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AFFAIRS OF THE UNION PACIFIC RAILROAD COMPANY.
FEBRUARY 20, 1873.-Ordered to be printed and recommitted.
B1r. JEREMIAH M. Wilson, from the Select Committee (No. 2) on the
Credit Mobilier, &c., made the following
The select committee appointed under the resolution of the House of January 6, 1873, to make inquiry in relation to the affairs of the Union Pacific Railroad Company, the Credit Mobilier of America, and other matters specified in said resolution and in other resolutions referred to said committee, now submit to the House the following report as to a portion of the matters therein : By the statutes of July 1, 1962, and July 2, 1864, which, for most of the purposes of this discussion, may be treated as a single act, Congress d.created a corporation to be known as the Union Pacific Railroad Com
pany, with authority to construct and maintain a railroad and telegraph from a point on the one hundredth meridian of longitude west from Greenwich to the western boundary of Nevada Territory, upon a route and on the terms specified, there to connect with another road largely endowed by the Government, so as to form a continuous line of railroad from the Missouri River to the navigable waters of the Sacramento River in California, and thereby to unite the railroad system of the Eastern States with that of California, strengthen the bonds of union between the Atlantic and Pacific coasts, develop the immense resources of the great central portion of the North American continent, and create a new route for commerce from the Atlantic and Europe to the Pacific and Asia.) By an act passed July 3,1866, the
company was authorized b. to locate and construct its road from Omaha, in Nebraska, without reference to the original initial point at the one hundredth meridian. To aid in accomplishing these vast results, the corporation was clothed by the Government with a proportionally vast endowment. The right of way through the public land, the Government undertaking to remove all Indian titles, for a space of two hundred feet in width on each side of its entire route; the right of eminent domain to appropriate necessary private land-space for depots, turnouts, &c.; public lands to the amount of ten alternate sections per mile within the limits of twenty miles on each side of said road, were given to this corporation.
It was further provided that upon the certificate of three commissioners, appointed by the President, of the completion and equipment of every section of twenty consecutive miles of said railroad and telegraph in accordance with the provisions of the act, the Secretary of the Treasury should issue to the corporation bonds of the United States of $1,000 each, payable in thirty years after date, with interest at the , rate of 6 per cent. per annum, payable semi-annually, to the amount
of $16,000 per mile for a portion thereof, and $32,000 per mile for a portion, and $18,000 per mile for a portion. These bonds were to be a loan to the corporation. To secure their repayment the act of 1862 provides that their issue shall, ipso facto, constitute a first mortgage on the whole property of the company. This lien was, by the act of 1861, sub
ordinated to a mortgage executed by the corporation to secure its own C. bonds for an amount equal to the amount issued by the Government,
as aforesaid. Pursuant to these provisions, the company has received from the Government bonds to the amount of $27,236,512, and has issued its own bonds to the amount of $27,213,000. The corporation has also received, by patents issued, 654,419 acres of the public lands, leaving about 11,345,580 acres, not yet patented, embraced in the grant. It has issued bonds, called land-grant bonds, to the amount of $10,400,000. These land grant bonds are secured by a deed of trust executed to John Duff and Cyrus McCormick, covering all the lands embraced in the grant.
It has also issued what are called income bonds to the amount of $9,355,000. These bonds are secured by a pledge of the income of the road to_three trustees, Benjamin E. Bates, John R. Duff, and F. Gordon Dexter. It has also issued stock to the amount of $36,762,300. It has also taken possession of and is enjoying the land needed for its way, turnouts, stations, &c.
It will thus be seen that all that the Government stipulated to do in aid of this enterprise has been done.
The aid thus afforded by the Government was accompanied with precise directions as to the proceedings of those to whom it was intrusted, and Congress endeavored to provide sufficient sateguards to secure the faithful performance of their trust. It was provided that the capital stock should be paid in in money. In relation to this the act is emphatic and unmistakable. There were to be ten directors, each of whom must be the bona fide owner of five shares of the capital stock. The act of 1862 provided that the shares should be of the par value of $1,000 each, of which not more than two hundred should be owned by any one person. This was changed by the act of 1864, so that the shares might be held in small quantities, and the par value was fixed at one hundred instead of one thousand dollars. Both acts provided that the stock should be actually paid in full in money, in assessments of not less than 5 per cent., at such intervals, not to exceed six months, as should be determined by the directors.
The interests of the Government were to be especially protected by five Government directors appointed by the President, one of whom should be a member of every standing and special committee. Annual reports were required to be made to the Secretary of the Treasury, setting forth the names and residence of the stockholders and officers, the amount of stock subscribed, the aniount of stock paid in, the indebtedness of the road, and its receipts. The claim of the Government to a reimbursement for the loan of its bonds was secured by a second mortgage or lien upon the road ; by the obligation to apply at least 5 per cent. of the net earnings after the road is finished thereto; and whenever the net earnings of the road amounted to 10 per cent. of the cost, Congress reserved the right to legislate for the reluction of the fares; and, if unreasonable in amount, to fix and establish the same by law; and further reserved the power, having due regard to the rights of the corporation, to add to, alter, amend, or repeal the act.
The purpose of the whole act was expressly declared to be " to pro. mote 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 benefit of the same for postal, military, and other purposes."
Your committee cannot doubt that it was the purpose of Congress in all this to provide for something more than a mere gift of so much land, and a loan of so many bonds on the one side, and the construction and equipment of so many miles of railroad and telegraph on the other.
The United States was not a mere creditor, loaning a sum of money upon mortgage. The railroad corporation was not a mere contractor, bound to furnish a specified structure and nothing more. The law created a body politic and corporate, bound, as a trustee, so to manage this great public franchise and endowments that not only the security for the great debt due the United States should pot be impaired, but so that there should be ample resources to perform its great public duties in time of commercial disaster and in time of war.
This act was not passed to further the personal interests of the corporators, nor for the advancement of commercial interests, nor for the convenience of the general public alone; but in addition to these the interests, present and future, of the Government, as such, were to be subserved. A great highway was to be created, the use of which for postal, military, and other purposes was to be secured to the Government " at all times,” but particularly in time of war. Your committee deem it important 'to call especial attention to this declared object of this act, to accomplish which object the munificent grant of lauds and loan of the Government credit was made. To make such a highway, and to have it ready at “all times,” and “particularly in time of war,” to meet the demands that might be made upon it; to be able to withstand the loss of business and other casualties incident to war and still to perform for the Government such reasonable service as might under such circumstances be demanded, required a strong solvent corporation, and when Congress expressed the object and granted the corporate powers to carry that object into execution, and aided the enterprise with subsidies of lands and bonds, the corporators in whom these powers were vested and under whose control these subsidies were placed were, in the opinion of your committee, under the highest moral, to say nothing of legal or equitable obligations, to use the utmost degree of good faith toward the Government in the exercise of the powers and disposition of the subsidies.
Congress relied for the performance of these great trusts by the corporators upon their sense of public duty; upon the fact that they were to deal with and protect a large capital of their own which they were to pay in in money; upon the presence of five directors appointed by the President especially to represent the puslic interests, who were to own no stock; one of whom should be a member of every committee, standing or special; upon commissioners to be appointed by the President, who should examine avd report upon the work as it progressed; in certain cases upon the certificate of the chief engineer, to be made upon his professional honor; and lastly, upon the reserved power to add to, alter, amend, or repeal the act.
Your committee find themselves constrained to report that the moneys borrowed by the corporation, under a power given them, only to meet, the necessities of the construction aud endowment of the road, hava been distributed in dividends among the corporators; that the stock was issued, not to men who paid for it at par iu money, but who paid for it at not more tban 30 cents on the dollar in road making; that of the Government directors some of them have neglected their duties and
others have been interested in the transactions by which the provisions of the organic law have been evaded; that at least one of the commissioners appointed by the President has been directly bribed to betray his trust by the gift of $25,000; that the chief engineer of the road was largely interested in the contracts for its construction; and that there has been an attempt to prevent the exercise of the reserved power in Congress by inducing influential members of Congress to become interested in the profits of the transaction. So that of the safeguards above enumerated none seems to be left but the sense of public duty of the corporators.
Your committee, therefore, proceed to report the facts as they have been able to gather them from the evidence, relative to the manner in which the parties in whom these trusts were reposed have discharged them, and the consequences which have followed.
By reference to the first section of the act of 1862, it will be seen that a subscription of $2,000,000, two thousand shares of $1,000 each, and the payment of ten per cent. thereon, was a condition-precedent to organization.
The sum of about $2,180,000 was subscribed, and ten per cent. (about $218,000) paid in, and thereupon, in October, 1803, the company was organized by the election of a board of directors, &c.
The first contract for the construction of the road was made with one i H. M. Hoxie, who seems to bave been a person of little pecuniary respon
sibility. His proposal to build and equip one hundred miles of the railroad and telegraph is dated New York, August 8, 1864, signed H. M. Hoxie, by H. C. Crane, attorney. It was accepted by the company September 23, 1864. On the 30th of September, 1861, Hoxie agreed to assign this contract to Thomas C. Durant, who was then vice-president and director of the Union Pacific Railroad Company, or such parties as he might designate. On the 4th of October, 1864, this contract was extended to the one hundredth meridian, an additional one hundred and forty-six and forty-five hundredths miles, the agreement for extension being signed by Crane as attorney of Hoxie. Hoxie was an employé of the company at the time, and Mr. Crane, who signed as Hoxie's attorney, was Durant's "confidential man,” as Durant himself expresses it.
By this contract and its extension Hoxie agreed to build two hundred and forty-six and forty-five hundredths miles of road, to furnish money on the securities of the company, to subscribe $1,000,000 to the capital stock, and he was to receive $50,000 per mile for the work.
On the 11th day of October, 1864, an agreement was entered into by Durant, Bushnell, Lambard, McComb, all directors of the Union Pacific Railroad Company, and Gray, a stockholder, to take from Hoxie the assignment of his contract, (which assigninent he had previouly bound himself to make to such persons as Durant should designate,) and to contribute $1,600,000 for the purpose of carrying the contract out.
This IIoxie contract and its assignment were a device by which the persons who were the active managers and controllers of the Union Pacific Railroad Company caused said corporation to make a contract with themselves for the construction of a portion of its road, by which also they got possession of all the resources which it would be entitled to by the completion of said portion, and by which they evaded, or sought to evade, the requirement that the capital stock should be fully paid in in money, by substituting for such payment a fictitious or nom. inal payment in road building and equipment, each share being treated as being worth much less than its par value. That this was the sub