The San Francisco call., 1895-10-09
TWO VIEWS OF THE LAW
How the S. P. of Kentucky
Operated in the Federal
Courts.
THOMPSON ON CORPORATIONS
Escaping Congressional Investiga-
ton and the Paym ent of Cali
fornia Taxes.

Seymour D. Thompson, editor of the
American Law Review and author of
Thompson's Commentaries on Private
Corporations, whose grilling of the four
founders of the Southern Pacific Company
of Kentucky appeared in yesterdays CALL,
now goes deeper into the incidents that
surrounded the creation of the company,
and chats about the way the Federal
judiciary assisted the corporation to avoid
a Congressional investigating committee,
and also protect its franchise from State
taxation.
at will be remembered" said Mr..
Thompson, in referring TO the incidents
mentioned, "that when the Congressional
committee was investigating the accounts
of the company and wanted to know what
had become of that 81, 700, 600 for which
the company could not or would not show
any vouchers, the Federal courts held
that such information was beyond the
reach of Federal compulsory process, as 1t
was State corporation, but, on the other
hand when the State of California was
trying to subject the franchise to taxation,
it procured a decision from the Supreme
Court of the United States, that whereas
its most important franchises were granted
by the United States, they were not
subject to State taxation. The particular
case | refer to was the Central Pacific
road, which is practically the Southern
Pacific, having been leased by the latter
company according to the act of incorpora-
ton issued from the State of Kentucky,
which permitted them to absorb all the
railroads with which they were able to
make terms.
The original capital stock was 81 ,000, 900,
but the following strange extract from the
act TO incorporate has made it possible for
the directors to increase it to nearly $780,
100000:
The capital stock of said corporation may be
increased from time 10 time TO such sum as
may be determined by the board of directors
OF said corporation.
In all the interpretations 1 have ever
had to deal with the matter of increasing
the capital stock rested solely in the stock
holders and not in the directors.
THE incorporation simply amounted to
the formation of a railroad trust in Ken
lucky, and part of section 1 of the original
act read:
Or the stockholders therein shall
deem expedient or necessary for the manage
ment OF its affairs not inconsistent with the
constitution and laws of the United States
and generally to do and execute all acts, mat
tiers and things which may be deemed neces-
sary or convenient to carry into effect the
powers ana privileges herein granted; pro-
vided, however, that said corporation shall not
have power to make joint stock with, lease
own or operate any railroad within the State oi
Kentucky.
This was done" continued Mr.. Thomp.
son, 'for the purpose of bringing all the
business of the company within the iuris-
diction of the United States courts and
under the Federal laws just the same as a
citizen can carry cases wherein the sum oi
over $1,000 is involved to the United State:
court, provided he is doing the business in
State other than the one in which he re-
sides,
at was afterward discovered that Penn
sylvania had once created a corporation
that could do business everywhere except
in Pennsylvania, and Kansas held that il
was not corporation in the State of Kan.
saS, claiming that corporation that was
not allowed to exercise its franchises in
Pennsylvania could not do so in Kansas
This was good law and the following
amendment was then made:
That the act entitled Gan act to incorporate
the Southern Pacific Company which was ap
proved March II, 1884, be and the same /.
amended by adding 10 section L thereof the
following words: Except subject TO and in
conformity with the provisions of the laws o.
the State OF Kentucky, applicable to railroad.
and requiring no special rights that may bt
possessed by any railroads in the State, excep
the general and ordinary rights of common
carriers as possessed by railroads generally
Approved March 21, 1888.
The Southern Pacific Company ha:
simply used the Federal judiciary against
the Government. 1t escaped investigation
at the hands of the Congressional com.
nlittee through the decision OF Field
Sawyer and Sabin, and escaped tax on it:
franchise by the decision of the Supreme
Court. Just what influence the corpora
ton had over these men and whatever
became of that 81, 100000 l am unable tc
say, but 1t was presumed by various au
thorities to have been used in influencing
legislation. Whether it was or not l an
unable to state, as no vouchers could bt
reached to prove or disprove anything, and
l would not care TO make direct statements
regarding the money and its wherea bout:
unless had gwen it all the attention il
deserves and handled it with care"
In Mr.. Thompson's commentaries he
deals with the railroad issue and the cor
preparations very carefully and presents
both SIDES of the questions involved 1t i:
National In its scope and the six volume.
contain over 5000 pages. Mr.. Thompson
is at present engaged in completing the
last volume and he has left no stone un
turned.