# Oregon Historical Quarterly/Volume 25/The History of the Oregon and California Railroad

Continued at part 2
THE HISTORY OF THE OREGON AND CALIFORNIA RAILROAD
By JOHN TILSON GANOE
Introduction
A country, if it is to survive, must have a social solidarity. In producing this oneness perhaps there is no more important factor than that of communication. The better the means of social intercourse, the greater the sense of union felt by the different groups of people.
United States is now a vast nation stretching from coast to coast, from Canada to the Gulf of Mexico. Without communication such a nation based upon republican principles would be virtually impossible. Isolation produces a group solidarity and a desire to be independent. To preserve a nation's unity care must be taken to develop those things which will bind the people together into a closer union.
United States in 1846 was faced with just such a problem. She had gained a new empire by forcing to a conclusion the diplomatic negotiations in which she had been engaged off and on thruout almost her entire existence. In 1848 the Mexican War secured her California. She now had a vast territory 3,000 miles from the seat of government, and not only was there the element distance with which she had to contend, but there was also a great barrier the so-called great American desert and the Rockies. Without communication, geographical isolation would have seemed to have also called for political isolation.
The discovery of gold followed by the Civil War, brought those upon the Atlantic coast to see as never before the need of communication—and no wonder, for during that period there had been talk of a new nation ​of the Pacific. The people of the East saw that a Railroad was an essential military necessity—thus the transcontinental grants.
The people of the West were no less awake to the necessity of a means of communication. Incessantly from 1850 on, telegraph and railroad connections had been talked. Preliminary surveys were made and propaganda had been put forth. Judah made his surveys and pressed his plans and the Railroad fever was abroad generally.
In Oregon also there were plans for Railroads, but none matured. It was left for California to supply the impetus which finally gave to Oregon the road through tiie historic Willamette Valley, and which in recent years has been an integral part of the Southern Pacific System. It is our plan to try to trace the history of this company to its merger with the Southern Pacific. No history of the Oregon and California Railroad can be complete unless it considers too, that Railroad with which in the beginning years it held a common name. Thus we will follow the history of both Oregon Central Companies, until they become one in the Oregon and California Company. The history of the Oregon and California Raliroad after 1887 is part of the hostory of the Southern Pacific. With this phase we shall touch very briefly, and then only to trace the land policy which ended finally in the forfeiture of the grant to the United States.
Before we consider the history of this company let us first enlarge upon the general background of railroad history in the United States. During the Civil War little building could be done. The decade just preceding the Civil War, however, was of great importance. It was a period of great increase in railroads. The steady growth of the Middle West had necessitated this development. Farm machinery was coming into vogue and production was increased. In 1846 England had declared for free trade so a market was open for the products of United States. By this time too, the country had fully recovered ​from the panic of 1837, gold had been discovered in California and business conditions generally were good.
It was during this period that the trunk lines were completed uniting the Middle West with the Atlantic Seaboard by rail. During this period the small lines were conoslidated into larger lines and railway systems were being formed. Then came the panic of 1857 from which the country did not recover before the Civil War broke out and stopped for the time being further railroad construction.
THE ORIGIN OF THE OREGON CENTRAL RAILROAD COMPANIES
1. The Elliott and Barry Surveys.
On April 6, 1863, the California legislature passed an act granting certain privileges to a group of about seventy people who had "Created an association for the purpose of demonstrating the practicability by survey for a line of Railroad from Marysville, California, to Portland, Oregon." By this bill these people obtained the right of way through any of the public lands belonging to the State of California and the right to enter upon all public lands for the purposes of surveying. The act was to "be of no force in case the parties named in the first section of this bill" should fail to incorporate before July 1, 1865.
Among this group of seventy was an engineer named Simon G. Elliott. Mr. Elliott had been a County Surveyor and had gained considerable reputation because the Pacifiic Railroad had used his route over the Sierra Nevada Mountains. He was a man of great energy and daring, and had been filled with enthusiasm listening to the expositions of Theodore DeHone Judah. Thus it is in 1863 we find Elliott engaged in the first survey. He went along the general line of the route gathering what subscriptions he could, but with little success, except in Southern Oregon. Southern Oregon had been brought into prominence by the discovery of gold in California and was at this time no insignificant factor in the State. The Southern Oregon cities were the trading centers between California and Oregon. It was to their advantage to have railroad connections for thus they could ship direct to San Francisco or to Portland. Their cry had ever been for connection with San Francisco.
On the other hand, Portland took a different attitude toward the proposition. If the proposed railroad was put ​through then the trade of Southern Oregon would be entirely with San Francisco. So in Portland Elliot received little support.
With Elliott were associated Mr. Geo. H . Belden of Eugene, formerly of Portland, and Col. Chas. Barry who had recently come from the Civil War, having resigned because of a wound received while in service. The survey had caused some excitement and on October 13, 1863, the California and Columbia River Railroad Company was incorporated at Jacksonville with J. H. Moores, J. Gaston and S. G. Elliott as incorporators. The capital stock was to be $1,500,000. The survey by this time had been largely completed, but dissension seems to have arisen and the party split. Mr. Belden returned home and Elliott returned to California. Col. Barry stayed with the party and through the efforts of J. Gaston, the party was enabled to subsist until Spring, when Barry carried on the survey.
THE ELLIOTT SURVEY
1. Route:
The line of survey as proposed by Elliott is interesting in contrast to that of Barry and to that actually followed when the road was built. The route from Shasta went up the Sacramento River to its head and there passed the summit between the Sacramento and Shasta rivers, where it followed the Shasta for twenty-one miles and then turned west to go through Yreka. From there it turned back into the Shasta Valley for fifteen miles where it turned north, following Willow Creek until it reached the Klamath river. It crossed the Klamath anr there started toward the summit of the Siskiyou Mountains. Through the Siskiyous it turned east until it reachel the head of Emigrant Creek following "along the west slope of the ridge to the east of Bear Creek for twenty-six and one-half miles from the summit to the valley of Bear Creek; along Bear Creek Valley to Jacksonville, thence down the Rogue River for twenty miles along the stage road to Cow Creek, up Cow Creek to the Canon, through Canon and through Canyonville along the Umpqua to Roseburg." It then followed the stage road to Pass Creek which it followed to the Willamette Valley. Passing through Eugene it crossed the Willamette at Corvallis, "thence along the East side of the River through Albany in a direct line to Jefferson," where it crossed the Santiam, "thence along to east of Salem Hills down Mill Creek through Salem and French Prairie to Oregon City" where it crossed the river going through the Tualatin Plains "to Portland or some point on the Columbia."
2. Grade:
A unique feature of the survey was that at no place was the grade over one hundred feet to the mile. Even over the Siskiyous the grade was only to be 83 feet to the mile. Nor was the grade obtained by continual curving. The road was largely a straight line. Of the six hundred ​thirty-five and one-half miles, Elliott estimated that five hundred miles or about 80% of the whole distance would be on a straight line. "This," he said, "will compare with any Railroad on the American continent in this respect."
3. Cost of Construction.
Perhaps the most interesting phase of any report of a preliminary survey is the estimates on the cost of con- struction. In estimating the cost, Elliott divided the whole road into eleven divisions and estimated the cost per mile and then the total cost per section. The following is the table of costs: Division 1 2 3 4 5 6 7 8 9 10 11 Miles 136 83* 49 22y2 26 38 38 12 31 50 150 635i/2 Cost per Mile $ 36.000.00 62,000.00 48,000 .00 80,000.00 80,000 ,00 60,000.00 60,000.00 100,000 .00 48,000.00 40,000.00 33,000 .00 Total Cost $ 4,896 ,000 .00 5,146 ,000 .00 2,352 ,000 .00 1,800 ,000.00 2,080 ,000 .00 2,280,000.00 2,280 ,000.00 1,200 ,000.00 1,488,000 .00 2,000 ,000 .00 4,950 ,000 .00 30,472 ,000 .00
The divisions naturally enough were made with geographical considerations of the difficulty. Division One extended from Marysville to Shasta; division two from Shasta to the head waters of the Sacramento River; division three from the head waters of the Sacramento River to the Klamath River; division four from the crossing of the Klamath River to the summit of the Siskiyou Mountains; division five from the summit of the Siskiyou Mountains to Ashland; division six from Ashland to Hunter's Ferry; division seven from Hunter's Ferry to head of Cañon; division eight from the head of Cañon to Cañonville; division nine from Cañonville to Roseburg; ​division ten from Roseburg to the head of the Willamette Valley; and division eleven from the head of the Willamette Valley to the navigable waters of the Columbia.
"It will be seen by the above table," says Elliott, "that the whole road can be built at an average cost of less than $48,000 per mile, or $1,960 per mile less than the average cost of Railroads in the State of New York and $18,062 more per mile than the average cost of Railroads in the State of Ohio. In comparing the estimate cost of this road with the cost of Railroads in other states, we find that the Boston and Providence Railroad cost $81,270 per mile; the Boston and Lowell Road $78,630 per mile; the Hudson River Railroad $80,000 per mile and the New York and Erie Railroad about $80,000 per mile. Besides this we find that the six railroads in Maine cost an average of $39,886 per mile; five railroads in Vermont $40,824 per mile; twenty-three railroads in Ohio $29,938 per mile. With all the improvements in engineering and material required, I think the estimated cost of our road will be found to be impartial and accurate."
THE BARRY SURVEY
The Barry Survey was made the year following the efforts of Elliott. The report of the survey was printed before that of Elliott. Barry finished his survey in October, 1864, and immediately presented it to the Oregon Legislature through Gaston, in an effort to obtain aid. The Legislature in response passed an act granting to any company that would construct a railroad in the Willamette Valley, a loan from the proceeds of a one mill tax on all taxable property in Oregon. The amount, however, was not to exceed $40,000 a year. The aid was a simple loan for which the State was to receive 6% interest and was to have it all paid back to it at the end of five years. ​.•* • 244 JOHN TILSON GANOE There was nothing enticing about such an aid as this. Capitalists could not be induced to finance a $30,000,000 road with only a loan of $40,000 a year as a maximum guarantee for such a short period. Yet Barry and Gaston were themselves largely to blame. It is probable that the State could not have done much more but the ease with which the money could be raised as indicated by Barry's facile pen did not show that the company needed a great deal of aid. Barry estimated that the annual earnings of the road would be $5,600,000. If the oper- ating ratio was not too high, the earnings as figured by him, would take care of the interest so the only aid needed from the legislature would be a small aid the first few years. The company had tried to gain the proceeds of 500,000 acres of land granted to Oregon for internal improve- ments, but this bill had been indefinitely postponed. 10 1. Route: 11 The route of the Barry survey caused no little dis- cussion. Places in the Willamette Valley cried against it because, as they said, it did not go through the Willamette Valley. 12 The beginning of Col. Barry's survey was at Jacksonville. Through the Umpqua Mountains he re- ported two passes, one by Grave Creek which involved a one hundred foot per mile grade and the second by Trail Creek, which although he did not examine thoroughly, he thought would be better. From thence he went through the Umpqua Valley, winding among the hills with a grade not exceeding eighty feet per mile; from the Umpqua he crossed the Calipooiahs at Applegate's Pass instead of by Pass Creek as Elliott had done; from there down the west side of the Willamette through the Tualatin Plains. He realized that Portland must be the terminal of the company and showed that several passes of the Ik 10 Lavas and Journals, 1864. 11 A photostatic copy of the Barry survey has recently been made and is now easily accessible. 12 Notably the State Journal of Eugene. ​OREGON AND CALIFORNIA RAILROAD 245 Portland hills could be used, as that at the falls of the Willamette, or that by Sucker Lake and Oswego or to go until the Cornelius Pass through the Scappoose Moun- tains was reached and then back to Portland. 2. Cost: The estimates as to cost made by Barry and Elliott vary very little. Barry did not pretend to give the cost of the Califorina portion of the road but merely that part which was in Oregon. He divided the line into seven divisions which were the same as those used by Elliott in his survey. Division one was from the summit of the Siskiyou Mountains where it was proposed the railroad should unite with the California and Oregon Railroad Company, to Ashland; division two from Ashland to Hunter's Ferry; division three from Hunter's Ferry to the head of Canyon; division four from the head of Can- yon to Canyonville; division five from Canyonville to Roseburg; division six from Roseburg to the head of the Willamette Valley; and division seven from the head of the Willamette Valley to the navigable waters of the Columbia. His estimate of the cost is correlated in the following table: Division 1 2 3 4 5 6 7 Miles 26 38 38 12 31 50 130 325 Cost per Mile $ 80,000.00 40,000 .00 60,000 .00 80,000.00 40,000.00 40,000.00 35,000.00 Total Cost $ 2,080,000.00 1,520,000 .00 2,280 ,000 .00 960,000.00 1,240,000 .00 2,000 ,000 .00 4,550 ,000 .00 $14,630 ,000 .00 The estimate made by Barry of the cost of the road in Oregon is more than two and a half million dollars less than the estimate made by Elliott. This was due partly to shortening the mileage and partly to simply making the estimates lower. 41
JOHN TILSON GANOE it 3. Estimated Traffic and Earnings: To ascertain what he thought would be the traffic and earnings of the road Barry started with the statement that for every acre of good agricultural land one ton of freight could be expected by the railroad. But he says, "In order that no one can quarrel with our figures or esti- mates, I will, in the present instance, estimate it at only one-fourth of a ton per acre per annum." The railroad, he said, would control not less than six million acres of good land and probably nearer sixteen million than six. This would make 1,500,000 tons per annum. To equalize the traffic on the whole road he divided by three which made 500,000 tons per annum. At ten dollars a ton, and he showed this was considerably less than was being paid or would be paid, the road would have an income of $5,000,000 per annum. In the same way he estimated the freight from the mines, from lumber, fast freight, how many through passengers, how many local passeng- ers and how much mail and express. Placing all of these various estimates together he made a table to show the prospects of the road as follows: Recapitulation: Estimated earnings of the California and Oregon Rail- road from Marysville, California, to the Columbia River, Oregon: "To 500,000 tons local freight (exclusive of freight from mines @ $10 per ton $5,000,000 100,000 tons of freight from mines @ $10 ton 1,000,000 50,000 tons of freight on lumber @ $5 per ton 250,000 50,000 tons through fast freight @ $10 per ton 500,000 Local passenger fares. 650,000 50,000 through passengers @ $30 _ 1,500,000 ​" Mails and express 300,000 Total earnings per annum $9,200,000 "From this deduct: Running expenses 650 miles @ $4,000 per mile..$2,600,000 Annual repairs ^ 1,000,000 Total expenses $3,600,000 Net earnings L 5,600,000
"Which," he said, "is 18 2/3 per centum on thirty mil- lions of dollars—the estimated cost of construction of the whole line."
4. Arguments for Aid.
Not only would the road be a paying proposition but it would have several distinct advantages which he said were:
"1st. It runs through and connects with each other and with the Pacific Ocean at either end, all the great valleys and grain growing districts on the Pacific Coast.
"2nd. It is located on the direct line of the great coast- wise trade and travel that is now rapidly springing into existence.
"3rd. It will be the only internal mountain-defended military road, safe from the raids of our enemy, on which the nation and the American communities on the Pacific could rely for the speedy transportation of troops and munitions of war, in case of an invasion by foreign nations.
"4th. When constructed, it would connect the States of Oregon, Idaho, Washington and British Columbia and Vancouver Island on the North, with the States of Cali- fornia, Nevada and the Atlantic States on the South, and transport all the travel and the great majority of the freight between these two groups of states.
"5th. It would be the only line running thru the only country in the world combining the three great resources of wealth—great agricultural resources, unlimited water power for manufacturers, and great forests of good tim- ber with inexhaustible mines of the useful and precious metals.
​"6th. In all these advantages, this enterprise, from the nature of the country, Could Never Have a Rival Line Competing for Its Business."
To the objection that the country was too sparsely settled, he replied that it would remain so until a railroad was built to bring in emigrants. Every other road has been troubled with the same objections. The real source of opposition he said was from the citizens of Portland who were afraid some of the trade would be diverted to San Francisco. This he showed to be erroneous. All that was needed in his opinion was a grant from the government in order to interest capitalists in the project and since the road was of such great military importance and since Congress had not aided Oregon by any grants for railroads it was only just that it should do this.
The Land Grant Struggle:
The California and Oregon Company almost from the time of its organization attempted to gain aid from Congress. In 1863-4 Mr. Cole, Representative from California, introduced a bill embodying a grant but nothing came of it. Gaston of the California and Columbia River Railroad Company informed Mr. Cole of the work he was doing gaining subscriptions and agitating for a railroad, and it was suggested by Mr. Cole that the company be mentioned in the bill. When Barry had his report of the survey printed in October, 1866, after the adjournment of the Oregon legislature, he immediately left for Washington where he tried to obtain a grant of land, but at that session of Congress the act was not passed.
On July 13, 1865, the Oregon and California Railroad Company, the sister to the California and Oregon Com​OREGON AND CALIFORNIA RAILROAD 249 pany, was incorporated. 15 The California and Oregon Company had been incorporated June 29, 1865. 16 The in- corporators of the new company were Alpheus Bull, pres- ident of the California and Oregon Railroad Company, S. G. Elliott, surveyor, and C. Temple Emmett, attorney and director of the California and Oregon Railroad Company. The company was incorporated at Jacksonville and the stock was to be $16,000,000. The company seems to have been organized in order to obtain the Oregon portion of the land grant. In the earlier attempts the California Company seems not to have tried to obtain a grant in Oregon. During the session 1866, the California Company was again at work. Two bills granting aid were entered in Congress, one by Mr. Bidwell of California, in the House, the other by Senator Nesmith of Oregon, in the Senate. While Senator Nesmith's bill was passed, it was not as he had framed it. The bill came from the Committee on Public Lands amended like the bill in the House and passed the Senate in this form. In the House the bill was more carefully considered and when referred to the Com- mittee on Public Lands came out amended in the nature of a substitute. This bill passed the House and was sent to the Senate which passed it, and the bill became a law July 25, 1866. The grant provided 17 that the California and Oregon Railroad Company and such other company as the legis- lature of Oregon should designate should receive "every alternate section of public land, not mineral, designated by odd numbers to the amount of twenty alternate sec- tions per mile (ten on each side) of said railroad line." If the sections were already taken they could take others in lieu of them within ten miles of the limits of the grant. Patents were to be granted to the railroad on the comple- 15 Report of Secretary of State, 1866. 16 Report of Preliminary Survey. 17 14 Statutes, p. 239 .
JOHN TILSON GANOE QI II tion of twenty mile sections. Assent to the terms of the grant was to be filed with the Department of Interior within one year. The first twenty miles was to be com- pleted within two years and at least twenty miles each two years thereafter, and the whole road by July 1, 1875. Mineral lands were exempt but timber lands were not. The California and Columbia River Company had ceased their activities in 1865, when Barry returned east and ceased his activities. In order to obtain the grant, Gaston began in September, 1866, to organize a new company. The legislature had not yet met. On Oc- tober 6, 1866, Gaston took the articles of incorporation of the new company to the Secretary of State for filing. The company was not yet fully organized so Gaston had the Secretary of State endorse the date upon the back of the papers and withdrew them to gain further incorpor- ators. On October 10, 1866, the legislature designated it, the Oregon Central Company, as the company to receive the grant, provided by the Act of Congress. The articles of incorporation had not yet been permanently filed. The articles, up to the passage of the act by the legislature designating the Oregon Central Railroad Company, con- tained only eight names. 18 Dissention arose between the incorporators and a fight for control began. Several were opposed to the Barry survey, notably I. R. Moores, the first signer of the articles of incorporation. The power of attorney authorizing the opening of the stock books pro- vided that the Barry survey should be paid for by stock, to this Moores objected. 19 A meeting of the incorporators was held November 10, and there the breach was widened. Some favored having Portland capitalists brought into the company and some opposed because they feared if 18 House Journal 1866, p . 256. The Articles of Incoporation were pub- lished in the Oregonian October 8, 1866, and contained the names of J. S . Smith, J. H . Mitchell, Jesse Applegate, Joel Palmer, E. Ellsworth, I. R Moores, E. D . Shattuck, F. A . Chenoweth, H. W . Corbett and E. R . Geary. E. Ellsworth and E. R . Geary do not appear on the articles as filed. 19 Inside History of the Oregon Central R. R .
•If ​OREGON AND CALIFORNIA RADLROAD 251 the Portland capitalists were taken in they would lose control of the company. The general concensus of opinion seems to have been in favor of such a plan. Gaston went to Portland on this mission and there obtained their sig- natures, 20 and made with them an agreement which prac- tically gave them charge of the road. 21 The articles of incorporation had not yet been filed. About the middle of November J. S. Smith, one of the signers of the articles asked of the Secretary of State to see them, 22 and found they had not yet been returned and filed by Gaston. On November 17, 1866, I. R. Moores, J. S. Smith and E. N . Cooke* (heretofore not concerned), hastily drew and filed new articles of incorporation, while Gaston was still in Portland, 23 in order to beat out Gaston. Upon his re- turn Gaston filed the original articles of incorporation. When he presented the articles he did not present the same articles which the Secretary of State had endorsed "October 6, 1866." So the articles were dated as filed November 21, 1866. The original endorsed articles were filed in Multnomah County, November 23, 1866. 24 In April, 1867, Elliott and T. R. Brooks came from California claiming to represent capitalists in California, and the East. They presented a proposition to I. R. Moores and others to aid the Oregon Company in finan- cing the road. The company of November 17, 1866, was not organized for the purpose of building a railroad, but to beat out Gaston since the capital stock was only placed at $500,000. In order to carry out the plan presented by the California company, another Oregon Central Railroad Company was organized on April 22, 1867, having as incorporators John H. Moores, J. S. Smith, Geo. L. Woods, E. N. Cooke, <*§ 20 Ibid. 21 SeeContractinO.&C.R.R.vs. U.S. 22 See Appendix D. It is probable too that the fact that the articles had not been filed was known to Mr. Moores, since he was Assistant Secretary of State at that time. 23 The capital stock was placed at $500,000. 24 See Appendix D. ​ 252 JOHN TILSON GANOE
S. Ellsworth, I. R. Moores and Samuel A. Clarke. 25 The incorporators, with the exception of Ellsworth, subscribed a hundred dollars each and passed a resolution that the chairman be instructed "to subscribe the number of Sev- enty Thousand Shares (70,000 shares) of the Capital Stock of the Oregon Central Railroad Company for the use and disposal of the corporation; which, having been done, on motion of Mr. Clarke, the meeting of stockhold- ers proceeded immediately to elect a Board of Directors, which motion passed unanimously, and all the stock- holders being present in person or by Attorney, Gov. Woods was continued in the chair." 26 This company became known as the East Side Com- pany, because it followed the general route of the Elliott survey on the east side of the Willamette River while the Gaston company, incorporated November 21, 1866, be- came known as the West Side Company because it follow- ed the general route of the Barry survey on the west side of the Willamette. The Gaston company had not yet had enough stock subscribed. In order to combat the East Side Company, Gaston subscribed in his own behalf one-half the capital stock of the West Side Company ($2,500,000) and pro- ceeded to complete the organization of the company. From then until September nothing was done by the West Side Company except to hold public meetings and interest the people generally, after which a systematic canves was carried on which resulted in donations by Washing- ton and Yamhill counties and Portland. 27 The East Side Company immediately let contracts for construction and issued bonds. In May, 1868, both com- panies broke ground; the East Side Company with pomp 25 J. S . Smith was signed by I. R. Moores, Attorney, as was E. N . Cooke. S . Ellsworth was signed by Geo. L . Woods, Attorney. Gaston claims Smith and Cooke were in Europe and Ellsworth was in Eugene City, and that there was no authority given for the use of the names. Inside History of Oregon Central Company. 26 Minutes of Oregon Central R. R. Co., of Salem. 27 First Annual Report of President to the stockholders. m* ​OREGON AND CALIFORNIA RAILROAD 253 and ceremony, and the West Side Company with merely an informal gathering. With this both companies began work. From that time on both companies struggled to complete the work in order to make the best showing at the legislature. On April 29, 1868, the East Side Com- pany passed a resolution authorizing Dr. A. M. Loryea to accept any donation of land that had been made to the Oregon Central Railroad. Dr. Loryea wrote to the De- partment of the Interior and was informed by O. H. Browning, secretary, "that J. Gaston, President of the Oregon Central Railroad Company, within the time pre- scribed within the act, filed an assent, which was re- ceived." 28 The East Side Company did not make applica- tion until after the time had elapsed and the only way they could gain the grant was to go again to the legis- lature and present their cause. This they proceeded to do. In the summer of 1868 a new character was brought upon the scene. The contracts let by the East Side Com- pany were taken over by the partnership firm of Ben Hol- laday and Company. Ben Holladay was a man of means with few scruples as to business methods and with a lax moral character. He was a man of great energy and daring. It was to him the East Side Company was en- trusted for the next six years. At the meeting of the legislature in October, 1868, open house was kept. Holladay saw that none were wanting treats. Political maneuvering became the pas- time of both companies. The East Side Company claimed that there had been no such company organized as the Oregon Central Railroad Company, at the time the legis- lature met in 1866. 29 The West Side Company claimed that they had been recognized and accepted by the Sec- retary of Interior, therefore said no redesignation should be made. 28 Letter of O. H . Browning to A. M. Loryea. Oregon and California vs. U. S. 29 The claims of the East Side Company are best set forth in a letter °f J. H . Mitchell to Judge Deady. See Appendix E. ,'-y..J ^ ​254 JOHN TILSON GANOE The history of the question in the legislature is an in- teresting one. Gaston started the struggle by asking Dr. J. R. Bayley, Senator from Benton County, to introduce Senate Joint Resolution No. 14 which said in the preamble "in order to remove all doubts, in the public mind, it is hereby resolved by the Senate, the House concurring, that the Oregon Central Railroad Company of Portland, Oregon, is and was the company designated, and intended to be designated by said House Joint Resolution No. 13 of 1866, and that this Legislative assembly does hereby re-affirm them the said Oregon Central Railroad Company of Portland, Oregon, to receive all the benefits and lands granted by said Act of Congress so far as the same re* lates to the State of Oregon." 30 Senator Hendershott moved that the resolution be made the special order for Friday at 11 o'clock, but the motion failed to carry as did a motion by Gen. Cochran to refer the resolution to the Committee on Railroads. Senator Hendershott then presented Senate Resolution No. 14, which provided that the Secretary of State should furnish the Senate copies of the entries and filings of papers of the Oregon Central Railroad Company. This was amended to read that the Secretary of State should bring into the presence of the Senate the original papers of this company. This the Secretary of State did. By Senate Resolution No. 15 the companies were in- vited to bring into the Senate their attorneys who were present to present the cause of their respective com- panies. This was followed by Senate Resolution No. 16 which invited the companies to produce their stock books. The aim of the Senate seems to have been then to really delve into the matter and allow each side to present its Cause. The Senate was placed in a position of a court judging between two claimants to certain rights. The 30 A certified copy of the proceedings of the legislature on this point is given in the "Statement of Facts Regarding the Incorporation of the OregonCentralR.R.Co." inO.&C.R.R.vs.U.S. Vol.X. ​OREGON AND CALIFORNIA RAILROAD 255 companies were allowed to bring in their attorneys to insure that they were well represented. The attorneys presented their cases October 9, 1868. On October 17, Senator Ford moved that S. J . R. No. 14 be indefinitely postponed. Senator Cornelius moved to amend the motion by postponing the whole subject mat- ter of the resolution. Although Senator Ford accepted the amendment, the amendment was lost, whereupon Senator Bayley asked permission to withdraw his resolution, which was carried. 31 Upon the same day as the withdrawal of S. J . R . No. 15, Senator Miller introduced S. J. R. No. 16 which provided that the East Side should receive the grant, saying that the resolution of the Legislature of 1866 "was adopted under a misapprehension of facts as to the organization and existence of such a company." This resolution passed the Senate by a vote of fourteen to eight. In the House the subject was referred to the Railroad Committee who made their report the same day that the Senate passed their resolution in favor of the East Side Company. The report was the report which had been called for by H. R. No. 24. 32 The majority of the committee consisting of James F. Gazley of Douglas Co., J. L . Scog- gins of Multnomah Co., and D. E . Benson of Baker and Union counties, reported that the land was not granted to the State, so the State had no control. The only function of the legislature was to designate a company which ac- cording to the Act was to be organized under the Laws of Oregon. They held that the legislature could not reverse the acts of the previous legislature. They recognized the fact of the pencil memorandum made by the Secretary of State on the Articles of Incorporation, Oct. 6, 1866. They 31 It is not our plan to attempt to give each step in the transaction but only those which show the general procedure through which the bill passed. 32 House Resolution No. 24 had instructed the Committee on Railroads to investigate the matter and report at an early date. O. &C. R. R. vs. U. S. Vol. XIII, p. 7058. ​£*>' 256 JOHN TDLSON GANOE m; showed that the West Side Company had filed acceptance to the Act with the Department of the Interior and had been accepted, while the East Side Company had been re- jected, and concluded by saying "we therefore conclude that if the West Side Company has not the land no com- pany has, and no company can get it, and this Legislature can not enable any company to take any steps in the mat- ter. We therefore recommend that no action be taken by this Legislature in the premises, and that we do not in any way make ourselves parties to any contest between rival corporations." 33 The minority of the committee consisted of C. B. Bel- linger of Benton county and J. L . Louden of Jackson county. They ignored the pencil memorandum entirely and declared that there was no company in existence at the time and that the legislature meant to designate cer- tain persons as shown by the report of the select com- mittee to whom the Governor's message was referred in 1866. 34 The company, they said, was not at the time of the act, in existence, so it must have referred to the persons named. The persons named were now a corpora- tion incorporated April 22, 1867, for the express purpose of constructing a railway in accordance with the Act. Since it was the group of persons meant, no company had yet acquired right. The rejecting of the East Side Com- pany by the Department of the Interior, they said, was not because their claim was not good but because the time for filing assent had expired. "The State," they said, "must rely upon the generosity of Congress to grant an extension of time for filing the assent." Still more potent than these reasons the committee be- lieved was the prospects of the roads. The Act provided the first twenty miles of the road should be completed by July 1, 1870. They then discussed the resources of 38 House Journal, 1868 , p. 303ff. 34 This report was made two days after the act designating the Oregon Central Company was passed. ​OREGON AND CALIFORNIA RAILROAD 257 the two companies and showed that the East Side road had the best prospects and recommended that the East Side Company be designated the company to receive the grant. 35 When on October 19, two days after the above reports, the House received a communication to the effect that S. J. R . No. 16 had been passed and was referred to the House for concurrence, the question again came into prominence. An attempt was made to refer it to a com- mittee of five, but this was voted down. An amendment was offered by Mr. Gazley of Douglas county, that the directors should give bonds amounting to a hundred thousand dollars to insure that the road would go through Umpqua, Jacksonville and Ashland, but this was also turned down. The resolution was then considered and passed by a vote of twenty-eight to eighteen. The motive behind the members of the legislature in thus designating the East Side Company is seen by a con- sideration of the vote. The vote reflected in a large de- gree the counties represented and their interests. Those representatives who were from counties which would gain more from the East Side railroad than from the West Side turned their influence toward passing the res- olution, while those representatives who were from counties which would gain more from the West Side sup- ported it. 36 The East Side Company by this designation had a greater claim to the land. But even yet the grant was not won. Congress had said that assent to the Act must be filed within one year. The West Side Company had filed assent within the time and had been accepted. It was now too late for the East Side Company to file assent so it was necessary to get Congress to amend the Act and extend the time for filing assent. Congress had amended Section 6 of the Act on June 25, 1868, providing that, 35 House Journal, 1868, p. 306 ff. 36 The individual vote is given in Appendix F. i mi I NIL ill ​258 JOHN TELSON GANOE
"Instead of the times now fixed in said section, the first section of twenty miles of said railroad and telegraph shall be completed within eighteen months from the pass- age of this Act, and at least twenty miles in each two years thereafter and the whole on or before the first day of July, Anno Domini 1880." Both companies were again pitted against each other. Arguments were presented and pamphlets circulated. Congress was prone to consider the question one for the courts but amended the Act on April 10,1869, to read: "That section six be and the same is hereby amended so as to allow any Railroad Company heretofore, desig- nated by the Legislature of the State of Oregon, in ac- cordance with the first section of said act, to file its assent to such act in the Department of the Interior within one year from the date of the passage of this act, and such filing of its assent, if done within one year from the passage hereof, shall have the same force and effect to all intents and purposes as if such assent had been filed with- in one year after the passage of said act; provided that nothing herein shall impair any rights heretofore acquired by any Railroad Company under said act, nor shall said act or this Amendment be construed to entitle more than one Company to a grant of land; and providing further, that the lands granted by the act aforesaid shall be sold to actual settlers only in quantities not greater than one- quarter section to one purchaser, and for a price not ex- ceeding two dollars and fifty ecnts per acre." The East Side Company filed assent with the Depart- ment of the Interior in June, 1869, and in October, 1869, filed maps of the survey for the first sixty miles of road. The West Side Company did not construct any part of its road and waived all claims to the grant and turned their efforts to obtain another grant from Congress. In this they were successful. On May 4, 1870, Congress passed an act providing: 1. Right of way one hundred feet wide from Forest Grove to Astoria. 2. They were to have alternate sections of non-mineral •<l V+*. ​OREGON AND CALIFORNIA RAILROAD 259 public lands. If the land was taken, they had the choice of other land within twenty-five miles of the track. 3. It provided for a survey and segregation of the land from the Federal domain, when maps were filed by the company. 4. Settlers under the Homestead Act were protected. 5. The land was to be sold to actual settlers at $2.50 per acre and not in lots over a quarter section. 6. Funds were to be set aside for a sinking fund, to be invested in bonds, which was to be used to redeem the first mortgage construction bonds. This fund could not be used for other purposes until the bonds were redeemed. 7. The District Court of the United States was to have original jurisdiction, concurrently, with the state courts, subject to appeal and writ of error, to enforce the pro- vision of the act. 8. Assent was to be filed within one year and at least twenty miles finished in two years and the road was to be entirely completed in six years. Thus the struggle for land closed. Let us now turn to construction and finance as carried on by the companies until their interests have become one under Ben Holla- day. To this we shall devote the next section. II. AIDS AND FINANCE It is impossible to determine with any degree of ac- curacy the finance of the railroad during the early period, in fact until after the establishment of the Interstate Commerce Commission. Before that time there was no one with sufficient power to enforce anything like a uni- form system of accounting. Railroads were left to them- selves and if they saw fit to record the facts of public interest we have them; if they did not, we are left in the dark. In addition to this the Oregon and California Com- pany suffered from the loss of records burned in the San i ItM ​

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260 JOHN TDLSON GANOE SI Francisco fire in 1906, so there are many things we would like to know which probably never will be known. A. Aids to the Roads. 1. The East Side Company. By the grant given by the Federal government, the East Side Company had as a resource, if they fulfilled the conditions, approximately 3,800,000 acres, computed by mileage at the rate of twenty sections a mile. By the amendment of April 10, 1869, Congress placed a limita- tion upon the price for which the land should sell. The amendment provided that the land should be sold for $2.50 per acre and in lots of not over one quarter section. Obviously the purpose of the grant was not only to aid the railroad but to make the railroad a mediary for the sale of land. The benefit accruing to the railroad from the land de- pended upon two things; first the line must be built, and secondly the land must be disposed of for they could not hope to gain more by holding it for investment because of the $2.50 price limitation set by Congress. Had the rail- road been able to sell every acre of the grant at the price stated by the act, the aid would have been of considerable assistance. But in fact, except as a basis for loans, the grant does not seem to have aided the road greatly during this early period, for although the road was constructed to Roseburg, a distance of about 197 miles, during the years 1870, 1871, and 1872 very little land was patented. The record shows that between the years 1871 and 1877 the patent on the land by the East Side Company only amounted to about 323,000 acres and most of these pat- ents adjoined the first 125 miles of track. The reason for the delay in patenting the land seems to lie in the fact that at that time the land was not salable. They could not at that period, have violated the terms of the act had they desired since the government was also in the market with land which immediately adjoined the i ​OREGON AND CALIFORNIA RAILROAD 261 railroad and disposing of it at more reasonable rates. It was not until the government land was disposed of and the timber supply of the East had become almost exhausted that the grant became of great value. 37 If the aid received from the Federal government did not assist greatly in the construction of the road, the aid tendered by the State was still more disheartening. The same legislature that had originally designated the Ore- gon Central Company as the company to receive the land grant given by Congress also provided that State aid should be given to the proposed railway. This act pro- vided that whenever the company completed twenty miles of road and had received the patents on the congressional land grants from the government they could deposit two hundred bonds of $1000.00 denominations and the State would pay the interest upon them. They were to be twenty year bonds at 7%, and for each twenty mile section the same provision would hold good as the act says, "until the whole number upon which the State has thus under- taken to pay interest shall be one thousand bonds, of the aggregate nominal value of one million dollars, and the faith of the State is pledged to the payment of the said coupons as they mature, but the state will not pay any of the principal of the said bonds." The company was to refund all moneys paid by the state as interest one year after the maturity of the coupons, and until the time when the company refunded the money the State was to have a prior lien. If twenty miles of the road were not completed within two years and twenty miles each succeeding two years the legisla- ture reserved the right to transfer all rights of the com- pany to another. The aid at best was not a large one but before the act was ever utilized it was repealed by the legislature of 1868 as unconstitutional. 37 The question of the handling of the land* grant will be more fully handled in Chapter V which deals with the Oregon and California Land Grant cases. uw, 1 ​[If- 262 JOHN TILSON GANOE MM hN* The policy of financing the East Side road seems not to have involved any attempt for local support other than attempts to gain public favor. Their policy from the be- ginning seems to have been one of gathering stock to watch it become valuable and to gain what money they needed not from actual cash subscriptions for stock but from the sale of bonds. 38 Their only local aid seems to have been grants of right of way through certain farms, al- though the usual thing was the payment of an exorbitant price to the owner rather than a gift from him. 2. West Side Company. From the inception of the idea of railroad building the policy of Gaston was one of gaining aid. The Califor- nia and Columbia River Railroad Company had struggled for aid from both the State and the Federal government. The Oregon Central Company, West Side, had struggled for the grant which was finally given to the East Side Oregon Central Company. Failing to gain this, Gaston turned his efforts, as we have seen, to gaining a new grant from Congress and in this was successful The grant was largely the same as that given to the East Side Company. This company was to receive alter- nate sections on each side of the track and was also re- stricted in the sales prices by a limitation of $2.50 per acre. The grant was also dependent upon the amount of road constructed. During the years 1871 and 1872, after Holladay gained control, the company was very active. The road was built from Portland to Forest Grove and from there south about forty-seven miles to the terminus named in the act. The act had provided a grant of additional land should the road be extended to Astoria, but this was never built and the grant was for- feited. The actual amount of land embraced by the grant, Iy 38 The actual financing of the road East Side—see page 265. be discussed under Finance— ​OREGON AND CALIFORNIA RAILROAD 263 after deducting that forfeited because they did not build to Astoria and after that which overlapped the East Side grant, was not great, being considerably less than 200,000 acres; and this was not utilized by the company except as a basis for loans until after the Southern Pacific had taken over the road. The act granting aid to the Oregon Central Railroad Company by the legislature of Oregon in 1866 might well have been considered a grant to the West Side Company. But the redesignation of a company by the legislature in 1868 and the repeal of the act itself destroyed any hopes that the company might have had for State aid. In local aid the company was extremely fortunate. From the first Gaston's plan had been to appeal to the people for aid. When the company was first organized it had been his desire to open the stock books to the people and gain an interest in the construction of railroads generally, so after the company received the recognition of their application for the government grant from the Department of the Interior "a canvas for subscriptions to the capital stock of the company, and donations of land and other property in aid of the enterprise wag commenced in Washington and Yamhill counties, which subsequently extended to the city of Portland. 39 In point of time the aid received from the city of Port- land came first. The ordinance granting aid was passed Feb. 6, 1868. The purpose of the aid as stated by the act was to secure "gravel, stone, brick, clay, lumber and tim- ber for the construction and repair of the City Buildings of the City of Portland and the streets adjacent to the public grounds, and for other purposes." 40 The city of Portland was to pay the interest on two hundred and fifty bonds of thousand dollar denomination bearing in- terest at 7%. To pay the interest a two and one-half mill 39 First Annual Report of the Oregon Central Railroad Company of Portland. 40 See Ordinance 468—-In Minutes of O. C . R . R . Co. —West Side. IrI
im ​264 JOHN TDLSON GANOE tax was to be levied for the year 1868 and a four mill tax for 1869 and for eighteen years thereafter. The aids given by Washington and Yamhill counties were modeled on that made by the City of Portland. Washington County agreed to pay the interest upon $50,000 worth of bonds, while Yamhill county agreed to pay upon $75,000. When in addition to this the com- pany received aid from many public spirited people they would seem to have been, from a standpoint of aid, in a fair way to construct a road. Citizens of Portland bought and actually paid for $50,000 worth of stock, citizens of Washington county $20,000 and the citizens of Yamhill county $25,000. Nor did the aid from citizens stop with the mere subscription to stock. Many gave the company land, the most important gift being that by John H. Couch and George H. Flanders, who gave the company ten blocks of land in the city of Portland near where the Union Station now stands. The company's plea for aid then seems to have been rewarded; and the playing of one community against another to arouse enthusiasm was not without its effect as the company not only gained the aid but also the good will of the people. With this view and knowledge of the resources of the two companies, we want next to turn to the actual finan- cing of the companies to see why it was that the East Side Company with little popular support gained com- parative success while the West Side Company with ac- tual cash aid and with popular approval failed to carry out their project and was finally absorbed by the Hol- iday interests. B. Finance. 1. East Side Company. 1 We have intimated already the way in which the East Side Company was formed, that is by having six men sub- scribe one share of stock each and then having the chair​OREGON AND CALIFORNIA RAILROAD 265 man subscribe for the company 70,000 shares. Obviously there was no money with which to finance construction since there had only been $600 in bona fide stock sub- scriptions made. The company, as we have shown, had been practicaly instigated by Elliott and it was to him the construction was entrusted. Elliott presented to the company an offer by A. J . Cook to construct the road. A . J . Cook was supposed to be an eastern capitalist. Elliott had been given the power of attorney by A. J. Cook. Accordingly on April 23, 1867, the day following the organization of the company, a contract was made between the Oregon Central Com- pany of Salem and A. J. Cook. A. J . Cook was to con- struct one hundred and fifty miles of the road from Port- land south through the Willamette Valley for which he was to receive five million, two hundred and fifty thous- and dollars, which was to be paid in first mortgage bonds of the company at 7%, which were to be payable in twenty years and which were to be taken by A. J. Cook at par value. The railroad company was to make pay- ments of eighty per cent, payable monthly, as the work progressed. Not only this, but the company agreed to issue two million dollars worth of preferred stock and give it to A. J . Cook immediately after the signing of the contract. The common stock was to be offered for sale to the people of Oregon at ten cents on the dollar. The company issued the two million dollars worth of unassessable preferred stock, but in accordance with a private understanding, one million dollars worth of the stock was given back to the^ directors to be used in ob- taining the necessary legislation. This gave A. J. Cook one million dollars worth of unassessable preferred stock and an agreement by which he would receive bonds upon completion of the road as assets with which to build the road. A. J. Cook was a man of no means himself and Elliott had merely obtained the use of his name. I I i) ​f* 266 JOHN TDLSON GANOE ft'11 itHI ii Consequently on May 2, 1867, A. J. Cook assigned the contract to Elliott for a consideration of one dollar. 41 Elliott then proceeded to assign portions of the con- tract for which he received enough money to carry his pretenses still further, for on May 12, 1868, he was able to influence the company to grant another contract for the completion of the road which was about two hundred and ten miles more. Instead of the contract being made between A. J . Cook and the Oregon Central Railroad Company, it was made this time between A. J. Cook and Company and the Oregon Central Company. In assigning portions of the first contract, seven-twentieths of the con- tract has been assigned by Elliott to N. P. Perrine, a dir- ector of the California and Oregon Company. After this assignment, Perrine and Elliott formed a partnership under the name of A. J . Cook and Company for the pur- pose of fulfilling the contract. Thus it was that Elliott and Perrine that obtained the contract to complete the remaining two hundred and ten miles of the road. Another assignment in the first contract had been made to James P. Flint. Flint was a representative of Peabody, Flint and Company, contractors, and it was through this assignment of one-tenth of the contract that the construction was finally begun amidst great rejoicing May 15, 1868. The million dollars worth of stock that remained to Elliott from the two million he was to receive meant little to him so long as the road remained unbuilt* so he disposed of part of the stock amounting to $470,000 for $7,850 in coin and five hundred dollars in currency. This netted him a little more ready cash with which he could still make believe the construction was being backed by capitalists. On November 27,1867, the A. J . Cook Company entered into a supplemental agreement with the Oregon Central 41 O. C.R. R. vs. U. S., Vol.XIV, page 7369. '1​OREGON AND CALIFORNIA RAILROAD 267 Railroad Company to the effect that the railroad company in consideration of materials bought for the construction of the road, was to issue and deliver to A. J . Cook and Company seven hundred and seventy-five thousand dol- lars of first mortgage bonds. Elliott immediately went east to negotiate for railroad locomotives and machinery for the road and was able to dispose of about thirty-eight thousand dollars worth of the bonds at par value. But as we have seen, Elliott did not have the means to construct the road. It was necessary that he find the capital since he had the contract to build the road. At this juncture came Ben Holladay, concerning whom we spoke in relation to the gaining of the land grant. Holladay was a man of considerable means. He had made a considerable success in the stage line business, but now wished to enter into railway building. Accordingly on September 12, 1868, Holladay and Emmet, who was an attorney for the California and Oregon Railroad Com- pany, and Elliott entered into a contract and took by as- signment the A. J . Cook and A. J. Cook and Company contracts. By this agreement Elliott was not to advance any money for construction in fulfillment of the contracts, but as soon as the partnership should gain enough money to cover costs then Elliott was to be charged his share of the costs which would be six-fortieths. 42 Elliott was to be hired as general superintendent of the construction work and was to receive a salary of five hundred dollars a month. It may be considered peculiar by some to think that such a business man as Holladay should have been brought into the proposition, yet it must be remembered that El- liott had disposed of about thirty-eight thousand dollars worth of the bonds at par value and Holladay had no reason to believe that the rest could not be disposed of in m>P°m s 42 The interest of each of the partners was, Holladay, twenty-four fortieths; Emmet ten fortieths, and Elliott six fortieths. ​268 JOHN TD^SON GANOE like manner. The history of the company under Holla- day's management will be considered later. Elliott, however, had gained on all sides. He had bor- rowed a name, gained contracts to build the road, and was then able to dispose of the A. J . Cook contracts (by assignment) for nearly twenty thousand dollars. More- over, as we have shown, he had sold enough stock to net him about $8,000 and the stock had cost him nothing. Now he had contracted to build the road which as soon as it brought in anything he received his share and in the meantime was to receive five hundred dollars as general superintendent of construction. He had, however, expended some money on construction and promotion of the company. The money he had gained through assignments of the contracts and sale of stock had been turned back into the company. This amounted to about twenty-one thousand dollars and was assigned to his credit by Ben Holladay and Company, as shown by the following letter: Office Ben Holladay and Company. Portland, Oregon. Sept. 12, 1868. S. G . Elliott, Portland, Oregon. Dear Sir: On the purchase this date from A. J . Cook and Company of the pending contracts with the Oregon Central Rail- road from Portland to the California line, it is understood that we are to pay you the money furnished by you to the firm of A. J. Cook and Company and standing to your credit on their books. This money is stated by you to amount to about twenty-one thousand dollars. When the accounts are fully made up and the balance correctly as- certained, you will be entitled to our obligations for the correct amount. Respectfully yours, Ben Holladay and Company. I ​OREGON AND CALIFORNIA RAILROAD 269 With this summary view of the construction finance of the East Side road under Elliott, we turn out atten- tion to the finance of the West Side Company. 2. West Side Company. We have seen that as far as actual cash subscriptions were concerned, the West Side Company was but little better than the East Side. Although the West Side Com- pany did not subscribe for a great amount of stock in itself as had the East Side Company, Gaston, in order to bring the corporation into legal existence so they could elect officers, had subscribed to $2,500,000 worth of stock. Financially Gaston was in about the same class with Elliott. He had had to pay for the printing of the Barry survey with his services as editor of the Oregon States- man. So far as actual cash subscription was concerned one company was little better than the other except that in this subscripiton Gaston was assuming the liability which the East Side Company had attempted to evade by having the company subscribe to its own stock. But the assuming of liability by Gaston meant little since he was not financially in position to be held for the amount sub- scribed. In order to finance the project, then, it was obvious that little could be done without an immediate bond issue. Accordingly on June 1, 1868, Gaston as president of the company and E. W. % Haines, as secretary of the company, were authorized to issue two hundred thousand dollars worth of bonds. 43 Edwin Russell, manager of the Portland branch of the Bank of British Columbia, was authorized to sell $50(T,000 worth of the bonds in London "at not less than sixty cents on the dollar." 44 At the same time Gaston and Haines were authorized to sell "bonds in 43 Minutes O. C. R. R. Co., of Portland. In O. & C. R. R. Vol IX, page 4355. 44 Ibid, page 4376. vs. U. S., «i ​270 JOHN TILSON GANOE '•«  x ^m' m the State of Oregon in lots to suit purchasers at not less than Six Hundred dollars per Bond."* 5 Russell was able to make negotiations for the sale of the five hundred thousand dollars worth of bonds, but not at the rate of sixty per cent. The bonds, however, would not have brought enough to build the first twenty miles of road. Gaston felt under obligation to J. C. Ains- worth, one of the directors of the company and head of the Oregon Steam Navigation Company, for past advice and considered Ainsworth's business ability very highly and upon the recommendation of Ainsworth refused the offer of Edwin Russell. 46 On August 27, 1868, Gaston and Haines were author- ized to execute a contract with S. Coffin, a contractor, to build the trestle work on the first five miles of road 47 and at the same meeting of directors the proposal of Simeon G. Reed and Company to build the first one hundred and fifty miles of the road was accepted. Simeon G. Reed and Company was a company that had been organized for the purpose of constructing the road. Ainsworth, of the rail- road company, was also a member of the S. G . Reed and Company. Coffin was unable to fulfilll his contract, so the contract was rescinded 48 December 28, 1868. The aid of Portland provided that should the company complete five miles of road before December 31, 1868, Portland would counter- sign $100,000 worth of bonds which were to be sold at not less than eighty cents on the dollar and were to be used to buy material for the construction of the road. 49 Holladay, however, had been very active and had caused suits to be begun to prevent aid and in this he was suc- seccful. 50 Thus the failure of Coffin to fulfill his con- 46 Bonds were in thousand dollar denominations. 46 Bancroft, Vol. II, page 701. 47 O.&C.R.R. vs. U.S.Vol.IX,page4393.
49 Ordinance 468,O. C.R. R. vs. U.S., Vol. IX, page 4324. 50 Bancroft, Vol II, page 701. ​OREGON AND CALIFORNIA RAHJROAD 271 tract within the allotted time was not as great as it might have been. All this time the company had been acting on the basis that they were the recipients of the land grant of Congress made June 25, 1866. After the contracts for construction had been let the legislature, as we have noted, had redesignated the recipient of the land grant and had given it to the East Side Company. But even yet the company did not lose heart. But S. G . Reed and Com- pany had entered into the contract on the basis of the land grant. When Congress intimated the upholding of the claim of the East Side Company, construction work ceased and on April 2, 1869, "J. E. Ainsworth of S. G . Reed and Company, Contractors, gave notice of having stopped work on their contract on March 31, 1869," 51 and on May 25,1869, was able to have the contract annulled. 52 Gaston was thus left with the project on his hands without the land grant for which he had striven so hard, and without the possibility of completing the road, since because of the loss of the land grant the company's bonds were not salable. But Gaston was a man of great perse- verance. He had nursed the company along since the time of its inception and would not see it fail now. The amendatory act of Congress to the land grant of 1866, as we have noted, still gave the company the possibility of gaining the grant should they complete twenty miles of their road before Holladay completed twenty miles on the East Side road. So Gaston applied for aid in Washington county. This county had subscribed to pay interest on $50,000 worth of l^onds so had some money in the treas- ury which had been saved for this purpose. Gaston ap- plied for this and upon obtaining it, graded the road dur- in the summer of 1869 as far as Hillsboro, 53 but even with 81 O.&C.R.R. vs. U.S., VolIX,page440. S2 Ibid, page 4401. TM Bancroft, Vol. II, page 702. "i ​Iff*' 272 JOHN TDLSON GANOE 'it this, he was unable to complete twenty miles of the road, so the land grant went to the Holladay company. As we noted above, Gaston then turned his efforts to obtaining a new grant and in this was successful. At the same time two other projects were asking for aid. One was the Portland, Dalles and Salt Lake Company, which wished a grant to aid in construction of a road from the Union Pacific at Salt Lake to Portland; this was the so- called Winnemucca branch of the Central Pacific which proposed to run from Winnemucca, Nevada, to Eugene. The promoter of this project was B. J. Pengra, who had been a county surveyor in Oregon. The plan was for Pengra to obtain the grant from Eugene to Winnemucca. Gaston would obtain a grant from Portland to McMinn- ville and from McMinnville to Astoria, then later obtain a grant from McMinnville to Eugene. This would make a through connection from Winnemucca, Nevada, on the Central Pacific to Astoria. In view of such a project, Gaston was able before the passage of the bill by Congress, to negotiate a contract with Philadelphia capitalists for the construction of a hundred and fifty miles of road from Portland to Eugene. So promising was the plan that even Collis P. Huntington had agreed to give Pengra his financial backing. Again we see how the early political history of Oregon was connected with the railroads. Holladay had bought and subsidized papers as well as politicians. Not only that, by such a plan the whole of Southern Oregon would be cut out of a great deal of traffic. It must be remem- bered that Southern Oregon since the gold rush of '49 had not been an insignificant factor. The combined fac- tions, that is the Holladay and Southern Oregon groups, got through the Oregon legislature in 1868 a resolution instructing the Oregon representatives in Congress to "give their paramount support" in order to obtain "Gov- ernment aid for a Railroad from the Big Bend of the Humbolt River, State of Nevada, to the Klamath' Lake, thence through the Rogue River, Umpqua and Willamette ​1 OREGON AND CALIFORNIA RAILROAD 273 Valleys to the Columbia River." It was again urged in the legislature of 1870 and a pledge was required of the mem- bers of Congress before election to support the amend- ment. As soon as Congress passed the amendment, Hunt- ington withdrew his support to Pengra and the Philadel- phia company refused to continue their negotiations with Gaston and the whole project failed. Gaston was then in a worse fix than ever. He had no hope of backing to complete the road. The company was in a state of insolvency. On the other hand, Holladay, as ever, was master of the situation and through representa- tives bought up the outstanding indebtedness of the West Side Company and threatened to foreclose. The directors rather than go into court were therefore willing, when in August, 1870, Holladay made the proposition to build the road and pay the company "the sum of one dollar in consideration of such transfer and assignment of said franchises and lands granted by said Act of Congress." We have thus traced the history of the Oregon Central Company of Portland to its merger with the Holladay interests. It is not our plan to carry the history of this branch further except inasmuch as it relates to the history of the East Side Company with which we are more par- ticularly concerned. We now turn to the history of that road under the regime of the picturesque Ben Holladay. i^'B, III. REORGANIZATION AND MANAGEMENT UNDER HOLLADAY. A. The Question of Legality. From the time of the organization of the East Side Company, Gaston had tried to bring the East Side Com- pany before the courts. The first attempts were to con- test the organization of the East Side Company. This was done by having the people protest the giving of right of way to the company on the ground that the company had no legal existence. Upon this question, however, 4* ​274 JOHN TILSON GANOE the courts ruled that he had no jurisdiction. 54 The legality of the company was also tested when the company sought to recover money due on the subscription stock of the company and the defendant pled that the corporation was not duly organized. Again the question of organiza- tion was evaded. 55 In one case, however, the West Side Company was suc- cessful. They influenced a bondholder in their company to contest the right of the East Side Company to the name Oregon Central Railroad on the ground that the use of the name Oregon Central Railroad Company af- fected the value of his bond. The court ruled that the West Side Company had had the prior organization and that the East Side Company could not use that corporate name. This decision meant that the East Side Company must change its name. Holladay as yet was merely in the construction com- pany, but when so much opposition was aroused, he sent a communication to the directors of the company saying that unless the stocks and bonds that were in the hands of the company were transferred to him he would not carry on the construction. He agreed to assume all the debts of the company and carry on teh work. 56 In com- pliance to his wishes the directors turned over to Hol- laday all the stock they posessed save one share. Thus Holladay and Company came into full control of the Oregon Central Railroad Company. As we have noted, however, the right to use the name Oregon Central Company had been contested. Not only this, in the meantime a dispute had arisen between Hol- laday and Elliott. Elliott had been dismissed as superin- tendent of construction of the East Side Company's road. Accordingly he filed suit for dissolution and settlement of the co-partnership. Holladay held that Elliott had fraud- 54 Oregon Reports, Vol. III . Oregon Central R. R. Co. vs. Wait.
56 Minutes, Sept. 7, 1869. O. &C.R. R. vs. U. S., Vol.X,page 5059. ​OREGON AND CALIFORNIA RAILROAD 275 ulently misrepresented the value of the stock and had thus induced him (Holladay) to enter into the partner- ship. Elliott claimed that the stocks and bonds did have value and that a settlement should be made. The truth of the matter seems to be that Elliott did not misrepresent the stocks and bonds for he had been able to dispose of about $38,000 worth of bonds at par for locomotives. Neither he nor Holladay knew that the bonds would be- come practically worthless, so Holladay on these pros- pects entered the partnership. The reason for the decease in the value of the bonds is very evident. Immediately when the East Side Company issued their bonds, Gaston started a systematic campaign against them, stating that this company was not the Oregon Central Company, but a fraud. Articles were sent to railroad journals and pamphlets distributed in financial circles, so it is little wonder that the bonds were not salable. By this time Holladay saw clearly the trend of events. The facts as to the organization of the company had been revealed; the truth concerning A. J . Cook and Company had been heralded throughout the state; he knew that the company had no corporate existence although this was not finally decided until 1879. 57 He saw here his opportunity or his ruin. In his communication to the directors he said that the failure to negotiate any of the bonds of the com- pany was due to the fact»that the management of the company was not known in financial circles in the East. He now decided to reorganize the whole company and make himself the dictator of the whole railway syestem of the Northwest. On March 28, 1870, Ben Holladay and Company, in a communication to the Oregon Central Railway Company, made a proposition to the effect that Ben Holladay and Company would turn over to the company all the stocks and bonds, all the railroad lines, materials and property 57 Oregon Reports, Vol. VIII,, Holladay vs. Elliott. iff ​276 JOHN TDLSON GANOE m held by Ben Holladay and Company if the railroad com- pany would pay to Ben Holladay and Company the amount expended and the liabilities incurred by him in construct- ing the road so far, which he estimated to be between eight hundred thousand and a million dollars. 58 Obviously the company could not pay this. All the in- dividual members were financially pressed and the credit of the company was nihil. Holladay knew this, so sent along with this communication a proposition from the Oregon and California Railroad Company, a company organized by him on a legal basis, to purchase the entire property of the East Side Company in consideration that the Oregon and California Company assume the payment of the million dollars (or thereabouts) to Ben Holladay and Company. To this the directors agreed, so the road was placed on a legal basis under the name of the Oregon and California Railroad Company and Ben Holladay was more than ever in control. B. The Oregon and California Railroad Company. 1. Finance. Whatever may be said against the character or the methods of business used by Ben Holladay, it must be recognized that he took a company that was bankrupt, a company that had no credit whatsoever, and infused into it a new life and obtained credit from some of the leading bankers of the world. The first thing Holladay did after gaining control was to make a bond issue of ten and a half million dollars to carry on the construction. These bonds sold at seventy per cent. Obviously this was not enough to complete the road. The preliminary estimates had shown that fifteen million dollars would be needed to build the road. This would mean an average cost of about $45,000 per mile. Such a loan would only make it possible for the company to build 58 Minutes O. C . R. R . Co., Mar. 28, 1870. Vol. X, page 5072. InO.&C.R.R.vs.U.S., ​i1 OREGON AND CALIFORNIA RAILROAD 277 a part of the road and then it apparently would be easy to gain a loan to complete the road because of the pros- pects of success for the road. Holladay had been in touch with financial circles be- fore entering into the railway business, so it was with comparative ease that he was able to float the ten and a half million dollar bond issue which was bought in the main by German investors. Two things, however, worked against Holladay's suc- cess; first was the changed financial conditions under which he had to work, and secondly the failure of the rail- road to bring in the estimated earnings. Thus had Hol- laday been most judicious in his use of money it would have been impossible to have made the road a success. It is necessary to consider these because some of the rank charges that have been made against Holladay are in no way justified. For example, Gaston says, 59 "Holladay sold in Germany ten and a half million dollars of bonds upon the land grant and the road to be constructed. Ap- plied at the rate of $30,000 per mile of road, these bonds were estimated to build three hundred and fifty miles, or practically to the California line. But by Holladay's reck- less, if not dishonest management, not more than fifty- seven cents on the dollar of the bonds ever went into the construction of the road; so that by the time the track had reached Roseburg from Portland, the proceeds of the bonds were exhausted and !Roseburg remained the south- ern terminus of the road for ten years." We have shown that the estimates of cost of construction wereover $30,000 per mile for the cheapest section of road. The actual cost of construction for that section only amounted to $27,478 per mile. This was not extravagant, but on the other hand quite economical. If the construction was not extrava- gant then the reason for his failure must be looked for elsewhere. •ir-'sn 8 Oregon Historical Quarterly, Vol. VII, June 1906, page 117. if• I ​t* 278 JOHN TILSON GANOE &' & In the first place business conditions, as we have noted, had their effect. The period 1867 to 1873 was a period of unlimited speculation. Railway building was a mania. More than that, the imports of the United States had in- creased so rapidly that United States had not the ability to pay for them. Added to this was the Franco-Prussian War of 1870, which gave Germany an indemnity and pro- duced an abnormal stimulus in business conditions, an ab- normal demand with its consequent rise of prices. Then, too, when we consider the speculation in metals, we can see that soon a turn in affairs must have taken place. This period of rapid expansion in railway construction caused the demand to increase for iron and consequent over expansion in this industry and the rise in price of iron and railway material. Consequently, an estimate made in 1866 would be greatly under the price that would actually have to be paid in the years 1871 and 1872. These were the conditions that Holladay faced during 1871 and 1872. When he negotiated the loan for ten and a half million dollars money was easy to obtain, especially from Germany. The realization that conditions were un- stable and that men had invested beyond their ability to pay back brought on the panic of 1873, resulting in a depression of industry for several years. This meant the earnings of the railroads would be lessened. A rail- road built during the period of inflation was forced to try to pay out during a period when earnings were low. Moreover, in Holladay's case the railroad had not been completed to the state line, so he could not depend upon through traffic which had been considered in the estimates. 2. Earnings and Rate Questions. In the second place the failure the railroad made to bring in the estimated returns predestined the road to be a failure. At the time Holladay gained control of the rialroads, the opinion that the mines would be a great source of revenue to the railroads had not been entirely exploded. ​OREGON AND CALIFORNIA RAILROAD 279 But year by year it was becoming evident that the great resources in mines did not exist to the extent that it had been supposed, hence those estimates which had consid- ered the great amount of tonnage which the mines would give to the railroads gave a false hope, and a false view of the prospects of the road. Barry had estimated that the road would receive an in- come of a million dollars a year from the mining freight alone. This was shown to be ridiculous, for in 1870 the total production of the mines in Oregon only amounted to $417,797. 60 Probably at no itme has the amount received by the rairaod from mining freight even approximated the estimate made by Barry. More than this, the earnings that had been expected from agricultural land had been overestimated. The at- tempt of the company to make up for these deficiencies by high rates was met by the farmers in the Grange movement. Thus, as early as March 16, 1872, the Wil- lamette Farmer contained this editorial against high rates: "The people of the Willamette Valley have troubled themselves about getting cheap transportation on freight shipped to San Francisco. Many hoped that when the railroad was completed to the head of the valley, the charge would be more reasonable. But they have been deceived since Mr. Holladay has advanced rates on wheat and flour five cents per ew^., and ten cents per barrel. The question arises, 'What are the people of Oregon to do? Will they rise in their might and strike down this monster monopolist?' The crisis will come in the Legisla- ture. He controls the Northern Pacific Cpmpany, both east and west side railroad and the Willamette Transpor- tation Company. Vote for no man that is not pledged against this monopoly." 61 60 U. S . Census Report, 1870. 61 Quoted in Scott—The Grange Movement 'in Oregon. The Northern Pacific Company was a steamboat line running to San Francisco, while the Willamette Transportation was a company in control of the river trade. lif:*!: ​w; 280 JOHN TILSON GANOE m' Holladay was accused of raising the rates on river boats so as to increase the carrying trade of the railroad so that the railroad bonds would be more salable. 62 Then when the Oregonian published a table showing that freight rates in Oregon were two and three times what was being paid in the east, the people were frantic. The tables quoted by the Oregonian, which were taken from the New York Mercantile Journal, showed a re- markable contrast. Price per ton per 100 miles Boston and Albany $2.16 New York Central $1.75 Erie
Chicago, R. I. and Pacific $2.64 Union Pacific $2.70 No wonder when compared with $10.40 per ton ship- ping over the Oregon and California Railroad, the farm- ers were furious. For wheat they saw again a wide varia- tion in rates, an as usual the Oregon and California was the highest. Illinois Central _ . .. . .$5.00 Erie $3.00 Burlington $3.60 Oregon and California $5.60 It would be supposed that with such rates, if the traffic amounted to anything near the estimate, that the road would be a paying proposition. The German investors, however, had already begun to doubt the ability of the road to pay out, but until 1873 the company had kept up inter- est payments, so no action was taken by the bond holders. When, however, the company did default in the interest payments, a committee of bond holders immediately be- gan an investigation which revealed that "the road was producing only about one-third of the interest charge and •I m 62 See Scott—The Grange Movement in Oregon, page 15. ​could not well be expected to yield more for some time to come.
The ten and a half million dollar bond issue brought about seven and a half million dollars. The total cost of constructing the road to Roseburg was $5,463,805, or $27,478 per mile. This would leave about two million dollars received from the bonds which was not put into construction. Yet before we make a wholesale accusation of fraud against Holladay, we should at least attempt to see what became of the money. If the company was only paying one-third the interest charge, funds could not be expected from that source. This deficiency would have to be met from some source. The interest payments on ten and a half million dollars would amount to about $800,000 a year. If two-thirds of this was not forthcom- ing from the earnings there were not many places from which it could come. It might have been made up by sale of stock, but the stock was not salable to any great de- gree. The Oregon Central Company, of which this com- pany was successor, had been unable to dispose of their stock at ten cents on the dollar, and it is unlikely that the Oregon and California Railroad Company fared better. Ben Holladay could have paid the deficiency from his own capital or used his personal credit, and the chances are that he did, although we have no record of this being done. But to meet the deficiencies of the several companies over which he had control would have ruined the finances of any man. Only one thing was left to do. That was to take some of the money gained by the bonds and pay the interest on the bonds until the railroad became a paying proposition. The bonds had been issued in 1870. The road did not begin operation until 1872. For two years then, nothing could have been obtained from earnings. This would have amounted to about a million, six hundred thousand dollars, or closely approximating the amount de​282 JOHN TILSON GANOE '1 .••• BllII clared not to have been used in construction of the road. It appears then what happened was the road did not bring the earnings expected and Holladay used the money from the bonds to pay interest on the same bonds, and when this money was used there was neither money for construction or payment of interest, and thus the com- pany defaulted payment. The investigating committee for the bond holders found just what the conditions were. We have noted the fact that Holladay had gained con- trol of the West Side Company. For the construction of that road he had been able to gain money by two bond issues, one for a million dollars and the other for three hundred thousand. This road was also in financial straits, and as the bonds had been sold through the same agents, it was but natural that these bond holders should unite with the bond holders of the Oregon and California Com- pany, which they did. Likewise, he had been unable to sell $800,000 worth of bonds of the Oregon Steamship Company when the total worth of the company was only about one-fourth that amount. These bond holders also united with the bond holders of the other companies and formed a committee to take over the road. Heading this committee was Mr. Henry Villard, of whom we will have more to say presently. 3. Estimate of the Work of Holladay. Much has been written upon the history of the Oregon and California Railroad, yet there is not a single account which praises the name of Ben Holladay. He is character- ized as a selfish, dishonest profligate, who, because of money gained by illegal means, was able to make himself a railroad king and political dictator, but so extensive were his misdeeds he was soon overtaken and brought to financial ruin. It is not our intention to enter into a defense of Holla- day's deeds, yet we must recognize that he did accomplish some things which others had not been able to do. There ​OREGON AND CALIFORNIA RAILROAD 283 is no doubt that his moral character was not the best. There is no doubt he practiced deceit, especially in ob- taining sales for the bonds. Yet, on the other hand, he took an organization without funds, without credit, and gained loans to build the road. As I have attempted to show, other conditions over which he had no control were probably more potent in bringing his failure than actual mismanagement of the road. The writers that have written on the history of rail- roads, with the exception of one, have been opposed to the East Side Company. Gaston wrote the first account and each successive writer followed him. Of course, Gaston would be against Holladay; Holladay had beaten him out of the land grant and had forced him out of the Oregon Central Company (West Side). With little deviation from Gaston's account, Bancroft relates the story of the railroads, and thus Gaston's account came into vogue. Later Gaston entered into the historical field and there poured out his spleen against Holladay until the whole history of the railroad has been painted with this violent partisanship. It is plain to see that in matters of finance, Holladay outclassed Gaston or any of Gaston's colleagues, and there is little proof to all the charges of corruption made against Holladay. We are not holding that nothing dis- honest was done by Holladay, but we are holding that that phase of his career has been greatly over-emphasized while his contributions toward railroad building have been overlooked. (To be continued) I m
* ↑ A thesis presented to the Faculty of the Graduate School at the University of Oregon in partial fulfillment of the requirements for the degree of Master of Arts, June, 1924.
* ↑ Statutes of California, 1863.
* ↑ Gaston, Genesis of the Oregon Railway System—Oregon Historical Quarterly, Vol. VII.
* ↑ Oregon Statesman, October 26, 1863.
* ↑ Report of Secretary of State, 1864.
* ↑ Oregon Statesman, October 26, 1863.
* ↑ Just what the reason for the division was is uncertain. Mr. Gaston claims that it was over the question of leadership of the party. This, however, would seem strange for in the election of officers of the California and Columbia River Co., Mr. Gaston was elected secretary and Mr. Elliott chief engineer. Mr. Gaston would lead us to believe that the company was not organized until 1864 and that Col. A. C. Barry was the chief engineer. Col. Barry did become chief engineer in 1864.
* ↑ Elliott, Report of Preliminary Survey.
* ↑ The Report of the Survey is not dated. Many have said that Elliott never completed a survey. For discussion see Appendix C.
* ↑ Laws of Oregon, 1864. Text of Bill as Amended, Sen. Journal, p. 161-2.
* ↑ Cong. Globe, 1863-4, p. 2063.
* ↑ The bill came from a select committee on Pacific Railroads and was introduced by Mr. Cole of California. It was read the first and second time and postponed for one week, H. R. 691—Cong. Globe, 1864-5, p. 337. On Feb. 27, 1865, it passed the house by a vote of 59-34; 89 not voting. Ibid p. 1161-2. In the Senate it was referred to the Committee on Pacific Railroads and reported from the Committee without amendment.
* ↑ Memoirs of Henry Villard, Vol. II , page 272.