The New Orleans daily Democrat. [volume] (New Orleans, La.) 1877-1880, 1878-06-16
BONDS OF THE NEW ORLEANS PACIFIC

BONDS OF THE NEW ORLEANS PACIFIC
1t was stated in the city papers yesterday
that the Governor had declined to sign the
bonds Of the New Orleans Pacific Railroad
Company, declared legal by the Supreme
Court, on the ground that the mortgage of.
| fered the State is not satisfactory.
| AS this is a matter of the gravest public in
terest we obtained from the officeof the COM
pany copy Of the act of mortgage prepared
| for the State and other prospective bond
holders, and on inquiry learned that the
Governor objected to the first and fifth clauses
of the instrument. The first clause reads as
| follows:
That IL the said New Orleans Pacific Rail-
road Company, its successors or assigns,
shall at any time hereafter, after demand
make default, or neglect, or refuse, or omit to
pay the semi-annual interest on said bonds or
any of them, when the same shall become
due and II any such default shall continue for
the period OF SIX months, then, upon demand
Of any holder OF any one or more Of said
bonds, the whole principal sum OF each and
all ths bonds then outstanding fsfni d intendad
y 10 Rereoy Secured, Stall forthwith become
due, exlgibie and payable.
The fifth clause Is to the effect that, In
the event of such default as that designated
In the first, the property of the road shall be
sold at public auction, and that the act of
mortgage itself shall bear and be confession
Of judgment in favor Of any and all the bond
holders.
We do not fully comprehend the Governors
objections to these two clauses In the mort
gage as they are directly in the interest Of
the holders of the bonds of the company, and
the State will be the largest holder OF the
bonds. There can be no danger that other
holders of the bonds can in any event take
advantage of their claims to the injury of the
State, since the second clause places all bond
holders on an equality and provides that
none of the bonds shall, under any circum-
stances, be entitled to priority.
The Governor, we learn, holds that the act
authorizing these bonds calls for forty years
bonds, and these clauses subject the road to
foreclosure at an earlier period, which may
result in the sacrifice OF the States interest.
It Is true that the act provides for forty years
bonds, but it also provides for coupons pay
able semi-annually. Now, IL the clauses OBJ
iected to by the Governor be stricken out, 1t
seems to us that it would be detrimental in
two respects. /. 1t would render the $780,
600 of bonds, which the company proposes to
dispose of, Independently of the State, unsafe
able; because no capitalist will invest in bonds,
and no iron men or car builders will &C
cept as security bonds on which the company
may at any time refuse the payment of the
interest without mourning any legal conse-
Quences. 2. II these clauses are stricken out
of the mortgage the State, 1t seems to us, will
be without any remedy should the company,
after they have obtained the State aid Of
100000, refuse to pay the interest on the
81, 100000 Of their own bonds pledged to the
State.
1t was simply because Congress failed to
protect the government against the Union
Pacific Railroad Company by some such pro-
visions as are embodied in these very clauses of
the mortgage of the New Orleans Pacific, that
the former road has escaped the payment of
either the interest or any part Of the principal
Of the immense sums loaned it by the govern
ment. The Union Pacific, after it had received
the aid of the Federal government, claimed
that 1t was under no obligation to pay
any interest on the loan until the bonds
matured, when interest and principal
would be paid together. 1t was very
evident that the object of the Union Pacific
Company was to operate the road they had
built with government bonds, pay neither in
terest nor principal, and when the bonds
matured, abandon the road to the govern
ment. It Is estimated that by such an opera
ton the company would in, the end, clear the
sum of fifty-six millions of dollars. The posi-
ton taken by the company led to the passage,
at this session Of Congress, Of a bill forcing
them to set aside annually certain percentage
of the gross earnings as a sinking fund, to Sc
cure the governments loan. The company,
however, propose to test the legality Of this
act Of Congress in the courts, and it is not
yet certain that the neglect of Congress to
protect the Treasury by some such stipula-
ton and guarantee as those referred to in the
mortgage of the New Orleans Pacific may
lose to the country the whole of the vast sums
of money and bonds loaned the Union Pacific
If the clauses objected to in the mortgage
of the New Orleans Pacific by the Governor
are stricken out, it looks as though it would
be possible for the company, at. some future
time, to escape their legal obligations to the
State, just as the Union Pacific Company are
attempting to escape theirs to the Federal
government.
We have not attempted to discuss the legal
points in this case, for, to speak frankly, we
do not know what they are. We have only
thrown out few suggestions as they oc- |