yrf 
 
 TilE 
 
 PACIFIC RAILROADS, 
 
 THE RELATIONS 
 
 F^XISTING BETWEEN THEM 
 
 AND THE 
 
 GOVERNMENT OF the UiNITED STATES. 
 
 NEW YORK, 
 
 1879. 
 
 fc . A 
 
THE 
 
 PACIFIC RAILEOADS, 
 
 AND 
 
 THE RELATIONS 
 
 EXISTING BETWEEN THEM 
 
 AND THE 
 
 GOYERNMENToF THE UNITED STATES. 
 
 1-UrNru Vm- i,iUr., ?rfr, > e-2 - 13^ 
 
 NEW YORK, 
 1879. 
 
M 
 
 3 West 21st Street, 
 New York, 27 Feb., 1879. 
 
 Bjexry V. Poor, Esq. : 
 
 Dear Sir : 
 
 I understand that you have prepared a paper 
 concerning the legal relations of the Union Pacific Railroad Compa- 
 ny to the Government under the decisions of the Supreme Court of 
 the United States. Not doubting from your connection with the 
 enterprise in its incipient stages, and from the attention you have 
 given to the subject to the present time, that your paper will be 
 calculated to correct some prevailing misapprehensions, I trust it 
 will find its way to the public. 
 
 I have had no stock in the Company since my 
 resignation as President ten years ago ; nor have I been concerned 
 in any way with its transactions, or any outside movements relating 
 to it. But I regard it as one of the great enterprises of the age, 
 the rapid accomplishment of which caused more astonishment in 
 other countries than anything we have achieved, and as a larger con- 
 tributor to our growth and prosperity than any one other cause. I 
 do not doubt that it will continue to be so, whatever combinations 
 may be formed by speculators in Wall Street to enhance or depress 
 the market value of its stock. 
 
 I did not, as you know, approve or assent to 
 the Credit Mobilier contracts, which were mac.^ while I was in 
 Europe ; but this is a matter entirely apart from the legal relations 
 of the Company to the Government. These should be understood 
 by the whole Community not only for ihe purpose of removing mis- 
 conception, by which the public mind is unjustly prejudiced, but to 
 prevent legislative bodies, under the influence of the prevalent and 
 not unr^^ural jealousy of large corporations, from being misled and 
 hurried into ill-considered and unauthorized enactments. 
 
 Yours truly, 
 
 JOHN A. DIX. 
 
The Union Pacific and the Centeal Pacific Raiit 
 
 EOADS and their EeLATIONS TO THE 
 
 . / A* -> United States. 
 
 >K.i ' 'I ' i.^- - ' ^ 
 
 New York, 6 Marcli, 1879. 
 Hon. John A. Dix, 
 
 Dear Sir: 
 
 Recent decisions of the Supreme Court of tlie 
 United States, the Tribunal of final resort, have at last established 
 and defined beyond controversy the respective rights of the two Pacific 
 Eailroad Companies and those of the Government, growing out of the 
 act for their incorporation j the acts additional thereto ', the issue 
 of bonds by the Government in aid of, and the contracts for, the 
 construction of the Eoads of the two Companies. 
 
 Act incorporating the pacific companies, and the govern- 
 ment SUBSIDY. 
 
 TheActof Congress of July 1, 1862, incorporating the Union Pacific 
 ri Company, tlie Central Pacific deriving its charter not from the Unit- 
 '^ ed States, but from the State of California, provided for the issue of 
 V. bonds by the Government in aid of the Roads, equaling $16,000, $32,- 
 
 
 4 
 
 3 
 
 ^ 
 
 000, and $48,000 per mile, according to the character of the country 
 traversed, the intention being to apportion the bonds in ratio to cost. 
 The bonds were simply obligations of the Government, to wliich the 
 Railroad Companies were in no way parties. The bonds were six 
 per cents, payable in thirty years ; the interest payable semi-annually. 
 To secure the payment of both principal and interest, a first mort- 
 gage was created, by statute, upon the respective Roads. For the 
 payment of the principal and interest thus secured it was provid 
 ed by the act of incorporation (sec. 6) that : 
 
 '^ All compensation for services rendered for the Government shall 
 ho applied to the payment of said bonds and interest until the 
 whole amount is fully paid j * * * * and after said road is 
 completed, until said bonds and interest are paid, at least five per 
 centum of the net earnings of the said road shall also be annually 
 applied to the payment thereof." 
 
 The companies thus chartered were duly organized, but so hazard- 
 ous was the enterprise regarded that no parties possessing adequate 
 capital could be found to embark in it. The feeling in reference to 
 it was well expressed by Hon. Justin S. Morrill, at that time one of 
 the leading and best informed members of the House. In a speech 
 in reference to the project, pending t!ie passage of the Bill, he said : 
 
"I am not to be deceived by any promises that this is to bo built 
 and run by any other parties than the United States. Every dollar 
 that it takes to construct the road is to be contributed by the 
 United States. There is not a capitalist that will invest a dollar in 
 it if he is to be responsible, for any considerable distance. * * 
 If it could be constructed it could not be kept in operation except 
 at the expense of the government. If this road were built to-day, 
 therefore, and given to the United States, the United States are not 
 in a condition to accept it, even as a gift, if compelled to run it; 
 nor will they be till the population has so far increased as to give 
 the road some freight and some local business. As a commercial 
 and economical question such road is utterly defenseless." (See 
 Con. Globe, 2d Session 37 Congress, Page 1,708.) 
 
 Mr. Morrill, in his speech, only too faithfully represented the con- 
 viction which prevailed among conservative minds, and capital is 
 always conservative, in reference to the project. No sooner was it 
 seen that the provision made was wholly inadequate than Congress, 
 more than ever impressed with its necessity, passed, on the 2d of 
 July, 1864, an act, in addition to that of 1862, providing that: 
 
 ^ Only one-half of the compensation for services rendered the 
 Government by the said companies shall be required and applied to 
 the payment of the bonds issued by the Government in. aid of the 
 construction of said roads. ' And further, section 10 of said act, '^that 
 the section five (of the act of 1862) be co modified and amended that 
 the Union Paciiic and Central Pacific Eailroad Companies * * * 
 may issue their first mortgage bonds on their respective railroads 
 and telegraph lines to an amount not exceeding tlie bonds cf the 
 United States, and of even tenor, date, time of maturity, rate and 
 character of interest, with the bonds authorized to be paid to said 
 Eailroad Companies respectively. And the lien of the United States 
 bonds shall be suborainate to that of tlie bonds of either of said 
 companies hereby authorized to be issued on their respective roads, 
 property, and equipment.'' 
 
 The amended bill not only practically doubled the amount of the 
 Government subsidy, but relieved the Companies of the burden of 
 Government transportation by allowing them to be paid one-half the 
 charges. This provision, it was assumed, would avoid all loss. 
 With their means so increased they at once entered upon the work 
 of construction, and opened the whole line within a period of seven 
 years from the date of the act of incorporation, although they were 
 allowed by it fifteen years therefor. 
 
 The roads of the two Companies were no sooner opened than ques- 
 tions naturally arose between them and the Government involving 
 the obligation of the Companies to repay to the Government a 
 Eum equal to the interest on its bonds as the same falls due ; and the 
 right of the Government to withhold, on account of such inter- 
 est, all payment for transportation services rendered it; the sum 
 upon which the five per cent, of net earnings should be cast; 
 and the right of the Government to inquire into the contracts 
 
and other matters growing out of the construction of the road of the 
 Union Pacific Company. 
 
 First ^ the obligation of the companies to pat the interest 
 
 ACCRUING on the GOVERNMENT SUBSIDY, AND THE RIGHT OF 
 THE GOVERNMENT TO WITHHOLD ALL TRANSPORTATION CHARGES 
 ON ITS ACCOUNT. 
 
 The first of these questions was settled, or was supposed to be set- 
 tled, by an Act (Section 9) of Congress, of March 3d; 1871, which 
 provided that : 
 
 '* The Secretary of the Treasury is hereby directed to pay over, in 
 money, to the Pacific R;dlroad Companies mentioned in said Act, and 
 performing services for the United States, one-half of the compensa- 
 tion, at the rate provided by law, for said services heretofore or 
 hereafter rendered." 
 
 Payment of one-lialf of the charges on account of Government 
 transportation continued to be made under the provision of this Act, 
 until January 1, 1873. On the 3d of March of that year, Congress 
 passed an Act which, among other things, provided (Section 2) that: 
 
 '' The Secretary of the Treasury is directed to withhold all pay- 
 ments to any railroad company audits assigns on account of freights 
 or transportation over their respective roads, of any kind, to the 
 nmountof payments made by the United States for interest upon bonds 
 of the United States issued to such company, and which shall not have 
 been reimbursed, together with the five per cent, of net earnings 
 due and unapplied, as provided by law ; and any such company may 
 bring a suit in the Court of Claims to recover the price of such freight 
 and transportation; and in such suit the right of such company to 
 recover the same upon the law and the facts of the case shall be de- 
 termined j and also the rights of the United States upon the merits of 
 all the points presented by it in answer thereto by them ; and either 
 party to such suit may appeal to the Supreme Court ; and both 
 said courts shall give sach cause or causes i)recedence of all other 
 business." 
 
 Under the provision of this act, the Union Pacific Railroad Compa- 
 ny brought an action in the Court of Claims to recover of Govern- 
 ment one-half of the transportation charges on its account from Janu- 
 ary 1, 1873, to March ], 1874. The defense was that as a very 
 large sum had been paid by the Government, on- account of 
 interest on its bonds issued to that road, it might properly 
 offset such payments against the claim set up against it. 
 The Court of Claims held such payments to be no defense, and 
 gave judgment to the Company for the sum of $512,632.50, and 
 dismissed the counter claim of the Government. An appeal was then 
 taken by the Government to the Supreme Court of the United States, 
 wi.ich sustained the decision of the court below. In its decision, 
 made October term, 1875 (Justice Davis rendering the opinion), the 
 Court said : 
 
'' The proposition for the Government to retain the amount due the 
 Company for services rendered, and apply it toward tiie general 
 indebtedness of the Company to the Government, cannot be con- 
 strued into a requirement that the company khallpay the interest from 
 time to time and the principal when due. It was in the discre- 
 tion of Congress to make this requirement, and then, as collateral to 
 it, provide a special fund or fun<is out of which the principal obli- 
 gation could be discharged. This Congress did not choose lo do, but 
 rested satisfied with the entire property of the company as secudty 
 for the ultimate payment of the principal and interest of the bonds 
 delivered to it. ****** 
 
 There is enougli in the scheme of the act, and in the purposes con- 
 templated by it, to show that Congress never intended to impose on the 
 corporation the obligation to pay current interest. The act was passed 
 in the midst of war, as has been stated, when the means for national 
 defense were deemed inadequate to the wants of the country, and 
 the public mind was alive to the necessity of uniting by iron bands 
 the destiny of the Pacific States with those of the Atlantic. Con- 
 fessedly, the undertaking was outside of the ability of private capital 
 to accomplish, and only by tlie helping hand of Congress could the 
 problem, difficult of solution under the most favorable circumstances, 
 be worked out. Local business, as a source of profit, could not be 
 expected while the road was in course of construction, on account of 
 the character of the country it traversed; and whether when com- 
 pleted, as an investment, it would prove valuable, was a question for 
 time to determine. Bat vast as the work was, limited as were the 
 private resources to build it, the growing wants of the country, as 
 well as the existing and future military necessities of the Govern- 
 ment, demanded that it be completed. Under the stimulus of these 
 considerations. Congress acted. It did uot act for the benefit of 
 private persons, nor in their interest, but for an object deemed essen- 
 tial to tiie security of the country, aa well 2.^ to tiie prosperity of the 
 country." 
 
 By this decision the two questions first raised that of the obliga- 
 tion of the Companies to repay to the Government the interest on 
 its bonds as it accrued ; and of the right of the latter to retain 
 for such payment the whole of the transportation charges on its ac- 
 countwere decided wholly in favor of the Companies. The accru- 
 ing interest, it was decided, was a debt not due till the bonds were 
 due, except so much of it as could be met by the application thereto 
 of one-half the transportation charges on Government account, and 
 of five i)er cent, of the net earnings of the Companies. 
 
 Sec:ND: THE FIVE PER CENT. NET EARNINGS HOW TO BE DETER- 
 MINED. 
 
 Government still refusing to pay over to the Union Pacific Com- 
 pany one-half of the charges on account of transportation, as pro- 
 vided by the act of 1873, and in accordance with the decision of the 
 Supreme Court in 1875, the Company, in 1S76, brought another 
 suit in the Court of Claims at Washington, for one-half of its 
 charges for 187.5, and for arrearages of 1874. To this sidt the Gov- 
 
erameiit put in a counter-claim for five per cent, of the net earnings 
 of the Company, under the provision of the 6th Section of the act 
 of 18G2, which provided that, '^ After the said road is completed, 
 until said bonds (issued to the Company) and interest are 
 paid, at least five per cent, of the net earnings of said road 
 shall also be annually applied to the payment thereof." The 
 United States, in its counter-claim, alleged that the road was com- 
 pleted November 6, 1869. The Company claimed the legal dats of 
 opening to have been October 1, 1874. The Court of Claims decided 
 that the road was opened November 6, 1869 ; that up to November 
 6, 1874, the net earnings had amounted to $28,052,045 ; five per cent, 
 upon which equaled the sum of $1,402,602 ; while the sum due the 
 Company for the time covered by its suit, chiefly for 1875, equaled 
 $593,627. making a balance of $803,975, in favor of the Government. 
 From this decision the Company appealed. That of the Supreme 
 Court, rendered at the October term, 1878, but only recently 
 made public, sustained the position of the Government, that tlie 
 road was completed November 6, 1369; and that net earnings must 
 be calculated from that period. The chief point of interest, however, 
 was the rule by which tliese were to be ascertained. In reference to 
 this point, the Court (Justice Bradley rendering the decision), after 
 disposing of the question of the date at which the road was opened, 
 said: 
 
 " The question next arising is, what are the net earnings of five 
 per cent, for which the Company became liable to account, and in 
 what manner are they payable ? 
 
 * In the first place they are the ' net earnings of the road,' that is, 
 the net earnings cf the road as a railroad, inchiding the telegraph. 
 They have nothiu'^- to do with the income or profits of the Company 
 as a holder of public lands. The proceeds of this source of income 
 are no part of the earnings of the road. These earnings, however, 
 must be regarded as embracing all the earnings and income derived 
 by the Comi)any from the railroad proper, and all the appendages 
 and appurtenances thereof; including its ferry and bridge at Omaha, 
 its cars, and all its property and apparatus legitimately connected 
 with its railroad." * * * * * * 
 
 J' Having considered the question of receipts, or earnings, the next 
 thing in order is the expenditures which are properly chargeable 
 against the gross earnings, in order to arrive at the ^^ net earnings," 
 a3 this expression is to be understood within the meaning of the 
 act. As a general proposition net earnings are the excess of the 
 gross carLings over the expenditures defrayed in producing them, 
 a^ide from, and exclusive of, the expenditure of capital laid out in 
 constructing and equipping the works themselves. It may often be 
 difficult to craw a precise line between expenditures for construc- 
 tion and the ordinary expenses incident to operating and maintain- 
 ing the road and works of a railroad company. Theoretically, the 
 expenses chargeable to earnings include the general expenses of 
 keeping up the organization of the company, and all expenses 
 incurred in operating the works and keeping them in good con- 
 
8 
 
 dition and repair, whilst expenses chargeable to capital include 
 those ^hich are incurred in the original construction of the works, 
 and in the subsequent enlargement and improvement thereof. 
 With regard to the last mentioned class of expenditures, however, 
 namely those which are incurred in enlarging and improving the 
 works, a difference of practice preva^'ls among railroad companies. 
 Some charges to construction include every item of exi)ense, and 
 every part and portion of every item which goes to make the road, 
 and any of its appurtenances or equipments, better than they were 
 before; whilst others charge to ordinary expense account, and 
 against earnings, whatever is taken for those purposes from the earn- 
 ings, and is not raised upon bonds or issues of stock. The latter 
 method is deemed the most conseivative and beneficial for the com- 
 pany, and operates as a restraint against injudicious dividends and 
 the accumulation of a heavy indebtedness. ^ * * But for making 
 all ordinary improvements, as well as repairs, it is better for the 
 stockholders, and all those who are interested in the prosperity of 
 the enterprise, that a portion of the earnings should be employed. 
 We think that the true interest of the Government, in this case, is 
 the same as that of the stockholders, and will be subserved by en- 
 couraging a liberal application of the earnings to the improvement of 
 the ivorks. It is better for the ultimate security of the Government 
 in reference to the payment of its loan, as well as for the service 
 which it may require in the transportation of its property and mails, 
 that a hundred dollars should be spent in improving tlie works, than 
 that it shoidd receive five dollars towards the payment of its sub- 
 sidy. If the five per cent, of net earnings, demandable from the 
 Company, amounted to a new indebtedness, not due before, like a rent 
 accruing upon a lease, a more rigid rule mightbo insisted on. But it is 
 not so; the amount of the indebtedness is fixed and unchangeable. 
 The amount ofthe five per cent, anditsreceipt at one time or another, 
 is simply a question of earlier or later payment of a debt already fixed 
 in amount. If the employment of any earnings of the road in mak- 
 ing improvements lessens the amount of net earnings, the Govern- 
 ment loses nothing thereby. The only result is, that a less amount is 
 presently paid on its debt, whilst the general security for the whole 
 debt is largely increased." 
 
 As the decision of the Court of Claims was overruled in various 
 particulars, some points having been decided by the Supreme Court 
 in favor of the Government, and some in favor of the Company, the - 
 case was sent back with an order that its judgment be made respon- 
 sive to the decisions of the Court above. This order will involve a 
 full audit of the accounts of the Company in order to determine 
 w^hat proportion of its apparent net earnings, not absorbed by 
 tbe payment of interest or dividends, has been applied to the im- 
 provement of their property. It is sufficient to state here that the 
 ^amount annually withheld by the Government, being one-half of the 
 charges for transportation on its account, has considerably exceeded 
 .tlie amount of five per cent, of their net earnings ; so that during 
 the whole controversy which has now extended through nearly ten 
 years, the Government, not the Railroad Companies, has been and 
 Btill is the party in default 
 
Third : - the credit jiobilier suit. 
 
 The act of 1873 which authorized the Kailroad Company to bring 
 a suit against the United States for the recovery of one-half of the 
 charges withheld from it on account of government transportation 
 also directed (section four) that: 
 
 *' The Attorney General cause a suit in equity to be instituted 
 in the name of the United States against the Union Pacific 
 Kailroad Company, and against all persons who may, in their own 
 names or through any agents, have subscribed for or received capi- 
 tal stock in said road, w'hich stock has not been paid for in full in 
 money, or who may have received, as dividends or otherwise, por- 
 tions of the capital stock of said road, or the proceeds or avails 
 thsreof, or other property of said road,'unlawfully or contrary to 
 equity, or who may have received as profits or proceeds of contracts 
 for construction or equipment of said road, or other contracts there- 
 with, moneys or other property which ought, in equity, to belong to 
 said railroad corporation, or who may, under preteuse of having 
 complied with the acts to which this is an addition, have wrongfully 
 and unlawfully received from the United States bonds, moneys or 
 lands which ought, in equity, to be accounted for and paid to said 
 Railroad Company or to the United States, and ti compel payment 
 for said stock, and the collection and payment of sach moneys, and 
 the restoration of such property, or its value, either to said Railroad 
 Corporation or to the United States, whichever shall in equity be 
 ^eld entitled thereto." ,- r '^- - 
 
 In pursuance of this act a suit was brought in the Circuit Court of 
 the United States for the District of Connecticut, against the Union 
 Pacific Railroad Company, and all parties in privity with it, in order 
 to compel an account, and the surrender to the Government, or to the 
 Company, for the benefit of the Government, of the moneys improperly 
 received or secured, no matter how or by whom, growing out of the 
 construction of the road. The chief object of the suit was to reach 
 " The Credit Mobilier," a company organized under the laws of the 
 State of Pennsylvania, and which was made use of to avoid a per- 
 sonal liability. Capitalists were willing to put up their money and 
 run the risk of its loss, but they were not willing to destroy the 
 credit necessary for carrying forward their own business operations, 
 nor run the risk of the total loss of their fortunes by becoming gen- 
 eral partners in a work admitted on all hands to be hazardous in the 
 extreme. Each one must judge of the propriety of resorting to such 
 intermediary by inquiring how he would act were he similarly 
 placed. The public would not subscribe a do^.lar to the stock of the 
 Company as an investment. The means for construction, in addition 
 to those provided by Government, or which could be raised on bonds, 
 had to be supplied by a very few capitalists, upon whom the whole 
 hazard of the enterprise was thrown, and who were really, if not 
 nominally, parties to the contract for construction. Their profits 
 
10 
 
 were not increased a dollar hy a resort to the intermediary. Those 
 of the parties who took contracts for construction or nuiteriul were 
 not, in conseqnence, decreased or diminished a Kin;,Me dollar. The 
 result proved that there was no necessity whatever for such resort, as 
 every claim was met Avithout loss or embarrassment on eitlier side. 
 
 Such in its length and breadth was the Credit Mohilier, whicli at 
 one time made sucli a stir in the land. It was resorted to for no im- 
 proper purpose, nor was it ever i)ut to an imi)roper one. Congress, 
 however, believed or affected to believe, that a great offense of some 
 kind had been committed. To the bill wliicli was to investigate and 
 punish it, the defendants, who stood in ahnost everj^ possible relation 
 to the Railroad Company and to the Grovernment, demuiTcd denied 
 that, even admitting all the allegations, there was any cause of ac- 
 tion against them. The Circuit Court sustained the demurrer. An ap- 
 ])eal was then taken to the Supreme Court at Washington. Its decision 
 sustaining that of the court below was rendered at the October tenn, 
 1878. In course of it, Justice Miller, delivering the opinion, said : 
 
 ''The Government sustains two distinct relations to the Eailroad 
 Company, and it is important in considering her rights under this sta- 
 tute to keep them separate. Tiie company is organized under an 
 act of Congress. It owes its corporate existence to that act, and the 
 Government has all the rights which belong to any other Govern- 
 ment as a sovereign and legislative power over tliis creation oft :at 
 power. Tliat this power should not be too much crippled by the 
 doctrine that a charter is a contract, the eighteenth section declares 
 that Congress may, at any time, havbuj due rctjard for the rit/hts of 
 the companicfi named therein, add to, alter, amend or repeal tie act. 
 The power of Congress, therefore, in its sovereign and legislative 
 capacity over this corporation is very great. 
 
 '' The government, liowever, holds another very important rela- 
 tion to the comx)any, namely, the relation of contract. It has loaned 
 to the company twenty-seven millions of dollars. It has granted to 
 it, on certain terms, many millions of acres of land. The govern- 
 ment is paying all the time the semi-annual interert on its own 
 bonds which it loaned to the company. The company is bound, by 
 contract, to pay the bonds, principal and interest, at their maturity. 
 The Government, by the contract, has a lien on the road and its ap- 
 purtenances to secure thisiwyment. The company is also bound, by 
 the contract, to perform for the Government all that may be required 
 of it, of transiKirtation and telegraphing, and to keep itsroad always 
 in order and readiness to do this. There may be other contract ob- 
 ligations of the company to the Government not here mentioned, 
 but these are all tiat are important to our inquiry. The Govern- 
 ment lias delivered its bonds to the company. The con]pan\' has 
 built the road, owns it, and operates it. Is there anjthinii growing 
 out of this contract, alleged in the bill, for which the United States 
 is entitled to relief? 
 
 ''One of the allegations of the bill is, that there is due to the 
 United States and unpaid, on account of interest on the bonds, the 
 sum of six million one hundred and ninety-eight thousand and seven 
 hundred dollars, and that the bal mce of interest for which the com- 
 pany is liable is rapidly accumulating. The bill in ibis case was 
 
11 
 
 filed in May, 1873, and this Court decided at its October Term, 1875, 
 in a suit between the same parties, that the company was not bound 
 to pay this interest until the maturity of the bonds,* except so far as 
 the act made two special provisions on that subject. One of them 
 was that half the compensation for transportation, performed for the 
 United States should, as provided by the subsequent amended char- 
 ter of 1864, be withheld by the Government for that purpose. 
 Another was a j)rovision that after the road should be completed, five 
 per cent, of the net earnings of the road should be applied annually 
 to extinguish the debt of the United States." 
 ************* 
 
 *^ There is therefore no ground for relief on account of money due 
 by defendant to the plaintiff." 
 
 ********** * ;;s 
 
 ^' The Government made its contract and bargained for its se- 
 curity. It had a first lien on the road by the original act of incor- 
 poration, wliich would have made its loan safe in any event. But 
 in its anxiety to secure the construction of the road, an end more 
 important to tbe Government than to any one else, and still more 
 important to the people whom it represented, it postponed this lien 
 t) another mortgage, that the means might be raised to complete it. 
 The Government has the second lien, however, audit has the riglit 
 to appropriate one-half of the price it pays for the use of the road 
 a very large sum annually, and five per cent, of the net earnings of 
 the road, which may become larger, to the extinction of this debt. 
 It is not wholly unreasonable to suggest that the amount which the 
 company may be compelled to pay annually, under these two pro- 
 visions, will be sufficient as a sinking fuLd to pay the entire debt, 
 principal and interest, before it falls due. 
 
 *'It is difficult to see any right which the Government has, as a 
 creditor, to interfere between the corporation and those with whom 
 it deals. It has been careful to look out for itself in making the con- 
 tract, and it has the right which that contract gives. What more 
 can it ask 1 It is true that there is an allegation of insolvency. But 
 in what that insolvency consists is not clearly shown. It has a float- 
 ing debt. But what railroad company has not ? It is said it does 
 not pay the interest on its debt to the United States. We have 
 shown, that it owes the United States no money that is due. There 
 is no allegation that it does not pay the interest on all its own funded 
 debt. The allegation, as it is, would be wholly insufficient to plafce 
 the corporation in bankruptcy, even if that was notforbidden by the 
 actunder which this bill is drawn. The facts stated are utterhj in- 
 sufficient to support a creditor's hill by the XJnited States. That 
 requires a judgment at law, an execution issued, and a return of 
 mdla bona. Here there is no judgment, no money due, and no suffi- 
 cient allegation of insolvency. 
 
 ''Weare unable, therefore, to see any relief which the United States 
 would be entitled to in a court of equity, under this bill, on account 
 of its contract relations with the defendant. 
 
 '^ In its sovereign or legislative relation to this corporation, the 
 United States has powers, the extent of which it is unnecessary to 
 define in this case. The two sections of the act, under one of which 
 this suit was instituted, are exercises of this power. They affect the 
 interest of the corporation in important particulars. In addition to 
 this, Congress might have directed the Attorney- General, by this 
 bill, as a part of this proceeding, or as an independent one, to ask 
 the Court to declare the franchises of the Company forfeited. It 
 
12 
 
 mifrhthavc ordered a bill to inquire if the Company wa8 insolvent, 
 and if so, to wind uj) its alfairs an<l distribute its assets. Jn short, 
 there are many modes in which the Lej^asiature could have called 
 into operation the judicial powers known to the law. But it has not 
 done so, and that is the constantly recurring answer to this bilV^ 
 
 The effect of the decision last given was little more than to affirm 
 and sustain that of 1875, which declared that the interest accruing 
 on the Government bonds was not a debt for which the Companies 
 were immediately to provide, and that the Government must pay 
 over one-half of the transportation charges on its account. The 
 Government had all the security it intended to exact a second lien 
 on a railroad worth more than three timt^s the amount of its loan. 
 It was not a matter of the least interest or importance to it, under 
 what kind of contracts the roads were built. They were built, and 
 Government had its security, and must wait for the payment of its 
 advances, principal and interest, till they fall due. The clause in 
 the act authorizing a suit in its behalf, was intended to be a grand 
 scoop-net to bring before the courts, and punish, all offenders.. Yet 
 the ingenuity of Congress could not draft an act, nor the skill of the 
 ablest counsel frame a case, which the Supreme Court would accept 
 as impugning the integrity and good faith of the Company. 
 
 Fourth: the Tiiueman sinkikg-fukd bill. 
 
 The preceding decisions are an authoritative interpretation, by the 
 highest tribunal in the land, of the act incorporating the Pacitic Rail- 
 roads, and of the acts amendatory thereof. The Supreme Court of 
 the United States is not only the proper arbiter in all such matters, 
 but it was, up to a certain stage, the recognized and selected arbiter 
 by Government as well as by the Railroad Companies. The rela- 
 tions of the two, growing out of the act of the incorporation, were 
 substantially settled by the decision of 1875 j yet, in the face of this 
 decision, and pending the action brought by itself for the purpose of 
 overhauling the Union l*acific Railroad, as well as of the action 
 brought by the Railroad Company to determine the question of net 
 earnings. Congress, by the famous '' Thurman Bill," passed May 8, 
 1878, deliberately undertook to override the decision of the Supreme 
 Court, and to seize and withhold a much larger sum than the whole 
 of the charges for Government transportation and the five per cent, of 
 net earnings, under the pretense of establishing a sinking fund out 
 of the earnings of the Companies, for the purpose of retiring their 
 bonds at their maturity. That bill (section 4) provided that : 
 
 " There shall be carried to the credit of the said (sinking) fund 
 (created by this act ) on the first day of February in each year, the 
 one-half of the compensation for services hereinbefore named, 
 
13 
 
 rendered for tlie Grovernment by the said Central Pacific Eailroad 
 Company, not applied in liquidation of interest ; and, in addition 
 thereto, the said Company shall, on said day in each year, pay into 
 the Treasury, to the credit of said sinking fund, the sum of $1,200,- 
 000, or so much thereof as shall be necessary to make the live per 
 centum of the net earnings of its said road payable to the United 
 States, under said act of eighteen hundred and sixty-two, and the 
 \^;hole sum earned by ifc as compensation for services rendered for 
 the United States, together with the sum by this section required to 
 be paid, amounting in the aggregate to twenty-five per centum of 
 the whole net earnings of the said Eailroad Company, ascertained 
 and defined as hereinbefore provided, for the year ending on the 
 thirty -first day of December next preceding." 
 
 The preceding section required from the Union Pacific Railroad 
 Company the sum of $800,000 annually, in addition to one-half of 
 the earnings on Government account ', or a sum which, added to 
 such half, would equal 25 per cent, of the net earnings of the Com- 
 pany. The amount required annaally by the Thurman Bill from 
 each Company is about twice as large as that which each would be 
 required to pay by the terms of their Charter. 
 
 The decisions of the Supreme Court of the United States, that no 
 moneys are due from the Pacific Eailroad Companies to the Govern- 
 ment on account of the advances made by it, and that the only 
 amounts it can claim in future are the one-half of charges for trans- 
 portation on its account, and five per cent, of the net earnings of the 
 Companies, and the action of Congress attempting to compel the 
 payment of an annual sum nearly twice greater than that required 
 by law, present the whole question now in controversy. There is 
 no pretense that Government does not hold ample security for every 
 dollar it has advanced with all the interest which may accrue. With 
 such security should not Government be held as much as an indi- 
 vidual to the observance of good faith in the contracts into which it 
 has entered ? Can it act otherwise ; or rather, are not the rights of 
 the Companies sucli as cannot be overridden by any act of Congress 
 of the nature of the Thurman Bill 1 Is it not certain that Congress 
 possesses no such power as it presumed to exercise by virtue of this 
 Bill ? In the construction of contracts to which it is a party is not the 
 Supreme Court the sole authoritative tribunal ? When Government 
 itself has resorted to said tribunal in vindication of its rights under 
 contracts to which it is a party, can it, when the decision is against 
 it, take the law into its own hands ? In the presence of such a 
 question, the rightful ownershij) of a few hundred thousand, or a 
 few million of dollars sinks into utter insignificance. It is a ques- 
 tion that lies at the very root of society. If the action of Congress is 
 to stand, we are no longer a free people, but the victims of blind pas- 
 sion or caprice far more to be dreaded than a relentless despotism. 
 
14 
 
 Fifth : the right of congress to annul the charters of the 
 pacific railroad companies. 
 
 The questions so far passed upon by the Supreme Court re- 
 lated to contracts into which the Government and the Kailroad 
 Companies had entered. The question of annulling or repealing 
 their charters was not raised. It might have been raised ; but 
 when raised, the decision in it, the Court declared in its judgment 
 in the Credit Mobilier Case, rested with itself, not with the Govern- 
 ment. There are rights to be adj udicated upon in proceedings for such 
 repeal, for the determining of which Congress has no more compen- 
 tency or power than it has for determining rights arising under con- 
 tracts to which the Government is a party. Congress is not a Court 
 of Law with power to summon and examine witnesses, and, with the 
 assistance of juries^ to render judgments in damages, and issue the 
 proper processes for their execution. Wherever rights are reserved 
 in a charter granted by it, Congress must make use of some other 
 tribunal than itself for determining them, as a condition precedent 
 and absolutely necessary to give any validity to any declaration of 
 repeal of its own. No principle, or rule of procedure, is better recog- 
 nized than this under all governments that are not despotisms. 
 When Congress has created a cori)oration, and when in the exercise of 
 its proper functions such corporation has raised on its securities, and 
 invested in its works, large sums of money, Congress can no more 
 reclaim its grants without cause, than it can seize indiscriminately, 
 and without an equivalent, the property of any citizen. Ours is a 
 Constitutional Government with a careful and jealous limitation of 
 its powers, when the rights of the people are concerned. To deter- 
 mine rights dependent upon a charter, Courts of Law must always 
 be resorted to, before which Government and the corporations 
 created by it are litigants on equal terms. All are alike within the 
 domain and restraini: of law. Should Congress without any adjudi- 
 cation by the Courts declare the Pacific Railroad Corporations forfeit, 
 and proceed to take possession of their roads or property, it or its 
 agents would be immediately restrained by a higher law in the 
 premises than its own. In all such matters the Government is 
 a party, not a court. To be party and judge, would be to make 
 the will of the stronger law; in other words, would override law 
 in its relations to all others. This is pure tyranny, which, however 
 much it may obtain in Congress, has fortunately its proper corrective 
 in the Supreme Court of the United States, to which, when the ques- 
 tion of right comes before it, the Government of the United States, 
 or rather its servants, are just as amenable as the humblest citizen 
 in the land. 
 
15 
 
 Sixth : what the companies hate accomplished for the gov- 
 ernment AND the country. 
 It is not necessary here to refer, at any length, to the wholly nn- 
 merited obloquy and abuse of which, for several years past, the two 
 companies have been made the victims. It is doubtful whether a 
 more striking example of the vicissitudes of public opinion, or popu- 
 lar caprice, can be found than in the treatment which they have re- 
 ceived. The proposition for the construction of a railroad across 
 the continent, at the very moment that the nation was in the throes 
 of civil war, the event of which seemed wholly uncertain, was re- 
 garded as a forlorn hope, in which, as you and I well know, none 
 but the adventurous could be brought to engage. Well invested 
 capital, as well as all conservative minds, shrank back in dismay 
 from all solicitations to engage in the work, which must have been a 
 disastrous failure but for the fortunate discovery, then not made, of 
 coal at favorable points on its line. The companies were allowed 
 fifteen years for its completion. They anticipated, by eight years, 
 the allotted time. Its completion was hailed as the greatest 
 achievement of the kind, as it was at the time, of human enterprise 
 and skill. The nation rang with paeans simg in praise of those resolute 
 and competent spirits to whom it owed so much. The road travers- 
 ing more than two thousand miles of unoccupied territory, and 
 crossing mountain ranges at elevations far exceeding the loftiest 
 summits on the Atlantic slope, has accomplished far more than was 
 predicted of or hoped from it. It has filled with busy and prosper- 
 ous communities a desert waste, which but for it must have 
 still remained a desert waste. lb has indissolubly united, as it 
 was intended to unite, the two slopes of the continent, and made 
 the nation a geographical and commercial, as well as a political and 
 social, unit. It has been the sole condition of opening and develop- 
 ing the mineral wealth, now the wonder of the world, of the 
 interior of the continent; and is the instrument by which, 
 and by which alone, the nation can resume specie pay- 
 ments without drawing from or disturbing the reserves of the old 
 world. In order to reach this great national artery, more than 
 ten thousand miles of railroad, costing more than $500,000,000, have 
 been built, which, but for it, would not have been built. The in- 
 creased value of the property of the country, due to its construction, 
 exceeds five times its cost. The direct advantage to the people, re- 
 sulting from its construction, exceeds five times the amount of the 
 public subsidy. They could far better lose a sum equaling many 
 times the cost of the line than be without it. When the proposi- 
 tion of a railroad across the continent was first seriously proposed, 
 the Secretary of War, in response to a call of the House of Repre- 
 

 16 ' 
 
 sentatives under date of March 18, 1862 (see Executive Document 
 80 of that year), stated that the annual cost of transportation 
 of troops and munitions of war between the Mississippi River 
 and the Pacific Coast and intermediate points equalled $5,809,- 
 431. The cost of transporting the mails between the same 
 points was $1,500,000 annually, making a total expenditure of $7,- 
 309,431 annually. The cost to Government for a similar, and in fact 
 a much greater service, does not, in the sums paid to the railroads 
 for the past nine years, exceed the sum of $2,000,000 annually. The 
 saving to Government in the matter of its own transportation due 
 to tlieir construction has exceeded $5,000,000 annually, or a total 
 sum of $45,000,000. Such savings are among the least advantages 
 resulting from their construction. But for this road the nation would 
 require a military force vastly greater than that now maintained. As 
 an instrument for opening the interior of the continent, adding to 
 its wealtl), and in stimulating its production and trade, the value of 
 the Pacific Railroads is beyond computation. 
 
 It was no sooner opened, however, than the services of the 
 past were speedily forgotten. Those who had accomplished such a, 
 vast and beneficent achievement, were, in a few short years, trans- 
 formed into remorseless Shylocks, gorging upon the life-blood of the 
 nation, deserving the severest punishment that the law could inflict. 
 It was not enough that all legal tribunals open to the Government were 
 resorted to. Congress in its zeal outdid the most clamorous patriot on 
 the stump. It passed an act to seize outright, and in violation of all 
 law, one-quarter of all the net earnings of the two companies, to be ap- 
 plied to debt which will hardly be payable during the present genera- 
 tion. The Companies could only yield to the storm, till their rights 
 could be vindicated by a higher power than that of Congress itself. 
 By that power, which cannot be impeached for its competency, its 
 knowledge of the law, or as a corrupt receiver of bribes, the Com- 
 panies have been fully vindicated, and now stand before the world 
 without a blemish, or an insinuation that has not been fully refuted. 
 At the end of their long struggle for the maintenance of their 
 rights, they are, in their determined resistance to lawless oppression 
 to which in the end every citizen may in his turn be exposed, as 
 much entitled to the gratitude of the public as when they received 
 it in such full measure, for the great work which, with dauntless 
 energy and resolution, they carried to a speedy conclusion in the 
 face of obstacles far greater than those which ever opposed them- 
 eelves to any similar enterprise. 
 
 I have the honor to be, 
 
 Yery respectfully, 
 
 Henry V. Poor. 
 
iili 
 
 '^ii- "^i