Evening star. [volume] (Washington, D.C.) 1854-1972, 1906-01-08
PANAMA RAILROAD
BONDS RECALLED
Sale Held to Have Been I'M
proper.
SECRETARY TAFT'S VIEWS
Letter Transmitted to Congress by the
President.
MARKET CONTRACT CANCELLED
Gratuity Given Him for His Services
Approval Of the President.

nual reports OF the isthmian canal
commission and of the president oil
the Panama Railroad Company, TO-
gether with the reports received by
the two houses of Congress today.
The report of the canal commission
has been made public.
The Secretary takes up the report
| of the president of the railroad COM
| pany and discusses two transactions
| referred to in the report-the Issue
| OF bonds and their repurchase by the
company and the Markell contract
for feeding employees on the
ISthmuS.
The President today transmitted to Con-
gress the annual report of the isthmian
canal commission and the annual report
of Mr. Shonts as president of the Panama
Railroad Company. In acknowledging their
receipt from the Secretary of War and the
accompanying letter, the President said:
II hereby formally approve your actions
and recommendations as therein set forth"
Secretary Taft's Letter.
In his letter TO the President Secretary
Taft says
I'm my annual report Secretary of
War 1 have discussed at length the work
which has been done upon the isthmus I'M
der the commissions direction, and 1t is
unnecessary for me, therefore, 1uflher TO
dwell upon it.
II may say with respect to the consult
ing board of engineers, that there are to
be two reports-a majority report and
minority report: that the majority report
has already been prepared in accordance
with the resolutions passed by the con-
sultfng board but that It Is not ready for
formal submission until 1t shall have been
examined and signed by the European
members OF the board. General Davis. the
of the board, sailed on Saturday, Deem
Der so, 1905. for Europe, expecting to meet
all the European members or the board at
Brussels on Tuesday, the 9th OF Janu-
ary am In daily expectation of receiving
from him a cable confirming the report, q
draft of which he has already delivered
to me. The minority report Is in a state
of preparation. and viii doubtless be hand
ed to the isthmian canal commission with
In the next week. I have directed the
commission to proceed with due speed to
consider the issues made by the majority
and minority report. and after full con-
sultation with the chief engineer, Mr.. Ste
vens, to make report TO their views. 1t
Is hoped that the whole matter be
presented to you for submission TO Con-
gress before the LIST of February.
Sale of Railway Boads.
There are two transactions referred to
in the report OF the president of the rail-
road company of which special mention
should be made. In December at a time
when the creditors of the railroad com
pany were urgent in demanding the pay
ment of their bills, and when the railroad
company not able to meet its obliga-
tons because the canal commission was
unable to pay the railroad company what
was due it. the president and directors sold
S23 one-thousand-dollar IA per cent bonds
which had been in the treasury of the
corporation ever since the United States
acquired controlling interest in its shares
The bonds had been placed there by the
former management for the purpose of US
ing them IN order to improve the equipment
OF the road. On November last the d.
rectors authorized the executive officers
to issue the bonds and after written in
V7tatton to several probable purchasers they
We're sold on the nth day OF November to
Mackay d Co, bankers, as the highest bid
ders. One hundred and seyenty-fiye thou
sand dollars OF the purchase price was maid
on November II. though the bonds We're not
delivered until the oath Of November. The
purchasers paid par and a premium of )
per cent for the bonds.
1t has been suggested that as the gov
eminent owned all the shares of the rail-
road company. and was In fact the owner
OF the road, the sale of the company's
bonds was in effect to increase the indebt-
eonesS TO which the government property
might be subjected, and in this way indi-
rectly to increase the Indebtedness of the
government and that such power Dug hit not
to be exercised without special authority
from Congress. On the other hand II may
be pointed out that the company still pre-
serves lts character as corporation by
the acquiescence Of Congress. and that
under the charter the directors had the
power to issue the bonds and bind the
company no matter who owned the shares.
Action Disapproved.
THE question of issuing the bonds was
| not submitted to you or to me before final
action was taken by the board of directors,
The policy of selling the bonds was a
doubtful one, and should not have been
adopted until after conference with high
er governmental authority. l have not the
slightest doubt that the president and di-
rectors of the company acted in entire good
faith in what they did, and, as thev
thought, for the best interests OF the gov
ernment; but considering the Anomalous
and peculiar relations between the directors
and the company and the government the
bonds should not have been issued without
your approval or mine. In view OF this fact
by your authority, 1 instructed the presf-
dent of the railroad company to proceed al
once to repurchase the bonds. The bonds
themselves contained a stipulation provid-
ING ludt tuty iIuSnt De FeQeemed either
the LIST OF October or the 1st of April by
the payment OF the previous six months
interest. the principal and the premium of
per cent
Arrangements were made with the Dur
chasers by which the bonds were bought
back at the premium paid. 105, and accrued
interest to date of repurchase from the lst
of October. To make the repurchase 1t was
at first thought necessary for the railroad
company to borrow $500 COO from the canal
commission, and the opinion OF the At
torney General was asked as to whether the
canal commission had the authority to lend
the money to the railroad company for this
purpose. The opinion OF the acting at
torney general, answering in the afirma
tive. is among the appendices to this letter
1t subsequently appeared that the indebt-
edness OF the canal commission to the rail
road company was quite large enough To
supply to the railroad company the needed
funds with which TO take up the bonds
without borrowing from the comnaission
Tbs executive officers Of the railroad com
pany have been advised of their error and
hereafter questions of this character wifi
not be acted on finally by the commission
or the directors of the railroad COMPANY
until after conference with the proper
authorities
The Markell Contract.