Memphis daily appeal. [volume] (Memphis, Tenn.) 1847-1886, 1879-04-18
THE RAILROADS
or the State and the BOndhOIders-An
Answer to Charles O'COnOr by Ed
ward w. MunfOrd-The Roads
Cannot be held Responsible
For the Payment of The BOnds-A Re-
view OF the Financial Condition OF
the State and Of the History Of
our Railroad Legislation.

The following very lengthy, but very inter-
estlng pSper from n distinguished lawyer,
well known Throughout the State, will be
read with interest by all classes OF the read
ers of the APPEAL, but especially by those of
them who hold railroad stocks or bon1e:
EDITORS APPEAL-Tne recently published
opinion Of Hon. Charles O'C1nor that the holders
ally leaned 10 her railroad companies un1er the in
ternal improvement ACT OF 1852, and amend
laents, haVe present subsistlrg lien upon
has not Oniy attracted pabdc attention. but,
IN some quarters, excited serious apprehen-
railroad intere by Judicial decree, their possible
transfer to those who do not reside among us, and
with interests which may be antagonistie TO curs is
Of the grgye,t public concern. An examination of
the grounds upon which the opinion rests may not be
substantial points may be stated IN a few words.
hist, that under the Internal improvement ect, the
State having loaced certain designated coud5 TO the
railroad companies, and taken the statutory lien
there upon their entire properties to secure tina
payment OF The identical bonds issued, it follows
as legal consequence thar, upon the sale OF these
bonds the companies became debtors TO the holders
In such sense that the obligation OF payment is en-
fOrceable directly against the companies, and the
State occupies the position of mere trustee Of the
lien. or, in his own words, 1.-The only Interest VIII ch
the State of Tennessee possessed was as trustee
the lien fer the benefit of the bondholders." I'm
questionable the reasoning by which this result is
reached IS subtle ingenious, plausible and we'll
pressed; tut It's sophistry Will appear Oy glance at
the situation and the act under which the bonds
Issued. The state OF Tennessee occupied
AN UNsULLIED POSITION,
and her credit In the financial world was frst-cIass.
sections land locked for want of transportation.
Hzr people both wanted and needed railroads TO con
meet them readily with the markets of tie world but
could not build and equip them. IN
der these circumstances she determined to
bonds per mile 10 most of her chartered comp
Her bonds were a direct promise TO pay 10 bearer,
With coupons attached for interest payable every six
months 1t was hazardous undertaking, and as
will be from The abbreviated provisions OF the
act following. one in which the central idea ITO
indemnify he Sldte against loss on account OF the
Issuance or the boHds and to protect her interest"
The railroad companies were not required TO ndOTSe
her bonds to the buyer bat they We're left 70 be sold
State bonds sOleyion the credit OF The state And
1t Is noteworthy fact that hsr bonds Issued to the
railroad companies were sold in the markets pre-
ciSely Ike her other bonds. The immense lmpor-
tance which is of late attached 10 the lien feature OF
these boHds is an atteIthought. The idea, too
that Tennessee sent them out into the markets TO
risk their claims to confidence on any other basis
than her own credit is really refreshing. Briefly
stated. the act provided:
''SeetIon l. When bona tide solvent subscriptions
had been made of sufficient stock TO prepare the
whole road, and thirty miles thereof were ready for
the iron and equipments the Issuance OF bonds for
Sec. 2. They were to be used only for buying
rails, chairs, spikes and equp ments, and 1t was
made the duty OF the governor 10 appoint commits
sioner for the State to see that this was Dc ne.
"Sec. 3. When the bonds were Issued for tie first
section, the State was invested eith lien on it, in
Guiding chairs, spikes, iron, equipments stock sub
SCIlDeq, etc, LOT payment OF Tue DOLQS-
"Sec. 4. As additional sections OF twenty miles
were prepared for the rails ike amount of ether
same purpose and so on TN When the road was
completed this lien covered the whole road, equip
property as incident to its business.
THE LIEN
is superior to all Others and declared to be for
the payment OF ths bonds and Interest thereon rs
''Sec D. The companies we're to provide for the
Interest as matured, and furnish satisfactory evil
teen da' 5 before It was due, OF eise de
posIt the amount IN the Bank OF Tennessee
the governor any failure ia this regard and the duty
was devoved on him at once to appoint a bonded
receiver to take charge OF the read and assets OF the
company who to pay over the proceeds under the
governors rection The comptroller to issue
Ts due as far as the company failed TO provide for
It. and report the fats to The iegiS e frOm Time to
"Sec. If the company failed 10 pay the bonds as
they fell due the governor was 10 notify attorney
general OF the county where the company had ITS
place OF business, and he WAS TO file bill at once,
in the name Of the Siate QT Tennessee, against the
company either IN the Tctit OF chaucely court and
the court invested with power 10 make all orders
aud DEGREES deemed necessary 10 receive payment Of
the bonds with interest Their on, to indemn f. the
State against any loss on account of the Issuance of
the mdS, By ordeIing the road into the hands OF
sets belougingto the company or in such her man
ner as the court might deem bes, for ths interest Of
Sec T. At the end OF five years after a road was
compltt.d, the company TO set apart PER
tuDl per dIruR on The amount OF bonds issuu to IT.
use this In buying outstanding bonds OF the State,
| and ant, + assigning them 10 the & nor pay such
bonds Into tue ire suryi and as bet ser The State
and company such pay nent was to be credit TO the
| company. This safe was to use the bonds and Ia
terest aceruing sinking fund for payment Of -
the company was so paid in IL to be ca c5led.
failure to comply subjected tue company 10 be pro
| eesded against AS 10 section ..
"See. & required the Presidents OF the com aanleS
to make semi annual reports TO the governor iii the
road wos completed then annual re. OTIS shJHibs
the cjmpany's financial condition, the trads and
travel On the road, the rsce PTS and expenditures
net earnings, dlvldancS, and the per cent iid tC
stockholders These reports were TO be consolidated
every two years, furnishes, to the governor and Ii,
| to lay them before tie gisl5tue."
This hasty Glance at so much OF the act should n
| vince any CANDID thinker that Ia this matter thu
| whom she had chartered u build up a system oil
railroads, that one was the lender and the ojhel
borrower; that they were the soc coHtrdctg parties
and when she delivered to them her BINDS th
whole contract under the statute vas complete an'
binding The fact that she took the statutory lieI
upon all the properties of her Iompsnles 70 pay tn
bonds issued TO them was bul one OF the many pre-
cauuonaTy methods with Wien the act aoounds
whereby she sought 10 iIsdcHsg herSef against loss
and protect her Interests" leaving her TO settle witt
the bondholders. IL the companies defaulied, Si
was to take possession by her receiver, her comp
troler was TO pay the interest. She TO c1utro
the roads had to be sold the suit was to be in he
name and she was to receive the proceeds and pa
her bonds. The bondholder is not once named IL
the statute, and In fact when the bonds were dely
cred by the State to the ccmpany, thus clo.tpg tia
statutory contract, there was not bondholder III eN
issence He arc Q aftetward. when the IOmpau
sold the State bond TO him. Yet the opinion mold
sau ~ ge 6aTan The ste s Was 5 crgoT Of Il
companies for the loan, the bondholder becam
creditor OF the state his bond and If he reac
the roads through this lien, 1t is creditor of III
State but not as contracting patty with the eompa
MES If he acquired anything, it was mere equity
| TO be wrought out through the tights acquire
| by his debpr There is wide differences betwee
Contract, Which the opinion seems to ignore Thi
Will be even more obvious Ey turning TO the eigh
zenith section OF the act In which, inste o! lendin
/ bonds To the
NASHVILLE AND CHATTANOOGA RAILRoAl
4 COMPANY,
bonds. To those WHO bought the bonds 5
Endorsed that clmpany became tue prim n
asV1oT o. hos ioned ~ the oiSer comnaniss s
gss on their face the only paymaster. Being so I
| many millions In amount, the large Interests sh
are apparent, and the terms OF the contract
which she issued Der bonds were sc upuous
her to control the compan and subject their prof.
erty on Eer own account IL Is fancifll 10 hold sh
degenerated into mere "tFuStea of the lien fOr 10
benefit of the b)ndhOlderS" AS creditor OF her con
: panes she severely maintained ia all the scope
/ This legislative contract the commanding poSito
l with right OF enforcement through her own officer
1 and agents, Ia herSSr name and Tor her own prote
: 1 ton. the second position 3 that inc Hen upo
the railroad properties given under this statute Il
payment OF the bonds issued was fixed, permanen
unalteTable in character, and the legislation
lS69-70. whereby the state received other tlan Il
identical bonds issued TO the companies In paymei
for their inGehtg was u fraudulent evasion
| repugnant TO the constitution null and void. II
i obvious that when the State was agTeenL TO len
| her bonds 20 the ia lrOad companies she and ths
| mad perfect right 10 agree and Tx every term al
| condition of the contract Her bonds had thr
years TO run; no could fOresee what might tran
pIre req Iirng notifications OF this, that or the 9TH
1 feature Of the contract then agreed upon, an
prudeneS dictated that she should possess the leg
$ right 10 maksa.I such notifications as the exige
\ / cieS OF the future migh. IN her Judgment Tend
necessary. Accordingly the tSeiitL cectOn prov de
That the State OF Tennessee
? EXPRESSLY RE SERVES THE RIGHT
to enact by tbs legislature thereof herCaer all SUI
laws HfV De e1Ilea necessary TO protect tue lntt
est Of the State and TO secure s4e State agana 10
Il In consequence OF the Issuance OF bonds under
provisions OF this act hut not To tntertese Va
the vested tsG o. stockholders OF the compSnies
L And, BY way o. the - open dealing, section
n enac,s THAT this act shall ~ deemed ana taken
1 ia = uubc tct Tor all purposes " police IL a
Daars eTetOre, from the face OF the Act, khet on
for The purpv1,e OF giving notice to the word OF {
/ ex ct conditions upon wnl'h she issued hsr bone
sontrrc a between the statS aud her own companlt
1 sole parties thereto; that 30 81 the terms was