commission of all the agents employed
by the corporation under the management of this witness, would
have put in peril the further prosecution of its business, both
physical and financial.
Some portions of the road, operated by the Central and South-
ern Companies, are run through districts where the safe passage
of a train is subject to the same risk of interference as a stage
used to be on our frontier lines. There are men banded together
in the territories to rob the mails and treasure in transit. We
c^3uld not, with any safety, name the men employed in the pre-
vention or detection of these acts.
We have agents also to guarantee to us the faithfulness
and to warn us of the unfaithfulness of various classes of em-
ployees. Their discharge from our service must necessarily
follow the rendering of their names. The most important in-
formatioa that all corporations of this character receive must
of necessity come through secret agents. The names of the
attorneys who appear before Committees or Courts are well
known, but it is not with that class that the Commission were
concerned.
To accomplish these results there must be in the employ
of the corporation well trained special agents, and money must
8^
102
be disbursed for their remuneration. In the conduct of public
affairs a fund for this purpose is usually provided by the Legisla-
tive Department to be used by the Executive.
Such a fund has been entrusted to the Chief Magistrate of the
Nation, and to the Governor of every State since the formation of
our Government ; and the man who controls the operation of the
■millions of capital represented by four or five thousand miles of
railroad and the financial interests of its owners must have a like
fund. It is in the interest not only of the stockholders of such
•corporations, but of the public, to confide it to him.
It is not out of place to say that the man whose honor was
fiought to be impugned possesses without regard to political parties
the confidence of the people of the State of California, of which
he has been Governor, and which he is now representing as a
Senator in Congress.
We have heretofore shown in the course of this argument that
the people of his State and of the Nation trusted him in perilous
times, and that be perlormed his high and arduous duties so as to
■meet the approbation of the people and receive the thanks of the
^Legislature. It is not claiming too much that every presumption
goes with him in the supposition that he expended any fund en-
trusted to him without violating any law of the State of which
he had been Chief Executive, or any Federal law which, as
■Senator as well as citizen, it is his duty to uphold and protect.
In the history of our country quite unseemly exhibitions have
been witnessed before. The President of Congress was chal-
lenged to declare how much of the secret service fund had been
-expended in enabling Mr. Franklin to make a loan from the
French Government (or the use of the United States.
In England a faction of the House of Commons, following the
lead of an opposition paper, brought disgrace upon themselves
by challenging the Government to say how much of the secret
service fund had been used to aid Mr. Canning in his mission on
behalf of the Government to Portugal.
It will not do to assume, when a witness (of such a character as
this worthy Governor has shown himself to be) refuses to answer
a question, that such refusal is made to conceal improper or un-
worthy motives or actions.
When Sir John Cam pbell, afterwards Chief Justice of England,
and then Lord Chancellor, was defending Lord Melbourne, the
103
Prime Minister, from the charge .of maintaining improper rela-
tions with Mrs. Norton, he said, it would be unfortunate if the
public mind became so debased as to imagine that when a man
and a woman came together, with the opportunity for misbe-
havior, they had availed themselves of the occasion. And so it
may be said, that it is to be hoped that the public intelligence of this
country will not be so low as to believe that when the managers
ot an immense corporation are forced to employ agents, or expend
money to prevent hostile legislation, they have made such expen-
diture in an unlawful or corrupt manner.
There is not a leading corporation in the country that has not
been forced to so protect itself.
There is not an intelligent person of mature age in this coun-
try who does not know that leading corporations, not only rail-
roads, but banks and insurers, would be severely mulcted by ad-
verse and ill-considered legislation, promoted by the worst class
in the community, who hang about legislative halls, unless effec-
tive measures were taken to prevent such results.
And, therefore, it is necessary to explain to members of Legis-
latures, the merits or demerits of any proposed bill before them,
seeking their sanction. Notwithstanding the vituperation, the
abuse, that it is the custom to heap upon our legislative representa-
tives with but few exceptions, they will be found disposed to act
in accordance with right and justice. Often because the measures
before them are not sufficiently explained, they are liable to come
to an erroneous conclusion.
The representatives of the people are a true reflex of those who
elect thera, and being informed of the merits of the case on which
their action is invited, may be trusted to reach as nearly a
right and intelligent solution as is possible for men called from
the various walks of life in dealing with subjects on which they
have had little or no experience.
It is a gross scandal on the American people, to assert that
money used to influence legislation finds its way into the pockets
of the men representing them in their Legislatures.
The present Executive of this nation, who performs his duties
BO much to the satisfaction of the people of the country, but a few
months ago declined to inform the Senate of his reasons lor
removing certain citizens from office. It would have been as
much out of character to have suspected him of unworthy motives.
104
in making such removal, as it is to ascribe them to this witness,
whose services to the public in the official positions he has held
Bave been as truly and faithfully performed.
XIV.
DisASTEOTjs Effects of the " Thueman Bill " on the Inbbbt-
BDNBSS OF THE CeNTEAL PaCIFIC TO THE GOVEENMENT.
By Sections 5 and 6 of the Act of July 1, 1862, Congress pro-
vided for the payment to the Government of the indebtedness of
the Central and "Western Pacific Railroad Companies.
Section 5 reads :
To secure the repayment to the United States, as hereinafter promded, of
the amount of said bonds, so issued and delivered to said Company, together
with all interest thereon which shall be paid by the United States, the
issue of said bonds, and delivery to the Company shall ipso facto constitute a
first mortgage on the whole line of the railroad and telegraph, together with
the rolling stock, fixtures and property of every kind and description, and
in consideration of which said bonds may be issued.
Section 6 provides that :
The grants aforesaid are made upon condition that said Company shall
pay said bonds at maturity, and shall keep said railroad and telegraph line
in repair and use, and shall at all times transmit dispatches over said tele-
graph line, and transport mails, troops, munitions of war, supplies and
public stores upon said railroad for the Government whenever required to
do so by any Department thereof ; and that the Government shall, at all
times, have the preference of the use of the same for the purposes aforesaid,
at fair and reasonable rates of compensation, not to exceed the amount paid
by private parties for the same kind of service ; and all compensation for
services rendered for the Government shall be applied to the payment of
said bonds and interest, until the whole amount is fully paid, *****
and after said road is completed, until said bonds and interest are paid, at
least five per centum of the net earnings of said road shall also be annually
applied to the payment thereof.
This reservation of payment was changed by the Act of July
2, 1864, which provided:
That only one-half of the compensation for the services rendered to the
Government by said Companies shall be required to be applied to the payment
of bonds issued by the Government in aid of the construction of said road.
105
Prior to the passage of the Act of May V, IS'ZS, known as the
" Thurman Bill," it was contended by counsel for the Central
Pacific that the mortgage reserved by the Government under the
provisions of Section 5 of the Act of 1862, secui-ed to it the
building and completion of the road, it being kept in constant
repair for efficient service, and the rendering of its use to the
Government whenever required for. the transportation of its
mails, troops, munitions of war and public stores, and for the
payment of the indebtedness of the Company: first, under the
terms of the Act of 1862, by the amount of all the compensation
for services performed for the Government ; and, second, in the
manner provided by the change in the law of 1864, by the pay-
ment of one-half of the amount of compensation earned by such
service ; and, in both cases, by the payment of five per cent, of
the net earnings of the Company.
After the construction of the Union and Centi'al Pacific roads,
it was seen that both Congress and the Companies had been
mistaken in their calculation of the amount that the transportation
done by the Companies for the Government would produce.
Instead of, as was contended by the Senators and Representatives
in the debates that preceded the passage of the Act of 1 862, and
its amendment in 1864, such transportation producing an amount
that would not only satisfy the interest to be paid, but would leave
a considerable sum in each year to constitute a sinking fund for
the redemption of the principal, it was found, that whilst the
business increased in volume, yet the rate of compensation being
so greatly reduced from the prices the Government had to pay
before the construction of the roads, that the Companies could
not and did not in any one year perform sufficient service to meet
the annual payment for interest.
As we have heretofore shown, the Government was, of course,
a large gainer by this mistake of the parties in their anticipation
of the results of tlie construction of these roads. The Government
had all the service that it required, performed at about one-tenth
of the charges they had paid before the road was built. Instead
of paying to the Companies such rates of compensation as they
had anticipated, they covered the diflference into the Treasury, and
the Companies became its debtors for the difierence between the
rates of transportation allowed and the amounts paid for interest
on the bonds.
106
An attempt was then made to force the Companies to repay to
the United States the interest on the bonds as the same was paid
by the Government, but the Supreme Court decided that the
Companies were under no obligation to refund to the United
States the interest paid before the maturity of the principal of the
bonds. .
The point does not seem to have been made or suggested, that
the payment by the Companies of the interest or the principal of
these bonds in money was an afterthought, and that by the terras
of the contract, contained either in the Act of 1862 or the amend-
ment of 1 864, they were obligated to pay only in services, and
without regard to time.
It became evident, from the transportation accounts between
the Companies and the Government, that the latter was paying in
ten years only about the amount they had anticipated paying in
one, and that such sums, joined to the five per cent, of the net
earnings, would never suffice to discharge the interest or principal
of said bonds, and that the total amount of such interest and
principal at the time the bonds matured would be far beyond the
ability of the Companies to pay.
It will not be forgotten, that during all the time, the only suf-
ferers were the Companies; the Government was losing nothing;
it was annually saving an amount sufficient to cover all the interest
it was paying, and enough more to cancel a portion of the bonds.
In other words, it was keeping to itself the money which, when it
made its contract with the Companies, it designed to pay them.
The Companies were keeping their contract with the Government
in good faitli, with the result of being year by year brought more
deeply in its debt.
But Congress saw only the increase of this debt. It did not
regard the fact that the Companies were doing all and more than
they had agreed ; that the United States were reaping the entire
benefit of the contract, as designed by the representatives of the
people when it was made — shut its eyes to the fact that nine-
tenths of the compensation which it had impliedly agreed to pay
to the Companies was being retained by the Treasury, and saw
only the science of its accounting officers in chalking up this tre-
mendous score against the other party to the contract. And so it
resolved, in defiance of law, contrary to the principles of quity
and fair dealing, ignoring the commonest rules of right and justi ce
107
that it would construe a right reserved to it in the contract, ta
alter or amend it, to compel the Railroad Companies to pay the
principal and interest of these bonds in money instead of services,,
and that they should commence doing this years before the debt
matured, and so that act of spoliation, known as the " Thurman.
Bill," was added to the statute book on May 1, \%1%.
That Act provides :
That the net earnings mentioned in the Act of 1863 shall be ascertained
by deducting from the gross amount of earnings the necessary expenses
actually paid within the year in operating the same, and keeping the
same in a state of repair, and also the sum paid within the year in
the discharge of interest on first mortgage bonds, whose lien has pri-
ority over the lien of the United Slates, and excluding from consider-
ation all sums owing or paid by said Companies respectively for interest
upon any other portion of the said indebtedness ; that there shall be estab-
lished in the Treasury of the United States a sinking fund, which shall be
invested in bonds of the United States, and the semi-annual interest thereof
shall be in like manner, from time to time, invested, and the same shall ac-
cumulate and be disposed of as hereinafter mentioned.
It further provides that :
There shall be carried to the credit of said fund, on the first day of
February in each year, the one-half of the compensation for services ren-
dered for the Government by said Central Pacific Railroad Company, not
applied in liquidation of interest ; and in addition thereto, said Company
shall on said day in each year pay into the Treasury, to the credit of said
sinking fund, the sum of twelve hundred thousand dollars, or so much
thereof as may be necessary to make the five per cent, of the net earnings of
its road, payable to the United States under said Act of 1862, and the whole
sum earned by it as compensation for services rendered the United States,
together with the sum by this section required to be paid, amounting in the
aggregate to twenty-five per cent, of the whole net earnings of said railroad,
ascertained and defined as hereinafter provided, for the year ending on the
31st day of December next preceding ; that the said sinking fund so estab-
lished and accumulated shall, at the maturity of such bonds, so respectively
issued by the United States, be applied to the payment and satisfaction
thereof, ******* and of all interest paid by the United States
thereon, and not re-imbursed, subject to the provisions of the next section.
The next section being —
That said sinking fund, so established and accumulated, shall * * * be
held for the protection, security and benefit of the lawful and just holders of
the mortgage lien debts of said Companies lawfully paramount to the rights
of the United States, and for the claims of other creditors, if any, lawfully
chargeable upon the funds so required to be paid into said sinking fund.
108
according to their respective lawful priorities, as well for the United States,
according to the principles of equity, to the end that all persons having any
claim upon said sinking fund may be entitled thereto in due order ; but the
provisions of this section shall not operate or be held to impair any existing
legal right, except in the manner in this Act provided, of any mortgage lien
or other creditor of any of said Companies respectively, nor to excuse any of
said Companies respectively from the duty of discharging out of their funds
its debts to any creditor except the United States.
It would seem that the construction to be given to the last
section of the Act ot May 1, 1818, is, that the Government has
changed the contract for the payment of the principal and interest
of the bonds, by providing a fund from which they shall be paid ;
and that, on compliance with the terms of this Act, the Company
is not required to furnish any other mode of payment, nor, without
any change in the law, can the Government demand it.
The Companies did not assent to this change in the contract,
and resisted its validity, but the Supreme Court of the United
States, speaking through the Chief Justice, held, that
This Act establishes a sinking fund for the payment of the debts when
they mature, but does not pay the debts. The original contracts of loan are
not changed. All that has been done is, to make it the duty of the Company
to lay up a portion of its current net income to meet the debts when they do
fall due. That it is a matter of no consequence that the Secretary of the
Treasury is made a sinking fund agent, and the Treasury of the United
States the depositary, or that the investment is to be made in the public
funds of the United States. This does not make the deposit a payment of
the debt due the United States. * * * * * Jt fakes nothing from the
corporation or the stockholders which actually belongs to them. It oppresses no
one, and inflicts no wrong.
Mr. Justice Strong, dissenting, said:
In my opinion, the Act of Congress of May 7, 1878, is plainly transgressive
of legislative power. * * * It is as much beyond the power of a Legisla-
ture, under any pretence, to alter a contract into which the Government has en-
tered with a private individual as it is for any other party to a contract to change
its terms without the consent of the person contracting vrith him. As to its
contracts, the Government, in all its departments, has laid aside its sove-
reignty, and it stands on the same footing with private contractors.
Speaking of the contracts made by the Acts of 1862 and 1864,
Mr. Justice Strong says :
It is manifest that by this contract the Government acquired a vested right
to payment at the time and in the mode specified, and the Company acquired
109
■a vested riglat to retain the consideration given for its assumption, that is, a
vested right to withhold payment until, by the terms of the Act, it became
•due. The contract implied an agreement not to call for payment, or ad-
ditional security, before that time. There is no technicality about vested
rights. Most of them grow out of contracts, and no matter how they arise,
they are all equally sacred, equally beyond the reach of legislative inter-
ference. »»**»* There are other provisions of this Act intended
"to enforce compliance with these newly added obligations imposed upon the
debtor. No one can deny that they materially change the contract of loan and
borrowing previously existing between the Government and the Railroad
■Companies, and change it at the will of the creditor alone.
Mr. Justice Bradley, also dissenting, said :
I think that Congress had no power to pass the Act of May 7th, 1878.
The power of Congress, even over those subjects upon which it has the right
"to legislate, is not despotic, but is subject to certain Constitutional limita-
tions. One of these is, that no person shall be deprived of life, liberty or
property, without due process of law ; another is, that private property
shall not be taken for public use without j ust compensation ; and a third is,
that the judicial power of the United States is vested in the Supreme and
inferior Courts and not in Congress. It seems to me that the law in question
is violative of all these restrictions.
The contract between the Union and Central Pacific Railroad Companies
and the Government was an executed contract and a definite one. It was, in
effect, this : that the Government should loan the Companies certain moneys,
and that the Companies should have a certain period of time to repay the
amount, the loan resting on the security of the Companies' works. Congress,
by the law in question, without- any change of circumstances, and against the
protest of the Companies, declares that the money shall be paid at an earlier
-day, and that the contract shall be changed pro tanto. This is the substance
and effect of the law. Calling the money paid a sinking fund makes no
substantial difference. Congress takes up the question ea> parte, discusses
and decides it, passes judgment, and proposes to issue execution, and to
subject the Companies to heavy penalties if they do not comply. That is the
plain English of the law. In view of the limitations referred to, has Congress
the power to do this? In my judgment, it has not.
It will not do to say that the violation of the contract by the law in question
is not a taking of property. In the first place, it is literally a taking of
property. It compels the Companies to pay over to the Government, or its
•agents, money to which the Government is not entitled. That it will be
entitled by the contract to a like amount at some future time does not matter.
Time is a part of the contract. It is needless to refer to the importance to
the Companies of the time which the contract gives. If it be alleged that the
security of the Government requires this to be done in consequence of waste
■or dissipation by the Companies of the mortgage security, that is a question
to be settled by judicial investigation, with opportunity of defence. A pre-
judgment of the question by the legislative department is a usurpation of the
110
judicial power. * * » * The power reserved to alter, amend and repeal
the charter is not suflBcient to authorize the passage of the law in question.
I will only add further, that the initiation of this species of legislation by
Congress is well calculated to excite alarm. It has the effect of announcing
to the world, and gimng it to be understood, that this Government does not
consider itself bound by its engagements. It sets the example of repudiation of
Oovernment obligations. It strikes a blow at the public credit. It asserts the
principle that might makes right. It saps the foundations of public morality.
Perhaps, however, these are considerations more properly to be addressed to
the legislative discretion. But when forced upon the attention by what, in
my judgment, is an unconstitutional exercise of legislative power, they have
a more than ordinary weight and significance.
Mr. Justice Field said :
The decision will, in my opinion, create insecurity in the title to corporate
property in the country. It, in effect, determines that the General Govern-
ment, in its dealings with the Pacific Railroads, is under no obligation to
fulfill its contracts, and that whether it shall do so is a question of policy
and not of duty. The relation of the General Government to the Pacific
Companies is twofold : that of sovereign in its own territory, and that of con-
tractor. As sovereign, its power extends to the enforcement of such acts and
regulations by the Companies as will insure, in the management of their
roads and conduct of their ofBoers in its territory, the safety, convenience
and comfort of the public. As a contractor it is bound by its engagements
equally with a private individual ; it cannot be relieved from them by any
assertion of its sovereign authority. ********** The
proposition of the Government the Central Pacific accepted, and filed its ac-
ceptance as required, and thereupon the provisions of the Act became a con-
tract between it and the United States, as complete and perfect as it could be
made by the most formal instrument.
4^By the Act of 1878, additional security is required for the ultimate pay-
ment of its own bonds, and the subsidy bonds of the United States, by the
creation of what is termed a sinking fund, that is, by compelling the Com-
pany to deposit $1,200,000 a year in the Treasury of the United States. It
is not material, in the view that I take of the subject, whether the deposit of
this large sum in the Treasury of the creditor be termed a payment, or
something else. It is the exaction from the Company of money for which
the original contract did not stipulate, which constitutes the objectionable
feature of the Act of 1878.
I cannot assent to a doctrine which would ascribe to the Federal Govern-
ment a sovereign right to treat as it may choose corporations with which it
deals, and would exempt it from that great law of morality which should
bind all Governments as it binds all individuals, to do justice and keep faith.
In the case at bar the contract with the Central Pacific is changed in essen-
tial particulars. The Company is compelled to accept it in its changed form,
and by legislative decree, without the intervention of the Courts. * »
Ill
* If the Government will not keep its faith, llttle|better can be
expected from the citizen. If contracts are not observed, no property will
in the end be respected ; and all history shows that rights of person are un-
safe where property is insecure. Protection to one goes with protection to
the other ; and there can be neither prosperity nor progress where this
foundation of all just government is unsettled.
The moment, said the elder Adams, the idea is admitted into society that
property is not as sacred as the laws of God, and that there is not a force of
law and public justice to protect it, anarchy and tyranny commence.
Under this law, which received such scathing denunciations
from three of the venerable and learned Judges of the Supreme
Court of the Uuited States, the Central Pacific has paid into the
United- States Treasury, up to December 31st, 1886, for the sink-
ing fund account, $3,168,650.50.
A portion of this sum has been invested by the Treasury,
against the earnest protest of the Central Pacific, in the purchase
of bonds issued in aid of the construction of the roads, known as
" Currency Sixes," at a premium of 34-j^ per cent. ; in other
words, the bonds -which the Central Pacific sold at a discount of
about 30 per cent., to obtain money for the construction of its
road, the Government has purchased at a premium of nearly 35
per cent. ; that is, for each bond for which the Central Pacific re-
ceived $744.40, the Government, against its protest, has purchased
for its account, paying therefor $1,842.10.
The total loss to the Central Pacific, from this mode of handling
the sinking fund, up to this time, may be stated as follows :
Amount paid into the sinking fund, $3,168,650 50
Premium paid on bonds, .... $947,222 40
Premium received on bonds, $54,752 50
Interest received, . . . 320,006 72 374,759 22 572,463 18
Balance in fund, bonds and cash, $2,596,187 32
Interest that would have been earned by the
Company's investments to June Ist, 3 887, . . $1,040,503 54
Balance of deficit to date by Government invest-
ment, 572,463 18
Loss to Central Pacific by United States sinking
fund investment, $1,612,966 72
112
It the money paid into the sinking fund had been left with the
Central Pacific and allowed to earn, and it had been earning six
per cent, per annum, there would to-day be in the sinking fund
$1,612,966.72 more than there is.
There are no present obligations imposed on these Companies
by any law which are not now fulfilled.
But the Government does not appear to be at all uneasy about
the unfortunate position in which the finances of these roads
have been placed under the requirements of the Thurman Bill.
In the report of the Secretary of the Interior for the year
1880, which has annexed the report of the Auditor of Railroad
Accounts, dated November 1, 1880, the Auditor, at page 11, after
showing that the payments rendered by the Central Pacific to
the sinking fund, from July 1, 1878, to June 30, 1879, had
amounted to a grand total of $798,454.31, and that $512,200 of
that sum had been invested in bonds, of which $119,000 were the
bonds formerly issued to aid in building the road, and that upon
said $119,000 the Treasury had paid and charged to the Central
Pacific a premium of $57,285.73, says :
The amount of premium paid is so large that the Companies have pro-
tested against the investment at such heavy cost. * * * The Honorable
the Secretary of the Treasury, in 1879, and again in June, 1880, informed
Congress of the difllculties which lay in the way of making a just and
profitable investment of these moneys.
In the report of the Commissioner of Railroads for 1881, he
sa s, at page 10 :
The cash payments which have been required from the Central Pacific,
in addition to the detention of the entire compensation for services, is
$1,203,113.58, which amount it has deposited in the Treasury.
And he says, that
Up to the date of that report November 1, 1881, the Treasury had paid
out as premium on bonds purchased for the Central Pacific sinking fund,
$168,727.73.
He further says :
No investment has been made since April 6, 1881.
The Companies have repeatedly protested against the heavy cost of these
investments.
As high as 135 has been paid, as, for instance, $198,000 was invested by
the Treasurer in April 6, 1881,' in currency sixes at a premium of 35.
113
He quotes from his last year's report, of the action takeu by the
Secretary of the Treasury, in informing Congress of the difficulties
which lay in the way of a just and profitable investment, and
says :
I renew this recommendation of my predecessor, and agree with him that
it is due to the Companies affected by the Act of May 7, 1878, that the
Secretary of the Treasury be given authority to credit the amounts covered
into the sinking fund, with interest at five or six per cent, per annum,
payable semi-annually, or, 1 will add, to invest the sinking fund in either
the Companies' first mortgage bonds or such bonds as have been issued to the
Companies by the United States.
The attention of Congress was likewise invited to this subject
by the Hon. Hugh McCuUoch, Secretary of the Treasury, in his
annual report submitted in December, 1884, ia which he concurs
in the views expressed by Secretary Sherman in December, 18Y9,
and in June, 1880.
In his report for 1882, the Commissioner of Railroads, after
stating the total cash payment from the Central Pacific to
December 31, 1881, was $1,282,264.44, which that Company had
deposited in the Treasury, says, (page 11 :)
The Central Pacific has to its credit in the sinking fund $1,534,614.36.
And again repeats :
The last investment was made April 6, 1881, at which time a premium of
thirty-five per cent, was paid, but repeated protests have been made by the
Companies against the heavy cost of these investments.
On June 30, 1883, the amount remaining in the Treasury uninvested was
as follows :
Credit Central Pacific $537,886 53
Union Pacific 407,441 99
$935,328 53
On which the above Companies are receiving no interest whatever.
And he adds :
Which amount has since been largely increased.
Tke fund has evidently not aeoompUshed the result anticipated, and since
April, 1881, may be regarded as having practically failed for want of suitable
investments.
114
In his report for 1883, page 12, the Commissioner says:
On June 80, 1883, the Central Pacific had to its credit in the sinking fund,
$2,404,115.86, and the Union Pacific, $1,632,697.59, and on the same day
there was uninvested to the credit of the Central Pacific, $844,652.13.
The Commissioner again says :
That the sinking fund has not accomplished the result anticipated is quite
evident, and may be regarded as practically a failure for want of suitable
investments. * * * This is a manifest hardship to the Companies, as the
amount should be drawing a fair rate of interest, and correspondingly di-
minishes the available funds in the hands of the Government.
I therefore renew the recommendation, that if the sinking fund is to be
continued, the discretion of the Secretary should be enlarged as to the in-
vestment of the fund.
In the report for 1884, page 17, it was shown that on June 30,
1884, there was to the credit of the Central Pacific sinking fund,
uninvested, $1,089,159.75.
The Commissioner says, page 18 :
I again invite attention to the inadequacy of the present sinking fund
method of securing payment from the bonded railroads of the large and
rapidly increasing indebtedness. Experience has fully demonstrated that the
Act of May 7, 1878, for reasons which could not be anticipated when it was
passed, has failed to realize the expectations upon which it was based. In
my judgment it is clear that the Government will be best protected by the
reasonable extension of time, and by funding the whole remaining debt and
interest in obligations of fixed amounts and maturity.
In the report for 1884 the Commissioner shows to the credit of
the Central Pacific, uninvested, $2,020,909.13.
He says:
More than one-fourth of the sum now in the sinking fund is uninvested,
because, under the law, this fund can only be invested in Government
bonds, which charge high premium and pay low interest.
It larger discretion were allowed the Secretary of the Treasury, the whole
fund might be invested and at a higher rate of interest.
In the seven years since 1878, only the sum of $8,560,807.60 has been paid
into the sinking fund, which has produced in interest but $437,524.03. Thi*
prove$ that the law of 1878 cannot accomplish the object intended.
115
In the Report for 1886, p. 34, the Commissioner shows —
That there had been invested by the Secretary of the Treasury
in the sinking fund for the Central Pacific, . . . $3,599,800 00
That there had been redeemed of three per cents, . . . 1,761,800 00
Leaving present principal, $838,000 00
Premium paid, .... ... 318,963 73
Total cost, ... . ... $1,056,963 73
which left a loss of a premium of about 35 per cent, on $838,000 of bonds.
That there remained in the United States Treasury uninvested on June
30, 1886, to the credit of the Central Pacific, $3,183,339.56.
He sayp, p. 36 :
In my previous reports it is remarked that the condition of the sinking
fund shows the law of 1878 is inadequate to the object for which it was
adopted, that of producing a sum sufficient to pay the debts that will be due
to the United States from the aided Railroad Companies.
The following statement proves conclusively that all existing laws for that
object are utterly insufficient, and that additional and judicious legislation
will be necessary to enable those Companies to discharge their obligations :
The total amount of interest paid by the United
States on account of the subsidy bonds up to
June 30, 1886, $70,854,325 62
There had been retained by the
Treasury Department and cred-
ited to interest account, . . $21,091,383 32
Sinking Fund account, . . 9,658,713 10
Total, 30,760,096 42
Excess of interest paid, $40,104,229 20
The report of the Commissioner, dated September 13, 1887,
page 19, shows that there remained in the Treasury, uninvested,
on December 31st, 1886, to the credit of the Central Pacific,
$2,345,984.21.
There probably never has been so obtuse, unjust and unintel-
ligent a mode of caring for the property of a debtor as that
exhibited in carrying out the terms of this Thurman Bill. The
responsibility of providing for the Company's indebtedness has
116
been assumed by the Government. It rejected every plan which
the Company proposed. If any of the suggestions made by the
Company had received favorable consideration, the amount now
to be applied to the payment of its indebtedness would have
been increased by at least 33 per cent., without reference to the
proposed payment, by returning the lands donated, and this loss
has been incurred by the improvident manner in which Congress
and the Treasury officials have managed this sinking fund.
It cannot be charged that the Companies are in any way negligent
in the matter of providing for this emergency. In February, 1875,,
Mr. Sidney Dillon, of the Union Pacific Railway, and Mr. Hunting-
ton, for the Central Pacific, joined in a letter to the Secretary of
the Treasury, pointing out, that from the small amount earned
from Government transportation, in comparison with the amount
anticipated, and the anticipated decrease in receipts from the
completion of rival lines aided by the Government, the Com-
panies would be unable to meet the indebtedness at maturity, un-
less by some wise provision of law. This communication was duly
referred to Congress, but for years no action was taken upon it.
The Companies offered to transfer back their unsold lands at a
fair valuation, as part payment of the debt, and to set aside, from
the net earnings, a fixed sum semi-annually, to continue until the
debt was discharged.
In the 44th Congress, 1st Session, on April 3, 1876, a bill was
introduced in the Senate (S. B. 687) which provided that "the
lands granted to the Company in Nevada and Utah should be
returned to the United States, at the rate charged by the
Government for adjoining lands, and the amount so realized
should be carried to the credit of a sinking fund in the United
States Treasury. To the same fund the Secretary of the Treasury
was authorized to carry the amount due and to become due the
Company fdr transportation of mails, troops, supplies, &c., up to
December 31, 1875, which, if not amounting to $1,000,000, was
to be made up to that sum by the Company. To the same fund
the Company would pay, on the 1st days of April and October
in each year, such a sum as, with the interest thereon, would be
sufficient, when added to the other sums credited to the sinkino-
fund, to pay off and extinguish the Government bonds advanced,
with six per centum interest thereon. * * * Interest on all sums
117
placed to the credit of the sinking fund to be credited and added
thereto, at the rate of six per cent, per annum."
Asimilar bill (H. R. 3,138) was introduced in the House on April
17, 1876, on behalf of the Union Pacific. Congress declined to
accept these propositions for the settlement of the debt.
On the day of the introduction of the Senate bill, Mr. Hunting-
ton, as Vice-President of the Central Pacific Railroad Company,
addressed a letter to the Hon. George F. Edmunds, Senator from
Vermont, in relation to its provisions. This letter was referred
to the Committee on Railroads, and ordered to be printed to ac-
company Senate Bill 687.
On May 15, 1876, Mr. Huntington, as such Vice-President,
answering a communication received from the Hon. J. Proctor
Knott, (now Governor of the State of Kentucky,) but then Chair-
man of the Committee on Judiciary of the House of Representa-
tives, requesting the Central Pacific to lay before the Committee
such proposition as would be agreed to by that Company as to
the creation of a sinking fund to meet the principal and interest
of the bonds advanced by the Government, gave his views at
some length as to the relations between that Company and the
Government, and although the financial position of the Central
Pacific has since that date been so much altered, yet that
letter ■so well expresses the various transactions between the
Company and the Government prior to the passage of the Thur-
man Bill, that it may be advantageously referred to by those
wishing to understand the true position of the parties. This
letter was appended to the Report presented by Mr. Hurd, of the
Committee on the Judiciary, May '24, 1876, on resolutions relat-
ing to the Pacific Railroad Companies, and was ordered by the
House of Representatives to be printed. (44th Congress, 1st
Session, Report 440, Part 2.)
It would seem that all efibrts of the Company to come to any
understanding with Congress as to the mode and manner of
establishing a sinking fund, or the extent of that fund, were
futile, and therefore, as the Commission have seen from the minute
book of the Central Pacific, its Board of Directors, on January
30, 1878, adopted a report submitted by its President, and passed
resolutions establishing a sinking fund in the treasury of the
Company which would positively provide for the payment of the
entire debt due the United States.
9
118
The Act of May 1, 1878, provides, lliat the whole payment for
services performed for the Government by the Companies shall be
retained, and, in addition thereto, so much as, with the half-
transportation and the five per cent, required by the original Acts,
fihall, with the amount added by the amendment, make together
twenty-five per cent, of the net earnings. It also provides, that
half the transportation and five per cent, of the net earnings shall
be applied, as provided in the original Act, as a payment on^ the
bonds and interest; and the remainder shall be placed in a
sinking fund, under the direction ot the Secretary of the Treasury,
to be invested at interest, and to be used at the maturity of the
bonds to pay prior liens.
The Companies have paid into the Treasury all that has been
claimed under the Act. In fact, the Central Pacific has paid
more than its letter required. Mr. Miller, its Secretary, said he
has conceded the claims made by the accounting officers of the
Government even when they were beyond the liability ot the
Company, because he supposed that all such payments would be
at once deducted from the debt due the Government ; or that
when they were covered into the treasury, the interest on a simi-
lar amount would cease.
It is extremely inequitable that such payments were not
so dealt with. But the calculations which were made by Mr.
Thuiman and his supporters are found to fall I'ar short of the
requirements of the case. The twenty-five per cent, of the net
■earnings is ibund to be inadequate to meet the accruing interest,
so that, were the roads to run for one hundred years, the debt
would increase for the whole period, by the addition to the
principal of a portion of each year's interest. Owing to the
■construction of the other trans-continental roads affecting the
■earnings of the aided roads, the requirements under the"Thurman
Act" have been steadily decreasing, and this Act must now be
admitted to have lailed in its purpose of providing for the
4ebt.
No doubt the supporters of this bill thought the funds could
be invested at about the same rate of interest borne by the
subsidy bonds, but by the fortunate growth of the financial
strength of the Government, the bonds bearing a high rate of
interest were called and refunded at lower rates, leaviu" out-
standing only the Pacific Railroad bonds or currency sixes.
119
bearing so high a rate of interest as six per cent. This has saved
millions to the public treasury, but it has effected a loss to the
Railroad Companies amounting to more than all the interest on
the sums paid by them into the sinking fund.
Against the ruinous rate of thirty-five per cent, premium the
•Central Pacific protested, and, as a result of such protest, it
appears that there is now a large amount of cash which, with its
accumulations from payments by the Company and transportation
-charges withheld, is allowed to lie idle. The bonds purchased
must remain in the fund until their maturity, when they will, of
course, be worth only their face. The premium paid is therefore a
•complete loss to the Companies.
The low rate of interest at which the Government can borrow
lis a disadvantage to the Companies, because of the high rate of
premium on that class of bonds which the Secretary of the
Treasury is authorized to invest in. ThehC Pacific Railroad bonds
•should be treated by the Government as its other bonds. They
-should have been exchanged for three per cents; and the saving
to the Pacific Railroads for the fifteen ye^rs, from 1883 to 1898,
would have amounted to twenty-nine millions of dollars, or forty-
five per cent, of the total amount of the bonds.
It has been said that the Government did not reserve the right
40 call these bonds. That is hardly a valid excuse, as the same
.legislative power which sufficed to pass the " Thurman Bill"
•denounced by Mr. Justice Bradley as " a blow at the public
-credit,'''' and as " an assertion of the principle that might makes
.right,'" and as " sapping the foundations of public morality"
would have been equally effective to haye retired these bonds by
the issue of others bearing the same interest that the Government
•is paying on its other indebtedness.
In addition to the amount in the sinking funds in the United
:States Treasury, the several Pacific Railroad Companies have
paid to the Government, under the terras of the Act of Congress
■of 1864, by payments retained for one-half of the transportation
services performed and five per cent, of the net earnings to June
30, 1885, the sum of $20,412,193.92.
The interest accruing on the Pacific Riilroad bonds is a for
midable item in the account between tlie Companies and the
•United States. The principal could easilyjbe provided for but
120
the interest swells the amount beyond the earning power of the
bonded portion of the roads.
For instance, the net earnings of the bonded line of 860 miles
of the Central Pacific in 1884, ascertained by the provisions of
theThurman Bill, were $1,212,526.45, while the interest for the
same time on theUnited States bonds amounted to $1,671,340.80.
(See Etport United States Commissioner of Eaihoads, 1885, p. 20.)
And the difference is widening each year. The net earnings,
computed in the same way for 1885, were only $863,548.97. (See
Report of Commissioner ior 3S86, p. 27.) If these bonds had not,
by an apparent ovei sight o< the Tieasuiy Depaitment, been de-
barred Irom calling and refunding at a lower rate, there would
have bttn a saving in interest to the Pacific Railroad Companies
of about 820,000,000.
The difficulty of settlement between the railroads and the Gov-
ernment is constantly increasing, as it seems the present rate of
payment does not provide for the interest. The Commissioner of
Railroads states, that should the present sinking lund method be
continued, the approximate result would be, that at the maturity
ol the bonds the balance due the United States by the Central
Pacific would amount to $71,000,000.
XV.
The Indebtedness op the Centeal Pacific to the
United States.
We will first consider the question of indebtedness from the
standpoint necessarily assumed by the accounting officers of the
Government, without reference to the equitable rights of the
Central Pacific which are recognized by Congress in the passage
of the Act of March 3, 1887.
It would seem, irom the annual repoits made by the Commis-
sioner of Railroads to the Department of the Interior, that if the
requirements of the Thurman Act are complied with, and the
net earnings of the Central Pacific do not materially decrease
that, at the time the Government bonds mature, (averaging nearly
twelve years from this date,) the Central and Western Pacific
Railroad Conpanies will be indebted to the Government <or
principal and interest, over and above the amount deposited in
121
the Treasury to the credit of those Companies, somewhere be-
tween forty-five and fifty millions of dollars ; but in view of the
fierce competition for througli business, it would probably largely
exceed that sum. The lien claimed by the United States as se-
curity for this indebtedness is on the aided road, and the equip-
ment thereon, and the telegraph line from Ogden, in Utah, to
San Jos6, in California, a distance of about SSO/j/'j- miles.
The prior lien upon this property, assuming the interest is
promptly paid in the next twelve years, is 627,853,000. The
amount of this prior lien represents to-day the full value of the
aided road as measured by the present cost of labor and material.
With the present experience, improvements of tools and appli-
ances required for construction, it could be built for this amount.
Therefore, not considering at this"]moment the changed relations
between the Company and the Government caused by the Act of
March 3, 1887, it would seem to be important for the debtor and
the creditor to consider what is the best mode of meeting this
indebtedness, unless]the Government]desires to have the property
surrendered to it _at thej maturity]of the bonds, subject to the
prior lien.
The Commissioner^of Railroads has, in several of his annual
reports, recommended that the entire indebtedness of principal
and interest be capitalized, and that the ^ascertained amount be
divided into one hundred semi-annual installments.
He says, in his report for 1883, page 15 :
Shoald the decrease in the earniags of the aided liaes continue to even an
approximate proportion to the decrease of the last year, it will be readily per-
ceived that the 35 per cent, of net earnings, to which the Government is
entitled, would be so reduced as to render this increase inadequate as re-
lated to the vast magnitude of the debt.
i |At the rate provided for in the Thurmau Act it woula require a century or
more to accumulate a fund sufficient to discharge this debt, and with strong
probability that by this method it cannot be done. Nor would it be practic-
able to increase the percentage without manifest detriment as well to the
Companies as to their patrons. The payment, by whatever mode it be col-
lected, must come from the earnings of the road. If the rates be too high,
the burden falls with onerous weight upon the business, and would work di-
rectly in the interest of non-aided competing lines.
It would seem to be of less consequence, whether the debt be paid in fifty
or sixty, or even a hundred years, if its ultimate payment be absolutely
assured, than that oppressive burdens be' imposed upon the commerce be-
122
tween the Atlantic and Pacific coasts. A proper net compensation must
remain to the owners of the roads, if they are to receive the watchful care-
and necessary maintenance which safety and success demand.
The construction of these roads has been pronounced by the Supreme
Court of the United States to have been a national necessity so urgent as ta
admit of no delay, and confessedly involving the integrity of the Union.
The energy with which they were built is well illustrated in the fact that
they were completed in seven years less time than the limit established by
law. and at a time when the Currency bonds issued to the Companies real-
ized an average of only about 75 per cent, in gold. And they must be repaid
at par.
It was doubtless expected that the compensation for Government trans-
portation would equal the current interest ; that it has not, has been a disap-
pointment as well to the Companies as to the Government, but had the-
charges for transportation continued at the rate prior to their construction it
would greatly have exceeded the interest.
It will be seen that the Commissioner takes the same view as
we expressed in a previous chapter on the working of the Thur-
man Act.
The Companies have performed for the Government a much
larger volume of business than was required in the years preced-
ing the construction of the road ; but charging to the Government
on a part of the transportation only the same rate as charged tO'
private parties for like service, the compensation is from one-
eighth to one-tenth of the amount the Government paid for simi-
lar service prior to such construction ; but in the carriage of mails
the Government has fixed an arbitrary rate, which is less than
rates paid by other patrons of the road, and less than the service-
is fairly worth.
But various causes have arisen why the indebtedness resulting^
irom the loan of the Government bonds should not now be de-
mnnded of the Central Pacific, and Congress, with a view of
determining the equities that exist in favor of the Company, has
directed the Commissioners appointed under the Act of March 3,
188*7, to ascertain —
The average cost per annum of Government transportation in the region
now traversed by the Pacific Eailroads between the year 1850 and the com-
pletion of said roads. IBfetJ'. '.,
The average cost per annum since such completion.
F Whether or not the Pacific Eailroad was completed in less time than -was
allowed by law, and if so, how much less time, and if the '^United States
was benefited thereby.
123
The answer to these three sources of inquiry are contained in
the testimony of Leland Stanford, and in the Exhibits appended
to his answer, prepared by E. H. Miller, Jr., Secretary of the
Central Pacific ; and are fortified by copious extracts from the
records of the War and Post OfKce Departments to attest their
correctness.
The contract between the United States and the Pacific Rail-
road Companies required that the roads should be completed by
the 1st of July, 1876, and the testimony of Leland Stanford and
Mr. Miller show they were completed on the 10th day of May, 1869.
That the United States were benefited in money by such early
completion in the sum of $47,763,178, which is explained as
follows :
Seven Ykaks to June 30, 1876.
Traffic.
Freight,
Troops, etc. , .
Mails,
Total $7,645,195
U. S. TranBporta-
tion Charges on
Central Union
Pacific.
$1,793,556
3,163,296
3,689,343
Coat to 0. S. at
rates paid prior
to Railroads.
$15,509,977
18,698,671
21,199,725
$55,408,373
Saving to U. S.
to June 30, 1876.
$13,716,431
16,536,375
17,510,383
$47,763,178
Of this sum so saved, the proportion of the Central Pacific is
$21,ii71,062.
That the difference between the cost of Government transpor-
tation in the region now traversed by the Pacific Railroad between
the year 1850 and the completion of said road, and
The average cost per annum since such completion
result in a saving to the United States of . . $139,347,741 25
which is more fully explained by the subjoined table :
Tkapmo.
U. S. Transporta-
tion Charges on
Central Union Pa-
ciflc.
Cost at rates paid
prior to Railroads.
Saving to U. S.
Freight,
$5,740,753 00
4,616,053 00
10,606,507 00
$61,161,307 00
49,178,967 00
49.970,780 47
$55,420,554 00
Troops, etc. ,
44,562,914 00
Mails,
39,364,273 25
Total
$30,963,313 32
$160,311,054 47
$139,347,741 35
124
Well might the Commissioner of Railroads, in his report for
1883, say:
The saving to the Government [Jias greatly exceeded the current interest it
has paid.
And he might have added, and the principal sum it will here-
after have to pay.
We can better show the equitable rights of the Central Pacific
by stating an account between it and the United States, as of
the 1st day of July, 1876, the day on which the contract re-
quired the Pacific Railroad to be completed. It would be more
equitable to the Company to state it annually after the completion
of the road, but the following is most favorable to the Govern-
ment :
The bonds issued to the Central Pacific amounted to $25,885,120
" " " Western Pacific " " IjO'i 0,560
$27,885,680
Interest accrued, less credits to July 1, 1 876, as shown
in the Public Debt statement of June 30, 1876, . 12,180,833
$40,066,518
Deduct Central Pacific proportion of the sum of
$47,763,178, saved to the United States between
May 10, 1869, and July 1, 1876, say 46 per cent., 21,971,062
Would leave due to the United States, for principal
and interest, July 1, 1876, $18,095,456
If the Central Pacific proportion of the saving to the United
States, prior to the 1st day of July, ls76, was the only deduction
to' be offset against the claim of the Government, then the
annual interest to be thereafter charged against the Company
would be only $1,085,727.36, instead of $1,553,107.20, now an-
nually booked against it, and the lesser sum would have been
annually cleared by the Government transportation, and the pay-
ments under the Thurman Bill ; but the Company is entitled to
other deductions.
If the above account had been stated, with annual deductions
of the amount saved by the Government, the balance due to it,
for principal and interest, on July 1, 1876, would be $13,583,887.
125
There is another branch of inquiry which Congress has directed
tile Commissioners to pursue :
What discount the|]^Pacific Railroad and its several branches were forced
to make, in disposing of the bonds guaranteed by the Government, to obtain
the gold coin which was the currency of the country through which the
greater part of said roads pass.
Governor Stanford states the loss by discount at $7,120,07iH ob
And shows that the interest charged to the Com-
pany by the United States, on this discount,
would amount at the maturity of the bonds to 12,816,132 39
Making a total loss to the Company, if it was re-
quired to pay the principal and interest of the
Government bonds, of $19,936,205 94
But the loss to the Central Pacific is double that stated by
Governor Stanford ; for the same causes that induced the sale
of the aid-bonds forced the Company to realize on its own
bonds, secured by the first mortgage; and as the latter did not
■realize any greater net price, the loss is double the amount stated
above.
If it is to be assumed that Congress directed this information
to be obtained for a practical end, and that it intended to re-
imburse the Central Pacific for the loss it had sustained in meet-
ing the demand of the Government for the undue haste with
which the road was constructed, then the proper mode of stating
the account to July 1, 1887, would be as follows:
Bonds issued to the Central and Western Pacific, . $27,885,680
Loss suffered by discount, 7,120,073
Total, $20,765,907
Interest on this sum, 6 per cent., less credits to July
1,1876 8,688,772
$29,454,379
Deduct Central Pacific proportion of the sura of
$47,763,178 saved to the United States, between
May 10, 1869, and July 1, 1376, say 46 percent., . 21,971,062
Would leave due to the United States, principal and
interest, July 1, 1876, $7,483,317
126
By tliis mode of stating the account.the annual interest charge
would be $-148,899, instead of 81,553,107.20, a difference of
$1,104,208.20, and would have entailed only sucii burden as could
have been lifted by the charge for the public transportation.
But whichever mode is adopted of stating the amount to July
1, 1876, whether the balance of principal and interest then due is
$18,059,456 or $7,483,-317, makes little difference in the result, so
far as the indebtedness growing out of the advance of bonds is
concerned; for if we lake the larger sum, .... $18,095,456
And add the interest, at 6 per cent., to January 1,
18S6 10,;V24,099'
The balance due the United States, for principal and
interest, on January 1, 1886, would be .... $28, 419,555
But at this date we show a saving to
the United States, by the construc-
tion of the Union and Central roads of $139,317,741
Less the amount of saving, shown be-
tween May 10, 1869, and July 1,
1876, 47,763,178
$91,584,563
The Central Pacific's proportion, 43 per cent., is $42,128,898
Add to this the result of the further inquiry with whicii the
Commission is charged.
If the United States, since the Union and Central Paoifio Railroad Com-
panies accepted the terms proposed by Congress for the constructioQ of the-
Pacific Railroads, has granted aid in lands for building competing parallel
railroads to said Pacific ■Railroad, and if so, how many such roads, and ta
what extent such competing lines have impaired the earning capacity of thfr
Pacific Railroad ?
The answer of Governor Stanford, supported by the Exhibit
furnished by Mi-. Stubbs, the General Traffic Manager of the
Central Pacific, shows there are now eight trans-continental rail-
road lines in addition to the Union and Central, each of which
competes, in whole or in part, with the Union and Central for the
traffic between the Pacific and the territory east of the Rocky
127
Mountains. All of these, except the Canadian Pacific, are ii»
United States teriitory, and were aided by the grant of lands, as-
may be seen in the lepovt of the Commissioner of Railroads for
1884, pages 226, 227.
Mr. Stubbs estimates that the loss resulting to the Union and
Central by the diversion of traffic to the aided roads was
$37,132,351.02, of which the Central Pacific's proportion is 46
per cent., $17,080,881.47.
A further question, which Congress have required the Com-
missioners to answer, is —
If the United States have contracts with branch roads, controlled by
either of the Pacific roads, for carrying United States mails, and if so, what
service has been performed by them, and what money, if any, has been paid
for such service, and what remains due and unpaid ?
The evidence, given to the Commissioner, shows that unai<led
roads, under the control of the Central Pacific, have performed ser-
vice for the United States ; that the right of the Central Pacific to
collect for such service from the United States has been adjudicated
by the final judgment of the Supreme Court, but that the United
States has neglected and refused to pay, and that there is now
due for such service about the sum of $2,000,000.
The Senators and Representatives who voted for the Act of
Congress of 1862 and the Amendment of 1864 estimated, that
before the maturity of the bonds the United States would benefit
by the transportation performed by the Pacific Railroad to the
full amount of the bonds and interest. Mr. Howard, the Chairman
of the Senate Committee on- Pacific Railroads, predicted that the
public transportation, with the five per cent, reserved to the
Government, would pay the bonds and interest years before their
maturity. Mr. Howard prophesied truly, for the figures show,
that by its saving on transportation the Government had, at tiie
beginning of the year 1883, been made whole on the principal of the
bonds and the accrued interest; while, on the 1st day of January,^
1886, the bonds advanced to the Union, Central andWestern Pacific,
and the accrued interest thereon, amounted to $113,434,675.42;
and between that sum and the amount saved at that date, as
heretofore shown, the balance in favor of the Government was
$25,913,065.83. And this balance does not include the transpor-
tation performed, or the moneys paid into the Treasury as five per
128
cent, on thejnet.earninss^between July 1, 1876, and December 30,
1885, or any payraents"made under the [requirements of the
Thurman Act.
Mr. Miller has made an interesting calculation, which shows
that the entire saving to the Government at the maturity of the
bonds would be $259,040,430
That the balance then due by the Union and
Central, less credits for services and payments,
would be 104,39-7,370
Surplus saved, $154,643,060
Or, stating the entire debt, with interest at maturity, without
any deductions for payments or services by the Companies, as —
Principal of bonds, $55,092,192
Interest at 6 per cent., 9ajl65,945'
$154,258,137
Which deducted from total sum leaves . . $104,782,293
A net saving of which would have been realized by the Gov-
ernment, in excess of the whole amount of bonds and interest,
had the bonds been a donation, instead of a loan, to be repaid
with interest.
Governor Stanford, as President of the Central Pacific, has ad-
dressed to the United States Pacific Railway Commission, in
answer to its request for such suggestions as he desired to make,
his views of the situation, in the following language :
I desire to suggest that the Commission report in favor of the appointment
of a proper Court to consider the equities existing between the Government
and the Central Pacific Railroad Company, as inquired into in accordance
■with the Act of Congress, approved March 3, 1887, and render final judgment
thereon. Then the question, what further legislation may be needed, can
be fairly considered. I consider that the Act of Congress directing inquiry
into_the equities erects a different standard by which to measure the relations
between the Railroad Company and the Government from the purely legal
relation theretofore existing.
129
Such a report from the Commission, and the probable action
suggested by Governor Stanford, would appear to be the logical
consequence of the inquiries which Congress directed the Com-
missioners to make, and of the information elicited by such in-
quiry. There is no hardship whatever resulting to the financial
situation of the Government by following the course suggested by
Governor Stanford, or in giving efiect to those manifest equities
which clearly arise from the information that has been obtained ;
to disregard the equitable considerations, which, it is shown, the
Railroad Company is entitled to, and should have the benefit of,
would be to inflict gross and manifest hardship and injustice
upon it.
It would be the height of injustice to compel this corporation
to pay to the Government the face value of its bonds, and interest
thereon at the rate of six. per cent, per annum, in view of the fact
that the Company did not realize such face value by an amount
exceeding $7,120,000; and that such difference, with the in-
terest up to the time of the maturity of the bonds, will amount to
about $20,000,000.
The Government spurred the Company to make this loss. It
insisted on closing the gap between the western end of the Union
Pacific and the eastern end of the Central Pacific as speedily as
possible. To accomplish this result the Central Pacific was forced
to sell the Government bonds for the best price obtainable, and it
should not be held to sustain the loss.
To give effect to this desire of the Government for the early
completion of the road, the Central Pacifi& spent $25,000,000
more than would have been required if the road had not been
built with such haste. The Government had the use of the road
more than seven years before the time specified in the contract ;
and during such seven years, ending June 30, 1876, it saved
$47,763,178 ; the Central Pacific's portion of which is $21,971,062.
Now, is there any valid reason why, at the end of these seven
years, when the saving to the Government was ascertained, the
account should not be justly and equitably stated between the
Company and the Government. Is it not fair and equitable that
it should be? So far as the facilities furnished by the Central
Pacific were concerned, the Government had saved by their seven
years' use nearly $22,000,000.
It had cost that Company about $32,000,000 to complete its
130
road so as to give the Government the opportunity for such
saving.
The money wliich at the end of the seven years was ascertained
to be saved should have been then deducted from the face of the
bonds, and tlie accrued interest ; and the Company should there-
after have been charged interest only on the balance.
Of course, we well understand that it was not any pecuniary
consideration that induced the Government to insist on the early
■completion of the road. Every principle of good government
and statesmanship required that it make this demand. We have
heretofore shown on how loose a thread hung the Government's
title to its Pacific possessions. There were various matters of
foreign policy that might have led to war, the seat of which
would more than likely have been on the Pacific Coast, and until
the gap between these railroads was closed, there was always an
element of great danger if such contingency arose.
The public interest absolutely demanded that this highway for
the movement of troops and munitions of war should be com-
;pleted as soon as might be.
Is it i-ight that the burden of complying with this demand and
securing the integrity of a valuable portion of this Republic
siiould i'all upon these Railroad Companies ? And more especially
when, in about sixteen years after the completion of the work,
the Government had been reimbursed for all it had paid or could
be called upon to pay, caused by the issue of its bonds in aid of
•tlie building of these roads.
This matter should be judged by the same rules of equity as a
'Court would apply to a transaction between citizens. If one
hires another to erect a building, and by the contract a specified
time is given to the builder to complete it ; but the owner comes
and says, " Since I made that contract I find my necessities re-
quire that I should have that structure just as speedily as is possible,
and I desire that you will complete it as early as you can, liavino-
no regard to cost of material or price of labor." If the contractor
met the wishes of the owner, would he not be entitled to an
increased sum beyond the ])rice mentioned in the contract, and
which was based upon such length of time to do the work as would
-enable him to accomplish it with economy and with profit to
himself? In such a case, the Chancellor would, among other
4,hings, inquire as to tiie value of the rents, income or profits of the
131
■building dunng tne ume t<i»- owner enjoyed it previous to the
■contract date, and the resw.. would influence his decree. Should
not the same rule prevail n estimating the amount that should be
allowed by the United States to the Companies ?
Now, in the case of the Central Pacific ; it is beyond doubt the
promoters of that road would have saved a large portion of the
assets at their command, and have had much less fixed charges on
the earnings, if they had been permitted to occupy the fourteen
years allowed by the contract; but, instead of that, they spent all
those assets, and thereby increased their fixed charges, to antici-
pate the time set for opening the road, and came out seveial
millions of dollars in debt.
********
By giving effect to the information which Congress now has in
response to the inquiries directed by the Act of March 3,1887, and
in providing for the tribunal suggested by Governor Stanford to
settle the accounts between the Companies and the Government,
the true intent and spirit of the Act of 1862, and the amendment
•of 1864, will be eifectually and equitably carried out.
The intent was, that the Government should be reimbursed for
the principal and interest of the bonds loaned by the services of
the Companies, and five per cent, upon the net earnings ; it has
received such consideration in heaping measure, complete and
running over. For the services rendered to it by these roads it has
kept within its treasury more than the principal and interest of
the bonds constituting its loan to these Companies.
It is a maxim of equity often used in illustration, " that you
■cannot eat your cake and have it ;" but that is the position in
which partisan advisers have placed the Government by their ill-
considered counsel.
The Central Pacific have already paid the Government in ser-
vices and monfy about $11,000,000 ; but, in addition to this and
the payments made by the Union Pacific ; at the time of the ma-
turity of these bonds, say in 1898, the Government will have
benefited in money by the building of the roads of these Compa-
nies nearly $105,000,000.
That the amount is not larger is due to the oversight of the
Treasury officials. The bonds issued in aid of these roads could
not be used as a deposit for national banking purposes ; and they
were not made redeemable before maturity, at the option of the
132
Government; a provision vi^hich was a marked feature in all the
other loans issued at about the same period. If these bonds could
have been called ten years after their issuance, the rate of inter-
est would have been reduced fi'oni six per cent, to three, and the
accounts between the Companies and the Government would
have presented a different showing than they now do.
The benefits mentioned above that will accrue to the Govern-
ment at the maturity of the bonds represent only the money
saved on the business actually transported over the Union and
Central Pacific roads between the Missouri River and San Fran-
cisco ; but in this nothing is figured for the decreased estimates
of the army caused by the building of these roads. We have
heretofore cited the language of General Grant and of General
Sherman on this subject, and we now add the testimony of Pres-
ident Garfield at the time he was a member of the House of
Representatives.
In the Fortieth Congress, Second Session, Mr. Garfield, from the
Committee on Military Affairs, House of Representatives, made
the following report:
The Committee on Military Affairs, to whom was referred a letter from the
Secretary of War, enclosing a letter of Lieutenant-General Sherman, dated
March 4, 1868, recommending Government aid to extend the Union Pacific
Bail way , Eastern Division, as a " military necessity," and a measure of public
economy, beg leave to report :
That they have carefully considered the statements therein made, and have
found them confirmed by the following facts, drawn from official record :
The cost to the Government for transportation on the Union
Pacific Railway, Eastern Division, in 1867 was . . . $511,908 34
If the military supplies had been wagoned, and the mails
carried by stage, and the troops marched, (taking the ave-
rage rates at which the Government made its transportation
contracts for that year, as shown by certificates of the De-
partments of the Quartermaster-General and Postmaster-
General,) the cost would have been 1 353 291 06
Saving to the Government in 1867 |846 383 83
But there is another consideration of economy in the public expenditure
as the result of constructing the road. Lieutenant-General Sherman has
testified that one-half of the military force in New-Mexico could be dis-
pensed with if the road was constructed, owing to the greater mobility "of
133
the remainder, and the growth of self-protecting settlements on the line of
tue road. As his estimate of the cost of maintaining the two regiments of
intantry and one of cavalry was about four millions of dollars a year, the
Committee find that an additional saving to the Government of two millions
annually would thus be effected by the road. This saving, added to the
saving m the transportation of the diminished military force that would be
left in New-Mexico, and of the supplies to maintain them, including the
carriage of the mails and Indian goods and supplies, would, in less than six
years, reimburse the entire loan necessary to extend the road from its present
terminus ^to the Eio Grande. The Committee have had satisfactory evi-
dence presented to them, that west of Albuquerque, and through Arizona
and Lower California, the same or even larger proportionate economy in the
public service would be effected by the substitution of railway for wagon
transportation, with the result of an equally certain payment of the interest
and extinction of the principal of the Government aid long prior to its
maturity.
The Committee have also had before them the written recommendation
of Major;Philip;:H. Sheridf.u, that the Government at once continue its aid
to the Kansas Pacific Railway, in the course of which he says : " It almost
' ' substantially ends our Indian troubles, by the moral effect which it exer-
" cises over the Indians, and the facility which it gives to the military in
" controlling them. * » * » No one, unless he has personally visited
" this country, can appreciate the great assistance which this road gives to
" economy, security and effectiveness in the administration of military affairs
" in this Department."
As we have before stated, in the year 1864, when the Central
Pacific was completed to Newcastle, and in the year 1865, when
the Union Pacific commenced construction, the Quartermaster's
Department spent $28,374,228 for military service against the
Indians ; these two years being a portion of the thirty-seven years
in which Indian wars cost the nation twenty thousand lives and
more than $750,000,000 ; nor is anything reckoned for the saving
to the Government on account of the altered or more peaceable
disposition of the^Mormons in Utah.
It would be difficult to bring to a financial standpoint all the
benefits which the United States have derived from the building
of these roadsj; by their construction the people have been ad-
vanced in civilization, in comfort and in safety to their persons
and property; and^itslbenefit to the nation as a military necessity,
both of ofience and defence, cannot well be estimated either po-
litically or financially.
It remains now to be seen, whether the Government will avail
itself of the information which its Ootnmission has collected, in
10
134
answer to the inquiries directed by Congress, and will proceed to
settle with the Central Pacific Railroad Company on the basis of
the equities which such information discloses. Such a course
would settle this controversy in a manner befitting the dignity of
a nation that has received so much benefit from the contract it
made with the Central Pacific Railroad Company.
If, however, disregarding that which appears i'rom all the tacts
and circumstances of the case to be its plain duty in the premises,
it shall use its power to scrape into its treasury other benefits and
other moneys, beyond what it has already received, it will spend
a century or more in oppressing and despoiling the inhabitants
of that arid and elevated territory lying between the Rocky
Mountains and the Sierra Nevadas, and in levying tribute on the
potatoes grown in the alkali lands of Nevada, on the wild hay
saved from the river banks of the Humboldt, and from^ cattle
that derive a precarious subsistence from the sage brush on the
line of the Central Pacific; for the completion of the seven lines
other than the Union and Central aided by the Government, and
of the Canadian Pacific, effectually prevents any profit being de-
rived by the Central from its tiirough or overland trafl&c.
The Central Pacific Railroad Company present this statement
as truthfully showing the history of its relations with the Gov-
'ernment, and proving that it has faithfully performed its part of
the contract, and has grievously suffered by the persistent dis-
regard of their obligations by the United States.
It now seeks the equitable settlement which the evidence taken •
by the " Commission," as directed by Congress, shows to be its
right, and asks that it be made without delay.
ROSCOE CONKLING,
WILLIAM D. SHIPMAN,
Of Counsel.
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