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 not 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. وو 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 lands 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 public 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 and 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 and endowment of the road, have been distributed in dividends among the corporators; that the stock was issued, not to men who paid for it at par in money, but who paid for it at not more than 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, 1863, 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 H. M. Hoxie, who seems to have been a person of little pecuniary responsibility. 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, 1864, 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 attornéy, 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 assignment 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 Hoxie 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 fictitions or nominal payment in road building and equipment, each share being treated as being worth much less than its par value. That this was the sub stance of the transaction will more fully appear when we come to speak of a subsequent arrangement of the same nature, but on a larger scale. That in making this contract the interests of the Union Pacific Railroad Company were utterly disregarded, your committee do not doubt. That it was deliberately done we do not hesitate to believe. That belief is founded upon the following summary of the evidence in addition to the facts heretofore stated. Peter A. Dey, esq., then the engineer-in-chief, testifies that before this contract was made he had surveyed and estimated the one hundred miles embraced in it, and that upon a full estimate he made the cost not to exceed $30,000 per mile; that after this Mr. Reed, an agent and director of the company, came there and directed him to make a larger estimate, putting heavy embankments where none were required, which he did, making an estimate of about $50,000 per mile. When the Hoxie contract was submitted to him he objected to it, and when he found that it was to be executed and the work done under it, he resigned his position as chief engineer, as appears from the following written resignation and private letter addressed to the president of the company: DEAR SIR: I hereby tender you my resignation as chief engineer of the Union Pacific Railroad, to take effect December 30, 1864, one year from the date of my appointment. I am induced to delay until that time that I might combine the results of surveys of the present year and present them to the company and to myself in a satisfactory manner. My reasons for this step are simply that I do not approve of the contract made with Mr. Hoxie for building the first hundred miles from Omaha west, and I do not care to have my name so connected with the railroad that I shall appear to indorse this contract. Wishing for the road success beyond the expectation of its members, I am, respectfully, yours, Hon. JOHN A. DIx. Mr. Dey further testified as follows: PETER A. DEY. Question. Did you send the letter of which this is a copy to General Dix? Q. Was your resignation accepted? A. Not that I know of. Q. Did you write any other letter to General Dix ? A. On the same day that I wrote the letter I have just read to you I wrote and inclosed in the same envelope the following: OMAHA, December 7, 1864. DEAR SIR: With this I send you my resignation as chief engineer of the Union Pacific Railroad Company. My reasons I have given. I received the contract nearly a month ago. When I first read it I felt that it was made against my known views, and I could not be held in any measure responsible for it, but it has since been a constantly recurring subject of thought to me, and I am not now satisfied that I shall be able to acquit myself of all blame if I become an instrument of its execution. You know the history of the M. and M. road, a road that to-day could be running to this point if its stock and bonds only represented the amount of cash that actually went into it. My views of the Pacific Railroad are perhaps peculiar. I look upon its managers as trustees of the bounty of Congress. I cannot willingly see them repeat the history of the M. and M. by taking a step in the incipiency of the project that will, I believe, if followed out, swell the cost of construction so much that by the time the work reaches the mountains the representative capital will be accumulated so much that at the very time when the company will have need for all its resources, as well of capital as of credit, its securities will not be negotiable in the market. From my boyhood I have associated Mr. Cisco and yourself with Mr. Bronson and Mr. Flagg, men whose integrity, purity, and singleness of purpose have made them marked men in the generation in which they lived. Of course my opinion remains unchanged. You are doubtless uninformed how disproportionate the amount to be paid is to the work contracted for. I need not expatiate upon the sincerity of my course, when you reflect upon the fact that I have resigned the best position in my profession this country has ever offered to any man. With respect, PETER A. DEY. The parties above named having procured the assignment to themselves of this contract, were liable individually as partners for all debts incurred in the joint undertaking. They therefore took steps to procure corporate powers as a shield against such risk, and secured for that purpose the control of a corporation afterward known as the Credit Mobilier of America. The following is a brief history of the cor poration: On the 1st day of November, 1859, the State of Pennsylvania granted a charter for the incorporation of the Pennsylvania Fiscal Agency. That charter gave powers of so extraordinary a character that your committee deem it important to insert it here in full. It is as follows: An act to incorporate the Pennsylvania Fiscal Agency. SECTION 1. Be it enacted by the senate and house of representatives of the Commonwealth of Pennsylvania in general assembly met, and it is hereby enacted by the authority of the same, That Samuel J. Reeves, Ellis Lewis, Garrick Mallory, Duff Green, David R. Porter, Jacob Ziegler, Charles M. Hall, Horn R. Kneass, Robert J. Ross, William T. Dougherty, Isaac Hugus, C. M. Reed, William Workman, Asa Packer, Jesse Lazear, C. S. Kauffinan, C. L. Ward, and Henry M. Fuller be, and they are hereby, appointed commissioners to receive subscriptions and to organize a company, by the name and style of the Pennsylvania Fiscal Agency; and the owners of the shares herein authorized to be issued, when the company is organized, shall, under the name and style aforesaid, have perpetual succession; and may purchase, hold, and acquire, by any lawful means, estate, real and personal, and the same may use, sell, lease, let, mortgage, transfer, and convey, and otherwise dispose of; and may sue and be sued, plead and be impleaded, contract and be contracted with, and have and use a common seal, and the same may change at pleasure; and may make by-laws and regulations for the government of their affairs, and may have and use all the rights, powers, and privileges which are or may be necessary for them to have as a company incorporated for the purposes herein stated: Provided, That the said company shall not at any time hold, in this State, more land than may be requisite for the convenient transaction of their business. SEC. 2. That the purpose of this act is to organize an incorporated company, and to authorize them, as such, to become an agency for the purchase and sale of railroad bonds and other securities, and to make advances of money and of credit to railroad and other improvement companies, and to aid in like manner contractors and manufacturers, and to authorize them as a company to make all requisite contracts, and especially to receive and hold, on deposit and in trust, estate, real and personal, including the notes, bonds, obligations, and accounts of States, and of individuals, and of companies, and of corporations, and the same to purchase, collect, adjust, and settle, and also to sell and dispose thereof in any market in the United States, or elsewhere, without proceeding in law or in equity, and for such price and on such terms as may be agreed on between them and the parties contracting with them, and also to indorse and guarantee the payment of the bonds and the performance of the obligations of individuals, of corporations, and of companies. SEC. 3. That the capital stock of said company shall consist of fifty thousand shares of $100 each; and the commissioners aforesaid, or a majority of them, may, in person or by proxy, open books of subscription at such times and places as they deem expedient, and when five thousand shares shall have been subscribed, and five per cent. thereon shall have been paid in, the shareholders may elect five or more directors; and the directors of the said company, when it shall have been organized, may, and they are hereby authorized and empowered to have and to exercise, in the name and in behalf of the company, all the rights, powers, and privileges which are intended to be herein given; and may, from time to time, increase their resources by borrowing money on a pledge of their property, or without such pledge, or by new subscriptions, not exceeding fifty thousand shares; and any citizen or subject, company or corporation, of any State or county, may subscribe for, purchase, and hold shares of the said company with all the rights and subject only to such liabilities as other shareholders are subject to; which liabilities are no more than for the payment to the company of the sums due or to become due on the shares held by them; and when new subscriptions are made, the shares may be issued at par or sold for the benefit of the holders of the shares heretofore issued. SEC. 4. That the by-laws shall prescribe the manner in which the officers and agents of the company shall be chosen, and designate their powers and duties, and their terms of service and compensation; and the principal office of the company shall be in Philadelphia, but the directors, under such rules and regulations as they may prescribe, may establish branches and agencies in Europe and elsewhere, and may deal in exchange, foreign and domestic; but the said company shall not exercise the privilege of banking, nor issue their own notes or bills to be used as bank-notes or as currency. SEC. 5. That three-fifths of the directors of the said company shall be citizens of the United States, and the majority of the, whole shall reside in this State. SEC. 6. That the said company shall pay to the State treasurer, for the use of the State, a bonus of one-half of one per cent. on the sum requisite to be paid in previous to the organization, payable in four equal annual installments, the first payment to be made in one year after the payment on the capital stock shall be made, and also a like bonus on all subsequent payments on account of the capital stock of the said company, or any increase thereof, payable in like manner; and, in addition to such bonus, shall pay such tax upon dividends exceeding six per cent. per annum as is or may be imposed by law. W. C. A. LAWRENCE, Speaker of the House of Representatives. JNO. CRESWELL, JR., Speaker of the Senate. Approved the first day of November, anno Domini, one thousand eight hundred and fifty-nine. WM. F. PACKER. On the 3d day of March, 1881, Thomas C. Durant, vice-president of the Union Pacific Railroad Company, purchased this charter for the purpose of using the corporation for the construction of the Union Pacific Railroad. On the 26th day of March, 1861, by an act of the legislature of the State of Pennsylvania, the name was changed to "The Credit Mobilier of America." By the terms of purchase of the charter, an agency was to be established in the city of New York, and when the subscription was made it was upon the condition that the full powers of the board of directors should be delegated to the New York agency, and that a railway bureau should be established at said agency, of five managers, three to be directors of the company, (afterward changed to seven managers,) who should have the management of railway contracts, subject to the approval of the president. By these means this Pennsylvania corporation, so far as the management of its affairs was concerned, substantially expatriated itself, and, clothed with the extraordinary powers acquired from the State of Pennsylvania, it proceeded to take upon itself the control of the Union Pacific Railroad Company in the manner following: It purchased the outstanding stock of that corporation, amounting to about $2,180,000, on which about $218,000 had been paid to the railroad company, the Credit Mobilier paying for this stock the amount already paid. At the time of this purchase the shares of Union Pacific stock were $1,000 each. After the act of 1864 was passed these shares were canceled, and a re-issue was made in shares of $100 each. The re-issue was made to the stockholders of the Credit Mobilier, and by this process the stockholders of the two corporations were made identical. By this means the persons who under the guise of a corporation that was to take the contract to build the road held complete control of the corporation for which the road was to be built. These things accomplished, they took charge of construction under the Hoxie contract, and the portion of the road lying between Omaha and the one-hundredth meridian was constructed under it. This contract cost the Union Pacific Railroad Company It cost the Credit Mobilier... Profit.... $12, 974, 416 24 7,806, 183 33 5, 168, 233 91 |