BANCROFT LIBRARY 
 SUTRO. JUNE 1939 
 
 The Central Pacific 
 R. R. Debt. 
 
 in 2007 With funding from 
 
 I kr J ■ i ■! ■ ■ li^i ■ I ■ Min n 3 ■ s i m 1 wz, ■■■■■Hi 
 
 CALIFORNIA'S REMONSTRANCE 
 AGAINST REFUNDING IT. 
 
 ittpv/wvw.archive.org/details/centratpacif] 
 
INDKX.^ 
 
 PAGE 
 
 Reversal of established congressional policy as to Pacific roads .... 1 
 
 False pretences to Congress — Concealment of material facts 2 
 
 The California railroad combine — How composed— Its continuity — 
 The Southern Pacific Company 4 
 
 Irresponsibility of the Company — What property it owns., ..4 and 5 
 
 The railroad situation in 1870 — Commencement of the Southern 
 Pacific road 6 
 
 The great fraud on the Central road by which it was made to fur- 
 nish means to build the Southern 7 
 
 Other frauds in Central Pacific management 10 
 
 The secret dividends of 1895-1896, and how brought about 11 
 
 Proofs of the foregoing, viz: Editorial of the " Economist^'' (London), 
 March 23d, 1895 12 
 
 Mr. Huntington's reply — Confessing — From ^'' Economist (London), 
 April 20th, 1895 12 
 
 Mr. Crocker's confession 14 
 
 Other assets of the Central Pacific Company 15 
 
 Other objections to the pending bill creating a federal corporation 
 of unlimited powers, in violation of the rights of the State and 
 the courtesy due to it from the general government K) 
 
 Instances of gross abuses in transportation which have rendered 
 the Central Pacific management odious and detested 17 
 
 Imposition of prohibitory duties on Eastern goods imported into 
 California 17 
 
 Establishment of an illegal special contract system with barbarous 
 penalties 17 
 
 Collusive suits and vexatious litigations with the State over a sys- 
 tem of taxation adopted at their own suggestion — Deceptions 
 practised on the courts, etc 1 7 
 
 Defrauding the government and the public by failure to build the 
 road contracted for — The contracts entire 19 
 
 The Central Pacific can be reorganized on safe and solvent basis b}^ 
 calling in the sums due it from solvent debtors 21 
 
 Resume' of grounds of opposition to Refunding Bill 22 
 
 Appendix — Article from '^Nation,'" August 11th, 1881 25 
 
 Article from " Nation;' December 5th, 1881 2S 
 
BANCROFT L!Si?ARY ^vi U 
 
 SUTRO. JUNE 1939 " 
 
 dS'&'is 
 
 '^M'a. 
 
 THE CENTRAL PACIFIC R. R. DEBT. 
 
 CALIFORNIA'S REMONSTRANCE 
 
 AGAINST REFUNDING IT. 
 
 To the Senate and House of Representatives 
 of the United States: 
 
 Gentlemen: — In again appearing in opposition to the passage by 
 Congress of a measure for refunding or extending time on the debt of 
 the Central Pacific Company, we beg to call to your recollection the 
 many objections expressed in our memorial on behalf of the people of 
 this State presented to the last session of Congress as well as to the 
 following additional facts and considerations, some of which have been 
 developed since that memorial was presented and others have been 
 suggested by the course the discussion of the proposal has taken. 
 
 Reversal of Established Congressional Policy as to Pacific Roads. 
 
 I. In granting aid to the Texas Pacific road and to the Southern 
 Pacific Railroad it was undoubtedly the intention of Congress to 
 create a southern route across the continent which would constitute 
 a rival to the central route, on that side, as the Northern Pacific 
 road was designed to do on the North. The purpose was to give to 
 the people of the whole country the advantage of competition in over- 
 land transportation. Without accurate knowledge of the extent to 
 which extortion in charges was practised on the Central line (since 
 brought to light by the Pacific Railroad Commission), it was common 
 knowledge that the charges were excessively high, and the creation 
 and maintenance of competing roads were recognized as necessary. 
 Therefore to insure their construction and maintenance aid was liber- 
 ally granted by Congress. Independent of its enormous subvention 
 in bonds, the Central Pacific Company received as a donation of land 
 aggregating, after all deductions, 8,000,000 acres, worth at minimum 
 government price, $20,000,000, but estimated at more by themselves; 
 their sales down to December 31st, 1882, having produced an average 
 price of $4.85 per acre. (Vid. Report of December, 1882, pp. 57, 59.) 
 The Southern Pacific land grant in California amounted to 10,445,227 
 acres, worth at minimum government price $26,113,175, but of which 
 
[2] 
 
 their own report of December 31st, 1882, says " a very large portion of 
 them is choice agricultural and timber land and will command a much 
 higher price." In fact the subsequent table in same report shows the 
 average price so far to have been $4.38 per acre. (An. report Decem- 
 ber 31st, 1882, pp. 43, 44, 51.) This beneficent and well considered 
 policy of Congress in pursuit of which it has so bountifully endowed 
 these two companies has been deliberately and formally set at naught 
 by the managers, who to prevent the competition designed by Congress, 
 have leased the Central Pacific road for ninety-nine years, from April 
 1st, 1885, to the owners of the whole stock of the Southern Pacific Rail- 
 road, and both roads are thus put into common management. The 
 proposed refunding act distinctly confirms this lease, so far as Congress 
 has the power to do so, and threatens penalties against the abused 
 stockholders of the company should they seek to avoid it as a fraud on 
 them! The chief objection to it on our part is its direct hostility to 
 the deliberate and beneficial policy of Congress, which it distinctly re- 
 verses in the interest of private parties; a minor one, not however with- 
 out weight is that it aims to fasten on the stockholders of the company 
 a lease by their trustees in fraud of their rights, which they are now 
 preparing to vindicate, by legal proceedings. This is unjust to them. 
 The method b}^ which the Central Pacific managers retained control 
 of the company after parting with all their interest will be shown 
 further on; what is important here is that the real parties in interest 
 have at last awakened to the wrong done them, and are preparing to 
 claim their rights, and return to the policy of an independent exist- 
 ence and operation designed by Congress; and this is the moment at 
 which it is proposed to enact, as in Section 19 of the pending bill, S. B. 
 No. 2894, 54th Congress, 1st Session, that if this fraudulent and infamous 
 lease be annulled or cancelled, even by decree of a Court, that act shall 
 entail the immediate maturity of the whole debt due the United States 
 at the option of the President! The government is thus made to cast the 
 sword and belt of Brennus into the scale wherein the defrauded stock- 
 holders are weighing the cost of obtaining justice against their dis- 
 honest trustees ! Surely Congress will shrink from enacting a law to 
 forbid people who have been defrauded from seeking redress under 
 such a heavy penalty I 
 
 False Pretences to Congress- Concealment of Material Facts. 
 
 II. The indulgence and extension of time here involved are asked 
 under false pretences the disengenuousness of which should forbid 
 entertaining the proposal. The demand for time to pay is based on 
 the suggestion of poverty on the part of the debtor, whose earning 
 power it is said cannot reach beyond the pittance proposed to be re- 
 quired by the pending bill, but the pretense of poverty is entirely 
 false. The Central Pacific Railroad Company is paying dividends to 
 its shareholders to-day, with promise to double them as soon as the bill 
 passes, and it has very large means, money claims, which should be 
 called in and applied to the payment of its debts. Some of these are 
 as follows: 
 
 I. Claims against its former directors and managers amounting to 
 many millions, for misappropriation of its funds and property by 
 means of fraudulent contracts and dealings with themselves through 
 the disguise of construction companies; the Contract and Finance 
 Company, the Western Development Company, etc. 
 
[3] 
 
 IL Claims of great magnitude against the Southern Pacific Rail- 
 road Company, its successful rival in business, to be explained below. 
 
 III. Claims against its directors for fraudulent mismanagement 
 whereby its revenues have been impaired for their own benefit. 
 
 Of these claims in their order. The proof of the dividends paid, 
 afterwards. 
 
 I. Claims against its directors for misappropriation of funds, etc. 
 The report of the Pacific Railroad Commission shows that the assets 
 and resources of the Central Pacific Railroad Company were diverted 
 and appropriated to their own private gain and in fraud of the com- 
 pany by the original directors, Huntington, Stanford, Crocker and 
 Hopkins, through the instrumentality of construction companies and 
 gives approximately the amount stolen. These proceedings are now 
 in their outline familiar to all well informed persons, and altogether 
 the frauds practised in the construction of the Pacific railroads are 
 generally regarded as the most disgraceful public scandal in the 
 annals of the country. No public man has ever dared to defend 
 them, though several were shown to have profited by them, and were 
 relegated by public opinion to merited obscurity; they have never 
 received even tacit condonation from Congress, and to pardon them 
 now, by extending the time for payment, as if the liability were an 
 ordinary debt, would be to affirm by act of Congress that in the 
 judgment of that body the acts in question came up to the standard 
 of morals properly applicable to the disbursement of public funds, in- 
 trusted, in a moment of great public peril, to the honor of private 
 citizens. Better by far lose the whole amount of the debt than affirm 
 such doctrine. But the debt need not be lost; every dollar of profit 
 gained by these dishonest directors can be yet recovered by the com- 
 pany or by a receiver appointed in a foreclosure representing the 
 interests of creditors and stockholders. The company has never 
 brought such suit because its management has ever been controlled by 
 the perpetrators of the frauds or those deriving from them. Individ- 
 ual stockholders have from time to time sued on behalf of the corpor- 
 ation, but though vigorously defended not one of them has been 
 allowed to proceed to judgment. They have all been compromised for 
 amounts and on terms which implicitely admit guilt. " The allega- 
 tions,^^ say the friendly majority of the Pacific railroad commission in 
 their report (page 75) " contained in these complaints were such as would 
 " compel men of honor-, if those allegations were false, to defend themselves 
 ^^at any cost. It appears from the evidence that all these suits were 
 " settled, and that the stocks owned by the plaintiffs were bought at rates 
 ^^ varying from rf 400.00 a share to >$ 1,000.00 a shared None of these 
 settlements however condone the wrongs done the company, and no 
 statute of limitation has barred its right. That right is an asset of 
 great value, for the responsibility of Mr. Huntington, individually, 
 and of the Crocker estate, are undoubted. The latter has been fortu- 
 nately kept undivided by transfer to a corporation composed of the 
 heirs, and is distinctly recognisable in present hands. 
 
 II. and HI. Claims against the Southern Pacific Railroad Com- 
 pany, and Claims against its own directors for fraudulent misman- 
 agement of its business. These for brevity will be treated together, 
 but to do so requires some preliminary explanations. 
 
[ 4 ] 
 
 The California Railroad Combine— How Composed— Its Conti- 
 nuity—The Southern Pacific Company. 
 
 It must then be premised that the management of the Central Pacific 
 road has been substantially unchanged from its organization to the 
 present day. When the personnel has varied the transfer has been from 
 brother to brother, from father to son, from uncle to nephew, or from 
 deceased to surviving partners. There has been an absolute continu- 
 ity of design, system, policy, methods and practices from the beginning 
 so that we may speak of the management at all times as continuous. 
 The form of the combine remained unchanged down to 1884, when it 
 took a corporate shape, as to the "Southern Pacific Company." 
 
 The original Central Pacific combination consisted of Collis P. Hunt- 
 ington, Leland Stanford, Mark Hopkins, Charles Crocker and E. B. 
 Crocker. They undertook the building and financing of the Central 
 Pacific road and shared the profits equally. Whether they were tech- 
 nically partners is disputed and not here material. The last named 
 associate died first, and as was natural the survivors bought up his 
 interest. Mark Hopkins died next, intestate and childless; his widow 
 retained his interest and took his place. The others were now growing 
 old and to husband their energies the survivors sought a younger as- 
 sociate to share their labors. They sold an interest of one-fifth to David 
 D. Colton and took him in. By this time they had branched out into 
 extensions of the Central Pacific road, northward up the Sacramento 
 Valley, and southward through that of the San Joaquin, and building 
 the Southern Pacific road. Colton was very active in the management. 
 He died however, quite suddenly from an accident, and as he had not 
 been long enough in the concern to become an essential part of it; and 
 left no representative who could contribute the services that he had 
 rendered, it became necessary to buy his interest. This was done, quite 
 promptly, but in a manner and under circumstances, that led to a 
 subsequent action by Mrs. Colton to set aside the sale, and have an 
 account taken of the affairs of the concern. In the course of this trial, 
 which was contested with great obstinacy, was brought to light the corre- 
 spondence between Huntington and his associates which has since 
 become so famous (or infamous). It forms a part of the transcript on 
 appeal. 
 
 The Colton incident drew the attention of the surviving parties to the 
 danger that menaced them, as their numbers continued to grow less. 
 If each successive death were to involve a purchase of the deceased's 
 interest by the survivors, what would be the lot of the longest liver? 
 Mr. Huntington is credited with the invention of the idea of obtaining 
 a charter of incorporation for themselves; surrendering to such cor- 
 poration the shares of stock held by the individuals in the various 
 railroad companies they had formed, and taking, in exchange for 
 it, stock in the new company. This plan was adopted, and a legisla- 
 tive charter was obtained from the State of Kentucky for the Southern 
 Pacific Company. The original proposal was to have the stock of 
 the new company held equally by the four remaining associates, 
 viz: one-quarter each by Stanford, Crocker, Huntington and Mrs. 
 Hopkins; but at the last moment Mr. Huntington recurred to the 
 annoyance they had previously experienced from their inability ta 
 deny that the Southern Pacific and Central Pacific Companies were in 
 fact composed of the same individuals (referred to in his letters to Col- 
 ton), and suggested taking in an additional associate, and selling him a 
 
BANCr>OFT LIBRARY 
 SUTRO. JUNE 1939 
 
 [5] 
 
 small interest. This was acceded to and a fifth shareholder taken in; 
 but he presently tired of his purchase and sold his shares to Hunting- 
 ton, or fell under his control, and thus it came about that Mr. Hunt- 
 ington united with any one of the other parties controls the action of 
 the Southern Pacific Company. Mrs. Hopkins having remarried in 
 her old age, on her death left a will in favor of her youthful husband, 
 a Mr. Searles. This gentleman, having other tastes, has not taken 
 personal part in the railroad management, and thus Mr. Huntington, 
 by his acquiescent cooperation, has come to wield the whole power of 
 the Southern Pacific Company, and his single vfiW reverses the delib- 
 erate policy of Congress in pursuance of which it has granted away 
 over a hundred million acres of the public domain, 10,445,227 thereof 
 to the Southern Pacific Railroad Company of which he then was and 
 practically still remains the controlling owner. Being a Kentucky cor- 
 poration, the Southern Pacific Company organization is not governed by 
 the laws of this State wherein its business lies, and the proportional 
 representation of stockholders in the direction allowed by California law 
 has no place. The other parties in interest are therefore indebted to 
 the consideration of Mr. Huntington for their positions in the board, 
 and must dance to such music as he sees fit to play. He is the presi- 
 dent of the company, and is no ^'King LogP'' He controls everything, 
 and is to all intents and purposes the company. 
 
 What Property The Southern Pacific Company Owns. 
 
 It never had any cash capital. The stocks held by the organizers 
 were transferred to it, at some agreed prices, bearing no relation to 
 their actual value and its stock issued in payment therefor. Thus it 
 owns the stocks of all the other railroad and transportation companies 
 which its managers have from time to time built or purchased, except 
 the Central Pacific, and nothing more. A few shares of each are 
 placed in the names of dummies in their employ, or under their con- 
 trol, to qualify them as directors of the various companies, and thus 
 the doings of these corporations are dictated and controlled by the 
 single will which controls the Southern Pacific Company. As every 
 road whereof it owns the stock is mortgaged for far beyond its value 
 or cost, the value of the stocks which constitute its whole capital is 
 obviously but nominal. Whenever additional property is acquired, it 
 is at once duly mortgaged for all it will possibly bear, and subject to 
 such mortgage transferred to or held by the Southern Pacific Company. 
 
 The Southern Pacific Company chooses the directors and controls 
 the management of all the.se roads of which it is the lessee- besides 
 owning the stock. It finances them all, gets all their cash into a com- 
 mon purse, manages their sinking funds, lending the money of one to 
 the other, and that of the other to a third, and so round the circle till 
 it comes back to where it started, and the whole thing becomes a mere 
 matter of book-keeping, needing no unnecessary and inconvenient 
 payments of cash. The lease of the various roads other than the 
 Central Pacific is styled the ^^ Omnibus Lease.^^ It has been lauded as 
 a method of insuring unity and economy of management, etc. The 
 principal feature however, which a studious reader will be apt to 
 recognize in it, is a clause, which reversing the old rule or reserving a 
 rent to be paid by the lessee to the lessor, provides that the lessees shall 
 have ten per cent of the procedes of the business for managing and taking 
 care of the property of the company whereof they own the whole stock ! 
 While the lessees continue to own all the stock, this may be harmless; 
 
[ 6] 
 
 n 
 
 but whenever they shall put any of those stocks on the market and 
 succeed in making sales of them, the purchasers may be expected 
 to discover its radical dishonesty when they find a portion of the 
 stockholders in their capacity of lessees, absorbing ten per cent of the 
 proceeds of the business before leaving a cent for them. 
 
 Members of Congress should also be informed that the Pacific 
 Improvement Company (commonly written P. I. Co.) is another of the 
 Protean corporate forms under which these railroad managers mask 
 their operations, just as the Western Development Company was 
 before it, and the Contract and Finance Company before it in turn; 
 continually changing in name, ever the same in fact. 
 
 Returning from this necessary introduction of -the characters we come 
 to the gigantic fraud on the Central Pacific Company, perpetrated by 
 its managers in 1880. It consisted essentially in using the credit and 
 means of that company to build, for their own benefit, the Southern 
 Pacific road as a rival line, designed and calculated to destroy the 
 value of the Central ! The process of this was as follows: 
 
 The Situation in 1870. Commenceinjent of the S. P. Road. 
 
 What is now called the Southern Pacific Railroad began with the 
 construction of a road from San Francisco, 80 miles south to Gilroy. 
 It was completed in 1869. Mr. Huntington intimates — in fact asserts 
 — that it was done by his Southern Pacific Railroad Company; but 
 this is one of those curious lapses of memory, to which some persons 
 are subject, by which they not only forget what occurred, but remem- 
 ber exactly what did not! The fact is neither he nor any compan}^ he 
 was connected with built a single mile of it. It was built by Peter 
 Donahue, Henry M. Newhall and Charles B. Polhemus, (the last named 
 is still living) under the corporate name of the San Francisco and San 
 Jose Railroad Company, and that of the Santa Clara and Pajaro 
 Valley Railroad Company; to build and equip it cost about $1,300,000 
 and it was in use as a local road. In 1865 a ompany was organized 
 in San Francisco, by eight or ten gentlemen, — William T. Coleman, 
 Timothy Guy Phelps, Charles N. Fox and others, under the name of 
 " The Southern Pacific Railroad Company," but it had no actual capi- 
 tal, and built no road; was in fact a mere paper organization. There 
 was another company organized in 1870 called the California Southern 
 Railroad Company, which was in similar plight. By this time some 
 progress had been made in selling the shares of the Central Pacific 
 Company, though Mr. Huntington and his associates continued to 
 retain its management. They decided on building another road which 
 by its more advantageous location, more favorable grades, and prefer- 
 able approach to the city of San Francisco direct, would be able to 
 successfully rival it in business. With this view they purchased from 
 Messrs. Newhall, Donahue and Polhemus, the stock of the two roads 
 first above mentioned (from San Francisco to Gilroy) and from the 
 organizers of the second two companies named, their good will and 
 corporate names, and in October 1870, consolidated the four companies 
 into one under the name of the ^'Southern Pacific Railroad Company.'^ 
 The route designated was from San Francisco southwards through the 
 Santa Clara and Salinas Valleys, across the coast range of mountains 
 into the San Joaquin, and up that valley, and over the Tehachapi 
 Pass to the Colorado River. Its nominal capital was $30,000,000. 
 Its actual capital the road from San Francisco to Gilroy, and its 
 equipment, nothing more, and that mortgaged for $968,000. 
 
[7] 
 
 Meantime the Central Pacific Company had constructed a branch of 
 its road extending southwards from Stockton up the San Joaquin Val- 
 ley, some 150 miles, to a place called Goshen, a mere hamlet — but the 
 point at which the projected Southern Pacific road would intersect the 
 Central. During the winter months succeeding the purchases above 
 mentioned, the parties succeeded in procuring the insertion in the Act 
 of Congress of March, 1871, of a land grant in favor of the Southern 
 Pacific Railroad Company, and soon thereafter began to build from 
 Goshen onwards towards the Colorado river and the State line. 
 
 There was no bona fide subscription to the stock of the Southern 
 Pacific Railroad Company, nor any contribution of cash capital. The 
 whole business was managed through the instrumentality of a con- 
 struction company composed of the managers of the road itself, who 
 were also the trustees and managers of the Central Pacific. This con- 
 struction company contracted with the Southern Pacific Railroad 
 Company to build and equip its road for all the stock of the company 
 and all its bonds. The original intention was to issue $40,000 of stock 
 and an equal amount of bonds for every mile of road built, but this 
 excessive capitalization seems to have been afterwards reconsidered 
 and made somewhat less. 
 
 They began building the S. P. road from Goshen, above named,, 
 southwards, in 1872, and in that year constructed, say, 21 miles. In 
 1873 they built about 20 more, and in 1874 some 34 additional, making 
 75 in all in that valley; during the same period they added some 81 
 miles to the length of the road from San Francisco to Gilroy. This 
 was the situation at the commencement of 1875. 
 
 The Fraud. 
 
 In July, 1875, the Southern Pacific Railroad Company executed a 
 mortgage for $46,000,000 to trustees, dated April 1st of that year, cov- 
 ering the whole of their road existing and contemplated (being, as 
 described, 1150 miles in length, or at the rate of $40,000 per mile of 
 road); a large amount of these bonds was issued to the construction 
 company, and the problem before Mr. Huntington and his associates 
 was to sell these bonds, and, until sales could be effected, to give them 
 an apparent or prospective value, which might meantime render them 
 available as collateral security. 
 
 People investing in railroad bonds naturally look at the earnings of 
 the road, as a guide to estimate values; and as the San Joaquin Val- 
 ley south of Goshen was then quite unsettled, and could furnish 
 neither freight nor passengers to the new road, they determined to 
 make a show of business over it by using the credit of the Central 
 Pacific Company. For this purpose they made a lease dated Sep- 
 tember 1st, 1876, to the latter company of the branch of the Southern 
 Pacific railroad extending from Goshen southward to the Colorado 
 River, constructed and to he constructed, for six thousand dollars per 
 annum, for every mile thereof built and ready for operation. The rent 
 would thus increase by six thousand per annum with every additional 
 mile of road built. From this rent, hoioever, the lessees were permitted 
 to deduct $3,000 'per mile per annum for operating expenses. And, prob- 
 ably to divert the attention of the Central Pacific stockholders from 
 the importance as well as the dishonesty of this lease, it was made 
 terminable by a notice of sixty days, as if it were a mere temporary 
 arrangement. The very circuitous mode here resorted to of reaching a 
 rent of $3,000 per mile per annum naturally suggests a sinister design, 
 
[8] 
 
 and there was one quite in harmony with the whole knavish proceed- 
 ing of which it formed a part. The object was to enable the Southern 
 Pacific railroad to appear in the financial publications of the day as 
 earning from this branch of its road, while yet unfinished and without a 
 terminus at either end, $6,000 per mile per annum, and being operated 
 at fifty per cent, of its gross earnings! Obviously, a road through a 
 new country which, while yet in an unfinished condition — running, in 
 fact, from no place to no place, — could make such a showing as that, 
 had before it the brightest of prospects. The terms of this fraudulent 
 lease, therefore, were arranged for the purpose of deceiving the public, 
 by holding out false and delusive prospects of the earning capacity of 
 the road, and thus rendering the disposal of the bonds more easy. 
 The making of this lease and the particular form of reservation of 
 rent in it were both parts of a dishonest contrivance to bolster up the 
 credit of the Southern Pacific Railroad Company, at the expense of 
 the Central, and to enable Messrs. Huntington and associates, while 
 acting as directors and trustees of the latter company, to hypothecate 
 and afterwards sell the bonds of the former. It need scarcely be said 
 that this constituted a gross fraud on the Central Pacific Company 
 and its stockholders, and that under our law, as under that of all 
 civilized countries, the last-named company is entitled to recover from 
 its dishonest trustees all gains and profits of every kind derived from 
 it, and this without any participation in or allowance for their labor 
 or risk in the venture. 
 
 The disgraceful history of this issue of bonds of the Southern 
 Pacific R. R. Co. is not yet all told, nor the published evidence of the 
 fraudulent design exhausted. They were inscribed on the stock list 
 and offered on the New York exchange; bids, offers, washed sales and 
 all means (even down to a fictitious sale of a lot of them under an 
 execution) were resorted to to give them currency, but without success; 
 the gudgeons of Wall Street refused to bite; and down to March, 1880, 
 the bonds remained in the hands of the construction company, unsold 
 and practically unsaleable. 
 
 About the period last mentioned, Messrs. Speyer & Co., a firm of 
 bankers in New York, pointed out the weak spot in Mr. Huntington's 
 case to him; it consisted in the right to terminate the lease by sixty days'' 
 notice, and they offered if that defect were remedied to their satisfac- 
 tion to take up the loan and float the first ten million of the bonds at 
 a price agreed on. They agreed to take two millions of them at ninety, 
 and got an option of eight more. As if to emphasize the fraud on the 
 Central Pacific Company, and illustrate it, if possible, more clearly, 
 the bankers insisted on, and Messrs. Huntington & Co. consented to a 
 modification of the lease to the Central Pacific Company, whereby it 
 was made to continue in force absolutely for five years, and thereafter, 
 until the Southern Pacific should have extended its road so far as to con- 
 nect directly by rail with the railroad system of the Atlantic side, not ex- 
 ceeding ten years in all. This modification of the lease was made and 
 executed early in 1880, and the preliminaries having all been 
 arranged, and the comedy fully rehearsed, there appeared on the 
 morning of March 9, 1880, and the three following days, in the " New 
 York Tribune," an advertisement, announcing that subscriptions 
 would be opened on the 11th of that month, and closed on the 12th, 
 in New York, Boston, Frankfort-on-Main, London, Amsterdam, and 
 Berlin, for ten million dollars of six per cent, first mortgage bonds of 
 the Southern Pacific Railroad Company (describing them), offers to be 
 
[ 9 ] 
 
 made to certain banking houses of those cities respectively. This ad- 
 vertisement was conspicuously displayed, and among the inducements 
 offered were that the bonds " were secured by a first mortgage on the 
 railroad and telegraph line, rolling stock, fixtures, land and franchises 
 of the Southern Pacific Railroad of California." That the total length 
 of the projected road was 1,150 miles (specifying how made up), "of 
 which 712 miles were completed and in operation," divided into the 
 Northern and Southern divisions, the former extending from San 
 Francisco to Soledad, and from Carnardero to Tres Pinos, in all 161 
 miles, and the latter from Huron to Yuma (with a branch of the road 
 from Los Angeles to Wilmington), in all 551 miles, and interesected 
 at Goshen by the San Joaquin branch of the Central Pacific road. 
 That the net earnings of the southern division (through rental to 
 C. P. R. R. Co.), 
 were in 1878 $1,656,360 00 
 
 " '^ " 1,635,554 93 
 
 that the San Joaquin Valley Branch of the Central Pacific Railroad 
 fiirni><hecl the Southern Divisiomvith an outlet both to San Francisco 
 and eastward over the main line of the Central Pacific RaiU 
 road, and that " in view of common interests the Central Pacific Rail- 
 " road' Company had taken a lease of the Southern Division of the 
 " Southern Pacific Railroad of California, for a period of not less 
 " than five years, from January, 1880, and by the terms of the lesiseif 
 " a railroad is not completed in five years from that date, so that 
 " there is a connection of the Southern Pacific Railroad of California 
 *' ivith the eastern system of railroads on what is known as the S2nd 
 " parallel line, the lease shall be extended until such connection is 
 " made; provided such extension does not exceed five years longer, or 
 " ten years in all from January, 1880. That by the terms of the lease 
 " the net rental agreed to he paid during the continuance of this lease 
 " and any extention thereof shall be $250.00 per month, or $3,000.00 
 " per year per mile (being at present on about 551 miles, equals about 
 " $1,650,000.00 annual rental), ' and if for a/ay cause, it ' shall be re- 
 " duced by mutual consent of the parties, that the annual amount oj 
 " such rental reduced shall at least be sufficient to pay all the interest 
 " that has been or may be agreed to be ^jaid in any one year on any 
 " bonds of the Southern Pacific Railroad Company of California, 
 " outstanding during the continuance of this lease.'' 
 
 The modifications in the terms of the lease indicated in this adver- 
 tisement seem to have been all that was required by the bankers, and 
 promptly after the time for closing the bids, without waiting to hear 
 from London, Frankfort-on-Main, Amsterdam or Berlin, it was an- 
 nounced that the whole block of bonds had been taken by Messrs. 
 Speyer & Co., and thereafter they were gradually peddled out on the 
 New York market and ultimately found buyers. The sales of these 
 bonds thus introduced in the stock exchange by the credit of the Cen- 
 tral Pacific Company aggregated over $32,000,000 and at an (estimated) 
 average price of about 95 per cent. The sales from the land grant 
 obtained by the building of the road have amounted to over ten million 
 dollars, and much remains unsold. All these large sums should be 
 accounted for to the Central Pacific Company as the fruits of the fraud. 
 Thus the dishonest directors of the Central Pacific road procured the 
 means for constructing the Southern Pacific, which by its shorter mile- 
 age between the oceans, its easier grades, and the preference given it 
 
[10] 
 
 in the routing of freight, has been almost the ruin of the Central Pacific. 
 To ensure the disastrous result however, the managers determined to 
 cut off its local freights also, and to this end constructed (in the names 
 of companies ultimately consolidated with the Southern Pacific) a sub- 
 stantially parallel road through the San Joaquin Valley on each side 
 of the Central, ready to intercept every pound of freight approaching 
 it on either side! 
 
 Other Frauds in Central Pacific Management. 
 
 1. We have already mentioned the ninety-nine year lease of the 
 Central Pacific road to the Southern Pacific Company (of Kentucky). 
 Considering the relative positions of the several parties, the ownership 
 by the lessees of the whole stock of the rival road and that of the 
 Southern Pacific Company's stock by those managing the Central 
 Pacific direction, it cannot be doubted that this lease would be pro- 
 nounced by any court of equity a gross fraud on the Central Pacific 
 Company. Its ruinous character is obvious. 
 
 We will not dwell on the diversion of traffic from the Central to the 
 Southern route, though the loss of revenue by the former from that 
 cause must have been enormous. Owning all the stock of the one 
 road and having no interest in the other, while they managed both, it 
 was perhaps but natural for such parties to favor their own road at 
 the expense of the other. The power to do so was obviously a princi- 
 pal motive for the ninety-nine year lease, the terms of which, it may 
 be remarked, left them at liberty to change the rent from time to time 
 practically at discretion. To assert that they exercised with imparti- 
 ality great powers so dishonestly obtained would be to invite derision, 
 not belief. The Kentucky corporation as lessee of both roads did the 
 carrying, issued the bills of lading, etc., so that unless the shipper 
 took special pains (for which there was rarely a motive) to expressly 
 direct his freight sent over the Central route, it was at the discretion 
 of the carriers, and naturally went by the Southern. The arrange- 
 ment of time schedules, greater promptness in delivering freight, adjust- 
 ing reclamations, and like considerations, helped to determine the 
 choice of shippers in the same direction. The revenues of the Central 
 Pacific road rapidly fell off, and its dividends went down to three and 
 two per cent., and finally to zero. 
 
 2. For many years after the completion of the Central Pacific road, 
 its managers were the largest borrowers of money in the San Francisco 
 market, and large borrowers wherever they could obtain it. Any per- 
 son having a sum of any magnitude to loan could have from them the 
 note or the endorsement of the Central Pacific Railroad Company. 
 None of this money tvas for the use of the Central Pacific Company, hut 
 for that of the managers; yet the credit of the Central Pacific Company 
 was strained to the utmost to procure it. An ordinary broker's com- 
 mission on these loans of credit would amount to a large fortune. 
 
 It would be difficult to put a limit to the recovery which the Central 
 Pacific Company is entitled to from its dishonest managers and its 
 rivals for these frauds, which are probably but specimens, of which 
 there are plenty more to be brought to light by a proper investigation. 
 This seems to be the most appropriate place to account the latest 
 chapter of Central Pacific history, which has indeed something of the 
 grotesque about it. 
 
 IV. The appeal to Congress to refund the debt at a low interest is 
 made on the suggestion of inability to pay. Hon. Grove L. Johnson, 
 
[ 11 ] 
 
 of the House of Representatives, published, during the recess of Con- 
 gress, a long letter defending the pending measure, substantially on 
 that ground. He thought that at any higher rate of interest than two 
 per cent, the company could not pay the debt without rates of freight 
 that would be ruinous to California shippers. He could not have been 
 aware when he did this — in fact few would listen with patience to such 
 an argument, if they were aware, — that at the very time Mr. Huntington 
 is posing the company before Congress in forma pauperis, he has been pay- 
 ing the stockholders dividends on their shares and is under promdse to 
 double the same as soon as the refunding bill has been passed. The pay- 
 ment of this dividend has not had any publicity, has in fact been 
 practically a secret, but it is the fact, and the history and proof of it 
 are about as follows: 
 
 The Secret Dividends of 1895, 1896, and How Brought About. 
 
 It is known that the great bulk of the Central Pacific stock is held 
 in England. It \Yas sold io English purchasers between 1875 and 
 1890 by the device of paying large dividends on it while at the same 
 time the sellers were building the Southern Pacific road to take away 
 its business as above related. The Englishmen were deterred from 
 transferring their shares to their own names by the artful suggestion 
 of individual liability for corporate debts, and more especially for the 
 Government subsidy bonds under California law. Their holdings 
 were therefore represented by certificates in the names of former 
 holders, endorsed in blank. To facilitate concealment of ownership a 
 form of certificates was invented, with dividend coupons attached; so 
 that the holder need not a receipt for his dividends or even present 
 himself to get them. No one could know his identity except the 
 banker with whom he deposited his coupons. These former holders 
 were employees of the company to whom the managers had trans- 
 ferred their shares in lots of ten, twenty, thirty, fifty, one hundred, 
 two hundred, three hundred, and five hundred shares, which, being 
 endorsed, passed from hand to hand by delivery only. Proxies for 
 voting were taken in all cases from these employee-shareholders , which as 
 the stock remained on the companies^ books in their ?ia?nes have enabled 
 the sellers ever since to elect the directors and control the management of 
 the company. Dividends paid under a former arrangement ceased 
 some two years since, and after a period of waiting, the English- 
 men became dissatisfied with the management, and after meetings 
 and consultations despatched to this country Sir Rivers Wilson, 
 to investigate, threaten, and get what he could for them from the 
 directors of the company. Sir Rivers came to California, interviewed 
 the officers of the company, made his examinations, etc., and was re- 
 ported in the papers after his return to the East as having arrived at a 
 compromise with Mr. Huntington, the President of the Southern Pacific 
 Company After this settlement he was reported in the press as pro- 
 ceeding to Washington and there contributing his effort in favor of the 
 refunding bill of last session. On his return to England, the results 
 of his mission was communicated to his constituents, with the recom- 
 mendation that they transfer their shares to their own names, and 
 take the control of their own property. The substance of his negotia- 
 tion soon became known on the London stock exchange, where the 
 shares were dealt in, and the London " Economist," a financial journal 
 of high standing, noticed the matter as one of public interest, in its' 
 issue of March 23rd, 1895, in the following terms: 
 
[ 12 ] 
 
 From the " Economist^^ {London), March 23d, 1895, page 385. 
 The Position of the Central Pacific. — Some slight compensation it 
 *^ appears Mr. C. P. Huntington is willing to make to the Central 
 *^ Pacific shareholders, since he has stated through Sir Rivers Wilson 
 *' that he will undertake to pay one per cent, per annum in the shape 
 " of dividends until ' satisfactory legislation has been obtained for the 
 ** adjustment of the company's debt to the government,' after which 
 " rather vague date, two per cent, per annum is to be paid for the 
 " period of two years, during which the shareholders will have time to 
 " review their position, and to consider the advisability of endeavoring 
 " to effect an arrangement or a more permanent and more profitable 
 **' character. Sir Rivers Wilson takes the same view of the position of 
 ** the company as that of the Economist, and indeed that of most of those 
 " who have considered the facts. The Central Pacific is at present in 
 " the grasp of the Southern Pacific, which is virtually Mr. Huntington 
 *' in what may be termed a corporate form; it would have remained a 
 *' profitable undertaking if the present lessees had not worked its ruin. 
 *' In the future probably it can be best worked in connection with the 
 *' Southern Pacific, provided equitable terms can be arranged; and 
 *' finally as there is nothing really to fear in the theoretical liability 
 " on the shares, holders should at once without delay, register, so as to 
 " make their voting power efficient. If that be done, and if terms can 
 " be made with the government, English investors may ultimately 
 " suffer less loss than once appeared probable. They will however, 
 " have to be very careful in approaching Congress. They must re- 
 " member that they have no claim to anything save that which is 
 *' given by the strict letter of the law. If they have been swindled by 
 " the 'bosses' in control of the Company, which is often alleged, not 
 ^' only have many others suffered in the same way, but few have been 
 *' guilty of so much contributory negligence. It has also to be remem- 
 ^' qered that if the shareholders have not fared well, the United States 
 " government made a bad bargain over the subsidy which it granted 
 " to the Central and Union Pacific Companies. And, of course, it is 
 *' scarcely necessary to assert that the fact of the credit of the United 
 *' States having so greatly improved is no reason whatever why one of 
 *' its debtors whose credit has not improved, to put it mildly, should 
 *' get free from the obligation. As a matter of fact, the American 
 " government, does not. we think, want to foreclose, for simply as a 
 " question of expediency, that would be unadvisable, and therefore if 
 ^' the Company sues, as it is bound to do in forma pauperis. Congress 
 " will probably come to some fair arrangement despite the apparently 
 *^ hostile position which it has recently assumed." 
 
 Four weeks after the publication of this article, Mr. Huntington re- 
 plied to it under his own signature, as follows: 
 
 Mr. Huntington's Reply. 
 
 From the ''Economist'' of April 20th, 1895, page 519. 
 *' Mr. Huntington and the Central Pacific Railroad. — To the 
 *' Editor of the Economist; Sir: — Some one has sent me a clipping 
 " from your issue of March 23d. The Economist has been sent to me 
 " occasionally for years, and I have heretofore considered it one of the 
 " best financial papers published in England. That being so I do not 
 ** think its editor would knowingly do any individual or corporation 
 " wrong. 
 
BANCROFT LIBRARY 
 SUTi^O. JUNE (939 
 
 [ 13 ] 
 
 " I was the principal factor in building the Central Pacific road; 
 " that is I organized the company, and sold all the securities, I believe 
 " I intended to deal fairly with all people having dealings with the 
 '' company, and I believe I have done so. 
 
 " The Government, as you know, granted aid to two other lines — 
 " the Northern Pacific and Atlantic and Pacific (Atchison Topeka and 
 " Santa Fe) — which not only divided the tonnage, but cut down the 
 ^' rates; and later other roads were built, so that there are now sub- 
 " stantially, seven roads crossing the continent, when one double 
 '^ track railroad could do all the business that is being done, and 
 '' much more, without any particular inconvenience. 
 
 '' If any body has] any charge to make of any particular thing that 
 " I have done that was unfair, I would like to have him tell me what 
 " it is. No one up to this time has told me, or intimated that there 
 " was any particular charge, but in a general way, some of the Cali- 
 " fornia newspapers and some of the discharged employees have been 
 " wildly throwing words into the air to the effect that something had 
 " been done somewhere or at some time, but they do not state where or 
 " how. 
 
 '' The Central Pacific should have cost twice as much to build as any 
 '' other road did, as the physical obstructions to overcome were much 
 " greater, and all the cost of construction, for grading, timber work, 
 '' such as the bridges, ties, etc. — in fact, everything that was furnished 
 " in the building of the road, excepting rails, fastenings and rolling 
 " stock, was paid for in gold in the sixties, when gold was at a high 
 " premium. The coal we had to use as fuel, cost us for many years 
 " an average of over eight dollars a ton, which is immensly more than 
 " it cost the other aided roads, and still the Northern Pacific is in the 
 '^ hands of a receiver, I believe for the second time, the Atchison 
 " Topeka and Santa Fe (Atlantic and Pacific), is in the hands of re- 
 " ceivers for the second time, and the Texas Pacific, I think, has been 
 ^' in the hands of the receiver three times; whilst the Central and 
 " Southern, I believe have paid all their debts, and I have no doubt 
 " will be able to do so in the future, with the exception of the debt 
 " owing to the Government, upon which it is hoped Congress will grant 
 " an extension at a low rate of interest, such as the companies can 
 " meet and still pay something to the shareholders. 
 " I am very truly yours, 
 
 '^ C. P. Huntington. 
 
 " New York, April 3rd, 1895." 
 
 Mr. Huntington, it will be seen, does not deny the correctness of the 
 Economist's statement of the agreement, but pleads in confession and 
 avoidance, that he was the chief factor in building the road and sold 
 all its securities, and that he has not put it in the hands of a receiver, 
 he adds that he has not been informed of any specific charges of mis- 
 conduct against himself. This defense, so far as it goes, is partly 
 true. Mr. Huntington has not put the road into the hands of a re- 
 ceiver, probably because he preferred to receive himself. But he 
 does, by his eloquent silence, distinctly confess that to pacify the 
 English stockholders, represented by Sir Rivers Wilson, he agreed 
 with that gentleman that they should be paid in the shape of divi- 
 dends on their stock one per cent, per annum until satisfactory legis- 
 lation has been obtained for the adjustment of the company's debt to 
 the government, "after which two per cent, per annum should be paid 
 
[ 14] 
 
 for two years more," to permit the shareholders to review their posi- 
 tion and consider the advisability of endeavoring to effect an arrange- 
 ment of a more permanent and profitable character. These state- 
 ments can leave no doubt of the agreement with Sir Rivers Wilson, but 
 they are at the moment of writing confirmed, if confirmation were 
 needed, by an interview with Col. C. F. Crocker, Vice-President of the 
 Southern Pacific Company, published in the San Francisco "Chron- 
 icle" of December 2nd, 1896, wherein he says: "The Central Pacific 
 is not on velvet, but it is not in the depths of despair into which the 
 Northern Pacific has fallen, and the stockholders have been receiving a 
 small dividend every year^ The payment of this secret dividend is 
 then established. 
 
 Amount of this Largess— By Whom Paid, and Why— Falsifying 
 Annual Reports to Conceal It. 
 
 To pay a dividend of one per cent, on the stock of the Central Pa- 
 cific Company requires $672,000 dollars, an amount too large to be 
 overlooked by a slip in book-keeping, or to be easily concealed under 
 some general head. And the question whence comes the money 
 wherewith they are paid is not without importance; for these great 
 railroad companies, whether we regard them as quasi-public corpora- 
 tions, or as organized solely for private gain, are certainly exercising 
 great public franchises and trusts which affect large numbers of peo- 
 ple. They publish annual reports of their dealings and business, on 
 the truth of which millions of dollars are invested, frequently the 
 funds of unprotected and helpless people, and even legislation is pre- 
 dicated. The publication of falsehood or the suppression of truth in 
 such reports is, therefore, an offence against public morals of the 
 gravest sort, which not even the most devoted partisan would venture 
 to defend, or propose to condone. We have searched the annual reports 
 of the Southern Pacific Company and of the Central, both those made 
 under oath and laid before the State Railroad Commissioners, and 
 those printed by themselves for public information, without being 
 able to find one word on these dividends or any allusion to them; the 
 inference seems inevitable of an intent to conceal them from Congress 
 and the public. Surely the Congress of the United States will exact 
 from applicants for its bounty, at least the homage of respect for 
 truth, in the representations on which it is called on to act ! The 
 payment or amount of these dividends is not of so much importance 
 as the duplicity and falsehood of the managers w^hich it reveals. And 
 the question comes right home to Mr. Huntington, personally, for the 
 bargain was made with, and the promises made by him, and the reports 
 from which it is suppressed bear his signature, and are distributed by 
 himself and with his sanction. Failing to disclose the truth in a 
 matter so material, their statements and those of their authors must 
 be justly discredited in everything. 
 
 Denied authoritative information as to the motives for, or the source 
 of this extraordinary dividend, which was paid to the stockholders 
 without being earned by the company, declared by the board of 
 directors or shown on the books of account, we are driven to conjec- 
 ture; and the suggestion arises that they may be paid by one or more 
 of the guilty directors or other persons interested in placating the dis- 
 satisfied stockholders and passing the refunding bill. This conjecture 
 is not without probability, and if accepted, public opinion will not be 
 apt to hesitate long as to the name of the distributor of such lavish 
 
[ 15 ] 
 
 largess or in conjecturing its motive. A settlement made with the 
 United States, embodied in an Act of Congress, which at the same 
 time condones so many and juch monstrous frauds, ensures his South- 
 ern Pacific road for eighty-eight years to come against the competi- 
 tion of the Central Pacific road, and gives to his dishonest ninety-nine 
 years lease the sanction of the law of the land, may well be worth double 
 or treble the sum required to pay these dividends — say $4,032,000. 
 
 Another probable conjecture is that the arrangement is designed to 
 permit the English stockholders to sell out their holdings and shift 
 the loss on other victims, which perhaps two years' time with dividends 
 meantime at two per cent, per annum, may enable them to do. Such 
 a course may seem to them preferable to litigation with an adversary 
 whom they have been led to believe the only man capable of handling 
 the U. S. Congress, and who, if this measure passes, will readily be 
 credited with like power to " handle" the President, and thus capable 
 of calling down on them the thunders of Olympian Jove in the shape 
 of an executive option to call in the debt the instant if they dare to 
 attack the lease which has been their ruin. 
 
 In any case for Congress, in face of the revelations here made, to pass 
 a refunding act based as all such propositions are, on the supposed 
 inability of the company to pay its debt — without a previous clear 
 explanation and understanding of this transaction, whether it repre- 
 sents dividends or hush-money, would be to put itself in the position 
 of appearing as either the dupe of designing men or their instrument 
 in deceiving others. Neither position very desirable, or consistent with 
 its own honor and dignity. 
 
 Other Assets of the Central Pacific Company. 
 
 There are other assets of the Central Pacific Company which, though 
 not of such magnitude as those mentioned, should not be lost sight of. 
 Among these there is a mortgage made April, 1889, for $16,000,000 
 under which the latest report shows $12,283,000 bonds issued. This 
 mortgage covers a variety of scattered properties, the most important 
 being the land in Mission Bay, San Francisco (30 acres), granted by 
 the Legislature in 1868, for terminal purposes, and since enlarged by 
 the closing of streets to nearly fifty. The variety of properties 
 included in the mortgage suggests the intent to cover everything 
 the company had left not specifically and safely covered before. 
 These bonds have never made their appearance on the stock-exchange 
 nor been dealt in by the public. The fact that an action was com- 
 menced by the Attorney General to vacate the patent for the Mission 
 Bay lands, soon after its issue, which has been pending ever since, 
 would be quite sufficient to prevent their sale to real investors, and 
 hence it is perfectly safe to assume that these $12,283,000 bonds are in 
 the hands of the old directors, under the name of some one of their 
 numerous companies. There is no probability that they could pass 
 an investigation as to their origin or consideration (issued in all prob- 
 ability to themselves under the name of a construction company, in 
 their usual way), and investigation should be made, that the terminal 
 grounds may be preserved to the company for the uses designed, not 
 converted to private uses for warehouse property on which it will 
 hereafter have to pay rent to its former directors and their heirs and 
 assigns forever. 
 
 Another item of much less amount than that last mentioned 
 which might be profitably investigated, rather perhaps as illustra- 
 
[ 1« ] 
 
 tive of the methods of these people and the character of these annual 
 reports on the presumption of the accuracy of which, Congress is asked 
 to act, relates to one of the sinking funds of the Central Pacific Com- 
 pany, and the story as derived from the reports themselves is about as 
 follows: 
 
 When Messrs. Huntington and associates commenced the railroad 
 business, being somewhat inexperienced, they appointed trustees to 
 manage their sinking funds, and for the Central Pacific Land-grant 
 mortgage of 1870, two gentlemen were named of known responsibility 
 and wealth. Probably requiring some little time to attend to their 
 own affairs, and as the accounts of the land sales, bonds, redemptions, 
 etc., were kept in the railroad company's office, and everything ran 
 smoothly, they appear to have imitated the great Grecian poet, and 
 to have nodded — just for a moment. During this moment of somno- 
 lence some one, more vigilant than they, got away with no less than 
 $2,500,000 of the money belonging to the sinking fund! The trustees 
 of course awoke in time, and there was probably a disturbance, or at 
 least an edaircisement. Of these particulars we are not informed, but 
 the published reports disclose that a settlement was reached in pur- 
 suance of which the Central Pacific Company gave to the trustees of 
 the Land-grant mortgage its five notes for five hundred thousand 
 each, payable in one, two, three, four, and five years, with interest at 
 four per cent, per annum, to supply the deficit. (Vid. Rep. of 1891, 
 p. 100 ) These notes were sacredly " pledged the redemption of the 
 bonds," as the money they represent was pledged before it was eloign- 
 ed; and as the bonds drew six per cent, interest, and the notes but 
 four, the equitable consideration extended by the creditors to the 
 gentlemen who had taken their money, and the profit made by the 
 latter by the transaction, may be readily calculated. What is unex- 
 plained about the settlement is that the notes were executed by 
 the Central Pacific Company, yet the next page informs us (and sub- 
 sequent reports confirm the statement) that the interest on these notes 
 is paid by the Southern Pacific Company! If the Central Pacific 
 Company did not get the two and a half millions of principal taken, 
 why did that company give its notes for the amount ? And if it did 
 get the principal, why does the Southern Pacific (which is not strictly 
 a benevolent institution) pay the interest ? These are queries which 
 probably none but Mr. Huntington himself can answer. The facts 
 indicate crookedness. 
 
 Other objections to the proposed extension of time which time for- 
 bids us to dwell on, are: 
 
 V. The fact that such course necessarily involves a prolongation 
 of the life of the Central Pacific Railroad Company, which is a Cali- 
 fornia corporation for many years beyond the legal term of its existence, 
 without reasonable necessity for such action, and distinctly against 
 the will and protest of the people of the State, from which it derives 
 its life and being. We are not disputing the power of Congress for 
 federal purposes to do such an act if in its judgment necessary, but 
 without necessity it should not be done. Independent of the over- 
 riding of the authority of the State government over its own creature, 
 such an act will create a body politic without any defined limitations 
 on its corporate powers, or any law governing its methods of proceeding, 
 its rights with regard to its shareholders or their liabilities, and the 
 charter of which could not be forfeited by any court. State or Federal, 
 
BANCROFT LIBRARY 
 SUTJJO- JUN£ i939 
 
 [ 17] 
 
 no matter how gross its offences. No State court could interfere be- 
 cause the concern would be a Federal corporation; and no Federal 
 court could act because the United States have no statute on the subject. 
 
 VI. This Central Pacific Company under its past and present man- 
 agement has come to be the most odious and detested corporation that 
 has probably ever been known, and this " for reasons, capital, confessed 
 and proved." It has invented and put in force more, and more differ- 
 ent modes of vexations in transportation, than probably any other in 
 the world, and we have always been the sufferers. At one time goods 
 ordered from Eastern points for the interior of California or Nevada, 
 on the lino of the road, had to be hauled to San Francisco and back 
 to destination, to swell the cost. By special favor and on payment of 
 the whole freight both ways, the interior merchant might obtain per- 
 mission to have his goods delivered as they passed his door. At an- 
 other time they imposed a protective duty of a cent a pound on refined 
 sugars coming here from the east, and, as believed, for a consideration 
 of $100,000 paid by parties interested. The charge was publicly 
 made* at the time by responsible parties and never denied. Silence 
 under such circumstances amounted to an admission. At another they 
 introduced here a system of special contracts to be enforced by boy- 
 cotting,! which if long continued would infallibly have riven our com- 
 munity into two hostile factions. This infamous and doubtless illegal 
 special contract system was broken up by the construction of competing 
 roads, but by their system of leases they undoubtedly aim to revive it. 
 By their omnibus lease and the lease of the Central Pacific road, they 
 have united practically all the roads in the State under the manage- 
 ment of a foreign corporation which in turn is under the control of a 
 single individual, whose greed has no limits and who avows that he 
 has no other or higher standard of right than his own opinion. He 
 has never made public his general code of morals, if he has any, but in 
 letters to his former associate he exhibits his ideas on procuring con- 
 gressional legislation, to be in brief, to bribe those who will accept and 
 vilify those who will not. 
 
 By this combination they, for years, simultaneously withheld pay- 
 ment of railroad taxes, unhinging the machinery of the State Govern- 
 ment and throwing the public service out of gear. Public schools 
 closed, supervisors, legislators and executive officers bribed, injunctions 
 defied, and all this under the pretence of ascertaining the constitution- 
 ality of an enactment procured by themselves and passed for their 
 benefit. When however the opportunity of a decision piesented itself 
 fleeing from the ordeal. A history of all these offences would unduly 
 expand this memorial, and they must be passed over with mere men- 
 tion. But the tax litigation was so grievous an injustice to the State, 
 and the dishonorable and collusive manner in which it was managed 
 are so susceptible of, record proof that we give it briefly, as follows: 
 
 Thirteen Years' Litigation over a Scheme of Taxation Enacted at 
 
 their Own Suggestion and for their Benefit— Collusive 
 
 Suit— Impositions Practiced on U. S. Courts — Etc. 
 
 In 1879 a provision was incorporated in our State constitution, except- 
 ing railroad mortgage bonds from the general rule for taxing moneys 
 invested on mortgage. It was done at the instance of the railroad 
 
 * See The Nation (N. Y.), December sTTsSl, pp. 452, 453. ^ 
 
 t For details, see The Nation (N. Y.), August 11, 1884, pp. 113, 114. 
 See this pamphlet, pp. 25-29. 
 
[ 18 ] 
 
 people themselves, to enable them to sell theii Southern Pacific bonds, 
 which, if subject to local taxation in California, would obviously have 
 been impossible. The measure was introduced in the convention by 
 Mr. Henry Edgerton, one of their standing counsel; stated by him to 
 be satisfactory to his clients, and passed without amendment, nem. con. 
 The taxes of 1880 having been levied under it, the companies refused 
 to pay, and when suits were brought they removed them to the Federal 
 court, claiming that the exception thus enacted at their own instance 
 was in conflict with the 14th amendment of the United States Consti- 
 tution. They affected a wish to waive all other controversy and try this 
 constitutional question only. To secure control of the litigation, they 
 procured a collusive suit to be brought by the Supervisors of San Mateo 
 County (to whom they loaned the amount of the county taxes, on 
 terms evidently corrupt on their face) in which the facts were admitted 
 by demurrer, in a shape presenting apparently a case of hardship so 
 great, as to lead the Circuit Court of the United States to decide in 
 their favor. The false coloring given to the facts was then exposed in 
 the press, and attracted the notice of the Judges of the Supreme Court, 
 who when the case came before tham, declined to decide it in the 
 shape presented, and desired the facts developed by a trial and proofs. 
 Several other cases were then tried contradictorily and appealed, all of 
 which were determined on other grounds, petty quibbles of a trifling 
 character, and without touching the great Constitutional question 
 which had been made the pretext for their removal from the speedier 
 adjudication of the State Court. Finally years having gone by; and 
 the Supreme Court having in the course of this experience become ac- 
 quainted with the whole matter, intimated its readiness to decide the 
 San Mateo County case, if the parties would resubmit it. But as may 
 be seen from the opinions of the court below and the argument of Mr. 
 Roscoe Conkling, on the appeal, their main reliance in the support of 
 the constitutional objection was the extreme hardship of the case, as 
 presented on demurrer, and that mask having been torn off by the de- 
 velopment of the actual facts, a decision by the Supreme Court became 
 the last thing the railroad people wanted. The adversary which had 
 been so obliging as to commence and prosecute the suit with the money 
 in its own treasury, and lose it, was equally obliging and compliant in 
 the matter of the appeal; the San Mateo supervisors promptly tele- 
 graphed to Washington, a dismissal of the writ of error, which the 
 Supreme Court allowed. Then the State itself brought a suit wherein 
 this Constitutional question was presented alone. It also went to the 
 U. S. Supreme Court on appeal; but again they frustrated a decision 
 by paying the tax and penalties in full, just in time to oust the court 
 of jurisdiction, by destroying the subject of controversy. There is no 
 honesty or good faith in them. The controversy lasted in various 
 forms from 1880 to 1893, when the Legislature after an appeal by 
 joint resolution to the Supreme Court to advance the pending case, 
 finally from mere weariness and despairing of a decision on the merits 
 passed an act for re-assessing the roads. The railroad combination 
 was stronger than the State; they now ask Congress to strengthen 
 them still further by a congressional charter with undefined (and 
 therefore unlimited) powers and by reserving its whole policy on 
 Pacific roads for a century to come. See, 
 
 San Mateo County vs. Railroad Company, 8 Sawyer's C. C. Repts., 
 228. 
 
 San Mateo County vs. Railroad Company, 116 U. S. Rep., 136. 
 
[ 19 ] 
 
 San Bernardino County vs. Railroad Company, 118 id., 417. 
 
 Santa Clara County vs. Railroad Company, id. ib., 394. 
 
 S. P. R. R. Company vs. California, id. ib., 109. 
 
 Laws of California, 1893, pp. 290 and 618. 
 
 California vs. Railroad Company, 149 U. S. Rep., 308. 
 
 Railroad vs. California, 162 U. S. Rep., 91-167. 
 
 California vs. Railroad, 105 Cal., 576. 
 The detailed history of this episode is presented for the information 
 of any interested in an appendix hereto. 
 
 Goaded by provocations such as those here adverted to, — and they 
 are but specimen cases to which similar ones are of constant occur- 
 rence, — the people of California have long looked forward to the ex- 
 piration of the charter of the Central Pacific road, for delivery from 
 this body of iniquity, at least for their children; and on their behalf 
 we respectfully and earnestly entreat Congress not to pass any act 
 which will continue down to the coming generation any part of the 
 offense, outrage and oppression which we have endured from this 
 iniquitous combination now called the Southern Pacific Company. 
 Deprived of the management and power to continue to plunder the 
 Central Pacific road, it can hardly fail to go to pieces and relax its 
 grasp on the vitals of our State. 
 
 It may almost be said that all the known operations of the Pacific 
 railroad management in this State are saturated with fraud and dis- 
 honesty which recur at every turn of their procedings. 
 
 Defrauding the Government and the Public by Failure to Build 
 the Road Contracted for — The Contracts Entire. 
 
 Take for example the construction of the Southern Pacific road, of 
 which we have spoken above. Its map, which preceded construction, 
 showed a road from San Francisco southwards through the Santa 
 Clara Valley, to a point where it was to commence the ascent of the 
 pass over the Coast range after crossing, which chain of mountains it 
 was to extend through the upper San Joaquin Valley, and so on to 
 the State line on the Colorado River. To aid in the building of this 
 road, they obtained a land grant of over ten million acres. The road 
 was designed by congress to be a competing line to the Mississippi 
 river and to connect the two richest valleys of the Pacific Coast, and 
 its finest Sea port, by an independent and continuous line of rail with 
 the waters of the gulf of Mexico. No object less important could jus- 
 tify the extravagant bounty of Congress, and evidently from the 
 n ture of the object and the means adopted, the contract was an en- 
 ti^e one. The whole road mentioned was to be built for the whole 
 subsidy. Of the road to be furnished about a hundred to a hundred 
 and fifty miles were devoted to crossing the pass in the coast range 
 and thus connecting the two valleys and five hundred or so ran 
 through them, over a soil as rich as possible and as level as the beds 
 of the rivers that drained them. It was not for building through this 
 valley country that Congress offered its bounty; that constituted no 
 part of the inducement, for these very parties had already built a 
 hundred and fifty miles of road up the San Joaquin, for the profit 
 derived from building it at $26,000 a mile and bonding it for $40,000 
 and they were going further. The consideration for the land grant 
 was the construction of the road over the mountain pass which was 
 highly important from military as well as commercial considerations. 
 
[ 20 ] - 
 
 For this the bounty was offered and the difficult character of the work 
 was its justification. What did these honest gentlemen do? They 
 built the valley parts of the road on both sides of the pass, and drew 
 and alienated the rich land fronting on it, leaving the connecting road 
 from Tres Pinos to Alcalde (some 100 miles) unbuilt and it so remains 
 to day. And this omission was no accident or afterthought, but in- 
 tended from the first; Charles Crocker writes to Colton his partner, 
 under date of February 12th, 1875 (Colton Transcript, p. 1621), and 
 after referring to a suggestion of Colton's to "build 20 or 40 miles on 
 the east side of the San Benito pass, and then go to Congress for a 
 change of line," says: " We intend to build from Goshen to Los 
 " Gatos close up to and into the eastern base of the mountain to a coal 
 " mine there; and we have never intended anything else and no 
 *' portion of the old line will remain unbuilt, except that through the 
 " mountains, about 50 miles," etc., (it is in fact 100 miles.) * * * * 
 " I had supposed that that you fully understood this; Huntington 
 does understand it^ 
 
 This being so, on their own confession made as early as 1875, what 
 sort of faith were they practising when they solicited and accepted from 
 Congress a land grant of over ten million acres of rich valley land as 
 the price of doing this work, which they confess they never intended to 
 do? Is this the sort of good faith Mr. Huntington is using in treating 
 with Congress to-day ? Are his present representations and promises 
 to be measured by it ? It certainly appears to satisfy the standard of 
 morals he proposes for his conduct in his sworn examination before 
 the Senate committee shown in Senator Morgan's report, page 173. 
 
 Out of one wickedness proverbially springs another, and " bad begun 
 makes strong itself by ill." This truth is illustrated in the present 
 instance by an imposition on the financial public as wicked as that 
 practiced on the Government. In building the Southern Pacific road 
 mortgage preceded construction, as already shown, and the mortgage 
 of 1875 covered as we have said the whole road in this State, existing 
 and contemplated, from San Francisco to the Colorado river. 
 
 The route being afterwards opened for through traffic, the holders of 
 Southern Pacific sixes of 1875 placidly repose in the belief that their 
 bonds are a lien on the continuous traveled road, the "through line." 
 This is a mere dream; their mortgage is on two distinct roads: the one 
 from San Francisco to San Miguel, the other from Alcalde to Fort 
 Yuma, and these are separated from one another by the mountain 
 chain above mentioned, the pass over which rises to 1,934 feet above 
 tide, to build over which will cost not less than six millions ! Without 
 such connection the two separate roads are of but trifling value com- 
 pared to the amount of the mortgage bonds, and the latter are a fraud 
 on the public. There are about thirty-two millions of them outstanding ! 
 
 In nearly similar plight are the bonds of the same concern last 
 issued, called "First consolidated fives of 1893." That mortgage is a first 
 lien on fragmentary roads leading practically from noplace to no place, 
 and useless without other roads which are otherwise mortgaged. 
 These are practical examples of Mr. Huntington's moral standard. 
 
 Again; take the matter of terminals, one of extreme importance to 
 every railroad, and specially so to one of considerable length. The 
 State, twenty-eight years ago (1868) granted sixty acres in the city of 
 San Francisco, to the two Pacific roads, for terminal purposes; and 
 by the closing of streets this area has since been enlarged to a hundred 
 acres. The only use to which in these twenty-eight years they have 
 
 *"• ..o. JUNE 1939 
 
[21 1 
 
 put these terminal grounds, is to mortgage them for $16,000,000. The 
 real terminus in San Francisco is and has been for twenty years past, 
 at the corner of Third and Townsend streets, on a block of ground 
 825 X 550 feet, belonging to the Southern Pacific Company {of Ken- 
 tucky). The same concern owns the adjoining blocks used for the 
 receipt and delivery of freight. Not a square foot is owned by either 
 of the railroad companies that use it. No rent is found charged for 
 these premises, in their reports or anything to indicate that they do 
 not own the land, a fact the knowledge of which might alarm bond 
 holders. But whenever the mortgagees foreclose and make title to the 
 railroad entering San Francisco, the purchasers will succeed only to 
 the right of way and track, along the public streets as far as the corner 
 of Fourth and Townsend streets, where a gate on the line of the South- 
 ern Pacific Company's property will shut them out of the terminal 
 grounds and compel them to discharge their freight and passengers on 
 the public street, and then back the train a mile or two to the nearest 
 turn-table to enable them to reverse the locomotive. 
 
 These are specimens of the way things are managed and financed 
 by this concern, and the repeated occurrence of the like has caused 
 those who know it best to doubt whether this Southern Pacific Company 
 of Kentucky has ever been party to a single honest transaction. 
 
 The Central Pacific can be Reorganized on Safe and Solvent Bases, 
 by Calling in the Snms Due it from Solvent Debtors. 
 
 The exigencies of space forbid further enlargement on this branch 
 of the subject. Enough has been said to show the need of a thorough 
 investigation of the relations of the Central Pacific Company to the 
 parties who have so long held it in their grasp, and the enforcement 
 of its just claims against them. This done it will be found that so 
 far from being insolvent, the company can easily be reorganized as a 
 great trunk line to the Pacific Coast, competing fairly with all others 
 and on the basis of solvency and honest management, manifestly to 
 the advantage of the government as a creditor and of its own stock- 
 holders. In any event the property, if it has to be sold, can be then 
 offered with knowledge of what it consists of and what its earning 
 capacity is — things at present absolutely unknown to any one but the 
 Southern Pacific combination, who have for so many years past 
 managed its affairs to its own destruction. It must not be forgotten 
 to extend the payment or refund this debt as proposed is practically 
 to sell the road to its present management on a credit of a hundred 
 years, taking their promise to pay in small installments. Congress 
 does not, nor does any of its members, or any executive ofiicer of the 
 United States, or indeed anybody, know what property you are sell- 
 ing. No inventory of it exists; and this igaorance shuts off all 
 competitive bidding. It is now fairly established and undeniable that 
 for numerous important purposes the Central route has decided advan- 
 tages for through business over all others. All the products of this 
 coast destined for Eastern points, valuable enough to pay for trans- 
 portation by rail, give it the preference for climatic reasons. For 
 passenger traffic which is 40 per cent, of the whole business,* it has 
 
 * The Central Pacific road used to furnish statements of details of through and 
 local business, and of the amounts derived from freight, express, passengers and 
 baggage, but since the year 1884 has withheld such information. From the printed 
 report of December 31st, 1884, we learn that 
 
[ 22 ] 
 
 the call over all the others — the Southern (Sunset) line is, in fact^ 
 disconthiued during summer. It does not admit of doubt that each 
 of the great trunk lines would be prompt to compete for the Central 
 Pacific property, if offered at auction, with inventory. Without such 
 it would not probably elicit any reasonable bids, for however large or 
 valuable the property, no purchaser would be likely to count on re- 
 ceiving from the tenants, delivery of anything beyond the road itself, 
 with a wretched skeleton equipment incapable of doing the business. 
 
 The stockholders of the road, who appear to have at last awakened 
 to the necessity of enquiry into the wrongs perpetrated by their agents 
 the directors, are organizing in defence of their property, and if they 
 have an opportunity, will scarcely permit the trunk lines to be the 
 only competitors at such sale. As indicated by their published pro- 
 ceedings, they are making intelligent efforts to help themselves and 
 resume control of their property; they will probably effect a reorgani- 
 zation of the company. The people of California, so far from offering 
 factious opposition to a reorganization which shall preserve the central 
 road as an independent and competing line of transportation, man- 
 aged by its actual owners, as designed by Congress, will heartily 
 welcome it. 
 
 We believe that all these desired ends can be obtained by means of 
 a foreclosure of the Government lien on the road. For this purpose, 
 as the property lies in several different States, complete jurisdiction 
 should be conferred on some one of the Courts of the United States, and 
 the ordinary powers of the Court enlarged so as to enable it to ascer- 
 tain and redress, in the foreclosure suit, all frauds practised on the 
 company or its shareholders by the management or by their tools or 
 confederates, and the application of any moneys recovered from such 
 parties to the sinking fund in the United States Treasury. We there- 
 fore respectfully pray Congress to instruct its appropriate committees 
 to prepare and report a bill to that effect. 
 
 We here resume briefly the grounds of our opposition to the pending 
 measure to refund the debt of the Central Pacific Railroad Company 
 to the United States (Senate Bill No. 2894, H. of R. Bill No. 8189.) 
 
 1. The recognition and confirmation of the ninety-nine-year lease 
 to the Southern Pacific Company, reverses the settled policy of the 
 United States, with respect to these Pacific railroads, as established by 
 previous acts of Congress, and promoted by grants of the public do- 
 main of many million acres. It substitutes consolidation and monop- 
 oly for competition and freedom of trade; it gives over the Central 
 road to the management of its great competitor in business, depriving 
 the people of the West of the advantages of competition in transpor- 
 tation for which they have paid these people liberally, and Congress 
 has subsidized them munificently. 
 
 The proposal is quite new; has never been publicly discussed, advo- 
 
 the total earnings of the year were $22, 166, 106.00 
 
 of which 74 per cent, was from local business $16,216,902.00 
 
 and 26 per cent, from through business or 5,949,204.00 
 
 $22,166,106.00 
 Of the through earnings — 
 
 The receipts from passengers and baggage were $2,383,066.00 or 40 per cent. 
 
 and from freight and express 3,566,096.00 or 60 per cent. 
 
 The local business shows the same proportions between freight and passengers. 
 
[23] 
 
 cated or even mentioned. It is furtively introduced in the 9th and 
 19th sections of the pending bill under the disguise of an advantage 
 to the United States! In fact, it can serve no purpose but to confirm 
 the grasp of the Southern Pacific Company on the Central road, and 
 enable it by routing freight to starve the Union Pacific into obedience 
 to its commands. 
 
 2. The proposed guaranty of the Southern Pacific Company is 
 worthless; a mere illusion. That company owns no property worth 
 speaking of which is not already mortgaged for vastly beyond its cost 
 or value. 
 
 The Southern Pacific Company is a fraudulent and predacious con- 
 cern, got up to perpetuate the control of dishonest directors of the 
 Central Pacific Railroad Company over the road after they had sold 
 their interest in it, and of absorbing the profits of that and other com- 
 panies by means of fraudulent leases. So plain was this at its origin 
 that its original charter from the State of Kentucky forbid it to build or 
 operate railroads within that conunonwealth. 
 
 3. The relief asked for the Central Pacific road is based on false 
 suggestions and concealment of material facts. So far from being un- 
 able to provide for the payment of its debt to the government, it i& 
 possessed of assets of enormous value — collectable claims against its 
 former directors for moneys and credits misappropriated by them^ 
 amounting to many millions. These should be called in and applied 
 to the sinking fund. Asking indulgence here on the ground of pov- 
 erty, its stockholders are receiving dividends on their shares to-day, 
 and have the promise of their lessee and advocate that they shall be 
 doubled as soon as the bill passes. The secrecy of this dividend, the 
 fact that it has not been earned by the road, declared by the directors, 
 if such be the facts, and that it is not shown on the books of the com- 
 pany, so far from redeeming it from the imputation of fraud, renders 
 it more conspicuously objectionable. If this be the case, it is evi- 
 dently "hush money" paid by the guilty parties to secure Congres- 
 sional confirmation of the ninety-nine-year lease; and the sum agreed 
 to be paid for it* (which is essentially a bribe to silence opposition) 
 bespeaks the nefariousness of the transaction and the value attached 
 to a condonation of it. 
 
 4. By passing this bill. Congress will prolong the life of this rail- 
 road company for some seventy years beyond the limit fixed for sit 
 existence by the law of the State that created it. To do this without the 
 consent of against the unanimous protest of the State, would be not 
 only an act of gross discourtesy to the State of California, but a grave 
 injury and outrage to her people, who have for the past twenty-eight 
 years suffered at the hands of these managers outrage and wrong past 
 all endurance, rendering it justly odious and detested of all men. 
 
 5. The management of the road has been continuous from the 
 beginning; they have shown themselves by their published corres- 
 pondence among themselves to be corruptionists of the worst kind. 
 
 6. They have broken faith with Congress, by soliciting and accept- 
 ing a land grant as the consideration for building the whole S. P. 
 road a hundred or more miles of which was over a mountain pass. They 
 
 * One per cent. 101* 1895 (paid) $ 672,000 
 
 Same for 1896 (paid) 672,000 
 
 Two per cent, each for 1897 and 1898 2,688,000 
 
 $4,032,000 
 
1 24 ] 
 
 have taken and appropriated the valuable part of the grant, and left 
 the difficult mountain part of the road unbuilt. Their correspondence 
 shows the breach of faith was intended from the beginning. 
 
 7. They have broken faith with the public in the same way as 
 with the Government; borrowed thirty-two million dollars on the 
 undertaking to build a continuous line of rail from San Francisco to 
 the Colorado river, and left a mountain gap of a hundred miles of it 
 unbuilt, and have even renounced the building of it. 
 
 8. Similar frauds in the matter of terminals. They are unreliable. 
 
 9. Refunding the Central Pacific debt is w^holly unnecessary. The 
 company can be reorganized on the basis of solvency if Congress will 
 but authorize a receiver appointed in foreclosure to avoid all fraudu- 
 lent conveyances; get in the assets of the company and apply such as 
 are not needed for transportation purposes to the sinking fund in the 
 U. S. Treasury. 
 
 10. As seventy-five per cent, of the revenues of the Central Pacific 
 road are derived from local traffic, and from fifteen to eighteen per 
 cent, more from California products seeking a market abroad, and 
 goods brought from abroad for consumption for sale here, on all of 
 which we pay the freight, the people of California feel that all of 
 the plunder which its former directors are permitted by Congress to 
 retain will be saddled on them. There is little doubt that as much as 
 from twenty-five to thirty millions can be recovered from the sinking 
 fund from Huntington and the Crocker estate; why should they be 
 abandoned without an effort and saddled on the people of this State? 
 
 San Francisco, Cal., December 26, 1896. 
 
 On behalf of the people of California. 
 
 CHAS. ASHTON. GEO. K. FITCH, P. K. MARTIN, 
 
 JOSEPH BRITTON, J. RICHARD FREUD, A. MILLER, 
 
 W. M. BUNKER, GEO. T. GADEN, JAS. MADISON, 
 
 J. H. BARRY, ADAM GRANT, W. L. MERRY, 
 
 E. S. BARNEY, H. E. HIGHTON, G. W. MONTIETH, 
 
 J. M. BASSETT, N. C. HAWKS, MAX. POPPER, 
 
 T. V. CATOR, W. W. THOMPSON, E. A. PHELPS, 
 
 N. P. COLE, I. J. TRUMAN, TAYLOR ROGERS, 
 
 DR. FRANK CORNWALL, .7. C. JENS, G. M. REYNOLDS, 
 
 W. M. COWARD, WM. JOHNS, C. A. SUMNER, 
 
 H. Y. COWELL, J. C. JORDAN, J. E. SCOTT, 
 
 H. L. DODGE, J. LEGGETT, C. M. SHORTRIDGE, 
 
 J. T. DOYLE, OSCAR LEWIS, F. J. SULLIVAN, 
 
 HON. J. L. DAVIE, STEWART MENZIES, L, STRAUSS, 
 
 B. F. DUNHAM, C. A. MURDOCK, I. UPHAM, 
 
 L. R. ELLERT, M. McGLYNN, HON. ADOLPH SUTRO. 
 
 The Committee of Fifty appointed by the monster meeting at Metro- 
 politan Temple, December 7th, 1895. 
 
 ADOLPH SUTRO, Mayor of San Francisco, Chairman. 
 
 TAYLOR ROGERS, Secretary, 
 
 SUB-COMMITTEE ON MEMORIAL. 
 
 JOHN A. STANLEY, JAS. D. PHELAN, 
 
 THOS. F. BARRY, E. W. McKINSTRY, 
 
 JAS. M. BASSETT, TAYLOR ROGERS, 
 
 JOHN T. DOYLE, Chairman. 
 
I 25 ] 
 
 EXTRACTS FROM "THE NATION," REFERRED TO ABOYE. 
 
 {The Nation, August 11, 1881, pp. 113, 114.) 
 
 OVERLAND RAILROAD RATES. 
 
 To THE Editor of The Nation : 
 
 Sir : Two paragraphs in the Nation of July 14 (No. 837, pp. 22, 23), 
 indicate that you are but imperfectly informed as to abuses on the 
 overland railroads. As you appear willing to aid in remedying them 
 I give you some of the facts. The system of unlawful freight discrim- 
 inations alluded to has not been recently revived; it has never for a 
 moment been suspended since its formal introduction in the summer 
 of 1878, but has been constantly enlarged and extended down to the 
 present time, when it is more stringent and oppressive than ever before. 
 The modus operandi is this: By arrangement between the Central and 
 Union Pacific Railroad Companies the rates of Western-bound freights 
 are fixed by the Union, and those of Eastern-bound by the Central 
 Company. This arrangement is supposed to be nominal only; a sort 
 of legal fiction to enable each concern to refer complaining parties to a 
 " Mr. Jorkins," two thousand miles off; but that is the form of it. 
 The Union Pacific Company has a printed classification of merchan- 
 dise, and printed rates of freight for each class from New York and 
 other Eastern points to San Francisco, ranging from $6 per 100 lbs. 
 for first-class to $1.50 per 100 lbs. for Class D. These are declared to 
 be the regular rates. But the Company enters into contracts with the 
 merchants here to carry for them at special rates, much reduced from 
 these regular ones, on condition that the merchant shall import all his 
 goods by their line; not only such as are usually sent by rail or via 
 the Isthmus, but also such as have heretofore, and naturally, come by 
 sea around Cape Horn; and they make him bind himself to ship by 
 their road, and by such connecting roads as their general freight-agent 
 shall, from time to time, designate, all goods purchased by or for him, 
 or shipped by or consigned to him, by his procurement, directly or in- 
 directly, or with his knowledge and assent. The contracts declare 
 that their object is to give to the Union Pacific Company the transpor- 
 tation of all goods bought, sold, dealt in, or handled by the merchant; 
 and any act of his tending to defeat this object constitutes a breach, 
 so that he cannot even buy in open market goods imported otherwise 
 than by rail; and this rule is enforced. They also provide that these 
 special rates are for his own exclusive benefit, and he must not allow 
 the use of his nome or shipping marks by any one else. The freight 
 must all be forwarded to Omaha by such carriers as are designated by 
 the Union Pacific Railroad Company. They reserve the option (which 
 is always exercised) of way-billing the goods and collecting freights 
 according to the printed rates, agreeing to return the difference, on 
 presentation of vouchers to the Central Pacific freight-agent at San 
 Francisco, after the lapse of a reasonable time — say thirty days — for 
 transmission, verification, etc. 
 
 All our leading merchants have been forced to enter into contracts 
 of this description; the man who attempts to import his coarse goods 
 by sea, relying on the rail for such as need more rapid transportation, 
 
[26 ] 
 
 has to pay such rates on the latter that he cannot compete with his 
 neighbors. He cannot even buy his coarse goods in open market here 
 if they shall have come round the Horn, for that would defeat the 
 ^^ bought, soldi dealt in, or handled hy^^ clause. Such goods and their 
 importers are tabooed and " boycotted," and the merchant who touches 
 them without leave of the railroad company can have no freight trans- 
 ported overland except at ruinous rates; even at such he is liable to 
 casual delays, difficulties, and obstructions which, being unable to ac- 
 count for, his unregenerate nature attributes to malicious design. 
 
 The result is that ships obtain little or no freights from Eastern 
 ports here; they have to come here in ballast, or half full, to load wheat 
 for Europe, and our people are compelled to pay on their produce sent 
 abroad a freight to cover the expense of the round trip. The standing 
 forced loan exacted from our merchants, without interest, by collecting 
 and after thirty days repaying the difference between printed and con- 
 tract rates, may amount to half a million dollars; it operates oppress- 
 ively to individuals, but to the community is of minor importance. 
 But the tax levied on our exports in the form of enhanced freights to 
 Europe is a monstrous and shocking wrong. In the absence of full 
 statistics it is impossible to compute its amount, but it is probably 
 equivalent to about four dollars per ton on the exportable crop of the 
 State. San Francisco, under this nefarious system, has degenerated 
 from the rank and position of a maritime city open to the commerce 
 of the world to that of an interior town some two thousand miles west 
 of St. Louis, approachable only over deserts and mountains. 
 
 With these facts before you, which are known to every well-informed 
 man in San Francisco (except, of course, the Railroad Commissioners), 
 you can understand why the tide of prosperity which has spread over 
 the rest of the Union during the last few years has never yet reached 
 California, why all business has been depressed and real estate has 
 been steadily falling in value ever since the overland roailroad was 
 completed. Perhaps, too, you will regard with more leniency the mis- 
 taken hostility to corporations (especially railroads) which has found 
 expression in some of our recent legislation. Grant that it is unphilo- 
 sophical, ill-directed, stupid, and in some respects unjust — that was 
 not its intention; but people who have been so long and sorely 
 oppressed as ours have been by the present monopoly cannot always 
 reason cooly or justly as to the remedy, and in their anger seize any 
 weapon at hand careless whom else they may hurt, provided they can 
 inflict a blow on their chief enemy. 
 
 You suggest an appeal to the courts — at least, so I understand your 
 w^ords "proceed against with all vigor;" but who can proceed against 
 them, and how? I defy any lawyer to point out a remedy, under 
 existing laws, of the slightest value to the individual aggrieved. Our 
 Railroad Commissioners,' if so disposed, could doubtless do much on 
 behalf of the public, if not to break up, at least to expose the wrong. 
 But the eyes of justice, you know, are bandaged, and they can only 
 know what is officially communicated to them and duly proved by 
 witnesses, and their governing majority has just completed a set of 
 rules for proceedings before them well calculated to aid them in re- 
 maining ignorant of all public abuses of the kind. No individual 
 merchant dare sue, complain, or even let it be known that he is dis- 
 satisfied, lest he should be straightway put at a ruinous disadvantage 
 with his competitors in trade. His business would be broken up be- 
 fore he could get his first case set for trial, and his family might starve 
 
BANCROFT LfBRARY 
 SUTRO. JUNE 1939 
 
 [ 2^ ] 
 
 while he was awaiting the result of new trials and appeals. The way 
 of a man who enters into litigation with a company that keeps all the 
 leading law-firms under standing retainers, most of the leading jour- 
 nals by some means quieted, and which finds in legislators, railroad 
 commissioners, and auditors of railroad accounts its serviceable 
 friends, is too hard to be voluntarily pursued by any man in business. 
 
 There is but one remedy for this monster grievance which oppresses 
 the whole Pacific Coast. The power so to oppose must be absolutely 
 taken from the companies. For this purpose it is not necessary to 
 establish rates of freight by law; but the law should lay down a rule 
 for their establishment by the companies, and, once established, they 
 should be made public, and no deviation permitted. The organiza- 
 tion of the roads in all their departments should be kept under con- 
 stant and vigilant supervision by government, and any violation of 
 law by railroad officials should be punished as a public offence. 
 Actions for damages and like private remedies are wholly inefficient. 
 Congress has ample power to remedy all evils in the overland system 
 of transportation, for it is all built on Congressional legislation; and 
 its just control of that system, judiciously exercised, could not fail to 
 be attended with most beneficial results in the whole system of con- 
 necting roads. 
 
 The first thing needed is a Congressional committee of investiga- 
 tion, with ample powers and means to examine thoroughly into all 
 existing abuses in the management of the Union and Central Pacific 
 roads, and their leased and associated lines. The Nation cannot do a 
 better public service than by aiding and enforcing through its col- 
 umns the demand for such an investigation. 
 
 San Francisco, July 28, 1881. John T. Doyle. 
 
 {The Nation, December 8, 1881.) 
 
 OVERLAND RAILROAD RATES. 
 
 To THE Editor of the Nation : 
 
 Sir: Since the publication of my letter on overland railroad rates 
 in the Nation of August 11, Mr. Charles F. Adams, Jr., has called my 
 attention to the origin of the system of special freight contracts and 
 unlawful discrimination in freight charges, as set forth in the report 
 of the Government Directors of the Union Pacific Railroad for the 
 year ending June 30, 1878. I quote from page 15 of the document: 
 
 "In the month of July last, a sudden announcement was made that the tariffs on 
 through-freighting business over the Pacific roads had been altered, and that, while 
 the classification of certain articles had been changed, the rates upon others had been 
 advanced from 50 to 100 per cent. The reason of this movement, which naturally 
 excited surprise as well as indignation among those affected by it, was not at first 
 apparent. It was, however, soon learned. It was purely strategic. The company 
 did not really propose to raise its tariff rates; on the contrary, it was ready to slightly 
 reduce them; but it did propose to take full advantage of its position to secure a,s 
 much as possible of the transcontinental business. As a first step toward this, it 
 practically did away with its open tariff, by the very simple process referred to. 
 Under the open tariff, at the old rates, the larger business firms dealing between the 
 two coasts had a choice of routes— that by water and that by rail. They, in practice, 
 availed themselves of this option by sending their coarser freights, or those in regard 
 to which time in delivery was immaterial, by water, at the lower rates; while the 
 more costly wares, or those requiring immediate delivery, were forwarded overland. 
 The object of the Union Pacific was to put a stop to this practice. This they did by 
 largely raising their freights, which put an effectual stop to shipments under the 
 open tariff, while, at the same time, they offered to all the large firms which would 
 contract to make their shipments wholly by land, special rates at a reduction even 
 
[ 28] 
 
 from tbose in force before the change. It was thus a distinct step backward; for it 
 amounted to the abondonment of a published and open tariff in favor of a system of 
 private special contracts. 
 
 '• This move was, therefore, not only one of great importance, but it was open to 
 serious objections. It was made, not by a petty Jocal road, nor by a competing trunk 
 line, but by a great, subsidized, continental thoroughfare. As such, it might natur- 
 ally be inferred that it was made only after ample consideration, and with the author- 
 ity of the full board of directors. It is, however, a fact singularly illustrative of the 
 absence of that sence of public responsibility in which the policy of the Union Pacific 
 is now shaped, that this measure, which practically put in irons the transcontinental 
 business of the country, was devised by two freight agents, was never, before being 
 publicly announced, submitted for consideration even to the executive committee of 
 the board of directors, much less to the full board, and was finally put in force, to the 
 utter surprise of the public, on the verbal authority, so far as can be ascertained, of 
 the president and a single director. 
 
 "It is unnecessary to comment on such a method of corporate management. It 
 speaks for itself. Meanwhile, so far as the measure is concerned, the objections to 
 it are apparent. The through-business over the Union Pacific is mainly done by 
 large houses. This is natural enough, for such houses can, of course, do it most 
 cheaply. The measure under discussion, however, made it impossible that this busi- 
 ness should be done by any but the large houses. They have special contracts cover- 
 ing it at less than the published tariff rates. More than this, it locks up, in secrecy, 
 transactions which more than all others should be public. The special contracts may 
 be equal as between shippers, or they may not. The directors have every reason to 
 believe that they are, but they none the less are lacking in that element of publicity 
 which in such matters will always remain the one real safeguard against dis- 
 crimination." 
 
 The contracts here referred to and so justly condemned did not con- 
 tain the "boycotting" clause quoted in my former letter; they merely 
 bound the merchant to transport all his freight by rail — viz: "all 
 goods purchased by or for, and shipped or consigned to him by his 
 procurement, directly or indirectly, or with his previous knowledge or 
 consent;" he was still free to deal in goods which had reached here by 
 sea, though he could not import them so himself. Next year or the 
 year following, the "bought, sold, dealt in, or handled by" clause was 
 introduced, which "boycotted" all goods not imported by rail, so far as 
 the railroad companies' customers were concerned. They were forbid- 
 den to buy, sell, deal in, or handle them. Last January the railroad 
 companies gave another turn to the screw, and introduced a clause 
 which boycotts not only the goods, but the importers. The merchant 
 who holds a freight contract with this company is ''^firtnly bound'''* not 
 to sell or deliver goods to anyone who is in the habit of importing other- 
 wise than by rail. To show that there is no mistake about this 
 humilating exaction, I enclose on a separate slip the text of the 
 covenant, as well as that of the corresponding clause in the contracts 
 of the preceding year. They are clipped from the columns of the Gro- 
 cer and Country Merchant, a local trade journal which published them, 
 with a vigorous protest, at the time they were forced upon our merchants. 
 The space of the Nation is too valuable to insert them in extenso here; 
 but let them go into your advertising columns with a note of reference. 
 They divide the importing merchants of the whole Pacific Coast into 
 two classes — viz.: those who bind themselves to import exclusively by 
 rail and those who refuse to do so; these two classes are forbidden by the 
 railroad company to have any dealings with one another. 
 
 I make no comment on this proceeding, for I have no language 
 equal to it; but I hopu that the Nation will do so, for I have reason 
 to believe that it will not be without effect. I pass to another item of 
 railroad management. 
 
 Sugar refining was introduced here in 1855, and soon grew to be a 
 large and important industry. Even paying duty on raw stocks im- 
 ported from Manila, it was found possible to manufacture here at a 
 
[ 29 ] 
 
 profit, and compete with Eastern goods to the extent of the refined 
 sugars and syrups consumed on this coast. The price was, of course, 
 regdlated by the cost of laying down New York sugars here. The 
 Hawaiian treaty removed the duty from our raw stocks, and gave our 
 refiners a clear advantage of two and a half cents per pound over 
 their Eastern rivals. Still, Eastern crushed sugar had a slight pref- 
 erence, and could always be found in our market and at substantially 
 the same price as domestic. Last January all this suddenly changed, 
 and Eastern sugars disappeared from the market. The reason as- 
 signed was that the railroad companies had raised the freight on 
 refined sugar from one cent per pound to two — a rate which forbade 
 importations. The reader may be surprised that they should thus 
 impose a protective duty (for that is evidently what it is) so high as 
 to cut off their own revenue from the trade; but, though strong 
 protectionists, they are not such fools as that. It now comes out 
 that they received a full consideration for their action. The Chron- 
 icle of this city has brought out the fact, and it is uncontradicted, 
 that the advance in freight is the result of a bargain with the 
 principal refiner here, thinly disguised under the form of a trans- 
 portation contract,* whereby, for a consideration of 1100,000, they 
 consent to impose this prohibitory duty on Eastern sugars for the cur- 
 rent year. The Chronicle publishes statistics of sugar imported from 
 the islands, etc., to show that through the operation of the treaty the 
 Government loses about two million dollars per annum, while by the 
 action of the railroad companies the people of this coast are mulcted 
 about eight hundred thousand more in the enhanced cost of sugar. 
 Its attack is mainly on the treaty and the refiner. Papers in the op- 
 posite interest defend the action of the railroad companies by the usual 
 protectionist arguments, encouragement of home industry, etc. The 
 whole public is, however, as it seems to me, more interested in a ques- 
 tion back of this, and which I venture to think lies at the bottom of 
 the whole railroad problem — viz : IV/iaf right has any railroad company 
 to impose a protective duty on sugar or any other commodity imported from 
 one State into another ? And what is the system of classification adopt- 
 ed by all our railroad companies as the basis of freight charges, but a 
 system of protective duties under another name ? The overland com- 
 panies, by their scandalous imposition of this duty on SiUgar, have 
 brought this question squarely to the front, and incidentally suggested 
 the true remedy for such abuses. The latter, if you will permit, I 
 should like to discuss hereafter. 
 
 John T. Doyle. 
 San Francisco, November 23d, 1881. 
 
 *The transaction is alleged to be in the shape of a contract to transport for the 
 refiner 5,000,000 lbs. of sugar at two cents per lb. Of course they could not charge any- 
 dealer a less rate than that voluntarily paid by so large a customer, who pays his 
 freight and is not at all particular as to the transportation of the goods ! 
 
SUTRO. JUNE 1939