THE SEARCH FOR A TERMINAL
Progress of Construction
Under its various construction contracts, the Central Pacific steadily progressed, between 1863 and 1869, from Sacramento to a junction with the Union Pacific near Ogden. The official statement of the progress of construction is as follows:[125]
| Broke ground at Sacramento | January 8, 1863 | |||
| Laid first rail | October 27, 1863 | |||
| Sacramento to Roseville (18 miles) | Constructed in 1863 | |||
| Road opened as follows: | ||||
| To | Newcastle | 31 | miles | January, 1865 |
| ” | Auburn | 36 | ” | May 15, 1865 |
| ” | Clipper Gap | 42 | ” | June 10, 1865 |
| ” | Colfax | 54 | ” | September 4, 1865 |
| ” | Secret Town | 66 | ” | May 8, 1866 |
| ” | Alta | 78 | ” | July 10, 1866 |
| ” | Cisco | 94 | ” | November 9, 1866 |
| ” | Summit | 105 | ” | July, 1867 |
| ” | State Line | 278 | ” | January, 1868 |
| ” | Reno | 294 | ” | May, 1868 |
| ” | Wadsworth | 329 | ” | July, 1868 |
| (362 miles constructed in 1868) | ||||
| ” | Monument Point | 667 | ” | April 15, 1869 |
| ” | Ogden | 743 | ” | May 10, 1869 |
| Driving last spike, and opened for business from Sacramento; distance San Francisco to Ogden, per time card | 883 | ” | May 10, 1869 | |
Relations with Western Pacific
It has already been noted that the line from Sacramento via Stockton to San José was not part of the original plan, and that the rights, grants, and franchises of the Central Pacific in it were assigned to other parties in the course of the Congressional fight. The original assignment of December 4, 1862, was to a group of men which included Timothy Dane, the original projector, and president of the San Francisco and San José Railroad, Charles McLoughlin, and A. H. Houston. In 1864, the first assignees having waived their rights, the Central Pacific Railroad made the same assignment to the Western Pacific Railroad of California.[126] The Western Pacific Railroad in turn let contracts for construction to Houston and McLoughlin, but by 1867, McLoughlin had become involved in litigation regarding his contracts and asked that all arrangements between himself and the Western Pacific be canceled.[127]
This led the Western Pacific to enter into a contract with the Contract and Finance Company, with the result that substantially all the stock of the first-named corporation came into the hands of the Huntington group. McLoughlin retained the federal land grant; the federal subsidy, however, of $16,000 per mile, reverted to the Western Pacific as did the local subsidies, and through it passed to the Contract and Finance Company. The railroad from Sacramento to San José was opened September 15, 1869; on June 22, 1870, the Central Pacific and the Western Pacific filed articles of consolidation.
Lack of Terminal Facilities
In September, 1869, the transcontinental railroad from Omaha to San José was in working order. It would be an exaggeration to say that the line was in good shape. There was little or no ballast, and a good rain was said to make miles of the road-bed run like wet soap. Little had been done to eliminate grades and curves, sleeping-car accommodation at first was insufficient, the journey speed from Sacramento to Ogden was only 19 miles an hour, while schedules were not always adhered to. Cars were heated by stoves, and passengers disembarked for their meals. But in a measure these were conditions to be expected at the start, and interfered only in a minor degree with the interest and excitement of a transcontinental trip. The great fact was that a railroad existed which could be used, and over which relatively direct, rapid, and cheap communication with the East could be secured.
The greatest weakness of the Central Pacific Railroad in 1869 lay in its lack of terminal facilities on San Francisco Bay. When the company decided to begin work at Sacramento, its reasonable expectation had been that a railroad under one management would be built from that city around the southern end of San Francisco Bay to the city of San Francisco. The Central Pacific was willing to forego the advantage of this construction itself in order to gain friends, and did it the more willingly because this stretch of line was likely to be unprofitable by reason of steamship competition on the bay and on the Sacramento River. These conditions changed, however, when the Contract and Finance Company took over the construction of the railroad from Sacramento to San José. The Central Pacific interest then obtained a connection of its own with Niles near Oakland, and it was thus led to consider the question of terminals on the eastern side of San Francisco Bay.
The easiest part of San Francisco Bay for the Western Pacific Railroad to reach was undoubtedly the shore south of Oakland or Alameda. It would probably have been possible to build from Stockton to Richmond, as the Santa Fé did later, or to develop Benicia or Port Costa, or even to build a terminus on an island in the bay. Yet as compared with these alternatives, the Oakland terminus had many advantages. It was near to the Western Pacific main line; it was served by two railroads which possessed valuable franchises that could be bought at not too great expense; and, most important of all, the conditions under which the water-front at Oakland was held were favorable to the acquisition of the necessary terminal facilities.
Oakland Water-Front
The situation at Oakland was briefly as follows: The first army of settlers in the city had been squatters on a portion of the Peralta grant. Among these had been Horace W. Carpentier, Edson Adams, and A. J. Moon. In 1852 the state legislature had incorporated the town of Oakland, had fixed its boundary, and had granted to it the land lying between high tide and ship channel along the whole of its water-front, with a view to facilitating the construction of walls and other improvements.[128] There were 75 to 100 inhabitants in Oakland at this time, with half a dozen residences, two hotels, a wharf, and two warehouses. There were no streets—only cattle trails.[129]
As soon as incorporated, the town held an election, and chose Adams, Moon, Carpentier, and two others as trustees. Mr. Carpentier did not qualify or serve. On May 17 and 18, 1852, the board of trustees made two important grants: In the first place, it gave to Horace Carpentier for the period of thirty-seven years, the exclusive right to construct wharves, piers, and docks at any point within the corporate limits of Oakland, with the right of collecting wharfage and dockage; and in the second place, it sold, granted, and released to the said Carpentier all the town title in the land lying within the limits of the town of Oakland between high tide and ship channel.
In return for this grant Carpentier agreed to build three wharves and a schoolhouse, and to pay to the town 2 per cent of his wharfage receipts—certainly a modest recompense. Mr. Marier, president of the board of trustees, later testified that Carpentier told him when the deed was signed that he would be willing at any time to reconvey the property to the town on being reimbursed for the moneys he had expended; and this was also the recollection of others.[130] But the understanding, if any existed, never could be enforced,[131] so that Carpentier was firmly established in his control of the tide-lands of the city of Oakland, and in spite of petitions, riots, and litigation, sat unshaken in 1867 when the Central Pacific became interested in the matter.[132]
Oakland Water Front Company
Sometime prior to 1867 Carpentier had several talks with Leland Stanford, and endeavored to persuade him to build north from Niles across the Ravenswood cut-off. In the fall of 1867, Carpentier and Stanford talked again, and Stanford came to entertain the idea as a matter of reasonable negotiation. John P. Felton was engaged by the city of Oakland to look into its rights. Carpentier says that he offered the railroad one-half of his water-front if it would make his property its terminus. He says that this mode of adjustment was acquiesced in by Mayor Merritt and Mr. Felton, and that about the end of the year (1867), it came to be understood between them and Governor Stanford and himself that something should be done on approximately this basis.[133] Judge E. B. Crocker, however, attorney for the Central Pacific, asked that outstanding disputes regarding the water-front be first settled. The legislature was soon to be in session, and it was urged that all should act together in trying to get an authorization for the settlement of difficulties.
This was done.[134] On the 27th of March, 1868, as a part of a series of compromise arrangements, the Oakland Water Front Company was incorporated. The subscribers and original directors were H. W. Carpentier, president; Samuel Merritt, vice-president; Lloyd Tevis, secretary; Leland Stanford, treasurer; E. R. Carpentier and J. B. Felton. Mr. Tevis and H. W. Carpentier were in the same year directors of the Southern Pacific Railroad Company. The Oakland Water Front Company was capitalized for $5,000,000, and the stock was divided into 50,000 shares. Of these shares H. W. Carpentier subscribed for 23,000, or 46 per cent; Stanford for 17,500, or 35 per cent; and Felton for 4,999, or 10 per cent. Lloyd Tevis took 2,500 shares, E. R. Carpentier 2,000 shares, and Samuel Merritt 1 share.
On March 31, Mr. Carpentier deeded to the new corporation all the water-front of the city of Oakland, that is to say, all the lands, and the lands covered with water lying between high tide and ship channel, being the water-front lands described in and granted in the act of incorporation of May 4, 1852. He excepted from this deed only that water-front lying between the middle of Washington Street and the middle of Franklin Street and extending southerly to a line parallel with First Street. By Section 2 of an agreement made the following day, the Oakland Water Front Company agreed to deed this last-named area to the city of Oakland.[135]
Cession of Land by Water Front Company
On April 1, 1868, two further agreements were signed. One, styled an indenture, was between the Oakland Water Front Company, the Western Pacific Railroad Company, Carpentier, Felton, and Stanford. Under this indenture, and in consideration of the deed of March 31, the Oakland Water Front Company declared that it held the property conveyed to it subject to covenants which were particularly set forth as follows:
The Western Pacific Railroad agreed to select within three months 500 acres from the property conveyed by the deed of March 31, including not more than one-half mile of frontage on ship channel, together with not to exceed two strips of land over the remainder of the premises from high-water mark to the parcels selected. The strips running from high-water mark were each to be not more than 100 feet wide at grade.
The Oakland Water Front Company agreed to convey to the Western Pacific Railroad the 500 acres selected, and to grant an exclusive right-of-way over the hundred-foot strips. It undertook, moreover, to sell no land west of the 500 acres, provided that these were located out to a westerly water-front of 24 feet depth of water at low tide, and to place no obstructions in front of them, or to do anything to obstruct the free approach of vessels to the parcels.
The Water Front Company further agreed to convey to the city of Oakland on demand “so much of the premises as [lay] between the middle of Franklin Street and the easterly line of Webster Street, and extending out to a line parallel with First Street, and two hundred feet southerly of the present wharf at the foot of Broadway,” with the right of wharfage, dockage, and tolls thereon, and to designate and dedicate as a navigable water course for public use, the channel of San Antonio Creek, from ship channel to the town of San Antonio, to a width of not less than 200 feet over the shallow water at the bar, and 300 feet wide above that place.
The Water Front Company, in the third place, undertook to convey 25,000 shares of its stock to Carpentier, 5,000 shares to Felton, and 20,000 shares to Stanford.
Finally, the Water Front Company authorized the city of Oakland, or other parties, to construct a dam above the Oakland bridge, across the estuary, so as to keep the land above submerged to high-tide mark, for the use of the owners of the adjoining lands, and of the public.
The second paper, also signed on April 1, was an agreement between the Western Pacific Railroad Company, Leland Stanford, and the Water Front Company. By it the railroad agreed to construct or to purchase within eighteen months and to complete a railroad from its main line, then at Niles, to and connecting with the parcels of land described in the indenture of the same date, together with the necessary buildings and structures for a freight and passenger depot on the premises. The railroad agreed to expend in new work within three years $500,000. The railroad company agreed that in construction across the estuary between Oakland proper and Brooklyn it would leave a space for forty feet free for the passage of vessels.[136]
Attitude of City
Up to this point the city had not entered into any contracts. On April 1, however, the city council passed an ordinance ratifying and confirming the grants made under the early ordinances of 1852 and 1853, and the conveyance by Mr. Marier as president of the board of trustees, and granted, sold, and conveyed to the said Carpentier in fee simple forever, the city water-front, that is to say, the lands lying between high tide and ship channel. This ordinance further provided that Carpentier should convey to the Oakland Water Front Company the property and franchises conveyed at that time by the city to him, to be used in accordance with the terms and stipulations of the contract between the Oakland Water Front Company, the Western Pacific Railroad Company, and other parties. On the following day the council passed still another ordinance reciting that inasmuch as the terms and stipulations previously provided had been complied with by Carpentier, the grant was finally settled upon him.[137]
The result of these somewhat complicated negotiations was that the Central Pacific acquired 500 acres of water-front property in Oakland, with a frontage of one-half mile on ship channel, merely as a reward for coming to the city. In addition, Mr. Stanford, acting presumably on behalf of his associates, received 40 per cent of the capital stock of the Oakland Water Front Company, which on its part owned substantially all of the water-front remaining. The city attorney, who was supposed to represent the interests of the city, was rewarded with 10 per cent of the stock of the Oakland Water Front Company, and the position of director. The mayor of the city, Mr. Merritt, was made vice-president of the same corporation, although the extent of his personal interest in it is not known. He seems to have held only qualifying shares.[138]
In subsequent years the relations between the city of Oakland and the Oakland Water Front Company were repeatedly subjects of most bitter controversy. Extravagant as had been the consideration of the grant to the Central Pacific for coming to Oakland, this matter was less serious than the circumstance that the control of the remaining water-front by the Central Pacific through the Oakland Water Front Company appeared to make it impossible for any rival transportation company to gain a footing in the city. The city long endeavored to free itself from this monopoly. It contended at one time that Carpentier had secured the election of his own agents to the board of trustees which had made his grant, and that in any case Carpentier had agreed to reconvey the property to the city. Neither statement could be proved. On the contrary, in 1897 the Supreme Court of California definitely pronounced the compromise of 1868 binding upon the municipality, although it interpreted the words “ship channel” to mean the low-tide line and not a depth of three fathoms at low tide as had at first been supposed.[139]
Water-Front Monopoly Broken
Ten years later the title of the Oakland Water Front Company was again questioned in a case brought by the Western Pacific Railroad Company. By this time two jetties had been built by the United States government extending the lines of San Antonio Creek westward to deep water. As a result of the deposit of material taken out of the channel of the estuary and placed north of the northern training wall, and of additional deposits from dredging operations conducted by the Central Pacific and by private parties, the line of low tide had been moved appreciably out into the bay. Under the general rule that accretions belong to the proprietors of riparian lands, the Southern Pacific, as successor to the Oakland Water Front Company, asserted title up to the limit of the new line of low tide. This claim the federal court denied. The limit of the railroad company’s property was declared to be the low-tide line of 1852, extending first northwesterly and then northeasterly from the mouth of the San Antonio estuary at Sand Point as indicated in the map on page 93.[140]
Map of Oakland and Brooklyn, showing location of Central Pacific terminals, 1871
This at one stroke transformed the Southern Pacific’s holding from a water-front to an interior location, by making it clear that the title to the substantial area between the bulkhead line of the city of Oakland and the low-water mark of 1852 lay in the city and not in private hands. The city had indeed given away its water-front as it existed in 1852, but the creation of a new water-front during the following years relieved it of the effects of its negligence. It thus appears that the alienation of the water-front of Oakland in 1868 did not permanently vest in the Central Pacific interest control of the tide-lands to which the compromise of that year referred. For the time being, however, the company secured a well-nigh complete monopoly. Not only had it convenient access to tide-water for its own trains, but it was able for many years to keep other railroads from obtaining a similar advantage. Up to this point, however, no arrangement had been completed for a terminus on the San Francisco side of San Francisco Bay.
Proposed Grant of San Francisco Water-Front
In order to establish the Central Pacific with complete adequacy, the associates accordingly now turned to the western side of San Francisco Bay and took steps to provide terminal facilities in the city of San Francisco itself. Possibly this was because they had acquired or were about to acquire a controlling interest in the San Francisco and San José Railroad; possibly it was due to Carpentier’s influence, or perhaps it was merely a recognition of the advantages of a terminal location in San Francisco.
Unlike Oakland, the city of San Francisco had never received title to all its tide-lands from the state, and application had to be made to the legislature at Sacramento, direct. Early in 1868 the Senate Committee on Commerce and Navigation, of the state legislature, reported a bill granting to the Western Pacific Railroad Company and to the Southern Pacific Railroad Company, submerged and tide-lands in the Bay of San Francisco, from the foot of Channel Street to Point San Bruno, with the right to extend the railroads of said companies or construct branches thereof, and to purchase other railroads, and use the same for the purpose of reaching the place or places on said premises selected as termini for said railroads, and to maintain and operate the same by steam or other power from the present lines of said railroads to the said termini on said premises, and with all necessary and proper depots, side-tracks, etc.
The boundaries of this extraordinary grant are indicated on the map on page 96.[141]
The total length from the foot of Channel Street to Point San Bruno was a little over 8 miles. The maximum breadth was approximately 2½ miles, and the area was estimated by opponents of the scheme to be not less than 6,620 acres. The value of such a water-front on the principal city of the Pacific Coast was to be measured in millions of dollars, and its importance to the Huntington interests was not limited to a money value alone. The possession of the San Francisco water-front south of Channel Street meant the occupation of the only part of the city at which a first-class railroad could reach tide-water. The reason for this is that all railroads must come into the city of San Francisco from the south or the southwest on account of the shape of the peninsula, and no railroad can conceivably be allowed to cross the main thoroughfare. Market Street, or to penetrate the thinly settled residential districts in the north.
Boundaries of Railroad Tide-Land Grant, as proposed in 1868.
The bill provided that the Central Pacific, Western Pacific, Southern Pacific, and the San Francisco and San José railroads, which were the proposed grantees, should pay the fair market cash value of the submerged lands at the time of the passage of the act, being not less than $100 per acre for the lands lying north of Point Avisadero. But it was also provided that the surplus over $100 due for the land north of Point Avisadero might be spent in reclamation and improvement of the premises, and the companies were to receive patents if within five years not less than $1,000,000, in addition to such surplus, had been spent in this way. In plain English, the tide-lands were to be sold for $100 an acre, but in the case of some of them the beneficiaries might be required to spend additional amounts in improvements. The Senate committee defended its recommendation by saying that it was desirable to have the water-front improved, and that this was the way to have the thing done. It expected that the railroads would build a sea-wall; and observed that this wall, water-front, and docks would be subject to the control of the state harbor commissioners. How a rival railroad in the future would get access to the docks, it did not say.[142]
Scheme Opposed
Generally speaking, arrangements for the alienation of city water-front property into private hands are to be looked upon with suspicion unless extensive powers of control are reserved by state or city, and unless there is provision for the reversion of the property, including improvements, to the public at the end of a stipulated time not too far removed, on conditions and in a manner clearly stated. In the particular case in hand there were no such safe-guards to the public interest, except a general reservation of jurisdiction and control over the water-front by the State Board of Harbor Commissioners, and a provision that the grantees should charge no tolls or wharfage on the water-front sold to them. This was not enough. It was therefore fortunate under the circumstances that the improvident nature of the proposed contract was understood and its defects given full publicity by the San Francisco press. The San Francisco Bulletin commented as follows:
The scheme is an outrageous one. A proposition to sell to the Railroad Companies at a reasonable price, so much of the southern water-front as would be actually necessary for depots, warehouses, workshops, etc., might be considered favorably, but a proposal to give to what is or will be virtually a single corporation two-thirds of the frontage of a city destined to be the second in America, is utterly indefensible ... this immense property will be worth eventually as much as the Pacific Railroad itself.[143]
The Alta said:
If the parties who have so modestly presented their humble petition for this concession had gone one step farther, and asked for a grant of the whole State of California—all its tide and marsh lands—the control of all its rivers, bays and inlets, we do not know that the public amazement would have been any greater.[144]
Even the conservative San Francisco Times suggested that it would be well for the railroad companies to submit detailed estimates of the land needed for terminals and the uses to which this land was to be put,[145] while it refrained from commenting on the Bulletin’s assertions that it was the intent of the railroads to locate their terminus well south of the city of San Francisco to the great profit of parties from Sacramento who were buying lands around Hunter’s Point.
Another Plan Substituted
Whether or not this last accusation was well founded, the opposition of the city grew so intense that the legislature did not dare to carry out its original plan.[146] Instead, the Southern Pacific and Western Pacific were offered each 150 acres, to be located by the companies within specified limits south of Channel Street, and still later the amount was reduced to 30 acres apiece, and a donation was substituted for a sale. So amended, the act became law on March 30, 1868. It granted and donated to the Southern Pacific Railroad Company and to the Western Pacific Railroad Company for a terminus in the city of San Francisco, to each of said companies, 30 acres, exclusive of streets, basements, public squares, and docks. The land was to be selected by the railroad companies within ninety days, but it was to lie south of Channel Street, and outside of the Red-Line water-front of Mission Bay, and was not to extend beyond 24 feet of water at low tide, nor to within 300 feet of the line which should be selected by the tide-land commissioners as the permanent water line of the front of the city. A 200-foot right-of-way was given to the companies to provide access to their tide-lands. The lands were to be located and $100,000 spent upon them by each of the grantees within thirty months, or the grant would revert to the state.[147]
Compared with their original projects, the Act of 1868 represented a considerable check to the plans of Mr. Stanford and his friends. Yet the grant in San Francisco was important, and, added to what had been secured in Oakland, provided satisfactorily for the Central Pacific’s transportation needs.
In 1871 the San Francisco supervisors granted to the Southern Pacific and Central Pacific railroads rights on various streets in the city in order that they might reach and enjoy their lands and depot grounds in Mission Bay. Late in the same year Stanford indicated his willingness to make Mission Bay the main terminus of both the Central Pacific and Southern Pacific, in consideration of a subsidy of $3,000,000 and of alterations in the terms of the Mission Bay grant so as to make it more acceptable. Nothing came of these last negotiations, nor of somewhat similar proposals made in 1872 by a citizens’ committee engaged in fighting the Goat Island scheme (see below) and submitted to popular vote. In 1873-74, however, the city granted Stanford additional though minor franchises, enabling him to run trains on certain city streets.
Proposed Occupation of Goat Island
It will be readily understood that feeling ran high both in Oakland and San Francisco while the railroad negotiations for terminal facilities were going on. Nor was the public excitement allayed by the attempt of the Huntington group to occupy Goat Island, which occurred at the same time. Goat Island, formerly known as “Yerba Buena” Island, is a small body of land lying about midway between San Francisco and Oakland. Reference to the inset accompanying the map of Oakland will show its exact location. It is obvious enough why the Central Pacific wanted the use of this island and of the mud flats lying directly north. It is just as obvious why, in the absence of regulation, the public should have objected to its exclusive occupation by any single railroad company. Yet, in March, 1868, one day after the action granting to the Central Pacific and to the Southern Pacific 60 acres of tide-lands in San Francisco, the state legislature granted to the Terminal Central Pacific Railroad Company—a corporation controlled by the associates—a defined area not to exceed 150 acres of the submerged shoal lands north of the island, with the right to reclaim these lands for railroad depot and commercial purposes, and to connect them by a bridge with the Oakland, Alameda, and Contra Costa shores. The company agreed to pay the fair appraised value of the lands into the state treasury, and to put into operation within four years a first-class rail and ferry communication between the city of San Francisco, the premises conveyed to it, Oakland and Vallejo.[148]
Two years later the time for the completion of the promised road was extended, and a railway to the Straits of Carquinez, opposite Vallejo, was accepted as sufficient to fulfil the requirement of a line to the town of Vallejo itself,[149] and in 1871 a still further extension of time was given. The road which the Southern Pacific proposed to build was probably that indicated in the notice of new construction filed at Sacramento in March, 1867—that is to say, it was a line running from Sacramento east of the Sacramento River past Freeport, crossing the mouth of the San Joaquin River, and continuing west through Antioch and over the hills to San Francisco Bay. Such a road could easily have been brought to Carquinez Straits, but it could not have reached Vallejo. The associates did not at this time intend to enter the territory west of the Sacramento River.
Project Lapses
Following the vote of the California legislature, a bill was introduced in Congress, providing for the grant to the Central Pacific Company of the right to use Goat Island itself. This logical sequence to the state legislation was opposed by the United States military authorities and by the city of San Francisco. It appeared that residents of San Francisco anticipated the permanent loss of a large part of the transcontinental business if the Central Pacific should occupy Goat Island. The San Francisco Bulletin insisted that there was room enough on the island and on the adjacent flat to accommodate all the warehouses and large shipping, mercantile, and financial establishments of a seaport of 500,000 inhabitants. It was stated that the advantages of the location would draw the warehouses, that other firms would follow, and that men who had business on the island would not live in San Francisco, but would make their homes on the eastern side of the Bay where land was cheaper, more level, and more fertile. These statements were generally believed.
Nothing was done in 1869, 1870, or 1871 beyond the steps just mentioned. In March, 1872, however, the San Francisco chamber of commerce passed resolutions and prepared a memorial addressed to the President and to Congress opposing the proposed grant, and a mass meeting was held in San Francisco to make public protest. Following this, conferences were held between a committee of citizens and the president of the Central Pacific in the hope of arriving at some general understanding relative to terminal facilities, and eventually the whole Goat Island project lapsed.[150]
Purchase of Other Roads
By the middle of 1868 the Central Pacific had thus secured satisfactory water-front facilities in both Oakland and San Francisco, amounting in the case of the former city, through the Oakland Water Front Company, to monopoly control. Needless to say, it had also abundant accommodations at Sacramento. Through the Southern Pacific Railroad it had also franchises in San Francisco, including the right to maintain tracks in the vicinity of Third and Townsend Streets. Up to August, 1868, however, it does not seem to have made the connections between its main line and Oakland that were necessary to enable its trains to reach San Francisco Bay at all. In that month Stanford, Huntington, Hopkins, and Crocker bought a majority of the stock of the San Francisco and Oakland Railroad, and the following year they purchased likewise the San Francisco and Alameda Railroad. The first-named company had 2 or 3 miles of track eastward from Oakland’s point. The Alameda company had about 16 to 18 miles. Both had valuable franchises, and both owned ferry-boats and piers extending some distance into the bay. In 1870 both of the companies were joined in the San Francisco, Oakland and Alameda Railroad, and in the same year this company was consolidated with the Central Pacific. By 1869 the gap between the end of the San Francisco and Alameda Railroad and Niles had been filled, and this in a real sense completed the transcontinental line.
ACQUISITION OF THE CALIFORNIA PACIFIC
Tendency to Monopoly Control
The first intimation that the Central Pacific Railroad was on its way to something like a monopoly control in the state of California is to be found in the negotiations for terminals on San Francisco Bay. But it was not long before more evidence came to light. Looking back with the advantage of knowledge of the company’s later history, it seems probable that the possibilities of monopoly control of the railway business of California were present to the owners of the Central Pacific as early as 1868. The task of securing such control was not, after all, so very great. California had few railroads in the sixties, and those which were in operation were small and unprosperous, and could be cheaply acquired.
Besides this, the topography of the state lent itself to schemes of conquest by a sharp separation of the interior valleys from each other and from the coast. It was not necessary to occupy the whole country, for an effective control over one valley could be maintained in spite of the fact that an adjacent valley was in hostile hands. Nor was there any public opinion in California at the time thoughtfully critical of monopoly, as such. The country was new. Theories covering the relations of large corporations to the consuming public had not been developed. People hated monopolies because monopolies meant high prices; but the very persons who were most likely to object to monopoly were also likely to seek positions of advantage for themselves when possible.
Under conditions like these, Stanford, Huntington, Hopkins, and Crocker were almost sure to attempt to dominate the railway system of the state as soon as they determined to make their connection with it more than temporary. This decision was made as the Central Pacific approached Ogden in 1868 and 1869. Had the associates been able to sell out before this time, it is likely that they would have done so. Indeed, it is credibly reported that 80 per cent of the stock of the Central Pacific was offered to D. O. Mills as late as 1873, for a price of $20,000,000,[151] and this was probably the last of several offers made to different parties.
The evidence seems to show, however, that by 1870 the Huntington group were inclined to remain in the railroad business. Strategically, the associates then occupied a very strong position. They possessed the only railroad line from California to the East. They dominated the Oakland water-front, and held important concessions in San Francisco. Branch lines, like long tentacles, stretched from Roseville north to Chico, on the way to the Oregon state line,[152] and from Lathrop south to Modesto, to be extended to Goshen by August 1, 1872.[153] By 1869 the Sacramento Valley Railroad, with its extension to Placerville, had been bought, and the California Central Railroad from Folsom to Marysville was under Central Pacific control. Even the budding project for a Southern Pacific Railroad had received the attention of Stanford and his associates. Indeed, the only really weak spots in the associates’ position were their failure fully to occupy the San Joaquin Valley, and the fact that they did not control the short line between Sacramento and San Francisco. We will, accordingly, consider the situation and the policy of the Huntington group in these respects.
Map of California Railroad, about 1870.
Competition of California Pacific
The most direct railroad route from Sacramento to San Francisco is by way of Vallejo or Benicia, across the Straits of Carquinez, and along the eastern shore of San Francisco Bay. In 1865, after the Central Pacific had begun work in earnest, the California Pacific Railroad Company was incorporated to occupy this route from Sacramento as far as Vallejo. Contracts were let, though no material progress was made for two years. In 1867 the work was taken up with fresh energy, and in 1869 the road was finished between Vallejo and Sacramento, with a branch from Davisville to Marysville. The newly built Napa Valley Railroad from Adalanta, California, to Calistoga, was acquired at the same time. In 1870 the system reported 163 miles of road, of which 22 miles consisted of a ferry connection from Vallejo to the city of San Francisco.
It seems more probable that the California Pacific was originally intended as a connection for the Central Pacific than that it was built as a competitor with the larger road. This was satisfactory enough to the Central Pacific so long as this company terminated at Sacramento. But there is no manner of doubt that the California Pacific became a formidable competitor to the Central Pacific when the latter acquired its circuitous line to Oakland via Stockton. This was especially true with respect to the passenger business. The distance from Sacramento to San Francisco via Vallejo was 87 miles, via Stockton 137½ miles; the time via Vallejo was 3½ hours, via Stockton 5 hours. It appears that transcontinental passengers on Central Pacific trains often changed cars at Sacramento, sacrificing the balance of their through ticket and paying extra fare in order to save time.[154] Of the local passenger business between Sacramento and San Francisco, the California Pacific claimed three-fourths. How large a share of the freight went by the shorter line does not appear, but it must have been considerable, for Mr. Stubbs later estimated that the cost of operating the Benicia route could not have been more than 50 per cent of the cost of operating the Western Pacific,[155] and it is in evidence that the Central Pacific sent most of its freight via Benicia as soon as it obtained control of both lines.
It should be remembered also that in addition to its competition for local business, the California Pacific had ambitious plans in other directions. We know, for example, that it proposed an extension eastward via Beckwourth’s Pass to a connection with the Union Pacific, at or near Ogden. This line was to be built by the California Pacific Railroad Eastern Extension Company, incorporated at Sacramento in March, 1871, with a capital stock of $50,000,000.[156] Other reports credited it with an intention to enter the San Joaquin Valley;[157] while its influence in Sonoma, Marin and Napa counties was recognized. In short, by 1870 the California Pacific was not only important in respect to what it had actually accomplished, but it had in it the germ of a railroad system in no way inferior to that of the Central Pacific itself.
Rival’s Weakness
Unfortunately for the California Pacific, the company’s physical and financial position in 1871 did not measure up to the magnitude of its ambitions. Counsel for the Central Pacific in later years drew a vivid picture of the condition of the railroad in 1867 which probably contained more than a grain of truth. According to this account, the right-of-way of the California Pacific was unfenced, its sidings were few, and its stations were insufficient. The road-bed was almost wholly unballasted, and inadequately supplied with ties. Embankments were so narrow that the ends of the ties projected on both sides. The slope of the cuts was insufficient and upon the Napa branch the rails were fastened to the ties with wrought nails without heads which were bent back over the flanges of the rails after being partly driven, in order to hold the rails in position.[158]
On the other hand, in spite of the imperfect character of its construction, the California Pacific had paid large prices to contractors in its bonds and stock. In December, 1870, the company was compelled to borrow money to meet the January interest of 1871. By the following spring it was indebted to the extent of $8,450,000, of which $1,200,000 was floating debt, and had to prepare to meet an annual interest charge of $667,500. This was more than the company’s earnings could stand.
In 1871 the Central Pacific, taking advantage of the weakness of its rival, proceeded to the attack by arranging to construct a branch from Sacramento, by way of Davisville, to Vallejo. In pursuance of this arrangement it accumulated iron and ties, made surveys, and succeeded in effecting a contract with an organization known as the Bridge Company of the City of Sacramento, for the exclusive use of its bridge for their new enterprise.[159] The California Pacific was already suffering from the competition of river boats, and the construction of the new road would have ruined it. The pressing nature of the danger was appreciated by the managers of the road, and Milton S. Latham, director and treasurer of the California Pacific, and agent for the holders of three-fourths of the capital stock of that company, promptly opened negotiations with the Central Pacific, through Collis P. Huntington, for an adjustment of difficulties. This was precisely the situation which the Central Pacific desired to bring about.
Control of California Pacific Acquired
The agreement that resulted from the conditions described may probably be explained as an elaboration of the Central Pacific’s statement to Mr. Latham that the company was willing to buy the California Pacific but did not have the money. It took the form of the following consecutive transactions:
By agreement dated July 13, 1871, between Latham, Leland Stanford, and Mark Hopkins, Mr. Latham agreed to deliver 76,101 shares of the California Pacific Railroad Company, to assign three-fourths of the capital stock of the California Pacific Eastern Railroad Extension Company to the other parties to the contract, and to stipulate that the total indebtedness of the two companies named should not exceed $8,421,000. In consideration of this delivery, Stanford and Hopkins agreed to pay to Latham $1,579,000 in bonds of the California Pacific Railroad Company.
On August 9, 1871, Mr. Latham presented, and the directors of the California Pacific at a formal meeting approved, resolutions to the effect that the sum of $1,600,000 was necessary for the purpose of constructing and completing an additional track, and for strengthening the California Pacific embankments across the tule lands. The directors further voted that the money be borrowed, and the necessary bonds be issued. President Jackson then stated to the board that a contract had been made, and the execution of this contract was approved.
Under date of August 9, 1871, the California Pacific covenanted with Stanford, Hopkins, and Huntington for the construction referred to in the previous paragraph. The associates agreed
... to enlarge the embankment of the railroad of the said party of the second part, where embankment is required, and erect and widen the trestle work, where trestle work is required, from the bridge across the Sacramento River to Davisville, in the county of Yolo, in the State of California, and place thereon a good and sufficient superstructure, consisting of timber and ties and iron railroad thereon, so as to make an additional railroad track from said bridge to said Davisville, fully equal to the present railroad on the present embankment and to connect the same with proper switches with both the main track to Vallejo, and the track to Marysville of the railroads of the party of the second part. Said parties of the first part to furnish all the material for the said additional railroad track, and embankment, and trestle work, and to have the same completed and ready for use on or before the first day of January, in the year one thousand eight hundred and seventy-three.
In consideration of this construction, the California Pacific was to pay the associates 1,600 second mortgage California Pacific bonds.
On August 19, 1871, the Huntington group, now controlling a majority of the board of directors of the California Pacific, entered into an agreement with the California Pacific under which the Central Pacific undertook to pay the California Pacific $5,000 per month, to furnish the equipment for passenger business, and to guarantee the interest on 1,600 second mortgage bonds, while the California Pacific in return agreed to transport to or from San Francisco, passengers beginning or ending their trips on the Central Pacific or connecting roads, and to maintain its fare for other passengers at $4 between San Francisco and Sacramento. On September 1, 1871, the Central Pacific took full control of the California Pacific, and moved its offices from San Francisco to Sacramento.[160]
Motives Behind Transactions
Two explanations of these transactions are possible. Counsel for the Central Pacific, in 1886, maintained that the contracts fell into two distinct classes or groups. The California Pacific, according to this point of view, arranged for an additional track between Sacramento Bridge and Davisville, and for still more important enlargement in embankments and widening and erection of trestle work, by the transfer to defendants of second mortgage bonds. These bonds, it was alleged, though considerable in amount, had little value because of the desperate financial condition of the California Pacific. In the second place, the Central Pacific gave value to bonds which it held by a guaranty, and used them to buy a controlling interest in California Pacific stock. Of this, the minority stockholders of the corporation had no right to complain.
Counsel on the other side maintained that the essential feature of the whole transaction was the purchase of California Pacific stock, and that the various contracts merely supplied a method of buying this stock without paying for it. Starting, therefore, with the contract of July 13, they pointed out that the defendants agreed to purchase California Pacific stock from Latham with California Pacific bonds which were not yet in existence, stipulating for full control of the California Pacific before payment should be made, in order that they might obtain the purchase price from that company. When Latham announced that he was ready to deliver the stock, it became necessary for the defendants to secure about $1,600,000 in California Pacific bonds. These bonds could be legally issued only for new construction, hence the contract for a second track from Sacramento to Davisville. When issued, and in the hands of the defendants, it was necessary to have the Central Pacific’s guaranty. For this the Central Pacific required the California Pacific to enter into the traffic agreement of August 19, obtaining thus a full quid pro quo. The result was that the California Pacific furnished first the bonds and then a consideration for the Central Pacific’s guaranty, which together served to purchase the California Pacific stock.
Plausible Explanation
There were several circumstances which made this second version plausible. It seems extraordinary, for one thing, that a company in the straits to which the California Pacific was reduced should have issued bonds for double-tracking 13 miles of road.[161] If it be answered that the strengthening of the road against the immediate danger of flood was the real reason for the issue, then it was still extraordinary that the time limit for construction of the work should be set as it was, eighteen months away, on January 1, 1873. As a matter of fact, the section of the California Pacific across the tule lands was washed away before the associates got around to strengthening it. This made it impossible for Stanford, Huntington, and Hopkins, or the Contract and Finance Company, to which they had assigned their contract, to carry out the original agreement. Instead, Mr. Montague, chief engineer of the California Pacific, reported to his board that the cost of restoring the washed-out line would be equal to the cost of carrying out the original contract, and the board, on November 15, 1872, authorized the substitution of this work for that agreed on in the contract of August 9, 1871.
Owing to the subsequent destruction of the books of the Contract and Finance Company, there is no way of telling accurately what the cost of restoration actually was. The Contract and Finance Company finished the job, however, in six weeks after the work was actually commenced, and what information is available leads one to doubt if the expense was very great. Another circumstance which raises a question as to the good faith of the consideration offered for the 1,600 California Pacific bonds, is the coincidence that the par value of the bonds issued for construction was practically identical with the amount needed to pay for the 76,101 shares of stock sold by Latham to Stanford, Huntington, and Hopkins. Still another peculiar incident was that of the execution, contemporaneously with the main contract, of a supplementary agreement, under which the Stanford group agreed to pay Latham $250,000 in a six months’ note, besides the other consideration for California Pacific stock, if he would visit New York at once, obtain the consent of the stockholders whom he represented, and personally assume all the obligations of the California Pacific above the sum of $8,421,000 specified in the bond.
Whatever the true motives for the transaction described, the coincidence of the stock sale with the other transactions relieved the representatives of the California Pacific of any intense interest in the matter, and must inevitably have made them pliable as to terms. The directors present at the meeting of August 9, when the contract for the construction of the second track was approved, were Jackson, Hammond, Latham, Sullivan, and Atherton. Of these gentlemen, Hammond, Sullivan, and Atherton each held five shares only, transferred to their names to qualify them as directors; while the shares of Latham and Jackson were ready for transfer to Stanford, Huntington, and Hopkins. Hammond, vice-president of the company, as well as a director, subsequently said, referring to the contract for a second track: “I don’t recollect that I ever saw or knew what that contract was, until it was brought into the board.... This contract was made with a party who was purchasing the majority of the stock of that company, and whose interest would be to do that work in a workmanlike manner.” Certainly this was not a desirable point of view for a representative of the California Pacific to take.
Undisputed Control
The inevitable result of the various contracts and agreements which have been described was to place the Huntington group in undisputed control of the California Pacific. On August 10, 1871, Mr. Stanford was elected president vice Jackson, and on August 2, Mark Hopkins was elected treasurer vice Latham. The following year Hammond and Moses Hopkins took the positions of president and treasurer, respectively, while Stanford and Mark Hopkins and Collis P. Huntington were appointed general agents of the company, with large powers.
Once in control, Stanford and his associates proceeded to make the best use they could of the California Pacific in connection with other roads in their system. It does not appear that they felt any particular tenderness toward the enterprise. Most of the operating arrangements between the Central Pacific and the California Pacific were subsequently arranged by Mr. Towne for both parties, on terms favorable to the Central Pacific. It is on record that the California Pacific was allowed but $1 out of $16.75, the fare from Reno to San Francisco, for its haul from Sacramento to San Francisco, although the total distance was 240 miles, and the Sacramento-San Francisco haul amounted to 92 miles. Likewise, contracts were made with the Contract and Finance Company which were later complained of as extravagant. Special mention is made of lumber which was bought of the Contract and Finance Company at $30 a thousand when the market price was $18. Mr. Towne was asked in 1886:
Q. You say that you have done all that you could to increase the earnings of the California Pacific, do you?
A. Having a due regard for the other company; yes, sir.
Q. Did you make that qualification?
A. I do now.
Perhaps a policy of this sort was to be expected as the result of the conquest of a dangerous rival. Yet certain other arrangements between the Central Pacific and the California Pacific went beyond what one might have expected. It appears, for instance, that soon after the Stanford group obtained control of the last-named company, that portion of the contract of August 8, 1871, which provided for the payment of $5,000 monthly by the Central Pacific to the California Pacific, was eliminated. This elimination was said to have taken place by “mutual consent,” a meaningless phrase when the same men had charge of the negotiations for both sides.
Independent Security Holders
It has been charged, also, that Stanford and Huntington deliberately endeavored at this time to depress the value of California Pacific mortgage securities in order to induce independent holders to reduce their claims. In support of this contention there is evidence that very strong pressure was brought to bear upon independent security holders in 1874, and that as a result of this pressure the fixed charges of the California Pacific were reduced from $763,500 in 1875, to $303,500 in 1886. No part of this burden was borne by the second mortgage bonds held by Stanford, Huntington, Hopkins, and Crocker, nor was any assessment levied upon the company’s stock.
As a part of the campaign, during the period mentioned, wide publicity was given by the management of the California Pacific to financial difficulties, real or alleged, with which the company was confronted. Thus in June 1875, the board of directors confessed a judgment of $1,309,041.84 to one J. P. Haggin, assignee of certain claims of the Central Pacific, the Contract and Finance Company, and the associates, for advances previously made. Mr. Haggin had no interest in the matter, merely allowing the use of his name.[162] The following month, Vice-President Gray, of the California Pacific, made an extremely pessimistic report to his directors, declaring that the company’s deficit to date was $1,370,061.71, and that a large part of the outstanding bond issues of the company were represented by no construction that he was able to discover. On July 25, 1874, finally, a local capitalist named Michael Reese, acting in all probability on behalf of the associates, filed sensational charges against Mr. Latham, formerly general manager of the California Pacific, which called forth as sensational a reply.[163] These various activities roused holders of California Pacific Railroad Extension bonds to petition to have the California Pacific declared bankrupt, and drew forth a statement from the company, on the other hand, that it did not regard these bonds as constituting a valid legal claim upon it. The result was a compromise. The extension bondholders surrendered their 7 per cent bonds for a reduced amount in new 6 per cent securities, and the outstanding income bonds likewise exchanged their holdings for 3 per cent bonds. Both classes of bonds were guaranteed by the Central Pacific, and in consideration of the guaranty the California Pacific was leased to the Central Pacific on July 1, 1876, for 29 years, at a rental of $550,000 per year, plus three-fourths of the net earnings of the company above that amount. At a subsequent period in December, 1879, when the Central Pacific was about to turn a considerable volume of business over the short line by way of Benicia, the California Pacific gave up its right to payments over the $550,000 minimum in consideration of a fixed additional payment of $50,000 a year.[164]
By and large, the California Pacific proved a good investment for the larger company, especially after the Northern Railway had been built and a new route established between Oakland and Sacramento. The reason for its original acquisition was, nevertheless, in all probability, not the chance of a direct profit, but the advantage expected from a monopolistic control of the territory north of San Francisco Bay.