Oregon Historical Quarterly/Volume 3/The Oregon Central Railroad
THE QUARTERLY
OF THE
OREGON HISTORICAL SOCIETY.
THE OREGON CENTRAL RAILROAD.
BEGINNING OF OREGON RAILROAD DEVELOPMENT.
The March Quarterly contained two references to this subject, in treating of other questions. Both Professor Robertson and Mr. W. D. Fenton give accounts of the contest between the "East Side Line" and the "West Side Line" for the possession of the first grant of land to Oregon in aid of the construction of railroads. That contention between the two companies makes a memorable chapter in the history of the state.
Being now the only survivor of the twenty-two men who made up the boards of directors of the two companies contending for the land grant, I am impelled, at the risk of being thought governed by personal and controversial feeling (of which I am unconscious), and by the interest I have in historical accuracy on this subject, to make the following additions to, and corrections in the articles referred to:
The contest referred to by Professor Robertson grew out of the desire to get possession of the land grant made by Congress on July 25, 1866. That grant, so far as it related to Oregon, was, more than to any other person, due to the labors of Joseph Gaston, who, at Jacksonville, in December, 1863, organized and put in the field a party of engineers to survey a railroad line from the state boundary north to the Columbia River through the Rogue River, Umpqua, and Willamette valleys. Gaston assumed all responsibility for the undertaking, furnished the outfit, raised the means to pay and subsist the party, wrote and printed the report of the engineers, paid for the maps, procured and sent hundreds of petitions to the legislature, and memorials to Congress, in favor of the land grant, conducted all the correspondence, answered all the objections, and devoted his time for three years to the undertaking, and was recognized by the congressional delegations from both Oregon and California as the guiding and responsible promoter of an Oregon and California railroad on behalf of the State of Oregon. The act of Congress provided that so far as the grant related to Oregon, the lands should go to such corporation as the legislative assembly of Oregon should designate. At the ensuing session of the Oregon legislature, after the passage of the act granting the lands, Gaston prepared and had signed articles of incorporation, incorporating "The Oregon Central Railroad Company," which were read and discussed before the legislature, and filed according to law, and the legislature then passed a resolution designating the Oregon Central Railroad Company to receive the granted lands in Oregon, which resolution was afterwards filed with the Secretary of the Interior at Washington City, which officer recognized said company as entitled to the land grant in Oregon. The legislature went farther, and passed an act pledging the state to pay seven per cent interest on $1,000,000 of the company's first mortgage bonds to aid in construction of the road.
Up to the date of these acts of the legislature, and for six months thereafter, no one questioned the proceedings of Gaston or the legality of his company; but now suddenly appears on the scene one S. G. Elliot from California, and who had made the survey in that state. Mr. Elliot kindly proposed to take over the whole business, and relieve the Oregonians of the trouble of building their end of the line. He had a grand scheme which he proposed to unfold to a select few of the incorporators in the Oregon company. He proposed to take possession of the Oregon Central Railroad Company, and, by a board of directors in favor of his scheme, enter into a contract with a fictitious concern known in the deal as "A. J. Cook & Company," for the construction of the road, and issue to Cook & Company $7,000,000 in stock and first mortgage bonds to the amount of $35,000 per mile of road for construction purposes; $2,000,000 of which stock should be preferred interest-bearing stock, and should be by Cook & Company transferred back to the Oregon board of directors for their perquisites in the matter and for the purpose of influencing legislation in Oregon.
When this scheme was proposed to Gaston he, under the advice of a large majority of the incorporators of the Oregon Central Company, rejected it and refused to be a party to it, and being in a position to defeat it, prevented the Oregon Central Railroad Company from being connected with it, and then the trouble commenced. Three of the incorporators out of twenty of the Oregon Central Company seceded, and with three other persons made and filed articles of incorporation on April 22, 1867, in the name of the Oregon Central Railroad Company.
Here then were two companies both claiming the same corporate name, when in law and equity there could be but one entitled thereto. The east side company was not only open to the objection that it had usurped the corporate name of a prior corporation, but also to the objection that it had violated the law of the state in its organization. For while its articles of incorporation provided for a capital stock of $7,250,000, and the state law required that one half of this capital should be subscribed before the election of a board of directors, yet in violation of this law the east side company had been organized by a subscription of $100 each by six men, and then the six men present passing a resolution authorizing the so-called chairman of the meeting to subscribe $7,000,000 to the capital stock of the company in the name of the company; or, in other words, authorizing a man to lift himself over a fence by the straps of his boots. These facts becoming known, Gaston lost no time in applying to the circuit court of Marion County for leave to test the legality of the east side company. This was refused by the presiding judge on the ground that no damages had been shown by the Oregon Central Company from the alleged unlawful usurpation of its name; and so another tack must be tried. The opportunity came a few months later when the east side company sought to condemn the right of way for its railroad through a farmer's land in Clackamas bottom. Here the Oregon Central Company inspired the farmer to refuse the right of way and deny the legal corporate existence of the east side company; and upon this issue a trial was demanded, but the east siders were too wary to submit their organization to such legal test, and immediately withdrew their suit of condemnation, relocated their line, and avoided the farmer's land by a more circuitous route.
Foiled again, the Oregon Central resolved to get into a court where there could be no dodging, and assigning one of its first mortgage bonds to James B. Newby, of California, Newby commenced a suit in the United States district court of Oregon, to enjoin the east side company from using the name "Oregon Central Railroad Company," on the ground that such use was an injury to the value of his bond. Here was found a judge who never shirked a responsibility, and after many months of dilatory special pleading by the east side company, Judge Deady decided, without evasion, that the prior adoption of a corporate name by a corporation appropriated the exclusive use of such name, and that a second company attempting to use such name could be enjoined from the use thereof without any showing of damages to the first appropriator. This decision was the death knell of the east side company, which made haste to incorporate and organize the Oregon and California Railroad Company, and to it made a transfer of all its property and franchises. Judge Deady's decision in that case is a landmark in the jurisprudence of the United States, being the only decision up to that time ever made upon the question involved, and it has ever since been the law of every court throughout the Union.[1]
The Oregon Central Railroad Company, (then widely known as the west side company,) was thus vindicated in its right to the exclusive use of that name. Now let us see how the east side company stands in the light of having ever had a lawful existence. Not long after Judge Deady's decision, Ben Holladay and S. G. Elliot, who were partners in the A. J. Cook Company construction contract mentioned, quarreled over a division of their plunder, and Elliot brought suit for a settlement of partnership affairs. Never was there a better illustration of the old maxim, "When rogues fall out, honest men get their dues," than was afforded by this law suit, which was finally decided by the Supreme Court of Oregon and reported on pages 85 to 99 of the eighth volume Oregon Reports. The decision states the facts that—
Farther along the decision recites the facts, that in addition to the above, the directors of this Salem company issued $2,000,000 unassessable preferred stock, bearing interest at seven per cent per annum, and delivered the same to A. J. Cook & Company under a private understanding that Cook & Company was to give back to these directors $1,000,000 of this preferred stock, to be used by them in procuring legislation in Oregon. On page 91 of the decision the court says:
The attempt to subscribe seventy thousand shares to the stock of the Oregon Central Railroad Company, by the corporation itself through a person styling himself chairman, was done simply to evade the liability which the law imposes on all persons who subscribe to the capital stock of corporations. This action was a mere nullity, and added nothing to the amount of stock subscribed, which then was only six shares of one hundred dollars each. Those who subscribed the six shares then proceeded to elect directors and other officers of the corporation. The corporation was not organized according to law, but in direct violation of the statute, which provides that "it shall be lawful in the organization of any corporation to elect a board of directors as soon as one half the capital stock has been subscribed." In this case the attempted organization of the Oregon Central Railroad Company amounted to nothing. It was absolutely void. Nor did the joint organization of the legislative assembly, adopted October 20, 1868, recognize this corporation as the one entitled to receive the land granted by act of Congress, to aid in the construction of a railroad, cure the inherent defects of its organization. It had no power to legally transact any business nor to accept or hold the lands so granted.
Farther along, on page 93 of the decision, in speaking of the value of the bonds issued by this company, the court says:
Such was the organization and end of the company Mr. Fenton seems to believe was the "Oregon Central Railroad Company.' It never was a corporation, and is entitled to no place in the history of the state as such. It may be inquired how that company finally secured the land grant if it had no legal standing or existence? The answer is, that after Elliot and his Oregon associates were practically beaten in the courts and before the people, and in a state of hopeless collapse, they made a hasty antemortem disposition of their effects to Ben Holladay, noticed by Professor Robertson. Holladay was everything that Professor Robertson paints him, and a great deal more and worse. Possessed of large wealth for that time, he came to Oregon to take up the east side wreckage and make something of it. He distributed his money with a lavish hand, subsidized newspapers, hired lawyers, and purchased politicians right and left; and at the next ensuing session of the legislative assembly organized a hostelry at Salem, keeping "open house" to all comers, and so successfully plied susceptible members of the legislature that he was able with his money judiciously distributed to secure from the legislature the passage of a resolution declaring that "The Oregon Central Railroad Company" had never been designated to receive the lands granted by Congress; that such designation was yet to be made, and that "The Oregon Central Railroad Company of Salem" be designated to receive the grant. This action of the legislature, as Holladay afterward informed the writer hereof, cost him $35,000. This was the first time in the history of the state its legislative assembly had been openly and unblushingly corrupted; and the damage, disgrace, and dishonor thus inflicted on the commonwealth far outweighed any possible benefit Holladay's railroad enterprise ever did the state; but armed with this resolution, Holladay proceeded to Washington City to induce Congress to set aside the acts of the Secretary of the Interior in recognizing the Oregon Central Railroad Company as entitled to the land grant. On this question the Oregon delegation divided, one senator espousing the cause of Holladay and the other remaining immovable in his support of the rightful claimant of the land grant. Congress finally adopted a compromise, and passed an act to give the land to the company which should first complete twenty miles of road; and Holladay won the land grant on that stake.
The Salem (east side) Company was not yet out of trouble. Notwithstanding it had purchased an indorsement from the Oregon legislature, and had been recognized by Congress as entitled to compete for the land grant, and had actually won it by completing the first twenty miles of the road, yet Judge Deady's decision was fairly a sentence of dissolution, death, and defeat. Conscious of its inherent illegal organization, and forbidden to use the corporate name it had unlawfully usurped, and without which it could neither raise money by selling bonds, or even condemn the right of way for its road, it may well be imagined the east side company was in straits from which it required a master's hand for delivery. Its attorneys, doubtless, saw well enough what our supreme court afterwards decided, that it could neither take nor hold the land grant. In this dilemma Holladay applied to the distinguished New York lawyer Wm. M. Evarts, who was afterwards secretary of state under President Hayes, and who, after investigating the whole matter, devised the plan of incorporating a new company—"The Oregon and California Railroad Company,"—to which corporation the Salem company transferred all its effects. Mr. Evarts gave the legal opinion that inasmuch as Congress had recognized the Salem Company as an Oregon corporation, and had extended to it the franchise of competing for the land grant, and the company had actually complied with the terms of such recognition by building twenty miles of railroad, and that franchise was a grant from the sovereign that no one could dispute but the grantor, and that if this grantee should transfer to a new and lawful corporation all its rights in the grant, the courts would respect and maintain such transfer in the possession of the grantee, and that it would be safe for capitalists to lend the new corporation money on such security; and so the transfer of the Oregon and California Company was made, and bankers in Germany advanced the money on the first mortgage bonds of the company to build the road. For this service rendered by Mr. Evarts, Holladay paid a fee of $25,000.
It might be inferred from the articles of Professor Robertson and Mr. Fenton that the east side company was the popular one with the people of Oregon; but this was not the fact. Both companies strenuously sought to enlist popular support; and the Oregon Central (or west side) company succeeded to the extent of getting the Portland city council to pass an ordinance pledging the city to pay the interest on $250,000 of the company's bonds for twenty years. A like pledge was made by the commissioners of Washington County, to the extent of $50,000 of the company's bonds, and a like pledge by Yamhill County, to the extent of $75,000 of the company's bonds. In addition to this, citizens of Portland subscribed and paid for $50, 000 of the company's stock, citizens of Washington County took $20,000 of the company's stock, and citizens of Yamhill County $25,000; while Couch and Flanders of Portland gave the company ten blocks of land where the Union Depot now stands as an inducement to locate its Portland depot in the north of the city.
On the other hand, the east side company applied to the Portland council for aid and indorsements, and was refused; no aid was given them by citizens of Portland, and no one along their own line would take stock in their company. The people of Portland were not opposed to an east side railroad, but they were opposed to the methods the east side company were using to organize their company and get the land grant. It is true that the east side company had the larger assemblage at their "ground breaking celebration, but it was not a spontaneous gathering. It had been widely advertised and worked up in the brass band whoop-and-hurrah style of a political meeting. The Oregon Central Company broke ground for the construction of its road on April 14, 1868, two days ahead of the east side event. The ceremony took place at the point where Woods Street, in Caruthers' Addition to Portland, intersects the line where the railroad is now constructed. A brief announcement of the event was given in the local news columns of the Daily Oregonian a few hours before the ceremony took place, and thousands of the people responded and were promptly on the ground. Walter Moffatt, a public spirited citizen, contributed a wagon load of refreshments free to all, and there was an abundance of "real old Monongahela rye" for everybody to toast the enterprise and everything else, and the celebration went off with a spirit which showed which railroad company was the popular favorite. Governor Gibbs and Col. W. W. Chapman made addresses which were cheered to the echo; after which, the Daily Oregonian of the 15th describes the proceedings as follows:
That was the ground breaking for the first railroad in Oregon. After losing the land grant the Oregon Central Company sent Mr. Gaston to Washington City in December, 1869, where he was successful in getting from Congress a second grant of land to aid in constructing a railroad from Portland to McMinnville, with a branch from Forest Grove to Astoria; and under which grant the road was constructed to the Yamhill River at St. Joe. This was the last grant of land made by Congress as a subsidy to railroads; and that part of the road proposed from Forest Grove to Astoria not having been constructed, the grant for such branch was forfeited by act of Congress in 1882. Had it been retained to the present the timber on this route would have made it the most valuable grant in the United States.
During this memorable contest, the board of directors of the east side, or Salem Company, was composed of I. R. Moores, George L. Woods, E. N. Cooke, T. McF. Patton, John H. Moores, Jacob Conser, and John H. Miller, of Marion County; J. H. Douthitt, of Linn County; F. A. Chenowith and Greenbury Smith, of Benton County; S. Ellsworth and J. H. D. Henderson, of Lane County; Stephen F. Chadwick, of Umpqua County; John E. Ross, of Jackson County; A. F. Hedges and A. L. Lovejoy, of Clackamas County, and S. B. Parrish, of Multnomah County; while the directors of the Oregon Central Company were J. B. Underwood, of Lane County; Wm. T. Newby, of Yamhill County; Thos. R. Cornelius, of Washington County; and John C. Ainsworth and Joseph Gaston, of Multnomah County. It is a great pleasure to have the opportunity to testify to the public spirit and high character of these men who have passed away, and who in their day did their whole duty in unselfish labors to lay deep and broad the sure foundation of civic institutions and commercial prosperity for the State of Oregon; and while it was true that $50,000 of the preferred stock referred to was issued and deposited in the safe of E. N. Cooke, of Salem, for each one of the east side directors in pursuance of the scheme of Elliott, it is gratifying to know that not a man of them ever accepted a dollar of it, and could never be used by Holladay to promote or approve his questionable methods, and who for that reason, when he organized his new company were all left out of it. As the railroad could not be located on both sides of the Willamette River, it was inevitable that there should be a contest for the franchise and the land grant which accompanied it; and now, when the bitterness engendered by the contention has long since passed away and been forgotten, and both sides of the Willamette Valley have secured through the labors of those pioneers in public works all the benefits of railroad transportation, their places in the historical record of the state may be clearly denned, arid the legend end with, "Well done, good and faithful servants."- ↑ See Deady's Reports, pp. 609 to 620.