27G& i^Kh - : '.- v *wSiS B$m$3ul mBSos '.-. .-' . . ; Wmmm 8 H i; : PI : HI JsShsSI ':-..' (ANCHOfl ill,,/.::/ [Reprinted from the New Englander for July, 1878. THE PACIFIC RAILROADS AND THE GOVERNMENT. By HENRY T. BLAKE, Esq. THE PACIFIC RAILROADS AND THE GOVERNMENT. Debates in Congress on Charter and Laws relating to Pacific Rail- road Companies (Congressional Globe, 1862 to 1869). Report of Wilson Committee on the Union Pacific R. R. Co. and the Credit Mobilier, to U. S. House of Representatives (1873). Report of Poland Committee to same (1873). Debate in U. S. Senate on bills relating to Pacific Railroads (Con- gressional Record, 1877-8). Arguments before Senate Judiciary Committee on Senate Bill No. 15 (November, 1877). Judicial Decisions and Executive Documents relating to Pacific Railroads. The first movements for a Railroad to the Pacific were made as early as 1846 by M. Asa Whitney, who by lectures and writings awakened the public attention and created a general interest in the subject. His idea was that the Government should build the road, and the probable cost was estimated by him at about one hundred millions of dollars. After the dis- covery of gold in California a new interest was aroused, owing to the growing importance of that region, and especially by the enormous migration thither at a frightful cost of money and of life. In February, 1849, Senator Benton had already intro- duced a bill in Congress to provide for preliminary surveys of three different routes, the Northern, Middle, and Southern. The bill was passed and the surveys were completed by 1856. All the routes were found to be feasible, and each had its own strenuous advocates. The great cost of the undertaking, how- ever, and the extreme improbability that such a road running for nearly 2,000 miles through desolate regions of desert and mountain, would ever pay even running expenses, deterred the Government and far more private parties from the thought of 1878.] The Pacific Railroads and the Government 491 undertaking its construction ; especially after the completion of the Panama Railroad had rendered travel and transportation between the East and California comparatively convenient and expeditious. The civil war, however, developed a new and pressing neces- sity for direct and rapid overland communication between the Missouri River and the Pacific coast. Travel by sea was lia- ble to interruption, in fact was interrupted by rebel cruisers, and, in case of war then seriously threatened with foreign pow- ers, might become entirely unavailable. The situation of Cali- fornia and of Oregon, therefore, as part of our territory was pre- carious. If war should occur with England or France, they were liable to be wrested from us without possibility of preven- tion. It was even feared that the great distance and compara- tively isolated position and interests of the Pacific coast might awaken among its then unsettled and excitable population the desire of independence as a Western Empire, commanding the commerce of the Pacific and the East. Nor was this an imag- inary danger. The Californian representatives in Congress demanded a railroad as a political and commercial necessity essential to the prosperity, if not to the loyalty of that new State. In a military aspect it was an object of primary impor- tance, not merely for the safety of the Pacific coast, but in order to control the Indians of the Plains, and the Mormons, at that time the avowed enemies of the United States, and who had already waged against it a troublesome and costly war. Even in times of ordinary tranquillity, the transportation of troops and the mails was costing from seven to eight millions annually, and was extremely tedious and difficult. All these considerations weighed heavily on the public mind, and before the civil war had continued for a year, the necessity for a rail- road had become manifest to all, and speedy and energetic action was demanded on all sides to carry out the enterprise which in times of peace might have lingered long and fruit- lessly in the halls of Congress. But there were difficulties in the very inception. For the Government to build and operate a costly railroad was obvi- ously impracticable. The work must be done and the road operated by private parties, and no private parties had even sug- 492 The Pacific Railroads and the Government. [July, gested any desire or willingness to undertake it. The time too was unpropitious for inviting private attention to the enterprise. It was in 1862 when gold and prices were whirling upward every day when taxes were rapidly growing to enormous pro- portions when the future existence of the nation was trem- bling in the balance, and in case of separation the division line across the continent was uncertain. Millions of money must be risked on chances like these to construct a road of 1,500 miles in length across an unknown wilderness, overrun by hos- tile savages, destitute of stone, of timber, of water even, and of supplies of every kind. Unknown years must be expended in the mere work of construction, and it was believed that under the most favorable circumstances many more must elapse before the business of the road would pay even its running expenses. Not a very brilliant prospectus this to set before the capitalists whose aid was wanted for the work ! Nevertheless Congress determined to make the attempt, and by the act of July 1, 1862, created a corporation under the name of the Union Pacific Railway Company, to construct a railroad and telegraph to the Pacific coast. It is a striking illustration of the absence of any private con- fidence or interest in the work, that the corporation was char- tered before the corporators were selected. After the terms of the charter were settled, the names of 150 persons were sug- gested at random in Congress by States, without previous notice to such persons, or any assurance that the nominees would accept the position. The corporators were selected with reference to known capital, ability, and enterprise, and provision was made for calling the first meeting at Chicago. By the terms of the act the capital of the corporation was fixed at $100,000,000, but it might commence business when $2,000,000 were subscribed, and $200,000 paid in. To aid in the construction of the road and telegraph, a subsidy of government bonds was voted to the company, to be issued as each forty miles of road was completed, at the rate of $16,000 per mile from the Missouri River to the Rocky Mountains, $32,000 per mile from that point to the Sierra Madre, and $48,000 per mile in the most difficult part of the way beyond. Besides this a land grant was given of ten alternate sections of 1878.] The Pacific Railroads and the Government. 493 640 acres each per mile. The government bonds were, how- ever, to constitute a first mortgage on the road, and to be repaid with interest at maturity, i. e., in thirty years. The first meeting of the corporation was held in the fall of 1862. Of the one hundred and fifty corporators named a con- siderable proportion declined to act, fearing to embark in the enterprise. From those who did accept, the necessary subscrip- tion of two millions, and the payment of ten per cent, thereon, was not obtained until October, 1863, and only with great exer- tion and difficulty. The construction of the road had not then been commenced, and the prospect was far from encouraging. During 1863 the war had grown in dimensions, and the politi- cal situation was still extremely critical. Grold and prices had reached a fabulous figure. The army had drawn off labor- ers until there were not enough left to till the fields. The financial sky was troubled and gloomy, and capitalists were more unwilling than even in 1862 to make large contracts and. great expenditures with reference to distant and uncertain returns. Early in the session of 1863-4, the Special Committee on the Pacific Railroads informed the House of Eepresentatives that after full and careful inquiry during the recess, they were convinced that the necessary capital to build the road could, not be had without a greater assistance from the Government than was granted by the act of 1862, and unanimously reported a bill for that purpose, which passed with little opposition, and is now known as the act of 1864. By this act the gov- ernment bonds were made a second mortgage on the road and telegraph line, instead of a first mortgage, as before, and the corporation was authorized to issue its own first mort- gage bonds to an equal amount the land grant was also doubled, by giving twenty alternate sections 12,800 acres instead of ten per mile of road. An examination of the debates over this measure shows strongly the great anxiety of Congress to secure the building of the road and its fear that after all the enterprise would fail. Mr. Wilson (afterwards Vice-President) was u ready to vote fifty millions or one hun- dred millions out and out, 1 ' if that would ensure its construc- tion. Mr. Washburn, who opposed the grant (and others on the same side), did so on the ground that the corporation would 494 TJie Pacific Railroads and the Government. [July, pocket all the money it could get, and never complete the work. President Lincoln, in private conversations with mem- bers of Congress, declared that if it was left to him he would give the government bonds outright and a great deal more. On all sides it was agreed that the work was one of the highest importance to the country and the Government, but that its construction was doubtful, and its success as a profitable pecu- niary enterprise not to be expected. As this act of 1864, enlarging the original government grants to the roads has been again and again referred to in public debates and writings, as " unparalleled in the history of legis- lation" in the way of generous and lavish gifts to a private enterprise, it will be well to inspect it for a moment before pro- ceeding farther. If it was regarded at the time as a bonanza of wealth to the corporation, it is singular, to say the least, that for nearly three years after the passage of the act, all the prominent capitalists of the country and thousands of others were besieged in vain to take stock in the enterprise. Possi- bly this may not appear so singular after examination of the act. The grants from the Government (besides the right of way) were of two kinds ; government thirty-year bonds and alter- nate sections of land. The government bonds were well under- stood to be entirely insufficient to build the road and telegraph, as is shown by the authority given to the corporation to issue its own first mortgage bonds to an equal amount, and the obli- gation imposed upon it to subscribe and pay for stock enough to complete the work. Owing to the exceptional circumstances already referred to, the cost of the work was expected to be enormously greater than of ordinary roads in ordinary times, and nobody could predict how much. The government bonds too being currency bonds, must be sold at a great depreciation, so that the cash realized would be much less than their face, while they must be paid in thirty years, principal and interest, at their face value. As the construction of the work was expected to take from ten to twelve years (twelve years was the time allowed), there would remain after the road was in opera- tion only about twenty years to earn the sixty or seventy mil- lions, more or less, which would be needed to take up the first 1878.] The Pacific Railroads and the Government. 495 mortgage and government bonds, besides paying the annual interest of two or three millions or more on the funded debt. As it was doubtful whether the road would even pay operating expenses, where was the inducement to subscribe for the stock ? Not in the land grant, for although some of the land was known to be good and likely to be marketable after the road was opened, yet there were also vast regions of alkali deserts and mountain ranges, where it was utterly worthless, and what proportion the good land bore to the bad no one knew. More- over the lands could not be held for a future rise in value, for by the terms of the grant, in three years after the road was com- pleted, all lands not sold or disposed of, were to be subject to preemption at $1.25 per acre. Besides these drawbacks to the offers held out by the Government for stock subscriptions, there were conditions imposed that were not to be disregarded. The act required that the railroad should be constructed in all respects as a first-class road, with all necessary drains, culverts, viaducts, crossings, sidings, bridges, turnouts, watering places, depots, equipments, furniture, and all other appurtenances, the rails and all other iron used in its construction and equipment to be American manufacture, of the best quality. It provided that the road should be built in sections of twenty miles each, and that each section should be approved by three govern- ment commissioners, before the bonds for it should be issued, or the land patents be given. Twelve years and no more were allowed for the completion of the road and telegraph, and in case of failure even for a day, beyond that period, the whole vast property, with all its rights and franchises, and estate of every name and nature was to be forfeited to the Government. For unreasonable delay in the work its income could be confis- cated. One-half of the Government dues for transportation services was to be retained annually by the Government, and five per cent, of the whole net earnings of the road was to be annually paid over to it in addition. In case dividends of ten per cent, on the stock should ever be reached, Congress reserved the right to interfere with the rates of freight and fare. And finally, if the corporation should fail to pay to the Government at the maturity of its thirty-year bonds (that is to say, as we have already seen, in some twenty years after the opening of 496 The Pacific Railroads and the Government. [July, the road), the whole amount then due on the government bonds, principal and interest, then also the road, with all its property and privileges, by such default was to become the property of the United States, and was to be taken possession of at once by the Secretary of the Treasury ; supposing, indeed, that it had not already been appropriated by its first mortgage bond- holders, which seemed extremely probable. In estimating the liberality and generosity of the Govern- ment, therefore, in its grants to the road, it is not to be over- looked that it was expecting to receive for them tenfold more than their value, and was also securing itself, to no insignifi- cant extent, against even a pecuniary loss. The road, if built, would be of infinitely more value to the Government than the grants, even if it never repaid a dollar. But the enhanced val- uation of the government lands and its saving in cost of trans- portation, were sure, of themselves, to indemnify it, and there was its second mortgage lien besides. It could not possibly lose, therefore, and must inevitably be an enormous gainer by the construction of the road, while the stockholders, who had only pecuniary profits to entice them, would run enormous risks of losing every penny of their investment. The changes made in the charter by the act of 1864 never- theless inspired confidence in some of the stockholders already secured, notwithstanding the risks incurred, to go on with the work. The great majority, however, still feared to venture. It was owing largely, if not mainly, to the courage, energy, and persistence of two individuals,* at this time and for months afterward that the work went on. From three to four millions cash was needed to meet the expenses of preliminary surveys, organizing and commencing the work, and to raise this sum and to carry on the construction these persons with others put forth the most arduous efforts, pledging their own credit to its utmost and appealing to more prudent capitalists, mostly in vain. Up to the end of 1864 very little progress had been made, and the enterprise seemed in danger of abandonment. Many subscribers to the stock refused payment of the second installment. More efforts were put forth to bring in capitalists in New York and elsewhere in vain. In 1865 the Credit * T. C. Durant and C. S. Bushnell. 1873.] The Pacific Railroads and the Government. 497 Mobiler was organized and some new parties were brought in, and by ''superhuman efforts" of all the parties in interest enough more money was raised to carry on the work to the end of 1866. At that time the road had been built from Omaha to the 100th meridian, 240 miles. The work had been so far carried on with great difficulty and at a heavy loss not- withstanding the government subsidies. The public confidence in the enterprise was so small that the company had not been able to sell a dollar of its first mortgage bonds up to 1867. The funds had again given out and the stockholders were dis- couraged. Again a desperate effort was put forth to get new subscribers ; not to the Union Pacific Company directly, but indirectly through subscription to the Credit Mobilier (which held the contract of construction), the stock of which was offered to every one who was thought likely to take it at almost any price from ninety up to par. In this way funds enough were obtained in 1867 to carry the work along. During this year 245 miles were built, and now came a great and sudden turn of affairs a new route had been found over the Black Hills where the hardest part of the work had been expected, and for which the largest appropriations had been made. By the new route the road could be built over the mountains at a cost no greater than over the plains, and now it began to be evident that the profits on this part of the work would be large. Henceforth there was no difficulty about money and the con- struction went on with abundant means and at a rapid rate. In the mean time the Central Pacific Company, aided by a special subsidy of over a million of dollars from the State of Cali- fornia and the newly applied Chinese labor, was pushing rapidly forward from the western end, and now began a rivalry between the two companies, each striving to obtain the greatest length of line, and their emulation and marvellous activity attracted the attention of the whole world. The cost of this rapid construction was enormous, and it was embarrassed besides by the special difficulties which attended nearly the whole building of the roads. Hostile Indians had to be fought off without the aid of troops. Every pound of corn, hay and grain had to be carried from 100 to 600 miles. Even the drinking water and the water for making steam had to be 498 The Pacific Railroads and the Government. [July, transported. Wood cost $26 per cord. Iron rails $160 per ton. Ties from $2 to $5 a piece. Locomotives (costing now $7,000) cost $35,000. Such had been the prices even when their bonds were selling with difficulty at from 60 to 80 per cent, and gold was at 222. But these extravagant burdens (arising from the haste to complete the work) had their com- pensation. By that haste the time of construction was shortened seven years, so that instead of opening the roads for transporta- tion in July, 1876, they were actually opened May 9, 1869. This great saving of time reduced the interest account on their funded indebtedness. Had the whole twelve years been taken the companies would have been ruined by the burden of their interest. Had not the new route over the Black Hills been unexpectedly discovered the Union Pacific Company would have been bankrupt long before the work was completed, and, but for the unexpected resource of Chinese cheap labor, a simi- lar disaster would have overtaken the Central Pacific at the other end of the route. By such narrow chances, for which, they were in no way indebted to the Government, did these corporations save their investments from ruin and their property from forfeiture and confiscation. During the construction of the roads the relations of the companies with the Government and its agents were for the most part harmonious ; nevertheless the Union Pacific Com- pany complained of an act of Congress passed in 1866, in the midst of their embarrassments, which very seriously impaired their prospects for business, and created a formidable com- petitor in a rival and parallel road. By the acts of 1862 and 1864 there was chartered as the southerly feeder of the Union Pacific Koad, a railroad under the name of the Union Pacific Eailroad Eastern Division, to start from Kansas City and to run northwestwardly some 270 miles, until it united with the Union Pacific Eoad at the 100th meridian. The same subsidies in lands and bonds were allowed to this feeder as to the main line. The construction of this road was commenced by a separate company ; which, however, soon determined to abandon the original route as a Union Pacific feeder and to run their road westwardly parallel with the Union Pacific Koad to Denver, a distance of 638 miles. 1878.] Tlie Pacific Railroads and the Government. 499 In 1866 they succeeded, against the remonstrances of the Union Pacific Company, in obtaining the sanction of Congress to this diversion and took the new name of the Kansas Pacific Koad. The Union Pacific Company protested that this Congressional charter to a rival road was ill-timed and not in good faith to their interests, and that it would cause a loss to themselves of a million of dollars a year, and such has proved to be the case. In this Kansas Pacific Koad the Government invested over six millions of government bonds and six million acres of land. The whole road cost about thirty-four millions of dollars. It has never paid expenses or barely paid them, and in 1873 owing to the continued refusal of the Government to pay its dues for transportation the company defaulted its interest. It finally went into the hands of a receiver in November, 1876, and will doubtless be foreclosed by the first mortgage bond- holders. Thus the act of Congress in setting up this rival road while it diminished the ability of the Union Pacific to repay the government interest and advances by a million of dollars a year, resulted in a bankrupt company and the entire loss to the Government of ten or twelve millions in bonds and lands, besides creating sources of controversy and vexation, to be referred to hereafter. In 1869, as the roads approached completion and it was known that large profits were being realized, blackmail politi- cians and officials began to swarm around them and to levy their various forms of tribute, and among these gentry appeared an occasional government commissioner, whose duty it was to inspect and report upon each section of completed road before the government subsidies on that section could be realized. Shortly before Jan. 1, 1869, when eighty miles had been com- pleted, and some two and a half millions of government bonds were earned and needed to meet the coming January interest, one of these government commissioners refused to make any report until he was paid $25,000 in cash. The exigency was pressing the subsidy must be had or the interest defaulted, and the general superintendent at Omaha actually paid the money, without consulting the directors, who subsequently dis- approved the act and for a time held him responsible for the amount. Another government commissioner demanded $50,000 600 The Pacific Railroads and the Government. [July, for accepting a portion of the road, and threatened that if it were not paid " he would give them hell in his report " a throat which ten years ago was considered serious. The money was not paid, and the commissioner fully justified his threat. In an elaborate report, which was published in all the news- papers of the country, he denounced the Union Pacific road as a fraud and a sham. With that amiable tendency to believe evil reports which characterizes human nature, these statements were everywhere accepted as truth, and for a year or more after the opening of the road the country rang with charges that the Union Pacific road was a fraud on the Government and the public. That it was unsafe for travel, that its bridges were flimsy, that its cottonwood ties were already giving out, its log culverts falling in, its embankments rapidly washing away, and that for the purpose of increasing the amount of the gov- ernment subsidies wide detours and frequent curves had been fraudulently introduced. A great part of the odium and ill repute which has clung to the Union Pacific Road to this day, had its origin in these assertions, constantly made and widely believed. So much impression was created by them that the Government delayed its final acceptance of the roads and with- held the patents for about three-fourths of the land grants. Congress took action in the matter and a special commission, with Hon. Benj. F. Wade at its head, was appointed to make a thorough examination of the roads throughout their entire length and report on their condition. The examination was carefully made during the year 1870, and the report was a com- plete vindication of the companies in all substantial particulars. Very few deficiencies were found in the condition of the roads as first-class structures. A few short curves were recommended to be straightened ; in one or two gorges crossed by trestle embankments were advised, and some other minor details were suggested. It was stated, however, in the report, that most of the changes recommended had been originally contemplated by the company and only deferred till the completion of the road, and that some were already in progress. As travelers have sometimes remarked upon the occasional curves in the Union Pacific road where it might have seemingly been shortened to advantage by cuts, it may be added that in many places 1878.] The Pacific Railroads and the Government 501 where cuts were made in the original construction of the road, they have since been filled up and curves over open ground introduced, experience having shown that in winter such exca- vations fill up with frozen snow and become impassable. The Government required these changes to be made before it would accept the road as a completed road and issue patents for the lands. The changes were made, but the final accept- ance was still postponed. The Government required a higher standard for a first-class road than the companies acknowl- edged, and several successive commissions were appointed to establish the proper standard. Finally, in November, IS 74. the last commission reported that the roads were fully up to the proper standard of a first-class road. President Grant accepted the report and thus at last the Government recoguized and accepted the road as complete, according to the require- ments of its charter. Subsequently, in 1875. a rumor found currency that the Pacific Railroads had been fraudulently over- measured by the companies, and that bonds had been drawn from the government for miles of road that never were built. The companies were not public favorites at the time, and an act was speedily passed by Congress for the re-measurement of the roads, with an appropriation of $10,000 for the purpose. The re-measurement was carefully made by array officers, and a mistake of two or three miles was discovered, but it was a mistake of under measurement, and the net result to the Govern- ment was the $10,000 expense of re-measuring, and an addi- tional indebtedness to the Union Pacific Road of over $100,000 in subsidy bonds and the corresponding land grant besides. From the day the roads were opened for travel (in May, 1869), they have fully justified the report of Mr. Wade's com- mittee that they were built and equipped in all respects as first-class roads. Their operation, notwithstanding the special difficulties arising from snow both on the mountains and on the plains, has been regular and almost uninterrupted. There has been a remarkable freedom from accidents of every kind, and especially such as result from careless or fraudulent con- struction. The benefits which they have conferred upon com- merce, industry, and the traveling public have been of course almost unparalleled in the history of public works, but 502 The Pacific Railroads and the Government. [July, scarcely greater than the immense and immediate advantages, political and pecuniary, which have been derived from them by the Government. The whole Pacific slope, a vast and almost independent empire, was at once thoroughly absorbed into our federal sys- tem, and the commerce and control of the Pacific ocean was made secure. A great tide of migration to the territories along their line brought the government lands at once into market. Mining towns, counties and States sprang into existence among the mountains which, when the road was chartered, were an unexplored region of mystery, and began like so many inexhaustible fountains to pour forth those streams of wealth which have since revolutionized values and made ninety cents worth a hundred. Indian wars, before so troublesome and expensive, were ended in that portion of our territory forever. The Mormon problem was solved and all farther political danger from that source averted. In fact it is impossible even to enumerate the beneficent results to our political system which have ensued within these past nine years from the completion of the Pacific Eoads. There is no sane man who would for an instant consider that two hundred or five hundred millions of dollars would compensate the Government for the loss of those roads to-day. Not one who would not heartily endorse as wise and sound the words of Henry Wilson in 1862 : "If I could get the road by voting fifty millions or one hundred millions to it as a gift, I would do it most cheerfully and consider that I was doing a great thing for my country." From 1869 through 1870 the business of the roads, though gradually improving, was not sufficient to show that their ulti- mate success as a pecuniary investment was certain. The Union Pacific bonds were selling below par, and its stock at from twenty-five to thirty. The amount that it was entitled to receive from the Government for transportation services (which by the terms of the charter was one-half of the whole amount earned, the other half being retained by the Gov- ernment) was very important to it as affording the means of meeting its quarterly interest. Just at this critical time (in November, 1870) the Secretary of the Treasury announced to the companies that thenceforward the Government would retain the 1878.] The Pacific Railroads and the Government. 503 whole amount of its transportation dues instead of paying over one-half as had been regularly done theretofore. The Secretary based this determination on a legal construction of the charter, approved by the Attorney- General, but then for the first time suggested, and which he arrived at by comparing the act of 1862 with that of 1864. The act of 1862 provided that u all compensation for services rendered to the Government shall be applied to the payment of the government bonds and interest until the whole amount is fully paid." The act of 1864 amended this provision by enacting " that only one-half of the compensation earned by services to the Government shall be required to be applied to the payment of the bonds issued by the Government in aid of the construction of the road." From 1864 down to September, 1870, no one had doubted that the amendment was co-extensive with the clause amended, and the uniform practice of the Secretary of the Treasury had been to pay over to the roads in cash, one-half of the amounts due them for government service, retaining the balance in the Treasury. By the new interpretation, however, one-half was to be retained under the act of 1864 for payment of the bonds, and the other half by the act of 1862 for payment of the inter- est. When this decision was made public, fortified by the opinion of Mr. Akerman, the Attorney-General, the effect was most disastrous to the Union Pacific securities. The first mortgage bonds fell from 95 to 70, land grant bonds from 81 to 50, income bonds from 82 to 35, and the stock from 25 to 9. The matter was brought at once before Congress, and the Senate Judiciary Committee (of which Mr. Thurman was then a member) unanimously reported that the action of the Secretary was in violation of the contract on the part of the Government. In March, 1871, Congress directed the Secretary of the Treasury, " in accordance with the act of 1864, to pay over in money to the Pacific Railroad Companies one-half of the compensation provided by law for such services heretofore or hereafter rendered." Subsequently, in 1873, under the influence of the Credit Mobilier excitement, Congress set aside its own deliberate con- struction of this clause and directed the Secretary of the Treasury to withhold all payments for government transporta- 504 The Pacific Railroads and the Government. [July, tion to the amount of the interest on the government bonds ; providing, however, that the companies might bring suit in the Court of Claims to recover the price of such freight and transportation, under their charter, with the right for either party to appeal to the Supreme Court. In pursuance of this legislation the government payments were again withheld and the Union Pacifie Company brought their suit in the Court of Claims. The case was fully argued and the Court pronounced its decision unequivocally in favor of the company with judg- ment for $512,632.50. From this decision the Government appealed to the Supreme Court, which sustained the Court of Claims by a final judgment in October, 1875. In their opinions rendered in this case, both Courts comment with some severity upon the position of the Government as un- reasonable and unjust. The Court of Claims says: "In con- templation of law, the wrong and injury of which the Govern- ment complains are entirely of its own choosing. * * * If an ordinary party were to come into another Court with such a complaint he would be told, "Either you have wilfully with- held this employment from the other contractor, or you have been unable to furnish it to him. If the former supposition is the fact, then the fault is your own, and you cannot ascribe wrong to one, who, you confess, has always been willing to repay you in the manner your agreement prescribes : If the latter is the fact then because the sources of payment which you provided disappoint you and because the payment in kind which you elected to take gives you more of the transportation service than you really require, you are trying to shift your loss to other shoulders than your own." The Supreme Court uses language not less emphatic. After recounting the great necessity to the Government that the roads should be con- structed and its anxious but barely sufficient offers and pledges as inducements to enlist private capital and enterprise, and the enormous hazards assumed by those who built the roads, they add : " Of necessity there were risks to be taken in aid- ing with money or bonds an enterprise unparalleled in the his- tory of any free people, which if completed at all would require, as was supposed, twelve } r ears in which to do it. But these risks were common to both parties, and Congress was obliged 1878.] The Pacific Railroads and the Government. 505 to assume its share and advance the bonds or abandon the enterprise. If the road were a success, in addition to the bene- fit it would be to the United States, the corporation would be in a situation to repay advances for interest and pay the princi- pal when due. If on the contrary the investment proved to be a failure, subjecting the private persons who embarked their capital in it to a total loss, there was left for the Government the entire property of the corporation of which immediate possession could be taken on a declaration of forfeiture." The Court then, after a full examination of the Government's claim, declare it inconsistent with its agreement and obligations under the acts of 1862 and 1864, and add that the companies "could not in the nature of things have accepted those acts with the understanding that any such effect should be given them." They, therefore, unanimously affirmed the decision of the Court of Claims and rendered judgment in favor of the corporations for the full amount demanded. (United States vs. U. P. E. E. Co., 1 Otto E. 72.) Notwithstanding these judicial decisions the payment of one half of the government dues has never been resumed. During the pendency of the litigation another question had arisen rela- tive to the obligations of the companies under another clause of their charter to pay over annually to the Government "five per cent, of their net earnings," to be applied on the government bonds. Prior to 1873, inasmuch as the roads had barely earned their operating expenses and the interest on their funded debts, it was not claimed that they had made any M net earnings" within the terms of this requirement After that period, how- ever, the Government set up a new construction of the phrase, insisting that by " net earnings" was intended all income above operating expenses without regard to interest or other obligations, and that as the roads had failed to account to the Government on this principle they were in arrears to an amount much greater than the retained transportation dues, and under this new claim has continued to hold back the latter to the present time. This continued retention of government dues has applied not only to the Union Pacific and Central roads, but to all the other roads which were aided by the Acts of 1862 and 1864, vol. i. 33 506 The Pacific Railroads and the Government [July, and originally designed to be feeders of the main line, viz : the Kansas Pacific, the Sioux City and Pacific, and the Central Branch Union Pacific, none of which have ever made any net earnings except under the above construction. The effect of this continued retention has been fatal to at least one of these companies, the Kansas Pacific, which as already stated, has in consequence been forced into the hands of a receiver. The other roads named have also been seriously crippled by the same cause, and should they follow the fate of the Kansas Pacific, the Government as second mortgagee in all of them, will lose its entire investment, amounting to many millions in bonds and land grants. The great Credit Mobilier excitement arose during the ses- sion of Congress in the years 1872-3, and originated in some imputations respecting Mr. Blaine, then Speaker, which first appeared in the newspapers of the day, and afterwards were referred to on the floor of the House. The intimation was that he had received stock in the Credit Mobilier and the Union Pacific companies, while a member of Congress, as a gift, in order to influence his votes with reference to the roads. Mr. Blaine called the matter up and demanded that the charges be investigated. Other members of Congress were implicated in the same charges and by general consent committees were appointed to inquire into these matters as well as the whole history of the Credit Mobilier and its relations to the Union Pacific Company. By these committees testimony was taken in relation to every matter directly or remotely bearing on the subject. A Presidential contest had just occurred, and the excitement, intensified by political feeling, was fanned to a frenzy which filled the country. In such a period there was little chance for a candid and rational consideration of the facts ascertained or the questions involved. When once a cry of " fraud, bribery, and corruption" has been fully raised it generally bears down all remonstrance ; not to denounce is a proof of complicity or a perverted moral sense, and it is as useless to appeal to actual facts as it was for Galileo to reason with the Holy Inquisition. It would be hard to find a better illustration of this truth than the congressional debates over these investigations, and the public sentiment during the past five years with regard to the Credit Mobilier. 1878.] Tlie Pacific Railroads and the Government 507 Nothing is more fully and generally believed at this day than that the Credit Mobilier was an organized robbery whose victims were the stockholders of the Union Pacific Company and the Government. That it was composed of a ring of Directors and other managers of the Union Pacific Company, who voted extravagant contracts to themselves in fraud of the other stockholders whose interests they represented and were bound to protect, aud thus absorbed as members of the Credit Mobilier, the profits which ought rightfully to have gone into the pockets of their Union Pacific associates. That this same ring also cheated the Government by making the road under cover of these fraudulent contracts appear to cost vastly more than they were entitled to receive, and thus robbed both the Union Pacific Company and the Government of enormous sums of money. The imputed crime of attempting to bribe members of Congress is also attached in the common mind as a stigma to the Credit Mobilier ; although the Company was in no way identified with the acts referred to. We are under a strong temptation to review this subject by itself, in the light of the subsequent judicial decision to which we shall hereafter refer and which has overthrown a principal ground for the imputation of a corrupt motive in those transactions. We would like to discuss the dangerous stretch of prerogative by which the House of Representatives assumed jurisdiction over acts of members committed four years before they were elected, and imposed punishment therefor in a vote of " absolute con- demnation." It would be interesting to consider the moral force of such a condemnation for the crime of inducing other members of Congress to invest in the stock of an open cor- poration, by Honorable Representatives who had secured their elections by trades and bargains if nothing worse, and whose pockets were stuffed with railroad passes and promised commis- sions for political supporters. Had there been as much com- punction about "casting the first stone" as there was in a somewhat similar case mentioned in Scripture there would have been few indeed to answer to the call of yeas and nays when the vote of censure was reached. But these themes are foreign to our present purpose which is merely to consider the Credit Mobilier as an organization connected with the Union Pacific 508 The Pacific Railroads and the Government. [July. Bailroad Company and to explain those relations alone. Yet we will express a confidence in passing, whatever odium may attach to the declaration, that time will bring a more dispassionate revision of the facts referred to, and a more just and generous estimate of the acts and motives of the principal actor in them than they have yet received. Under the charter of the Union Pacific Company as contained in the Act of 1862, its capital stock was fixed at one hundred millions of dollars. The company might organize, however, and commence business as soon as $2,000,000 should be subscribed, and $200,000 paid in. As has been already stated, it was not found easy to obtain this preliminary subscription. In October, 1863, barely the necessary number of shares had been sub- scribed and there was no prospect of any considerable increase. If the enterprise was undertaken and carried forward at all then, it must be by a few bold and resolute pioneers who should invest every dollar of their own, and all that they could borrow in the work, and settle at their own risk the question of profit or loss. The Act of 1864 required that the books of the Company should be kept open, until the whole amount of $100,000,000 should be subscribed, and this provision operated to destroy all the inducements offered by the charter to parties who should build the road. It was in vain to beg capitalists to take all the risks and burdens of the work by urging the profits that would probably be made. The answer was that if the attempt should fail the whole investment would be forfeited, and if any profits should accrue, all these would go into the corporation treasury, and could be shared in by any body and every body who might come in afterwards and subscribe to the stock. Obviously this was unjust and could not have been the intention of Congress. The design was that those who took the risks of furnishing the road should reap the profits if any were made. It was in order to meet this difficulty and to secure this object that the Credit Mobilier was availed of. This was simply a new corporation formed of the then stockholders of the Union Pacific Company and of all others who should aid in construct- ing the road. There was no ring, no inside manipulations, no exclusive contracts, or privileges, or profits. Every stockholder in the Union Pacific Company took stock in like proportion in 1878.] TJie Pacific Railroads and the Government. 509 the Credit Mobilier, and those who declined were bought out. It was a fundamental rule and principle of action that there should be no Union Pacific stockholders outside of the Credit Mobilier, so that each and all might take their due share in the burdens and receive their due proportion of the benefits. Upon whom then was the alleged fraud in this arrangement perpetrated ? Not upon the Union Pacific stockholders, for the arrangement was with themselves and for their mutual protection and ad- vantage. More for protection certainly than advantage in 1864, for the profits to be derived from the building of the road were then so dubious that subscriptions to the Credit Mobilier stock were obtained with the greatest difficulty, and even in the Spring of 1867, when it became necessary to add 50 per cent, to its capital, many of the old stockholders declined to subscribe farther, although a bonus was offered of first mortgage Union Pacific bonds equal to the amount of each stock subscription. So doubtful even then were the prospects of the enterprise and so low the value of the best Union Pacific securities ! The Committees of the House of Eepresentatives which had charge of investigating the history of the Credit Mobilier Com- pany and its relations to the Union Pacific, denounced it as a scheme for defrauding the Government on the ground that the contracts with the Credit Mobilier covered the whole amount of the government subsidy, while only a part was actually needed to build the road. They insisted that these grants of bonds and lands to the Union Pacific Company were in trust merely to use only so much of them as might be actually re- quired. The Wilson Committee say : u The Committee cannot doubt that the proceeds of these lands and bonds as well as of the first mortgage bonds which the Government has provided to secure by a lien prior to its own, are held as an express trust by this company and applicable alone to said declared purposes of the acts [viz : to aid in the construction of a railroad, &c] Any distribution of the proceeds of either of these funds, as profits or dividends to stockholders is illegal as violative of the declared purposes of the trust," &c. And this in face of the fact that the act of 1862 provides for the preemption of lands not sold within three years after the completion of the road ! The same Committee in their report speak of the "bounty of 510 The Pacific Railroads and the Government. [July, the Government" and "the munificent grant of lands and loan of government credit to the road," terms which are strangely applied if the Government intended that the builders of the road should receive from it as a loan bonds worth only 74 or 75 in the market to be repaid in full at maturity, and should add enough of their own money to meet the cost of building the road without profit, and in case of any default should forfeit their whole investment. Nevertheless in the full possession of this idea, an act recommended by the Committee was imme- diately passed, directing the Attorney General "to commence a suit against the Union Pacific Company, and against every person who might have wrongfully and unlawfully received as dividends or profits, under contracts for constructing the road, bonds, money, or lands which ought to be accounted for either to the railroad corporation, or to the United States, and to compel the restoration of such property or its value, to the railroad company, or to the United States, whichever might be equitably entitled thereto." The suits were brought by the Attorney -General as directed, in the U. S. Circuit Court for the District of Connecticut, in Sep- tember, 1873 a most remarkable litigation in its character ; one hundred and seventy-one different actions against as many dif- ferent defendants, some of them dead, some of them executors or administrators, and others heirs of such deceased defendants, very many of them purchasers of Union Pacific securities in the market, and never connected with the Credit Mobilier, these defendants being scattered all over the country from Maine to California, and each being required to appear in Connecticut and answer, or suffer a judgment by default, which might be pecuniary ruin. Very many failed to appear. By some of the leading defendants, including the Union Pacific K. K. Co., answers were put in the nature of a demurrer denying the legality of the proceeding on various grounds, and especially denying the doctrine on which it was based, viz : that the gov- ernment grants of lands and bonds to aid in the construction of the roads were trust funds in any sense, but insisting that they were subsidies received on no other trust or condition than merely to build the road with them in the manner specified in its charter. The case was fully argued on both sides and the 1878.] The Pacific Railroads and the Government. 511 decision of the court (Judges Hunt and Shipman presiding) was adverse to all the positions of the Government. As to the claim that the government grants were trust property, the court was very full and explicit, and used the following language : u In the sense that all men are bound to deal honestly and justly in the discharge of their duties, and that whoever receives benefits or advantages from the public which are expected or intended to produce an advantage to some portion of the people of the country, assumes a trust to effect that advan- tage, the plaintiffs' claim is true. It is not, however, accurate in a legal sense to say of a bank incorporated for banking purposes, or of an insurance company, or of any similar institution, that it is a trustee of the Government to effect the desired result ; or that its property is impressed with a trust for that purpose which can be enforced in the courts. Such incorporation is chartered for private benefit as well as public advantage and is legally bound to administer its affairs for the public advantage only to the extent that it does not violate the provisions of its charter or the law of the land. With this limitation such corporations are authorized to manage their own affairs for their own benefit and such is the understanding of the Government which grants a charter, and of the individuals who accept it." " This railroad com- pany is not a charitable corporation, nor were the grants for a charitable use. The grants of land and the issuing of bonds are to be considered as gifts, gratuities, voluntary contributions to aid in the construction of works which it was supposed would develop the resources of the country, advance its civil- ization and improvement, and upon which the mails and muni- tions of war could be transported. When given and accepted the power of the donor is at an end and the absolute own- ership is in the corporations. The position of the Govern- ment is that of a donor and not that of a creditor or cestui que trust except where such position is distinctly specified." The bill was accordingly dismissed. (11 Blatchford Rep., 385.) By this judicial decision, therefore, it was established after a full hearing that the Credit Mobilier was not a fraud upon the Government, and that the profits which it made by its appro- priation of the government subsidies in full as compensation for 512 The Pacific Railroads and the Government. [July, building the road were not illegitimate but fully in accord with the original purpose of Congress. " It is apparent to the most superficial reader of the Statutes," say the Court, " that the great object of Congress was to bestow advantages and from time to time to increase gratuities to a corporation which should undertake the completion of a railroad to the Pacific." " No authority is cited to sustain the argument that gifts or gratuities to a business corporation are in the nature of a trust and I have found none." And yet it was largely upon this assumption that the Poland Committee charged Oakes Ames with corruption in selling Credit Mobilier stock to other members of Congress, and recommended that he be expelled the House. It was upon this assumption that the press, the platforms, and the pulpits of the country rang at the time with denunciations of the "shameful frauds of that corrupt organization," and it is upon this assumption that even to this day the "frauds and robberies of the Credit Mobilier" are constantly alluded to as a part of the accepted history of the time. So difficult is it for truth and reason to overtake and conquer prejudice, and so slow are men to be convinced of their mistake in believing that others are not as honest as themselves. That errors and acts worse than errors were not committed by two or three individuals in connection with the Credit Mobilier, we do not affirm, but we do insist that there was nothing in the nature and purposes of the organ- ization, or in its relations or transactions with respect to the Union Pacific Company or the Government which can justify the stigma which has been attached to it. Among its stock- holders are found the names of men of the highest character as men of honor and financial integrity ; names suggestive of anything but of rings and combinations to cheat their asso- ciates, or to rob the Government, or steal trust funds. And since by the solemn judgment of a high judicial tribunal selected by the Government itself, the corporation has been exonerated from the imputations of robbery and fraud so freely cast upon it by the popular cry, would it not be just for well-informed and candid men to cease reiterating those imputations as if they had been fully sustained ? The positions assumed by the Congressional Committees in 1878.] The Pacific Railroads and the Government. 513 their reports on the Credit Mobilier contracts and the action of Congress thereon are extremely significant, when compared with the later Goverment claims and the legislation which we shall hereafter consider. In 1873 the complaint was that the Govern- ment had been defrauded and subjected to risk and probable loss to the amount of those bonds which had been unnecessarily called for in the construction of the roads, unless the excess thus wrongfully absorbed could be recovered back in an action at law. This charge, of course, implies that the government had no other security for its loans, or means of obtaining re- payment of the principal and interest advanced than those pro- vided in the charter of the roads and that these were probably inadequate. If, however, the charter could be altered to any extent by Congress at its pleasure, it would be easy so to change the conditions and terms of the loans, and to insert such new and stringent requirements with respect to their re- payment, as to make the government absolutely secure. No such idea seems to have occurred to any one. The Wilson Committee declare that " they have given much consideration to the question of remedy." But they have none to suggest except a judicial proceeding to forfeit the charter, or its absolute repeal (both of which were in the nature of punishments, not security), or a suit to recover back " the trust funds " assumed to have been illegally appropriated. The last was the course adopted and we have already seen that it failed in the Courts. In our next Article we shall review the subsequent enactments which sprang from more advanced views of Congress with respect to its powers over the contract with the companies, and which form a new and remarkable chapter in the annals of legislation with respect to government contracts and chartered corporate rights. BomfolimeuU of Ji. S. SlaktQ [Reprinted from the New Englander for September, 1878.] THE PACIFIC RAILROADS AND THE GOVERNMENT. (Second Article.) By Henry T. Blake. THE PACIFIC RAILROADS AND THE GOVERNMENT. At the completion of the Pacific Railroad the Government had issued its six per cent, thirty year currency bonds as subsidies to the foad and its branches under the act of 1862 to the amount of about sixty-four millions of dollars. Of these, nearly fifty-five millions had been received by the Union and Central Pacific Companies, or about twenty-seven and a quarter millions by each company. The interest on these bonds, and their principal as they matured in 1895-9 must of course be met by the Government, but by the terms of the act (as amended), they constituted a second mortgage " on the whole line of railroad and telegraph, together with the rolling stock, fixtures, and property of every kind and description. v As additional security the act provided that the Government might annually reserve one half of the current indebtedness to the companies for mail and other transportation services ; and farther that, "after said road is completed, until said bonds and interest are paid, at least five per centum of the net earn- ings of said road shall also be annually applied to the payment thereof." We have already explained in a former Article how Congress in the midst of the Credit Mobilier excitement directed the Secretary of the Treasury to withhold all payments for freight or transportation services of any kind to the amount of the interest on the government bonds and' five per cent, of the roads' net earnings, with a provision that the companies might bring suit in the Court of Claims to recover such retained freight and transportation dues. This controversy, with the decisions upon it in the Court of Claims and the Supreme Court against the Government, were also adverted to. The Supreme Court rendered its decision in October, 1875, and held it to be the clear meaning of the charter that the companies were not bound to make any payments to the Government on account 1878.] The Pacific Raih-oads and the Government. 613 of its bonds, principal or interest, until their maturity, except to the amount annually of one half the government transportation dues and five per cent, of their net earnings. Notwithstanding these decisions, prudence dictated to the companies that some movement should be begun by them at an early day toward providing for this ultimate payment. Indeed, several months previous to these decisions they had themselves called the attention of the Government to the sub- ject and made overtures for an arrangement by which a sinking fund should be established for the extinction of the debt, and all controversies precluded with respect to it. This proposition was favorably received, and was made the subject of delibera- tion and conference between the representatives of the roads and officers of the Government, and members of Congress ; but when the amount of annual contribution to be made by the companies toward such a sinking fund beyond the amount they were already legally bound to pay came up for adjustment, a dif- ference which had before been developed between the companies and the government authorities came prominently into discussion and proved to be irreconcilable. This difference related to the legal interpretation of the phrase k ' net earnings," as used in the above quoted provision of the act of 1862. The companies had understood it to mean the surplus or profits which annually remained after paying their operating expenses and the interest on their funded debts. Of these funded debts the Union Pacific alone had beside its first mortgage bonds (twentv-seven millions) whose lien was prior to the government bonds, about twenty millions of land grant and income bonds, in all some forty -seven millions of indebtedness, the annual interest on which (amounting to some $600,000) must be paid in addition to their operating expenses out of their earnings, or the com- pany go into bankruptcy. This interest liability the companies maintained was a charge on their property, essential to its pre- servation and to the continuance of their business as much as their running expenses, and should therefore be added to the operating expenses before "net earnings," within the meaning of the charter, could be ascertained. The Government insisted that no such addition should be made, and that the u net earn- ings" referred to by the act were the entire surplus remaining 644 The Pacific Railroads and the Government. [Sept., after operating expenses were paid, without regard to interest on any part of the funded debt. So that, although in any year this surplus should be just sufficient or even insufficient to pay the first mortgage interest, the Government was still entitled to five per cent, on account of its second mortgage bonds, in pre- ference even to claims of the first mortgage creditors. Thus, although the Kansas Pacific Company was barely earning the interest on its first mortgage bonds beyond operating expenses, the Government has retained its transportation dues under this claim of u five per cent, net earnings," and has actually forced the company into bankruptcy. The Government also maintained that the companies had not only estimated their "net earnings," and the five per cent, government dues thereon, on a wrong basis, but that under the clause of the act which required such five per cent, payments annually " after the road should be completed," they were in arrears since July, 1869, when it was opened for business. To this the companies replied that from 1869 to September, 1874, the Government, notwithstanding their repeated applications had refused to accept the road as completed and to issue their land patents accordingly, and that it was inconsistent for the Government now to fix any other date as the date of comple- tion than that of its own acceptance. In order to enforce the government claim for these arrears, Congress directed the Attorney General "to commence suits in the proper Circuit Courts of the United States against the several roads which had been aided under the acts of 1862 and 1864, and to prosecute the same with all convenient despatch to a final determination." In pursuance of this direction, suits were brought in 1875 ; the first of these to be heard was one brought in the United States Circuit Court of California against the Central Pacific Company, demanding $1,800,000 as the accumulated five per cent, net earnings since 1869. In this suit the Government was again defeated, the Court holding that the obligation to pay the five per cent, did not accrue till one year after September, 1874, when the roads were accepted. A year from that time not having elapsed when the suit was commenced, it was held to have been prematurely brought and was dismissed. During the present summer, however, the 1878.] TJie Pacific Railroads and the Government 645 opposite view has been taken by the Court of Claims. In a suit brought by the Union Pacific Company against the United States, that Court has held that the road was completed in 1869. That the liability of the Company began at that date, and that interest on the bonded debt should not be deducted from the gross earnings before the net earnings are estimated. It now remains for the Supreme Court to determine between these conflicting decisions, which doctrine is correct, and until such final adjudication by the tribunal of last resort the ques- tions in dispute must be regarded as unsettled. While the litigation respecting these mooted questions was pending in the Courts the first session of the Forty-fifth Congress commenced in December, 1877. During the previous session the Senate Judiciary Committee had matured and pre- sented a bill " to alter and amend" the acts of 1862 and 1864 relating to the Pacific Kailroads for the purpose of compelling the companies to make annual payments to the Government beyond the half transportation dues and the five per cent, net earnings which alone those acts required toward extinguishing the government loan. The railroad companies had also pre- pared a proposition which they brought forward in the form of a bill " to create a sinking fund for the liquidation of the government bonds," etc., and the Senate Eailroad Commit- tee presented a third bill with a similar title and object. The proposition of the railroad companies was substantially to the following effect: That the Government should take back from each company six millions of acres of land in Nebraska, Wyoming, Nevada, and Utah, at a valuation of $1.25 per acre, and should credit the amount of the aggregate valuation (seven and a half millions of dollars) to each com- pany as the foundation of a sinking fund, retaining such fund in the U. S. Treasury, and allowing six per cent, interest thereon ; that such sinking fund should be farther increased by the retained transportation dues already in the hands of the Government, to the amount of one million dollars for each com- pany ; and that each company should pay in annually to the fund such amount as would at six per cent, interest enable it to pay off the government bonds, principal and interest, by the year 1905, or six years after their latest maturity. 646 The Pacific Railroads and the Government. [Sept, With respect to their proposal to return the granted lands in the regions specified, the companies said that these lands, since the building of the road, have become valuable for grazing uses, and are with the government lands adjoining them in demand for that purpose at rates even greater than $1.25 per acre. That for such use, however, they must be sold in large tracts of from 50,000 to 100,000 acres, located with reference to the water supply and other requisite natural features. But as they are now are held in alternate rectangu- lar sections of 640 acres each, " like a checker board,'' by the Government and the companies, some of which contain the only streams for many square miles while others are totally destitute of water, they are completely unsaleable, and are overrun by trespassers who take advantage of this divided ownership to benefit themselves without paying tribute to any- body. That it is therefore for the best interest both of the Government and the companies that the proposed transfer should be made, and that from the necessity of the case such transfer to one of the two parties is sure eventually to come. In the meantime the}^ complain that these lands so "munifi- cently deeded to them by the Government as a generous gift," are not only worthless to them in their present shape but are a heavy burden of expense owing to the oppressive local taxa- tion to which they are subjected as railroad property. Says Mr. Huntington in his argument before the Judiciary Com- mittee, " They tax the lands and make the railroad property pay everything. One year we paid $39,000 gold tax in one county. I guess it was seven-eighths of the tax paid in the county ; they will tax these lands right away from us. If the Government had them they would not. They get up a little ring and form a county with perhaps no property in it at all, and what do they find? They find thirty or forty miles of railroad track and the lands. They will run a county from the taxes on that. A person living here has not much idea how they do things in that outlying country.'' And he intimated to the Committee that if the Government thought the valuation too high at $1.25 per acre they might have the lands at almost any rate they might choose, as. although valuable and marketable in proper shape, they are in their present form a ruinous possession. 1878.] The Pacific Raihvads and the Government. 647 With regard to the extension of time for payment to five years beyond the maturity of the bonds the companies sug- gested that the request was not unreasonable in view of their proposition to pay the greater part of them within twenty years from their date or several years before any of them are due, and in view of the farther fact that the road was opened for government use seven years before the time named in the charter. This early construction they show was accom- plished at a vastly increased expense to the companies in the cost of construction, but to a more than corresponding advan- tage to the Government and the public. Apart from the immense political and commercial benefits accruing from this early opening of the road, they estimate that the direct sav- ing to the national treasury during the seven years thus saved, would if funded at six per cent., more than cancel the whole amount of government bonds at their maturity. Notwithstanding these suggestions, the proposition of the companies was ignored in Congress, and scouted as " impu- dent" by the public press. The lands so " valuable" when granted to the companies, although then remote and inac- cessible, became " worthless" when the companies proposed to return them to the Government traversed by a national thoroughfare, on the edge of civilized society and in demand for occupancy. And the request that five years extension of time might be allowed for final payment, although coupled vith security for the whole debt and the prepayment of its greater portion was regarded as little less than insulting to the generous and forbearing nation which had already been bene- fited tenfold the amount of its investment. The bill pro- posed by the Companies therefore made no progress beyond its presentation and dropped entirely out of the consideration of Congress. The bill presented by the Eailroad Committee was accom- panied by a report in which the Committee took the ground that whatever might be the legal merits of the questions in controversy between the Government and the corporations it was best for both parties to a reach some common ground whe:eby their several interests may be conserved and their conflicting views relative thereto fairly, justly, and equitably 648 The Pacific Railroads and the Government. [Sept., adjusted." They therefore decline to discuss these questions of legal right, and devote themselves to considering not ' : what Congress has the power to do," but what it " may most wisely do, in view of the past history, the present condition, and the future prospects of the roads." They suggest that u one of the greatest interests that the Government and the people can have in these roads is in the maintenance of a high standard of perfection, assuring rapid and safe transportation of freight and passengers over the lines." That " to impose harsh terms upon these companies, and to exact from them burdensome and embarrassing payments" would not only result in vexatious liti- gation, but if sustained by the Courts would impair the credit and finances of the companies, endanger the safety of the roads, and cause an increase of their rates of charge, to the serious injury of the public and an increased cost to the Gov- ernment. They announce therefore that in framing their bill they have endeavored " to meet the subject in a spirit of prac- tical adjustment, in order to secure to the United States ultimate repayment of the full amount of advances to these corporations without harsh or unnecessary embarrassment to them." The principal features of the plan presented by the Railroad Committee were as follows : The commencement of a sinking fund by crediting the Union Pacific and the Central Pacific Companies respectively with one million dollars from the re- tained transportation dues belonging to them in the hands of the Government. Each company to pay to such sinking fund annually one million dollars until October 1, 1900. The sink- ing fund to bear interest at six per cent., and its amount to be applied on the 1st day of October, 1900, to the liquidation of the government bonds. The balance remaining unpaid by the companies to be then divided into fifty equal parts, one part to be paid semi-annually with interest by the corpora- tions, thus extinguishing the whole debt by 1925. This propo- sition of the Government to be accepted by the companies before it should be binding on them, and if after such accept- ance they should fail to perform any of its conditions, Corgress to have full power to alter, amend, or repeal this act with respect to the company so making default. It was well under- 1878.] The Pacific Railroads and the Government. 649 stood that this bill, if passed, would be accepted by the com- panies as an adjustment of the controversy, but although strongly supported by several of the ablest lawyers in the Senate, the general sentiment was against it as offering too liberal terms of settlement and it failed to obtain a majority support. The bill presented by the Judiciary Committee and which passed the Senate by a vote of 41 to 19, and shortly after- wards the House almost without debate and with but two dis- senting voices, was of a far more radical character. As this enactment is one of the greatest importance not only with respect to the companies whose rights and interests it imme- diately affects, but indirectly to all parties who deal with the Government and rely on its good faith to maintain unchanged their contract rights, so long as they fulfill on their part their contract obligations, we shall consider its provisions with some particularity. And as preliminary to this it will be necessary to bring together into one view those provisions of the charter by which the Government granted its subsidy of bonds, the con- ditions of the grant as therein stated, the terms of payment which they prescribed, and the limitations within which Con- gress agreed to restrict itself with respect to any future change of this organic law or alteration of its proffered terms. The only part of any act in which the issue of the bonds is provided for is Section 5 of the act of 1862. By the same section it is enacted that u to secure the repayment to the United States as hereinafter provided of the amount of said bonds so issued and delivered to said company, together with all interest thereon which shall have been paid by the United States, the issue of said bonds and delivery to said company shall ipso facto constitute a first mortgage [by act of 1864 changed to a 'second mortgage'] on the whole line of the rail- road and telegraph, together with the rolling stock, fixtures, and property of every kind and description," and that "on the refusal or failure of the company to redeem said bonds, or any part of them, the whole road with all the rights, functions, im- munities and appurtenances thereto belonging " should be taken possession of by the United States. Section 6 then declares in express language the condition of vol. i. 42 650 The Pacific Railroads and the Government. [Sept., the grants (and under the well settled rule of construction expressio unius, exclusio alterius, their sole condition), viz : " And be it further enacted, that the grants aforesaid are made upon condition that said company shall pay said bonds at maturity and shall keep said railroad and telegraph line in repair and use, and shall at all times transmit despatches over said telegraph line, and transport mails, troops, and munitions of war, supplies and public stores upon said railroad for the Government when- ever required by any department so to do, and that the Govern- ment shall at all times have the preference in the use of the same for the purposes aforesaid (at fair and reasonable rates of compensation, not to exceed the amounts paid by private par- ties for the same kind of service), and all compensation [by act of 1864 changed to "one-half the compensation"] for services rendered for the Government, shall be applied to the payment of said bonds and interest until the whole amount is fully paid. * * * And after said road is completed until said bonds and interest are paid, at least five per centum of the net earnings of said road shall also be annually applied to the pay- ment thereof." And again (Section 17), it is enacted that "in case said com- pany or companies shall fail to comply with the terms and con- ditions of this act, by not completing said road and telegraph and branches within a reasonable time, or by not keeping the same in repair and use, Congress may pass any act to insure the speedy completion of said road and branches, or to put the same in repair and use," &c, &c. And finally, in Section 18, to guard still farther against any apprehensions of Government interference with the companies, or their contract relations in case they should faithfully build the roads and perform the conditions of the grants as previously specified, a limited power of amendment to the charter is alone reserved in the following words. " And the better to accomplish the object of this act, namely, to promote the public interest and welfare by the construction of said railroad and telegraph line, and keeping the same in working order, and to secure to the Government at all times, but particularly in time of war, the use and benefits of the same for postal, military, and other purposes, Congress may at 1878.] The Pacific Railroads and the Government. 651 any time, having due regard for the rights of said Companies named herein, add to, alter, amend and repeal this act." The act of 1864, as we have already seen, was passed by Congress two years after, not for the purpose of restricting the privileges granted by the act of 1862, but avowedly to enlarge them, those offered by that act having proved inadequate to attract the desired and needful aid of private parties to the work. It is of course a distinct enactment, passed by a different Congress, and bears the title "An Act to amend an act entitled "an act to aid in constructing a railroad and telegraph line from the Missouri Eiver to the Pacific Ocean," etc. It contains twenty- two sections, some of them repealing portions of the act of 1862, some enlarging the privileges granted, and others embrac- ing entirely new matter. In all its parts it refers to the act of 1862 as a separate act, " the act to which this act is amendatory." It effects its changes in it by specific reference to the portions amended, either by citation of the section or quotation of the language, or its substance. It increases the amount of the grants as respects the lands, and changes the security and terms of payment as respects the government bonds, but nowhere does it suggest that "the conditions of the grants " or "the object of the act " are different from those above recited in the act of 1862. Nowhere is there a reference to the limited right of amendment reserved by the act of 1862 as a part of that act which is designed to be amended, but it closes with the fol- lowing section: "Section 22. And be it further enacted, that Congress may at any time alter, amend or repeal this act." There was considerable discussion in Congress over the pas- sage of this amendatory act of 1864, but one will search in vain through the debates for any intimation by friend or foe that this last section was regarded as vesting in Congress the right to " alter, amend and repeal " at its discretion or caprice, any and every provision of the contract embraced in the act of 1862. So far from this, when it was proposed to amend the bill by requiring the company to perform government service free of charge, Mr. Stevens declared without being controverted, that it would be a violation of the contract contained in the act of 1862 and an unfair alteration of its fundamental conditions. " I hope," he said, " that every facility will be given by the Govern- 652 The Pacific Railroads and the Government. [Sept., merit for the building of this road, and that least of all it will not violate the original law or charter under which this com- pany was organized." "I do not think it fair and legitimate now to go back to the original law and attempt to change its entire scope and meaning and thereby defeat its object after men have invested their money, relying on its provisions." Such was the language in Congress when capital was timid of embark- ing in the enterprise, and when it was necessary to encourage it with a strong assurance that the Government would abide by its original contract unimpaired. And if as a question of good faith such scruples were worthy of consideration in 1864 when the road was scarcely commenced, with bow much greater force are they now invested, nine years after its opening, when it has been fully and fairly completed and operated according to the terms of the contract, has already saved to the government treasury more than the amount of its advances, and has re- turned to the nation in the enhanced value of the public prop- erty, and in the direct public benefits it has conferred at least five fold the amount of the national loan ; and when moreover its securities amounting to over a hundred millions of dollars are held by thousands who purchased them in reliance on the fidelity of the Government to its own agreements as expressed in the existing charter of the road. Quite different, however, was the point of view from which the Judiciary Committee of the Senate in March, 1878, considered the subject. In their report presented by Senator Thurman, introducing their bill, they do not even allude to any equities in favor of the corporations, or the holders of their stock or securities, or to any obligation on the part of the Government in fairness and good faith to abide by its contract even at the risk of loss. Ignoring all those considerations, the Judiciary Committee devote themselves simply to an argument in favor of altering the charter. Their process of reasoning is interest- ing and significant. The first consideration they advance is that the companies are able to pa}' more to the Government annually than their charter requires and the Committee add, " we think their net earnings will not be less in the future." This point disposed of they next inquire whether Congress has the legal right to alter the terms of the contract, the companies 1878.] The Pacific Railroads and the Government. 653 having fulfilled its obligations on their part. Here the act of 1862 first engages their attention as reserving to Congress no right to alter, amend, or repeal the charter, except " in order to promote the construction of the railroad and telegraph line, and keeping the same in working order, and to secure to the Govern- ment at all times, but particularly in time of war, the use and benefits of the same for postal, military and other purposes." The reply of the Committee to this, is, at least, ingenious. They say, " were this limited interpretation placed on the reservation, it would not in the opinion of your Committee defeat the bill they report. For, although said roads and tele- graph lines have been constructed, yet it is manifest, having reference to their pecuniary condition, that some such measure as that now recommended is necessary in order to keep them in working order, and to secure to the Government at all times the use and benefit of the same (!) It needs no argument to prove that insolvent corporations, or corporations in danger of insolv- ency [i. e. twenty years hence when the government bonds mature], cannot be relied upon to furnish the Government the benefits contemplated by said act." But evidently considering this point rather a strained one, they fall back on another, viz : u It cannot be denied that the right [of alteration] reserved in the amendatory act of 1864 is as broad as words can make it." In response to the objection, " that this right applies only to the act of 1864, and does not authorize any alteration or amendment of the act of 1862," the Committee say that " were this so it would not defeat the bill of your Committee, for it might well be sustained as an amendment to the act of 1864." To recognize the act of 1864 as a separate statute, however, was to take dangerous ground, from which the Committee get off as soon as possible. u But it seems to your Committee," the report proceeds, " that said acts should be considered in pari materia, as constituting for purposes of interpretation but one act, and that consequently the power to alter, amend or repeal reserved in the act of 1864, which is the last expression of the legislative will, applies to both said acts." They cite no authorities to sustain this view, but refer to various judicial decisions in support of the undisputed doctrine, that privileges granted to corporations which become detrimental to the public 654 The Pacific Railroads and the Government. [Sept., interest may be repealed, whether such power of repeal is reserved or not by their charters. As, however, this does not quite reach the case of a mere business contract between the Government and the corporations for the loan and repayment of money, the Committee are prepared to go a little farther if necessary, and to assert the full power of Congress in any case to repeal or alter the terms of a bargain, " especially if the other contracting party is a corporation, public, or quasi public." They say, "No State can make a law impairing the obligation of a contract because that is prohibited by the Federal Consti- tution. But there is no such prohibition upon Congress; and as it is a fundamental principle that one Congress cannot limit the constitutional powers of a subsequent Congress, it may be argued that no mere corporate franchise can be granted by one Congress that a subsequent Congress may not alter, amend, or repeal." And so being satisfied that the companies are rich enough to pay more, and that Congress has the legal power to make them, the Committee regard the whole subject as conclu- sively disposed of and recommend the passage of their bill. In pursuance of these advanced views of Congressional powers over contracts irrespective of governmental justice and good faith, the Judiciary Committee Bill provided substantially as follows : First, That from and after June 30, 1878, the " net earnings" mentioned in the act of 1862 shall be ascertained by deducting from the gross earnings of the Eailroad Companies their ex- penses of operating and repair, and their payments of first mortgage interest, but no other interest payments whatever, " and the foregoing provision shall be deemed and taken as an amendment to the act of 1864 as well as of the act of 1862." Second, That the Government shall hereafter retain the whole amount of its annual transportation dues to the companies, one half to be applied to paying the current interest on the govern- ment bonds, and the other half to a sinking fund for the pay- ment of the principal. Third, That the Central Pacific Company shall pay annually in cash to the Government $1,200,000, and the Union Pacific Company $850,000, or so much respectively as shall make the annual amount carried to the sinking fund twenty-five per cent. 1878.] The Pacific Railroads and the Government. ob of the net earnings of each road estimated as above provided. Except that if in any year either company after actually paying its first mortgage interest should not have twenty-five per cent. of its net earnings left to meet the government demands, the Secretary of the Treasury may remit the deficiency. Fourth, That any officer or stockholder who shall vote, make, or receive any dividend while any of the above required pay- ments shall be in default, "shall be liable to the United States for the amount of such dividends ;" and to knowingly vote, declare, make, or pay such dividend shall be punishable "by a fine not exceeding $10,000, and by imprisonment not exceeding one year." Fifth (Section 9), That all indebtedness to the United States, u whether payable presently or not, and all sums required to be paid to the United States, or into the Treasury, or into the sinking fund under this act, or under the acts of 1862 and 1864, or otherwise, are hereby declared to be a lien on all the property, estate, rights and franchises of every description granted by the United States to any of said companies respectively or jointly, and also upon all the estate and property, real, personal, and mixed, assets and income of the said several railroad companies respectively, from whatever source derived, subject to any lawfully prior and paramount mortgage lien or claim thereon."* Sixth. That any failure for six months by either company "to perform all and singular the requirements of this act, and of the acts hereinbefore mentioned and of any other act relating to said company, shall operate as a forfeiture of all the rights, privileges, grants and franchises derived or obtained by it from the United States; and it shall be the duty of the Attorney- General to cause such forfeiture to be judicially enforced." Seventh. (Section 12) "That nothing in this act shall be con- strued or taken in any wise to affect or impair the right of * This astonishing section was only at the last moment amended by adding the following clause. " But this section shall not be construed to prevent said com- panies respectively from using and disposing of any of their property or assets in the ordinary, proper, and lawful course of their current business, in good faith and for valuable consideration." It is obvious that as reported by the Com- mittee, the section amounted to confiscation of the whole " property, assets, and income" of the companies, and precluded them from paying a dollar for even current expenses, and from selling an acre of land or a pouDd of old iron. 656 The Pacific Railroads and the Government [Sept., Congress at any time hereafter, further to alter, amend or repeal the said acts hereinbefore mentioned ; and this act shall be subject to alteration, amendment or repeal as in the opinion of Congress, justice or the public welfare may require. And nothing herein contained shall be held to deny, exclude or impair any right or remedy in the premises now existing in favor of the United States." Eighth. (Section 13) "That each and every of the provisions in this act contained, shall severally and respectively be deemed, taken and held as in alteration and amendment of said act of 1862, and of said act of 1864 respectively, and of both said acts." This extraordinary bill, which was justly characterized in the Senate as "one of the most deliberate attacks upon the rights of property and contract in the annals of legislation," afterwards passed both Houses of Congress by large majorities and is now the law of the land. That its provisions are in many respects a wide variation from the offers and promises which Congress held out to the companies in 1862 and 1864, as considerations for building the road, its supporters freely admit. That Congress has no constitutional or moral right to impair the obligations of a contract is also conceded. Notwith- standing the intimation which we have cited from the report, that Congress may alter contracts because it is not prohibited from so doing by the Federal Constitution, the better doctrine had been admitted by Mr. Thurman during a previous debate on the bill that Congress had no such power because it is not conferred by the Federal Constitution. But the claim made by the supporters of the bill was, as we have seen, that the reserva- tion to alter or amend the act of 1864, binds the companies as a part of the contract of 1862, and Senator Thurman declared in the course of the debate in language which reads more like sarcasm than sincerity, that "the companies by accepting the act of 1864 consented to this unlimited power of Congress to alter, amend, or repeal, and gladly consented to it, for they were get- ting the greatest bargain that ever corporations obtained from any Government on the face of the earth." It may be that the corporations in 1864, relying on the good faith of the Government to abide by its " bargain " as then 1878.] The Pacific Railroads and the Government 657 agreed upon, considered that they were obtaining a liberal con- tract, though it is certain that not only then but for three years afterwards they found it difficult to convince others of the fact. It may be that they accepted the act of 1864 under an idea that it was in fact, what it professed to be, an enlargement of Govern- ment "generosity" previously inadequate. But if they did they must have felt in 1878, much the same bewilderment at their mistake as the victim of the thimble rigger experiences when he sees his expected gains swept swiftly off the board, and learns for the first time what cover "the little joker" was under. It will be impossible in the brief space allotted to us to dis- cuss fully all the provisions of this act (several of which indeed we have been compelled to omit in our analysis), and we must content ourselves with a very hasty review of the general fea- tures we have mentioned. It will be observed that it first assumes to impose its own construction on the words "net earnings" as used in the original contract, without regard to the meaning of those words which was had by both parties when the contract was made. And accordingly Senator Thur- man, when reminded that the meaning of the words " net earn- ings " in the act of 1862 was now before the Courts for adjudi- cation, replied that he was " not willing to wait for the slow process of litigation. "It would be no objection to me," he added, " if the Supreme Court were to decide to-day that the companies' interpretation of 'net earnings' is the true inter- pretation. All I should have to say would be that there is so much the more necessity for this legislation to secure the Government. That would be all I should have to say in reply to that." With a shrewd reference, however, to the possibility that the decision of the Courts on this point might be in the Government's favor, the act while " amending " the sense of the words for the future has carefully guarded against waiving the claim of the Government based upon its own interpretation of them in the past, and provides that this amendment "shall not affect any right of the United States or of either of said railroad companies existing prior thereto." Having thus amended a new meaning into the language of the original bargain, the next step is to alter the language itself. The Supreme Court had checked a previous attempt to collect 658 The Pacific Railroads and the Government [Sept., from the companies annually on account of the government loan anything more than the terms of the loan required them to pay, viz : one-half of the transportation dues and five per cent, of their net earnings. The effect of the original con- tract having thus been judicially settled, nothing remained but to change it out and out, and they are now subjected to paying all the transportation dues and twenty -five per cent of their " net earnings " as computed under the amended rule. It is easy to see that this enormous increase of annual liability of the companies antecedent to the accruing interest on their funded debts of the second and third classes (the Union Pacific alone has over twenty millions of land grant and sinking fund bonds), might in a dull or unfortunate season or under the future competition which is preparing on both sides of them, imperil their ability to meet their obligations and result not only in ruin to the companies but in wide spread disaster to the holders of these securities. Nevertheless the rights of these holders, which any Court of Equity would protect against alterations of prior contracts, are absolutely ignored by the new law. Even the first mortgage bondholders, whose interests it professes to recognize, are exposed to a similar sacrifice, for the law by appropriating the revenues of the roads to pay the government bonds before they become due, has given them priority over those of the first mortgage, and leaves to the latter as security only what will remain after the government loan has been paid, principal and interest in cash. Moreover the 11th section provides that "in case of failure for six months" by the companies to pay these new demands of the Govern- ment, or any government claim under this "or any other act of Congress or right of the United States," the Attorney-General shall seize the roads, and in such case what would the first mortgage securities be worth? Nor is this all. The first mortgage creditors quite as much as any others are interested that the road should be maintained in the best possible condi- tion ; that its general credit should be high, and its finances unembarrassed, and that the owners of the property should be free to manage its affairs in such way as best to promote the prosperity of the enterprise. The 9th section, however (although by the amendment to which we have adverted, it has 1878.] The Pacific Railroads and the Government 659 been modified from actual confiscation), still prevents the companies from accumulating a dollar in their treasury in advance as a fund for the most pressing contingencies, from incurring any expenses for the enlargement of their business by building branches or otherwise, or from making any provi- sion whatever by sinking funds to redeem even their first mortgage bonds. The section referred to makes all liabilities to the United States whatever, present or future, a lien on all the property, estate, and franchises, of the companies, "subject to any lawfully prior and paramount claim thereon," but prop- erty maybe " actually used and disposed of in the ordinary, proper, and lawful course of current business, in good faith and for valuable consideration." It is obvious that there is nothing here to protect a sinking fund accumulated for the payment of first mortgage bonds which have not matured, against seizure by the Government to pay its second mortgage bonds that have matured ; nor can the companies take up or buy in their first mortgage bonds in advance, for that would not be "in the ordinary, proper, and lawful course of their current business." It was suggested, during the discussions over this act, that the validity of these amendments to the contract or some of them would probably be tested in the Courts ; accordingly the law has forestalled any such purpose on the part of the com- panies. A suit of this character would occupy at least a year before it could be decided, and the act provides, as we have already seen, that a failure by the corporations " for six months" to comply with any requirement of this or any other act (whether such failure be willful or not, and whether it be unavoidable or not), shall ipso facto " operate as a forfeiture of all their rights, privileges, and franchises," "and it shall be the duty of the Attorney-General to cause such forfeiture to be judicially enforced." Of course under this section the roads would be seized before a judicial decision as to the validity of the act could be obtained and almost before the suit could be fairly begun. And finally, in order to leave ample room for any farther illustration of the " liberality " and " generosity " of the Government in making the original "bargain," the right is expressly asserted, to impose new constructions to any extent 660 The Pacific Railroads and the Government. [Sept., on the meanings of the acts of 1862 and 1864, and that both they and ''this act, shall be subject to alteration, amendment, or repeal, as in the opinion of Congress, justice or the public welfare may require. 1 ' What future possibilities may be con- tained in this reservation may be imagined from the claim strongly insisted upon by Senator Thurman, that it would be quite legitimate for the Government when its bonds mature to demand compound interest from the companies, or rather (let us give his words exactly) "interest upon the instalments of inte- rest as it [the Government] paid them." "That," the Senator assures us, "is not compounding interest because the interest upon each instalment of interest paid by the Government would run continually without rest until the maturity of the bonds ; but it will be found to add immensely to the sum which will then be due the Government and carry it far beyond 200 millions." It is certain that the acts of 1862 and 1864 make no reference whatever to such interest upon interest, and the Senator's distinction between it and compounding interest may not be very apparent, but it is quite superfluous to discuss any questions arising on these points, when the limit to the obligations that may be imposed on the roads is made quite irrespective of all rules of legal or judicial construction, and is such only "as in the opinion of Congress, justice or [notice the conjunction !] the public welfare may require." Our limits will not permit us to review the debates which preceded the passage of this act, but it would be unjust to the minority in the Senate who opposed it with vigor, ability, and learning, not to refer briefly to the fact that the positions assumed in its support were contested upon grounds of good faith, justice, and judicial authority. We have already seen that the Eailroad Committee rested their bill not on any con- clusions as to the legal right or the constitutional power of Congress to alter a contract, and chose to consider only the questions of good faith and honor involved in the proceeding. Nevertheless in answer to the adjudications cited by the Judici- ary Committee to the effect that corporation charters are always under the control of the legislature, it was pointed out that these decisions relate to the power of Government in its char- acter as a sovereignty, and not at all to its legal rights as a 1878.] The Pacific Railroads and the Government. 661 party to a contract. Numerous authorities, and decisions of the highest Courts were cited to sustain the distinction. " When," says Judge Grier of the Supreme Court of the United States, in the case of Elliott vs. Yoorst (3 Wallace, Jr., 302,) " the Government of the United States becomes a partner in a trading corporation such as that of the United States Bank, it divests itself so far as concerns the transactions of that Compan}^, of its sovereign character, and takes that of a citizen." Of course it follows that in this capacity, as a vol- untary party to a contract it is as much bound by the agree- ment as the other party, and has no more right than the other to change it without mutual consent. As to the claim that Congress acquired unlimited power of alteration by the closing section of the act of 1864, it was denied that such a construc- tion could be sustained without violently wresting that clause from its proper connection, and its obvious meaning, and with- out ignoring the general rule that the repeal of amendatory acts revives the provisions of the original statutes. It is clear that if its application can be so stretched over the whole act of 1862, no contractor with the Government and no holder of government securities can ever be safe. Suppose the act of 1864 or some subsequent act had granted but one new privilege (the right to cut telegraph poles for instance on the public lands), coupled with the clause, " this act shall be subject to be altered, amended or repealed at the pleasure of Congress." Could it be legally or justly claimed that because the act related to the Pacific Kailroads, it was therefore in pari materia with all previous acts, and that whenever the corporations should cut down a single telegraph pole by virtue of its per- mission, they thereby gave to Congress full power to alter, amend, or repeal all previous contracts, even such as it had pledged itself to maintain unimpaired? Or suppose an act to be passed that the interest on the gold-bearing bonds of the United States might be paid one month in advance, "provided that this act shall be subject to amendment, alteration, or repeal." Would Congress under the unlimited right of repeal thus reserved be justified in subsequently repealing the orig- inal contract that the principal and interest of the loan should be payable in gold, and in making it payable thereafter in silver 662 The Pacific Railroads and the Government. [Sept., or greenbacks? Yet this is the doctrine contended for by Mr. Thurman and sustained by the majority of the Senate, and it will be well if it does not come back for their future considera- tion in some form in which repudiation of the public obliga- tions and the public faith will be more odious though not more real than in the case of the Pacific Railroad charters. It is a fundamental doctrine of law and of reason that a contract im- plies mutuality of obligation. But the right in one party to change or repudiate the bargain at pleasure, whether it results from general principles or from express reservation, destroys such mutuality, and with it the contract relation. And if the stipulated terms of a loan are, in the case of a corporation, not a contract but one of those mere corporate franchises, " which," say the Judiciary Committee, M any subsequent Congress may alter, amend or repeal," then they would not be a contract in the case of an individual. But as no stronger instance of a contract can well be imagined, it would seem to follow that Congress is incapable by any act of binding the Government to private parties in any contract relation whatever. It is surprising that these views had so little influence in Congress, and especially in the minds of members of both Houses who have heretofore jealously guarded the public faith. In reading over the debates, however, and the comments of the public press while the measure was pending, perhaps a partial explanation may be discovered. Allusions to " Credit Mobilier frauds," and the cry of "bribery and corruption by railroad lobbyists who swarm on the floors of Congress," were copiously used to deter from opposition to the bill and with their usual paralyzing effect. The companies were stigmatized as " rich and powerful corporations which have for years been defying the law, and are now seeking to defraud the public treasury." It was of little consequence that the " Credit Mobilier frauds" were a myth, and that the Railroad companies, especially in their present hands, were in no way identified with the Credit Mobilier. As to railroad lobbyists, one Senator at least declared that he had heard much of their presence but never to his knowledge had seen any. But if they had been as numerous and as active as a swarm of Kansas locusts, they could have availed but little against the clamors and the 1878.] The Pacific Railroads and the Government. 663 threats of that greatest of lobby agencies, the newspaper press, which with one voice demanded the passage of the bill of the Judiciary Committee. That the parties affected by the bill were corporations was a fact which could not be gainsayed. One Senator referred to " the enormous salaries received by officers of these corporations," and informed the country that " this money comes from the Government, and every dollar represents the sweat and the toil of some of its citizens." Another Senator sarcastically alluded to an oppo- nent of the bill as one who " would fold his hands and allow himself to be placed into a bag and placed in the custody of the Union Pacific Kail road." "Give a dog a bad name" and there are few who will interest themselves to vindicate his character or to avert his inevitable fate. But one who com- pares the congressional discussions over this act of 1878 with those in 1862 and 1864 without reference to intermediate con- troversies will learn new lessons on the gratitude of republics and the value of government promises. Nothing is more manifest throughout the debates of 1862 and 1864 than that Congress considered that the construction of the road and the immense political and material benefit to be derived by the country therefrom would bring so full a compensation for its loan of government credit that provision for pecuniae pay- ment was of subordinate consequence. The immense saving in the expense of government transportation which was antici- pated, was constantly referred to as amounting to an offset to the annual interest on the government bonds and even largely to the principal itself. This saving has been more than real- ized. From nearly eight millions prior to 1862 (during the Mormon war it was eighteen millions) it has fallen to about two and a quarter millions in 1877. In fact, as the Govern- ment has for years retained the whole amount and not paid the roads a dollar, it should be more properly said to have been absolutely annihilated. The eight millions thus annually saved, if counted according to the spirit of the grant as eight millions annually repaid, not only extinguishes the interest on the government bonds, but the principal also long before maturity. Nay more. We have already seen that the saving to the Government during the seven years between 664 The Pacific Railroads and the Government. [Sept., 1869 when the road was opened and 1874 the time fixed for its completion, would o itself form a sinking fund sufficient to pay off the national loan. Yet this reduction in pub- lic expense, so far from being credited to the road as a sort of payment, is now used as an argument to show that at this diminished rate of earnings from government service the loan will never be paid and the companies must therefore be compelled to pay more than the contract requires at what- ever loss to them, or risk to their creditors. In the foregoing review of the act of 1878, and the proceed- ings of Congress, we have not forgotten that under the acts of 1862 and 1864 an obligation was imposed upon the companies to pay the government loan, principal and interest, at its maturity. If those acts specified no adequate mode of provid- ing for such repayment, it was, as we view them, because Con- gress trusted to the prudence and good faith of the companies to make such provision so far as possible. Should they fail to do so, it would not in our opinion justify the alteration of the contract, since this was one of the risks taken by Congress, as in the case of any lender who takes a long note for his loan. Nevertheless, any unnecessary neglect to make such provision, had it been shown by the companies, would have gone far to deprive them of any just sympathy in case of summary treat- ment within the letter of the law and the contract. It is because we believe the action of Congress in the premises to have been both illegal and unnecessary that we have felt moved to arraign it. The propositions submitted by the corporations, and by the Senate Committee on Kail roads, were either of them adapted to save both the* money of the Government and its honor, and even if the country had not already reaped full remuneration and tenfold more for the money it has invested in the roads, it could have far better afforded to make the small concessions of time which those propositions contemplated than to violate its good faith, sacrifice the rights of property and con- tract, and with more than Shylock's rapacity alter itsaps&ment in order to grasp an advantage " not nominated in the bond." In this point of view it is immaterial whether the companies were rich enough or not to be crippled by the spoliation. We care very little whether their stock and securities have risen or fallen in 1878.] The Pacific Railroads and the Government. 665 Wall street since the act of 1878, although in fact the passage of that act has caused the Union Pacific Company to suspend its dividends. Questions of right and wrong are independent of such considerations. It does not justify a breach of law and justice, to insist that it will do no harm. Still more absurd and contemptible is it to parade as its pretext former acts of pretended "generosity" and "munificence." It would be as sensible and as decent for the butcher to call on the lamb to submit his neck gratefully to the knife in consideration of the "generosity" with which he has been fattened in order to be availed of as mutton. An act passed at the same session of Congress as supple- mental to the preceding, which establishes a board for auditing Pacific Eailroad accounts, though stringent in its provisions is not open on principle to the strictures we have above applied. The statute professes for its object to secure to the Government a more constant and thorough inspection of the Pacific Eail- road accounts. So far as the object is merely to ensure a strict and faithful compliance with existing obligations, and not to obtain pretexts for future alterations of the original contract, the measure is unobjectionable, even if unnecessary. That it was unnecessary we have no sufficient information to aver. That it was needed in fact, we have the assurance of its originator, Senator Thurman ; but on this subject at least, Senator Thurman has proved himself not the most reliable authority. In the debate on the other bill he maintained that the companies had already justly forfeited their charters by a persistent failure to make annual returns to the Secretary of the Treasury of various items, including a statement of their earnings, expenses, and indebtedness, as required by the act of 1862. Warming with the theme, he exclaimed, " Are those immaterial matters ? I will not stop to discuss the importance of each and every of them though there is not one single requirement there that is not important as I could easily show. But take the last three which are intended to require each company to make a sworn statement to the Government so that the Government may know that it gets its five per cent, of its net earnings of the road; and now, what is the fact? Here are these Companies under this obligation these Companies who have received such immense subsidies from the Government in lands and bonds, who never to this day have complied with that section of the law, and the Government cannot tell you to-day what are the net earnings of these railroad companies. I hold the proof in my hand." VOL. I. 43 666 The Pacific Railroads and the Government [Sept., Unfortunately for the charge, it afterwards appeared and was explained to the Senator, that a statute passed in 1868 required the returns to be made thenceforward to the Secretary of the Interior instead of the Secretary of the Treasury, and that in the Interior Department all the reports were on file, regularly made in conformity with the law. This review of the relations between the Pacific Kailroads and the Government, especially in connection with the proceed- ings at the late session of Congress, brief as it is, would be too incomplete without an allusion to the "pro rata controversy," in which the Union Pacific Company was for years arraigned before Congress and the public as a glaring and undisputed violator of law and its charter. The questions involved in that controversy, however, we must forbear to discuss, and it is the less necessary as a recent judicial decision has settled them on their merits. A mere explanatory statement must suffice. The act of 1864 required that " the several Companies authorized to construct the aforesaid roads [viz. the main line of the Pacific Koad and its feeders], should operate and use said roads and telegraph for all purposes of communication and transportation so far as the Government and the public are concerned as one continuous line, and in such operation and use should afford and secure to each, equal facilities as to rates, time, and transportation without any discrimination of any kind in favor of the road or business of any or either of said Com- panies or adverse to the road or business of any or either of them." It was claimed by the Kansas Pacific Road (which as we have seen in the previous article is a competing and rival road to the Union Pacific erected against the remonstrance of the latter out of one of its tributary feeders), that the Union Pacific Company habitually violated this legal requirement with respect to freight and passengers, which it received at Cheyenne from the Kansas Pacific for transportation farther west. The Union Pacific Company denied the charge and insisted that its rates of freight and fare were entirely consistent with its legal obli- gations. The dispute between the roads was submitted to the Courts, but pending the suit the Kansas Pacific Company appealed to Congress to compel the Union Pacific Company to accede to their demands. In December, 1877, the United 1878.] The Pacific Railroads and the Government. 667 States Senate adopted a Resolution which assumed that the Union Pacific Company was habitually violating the law and inquired of the President " what, if any, impediments existed which prevented him from compelling that Company to observe it." The Resolution was referred by the President to the Attorney-General and the Secretary of the Interior, who gave the parties a hearing. In their report to the President they declined to accept the assumption on which the resolution was based, and advised that " the questions involved were judi- cial in their nature, in which evidence should be carefully and elaborately taken and the true construction of the law discussed, and that such an inquiry was already pending in the Courts." Notwithstanding these suggestions, bills were prepared by committees both of the Senate and the House in accordance with the Kansas Pacific demands, supported by the public press, to compel the Union Pacific Company " to comply with the provisions of its charter and to operate its road and branches as one continuous line without discrimination." These bills were still under discussion as late as May 8th, 1878, and with every prospect that some one of them would be passed, with little if any opposition. On that day, however, the deci- sion of the United States Circuit Court upon the disputed questions was received. The Court held the claim of the Kan- sas Pacific Company to be untenable, that the Union Pacific Company had a right to make the charges complained of, and were both reasonable and fully in accordance with their charter in so doing. Its language is clear and emphatic. "These reasons in my judgment fully justify the Union Pacific Road in charging a greater rate for transportation of persons and property west of Cheyenne than is found necessary east of that point. And the defendant [the Union Pacific Company] is not bound to transport the cars of, or passengers or freight carried by the plaintiff, [the Kansas Pacific Company] from Cheyenne to Ogden at one-half the regular through rates estab- lished by the defendant. Neither reason or justice requires this to be done. Nor can I believe that Congress ever intended to impose such an onerous burden on the defendant. No reasonable construction of the law will lead to such a conclu- sion. * * To compel the defendant to do what is here 668 The Pacific Railroads and the Government. [Sept., asked would be to require the defendant to discriminate in favor of the other roads, and against its own material interests. Such a result was never contemplated by the Government." The controversies between the Pacific Railroads and the Government, which we have thus hastily reviewed, illustrate in a striking manner the inconvenience and the dangers arising to both parties out of business enterprises in which the Govern- ment and private persons are mutually concerned. The only safety for either, if there is any safety at all, must be found in such a complete and final adjustment of their several relations, obligations, and rights, as to take the subject forever out of the sphere of legislation and to leave all questions of dispute, where they are left in private affairs, to the adjudication of the Courts. When of two parties to a contract, one claims every right, even to that of alteration or repudiation, and has the power to enforce it, it is inevitable in the nature of things that such claim will be sooner or later asserted with oppression and injustice. Especially must this be the case where the stronger party is a Government, and more than all a democratic government, swayed as such governments so frequently are by the passions and prejudices and selfish or sectional interests of even small minorities of the general public. If in such case the other party is a private in- dividual there may be a chance that a sense of sympathy or of justice will afford a measure of protection. But if it is a corpo- ration the hope of forbearance is largely diminished. In either case the exercise of power on the one side, will surely sooner or later be forestalled or averted by acts of corruption on the other, and the greater and richer the weaker 1 party may be, the greater the evil and the more widespread and protracted the danger. Herein lies one of the most serious of the many objections to the legislation of 1878, which we have been con- sidering. By asserting an unlimited right in Congress to alter, amend, or repeal at its will the contract between the Govern- ment and the companies, the whole subject has been removed from the province of the Courts where alone it can properly and safely be left, and the foundation has been laid for the most enormous scandals of contending tyranny, and corruption, aud for stock jobbing legislation of the most flagrant kind that have ever been known in our history. So long as the rights or privi- 1878.] The Pacific Railroads and the Government. 669 leges of the companies are at the mercy of Congress, politicians and " statesmen" of every grade will be sure to seize their oppor- tunities; political parties will be formed and bought and sold with the revenues of the road, and eventually that great and magnificent enterprise, now a pride and a glory to the nation, will be rather associated with recollections of public folly and disgrace. If any one deems these imaginings to be fanciful, or overdrawn, let him recall the history of the United States Bank, its connection with politicians, and parties, and party scandals especially in its later days, and consider what all this would have grown to had that institution been like a railroad stretching across the continent, incapable of annihilation, an indestructible, inexhaustible, and enormous source of political influence and intrigue, and of public and private corruption. Whether the companies will contest these laws in the Courts we know not, and with that we have nothing to do. Our pur- pose has been accomplished in reviewing the legislation itself, and in calling attention to its wrongs and its perils. Through a misapprehension of the facts in the public mind this action of Congress has not received the attention which it deserved and it has been generally received either with indifference or approval. We feel assured, however, that when the facts are known and the measures we have criticized are duly considered, a correct public sentiment will be awakened in full accord with what we have written.