USA > Colorado > History of the State of Colorado, Volume II > Part 34
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WHEREAS, Congress did provide in the act of July Ist, 1862, being an act entitled "An act to aid in the construction of a railroad and telegraph line from the Missouri River to the Pacific Ocean;" and also by the subsequent acts of July 2d, 1864, March 3d, 1869, and June 20th, 1874, amendatory thereof, that said road and branches should
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be operated and used for all purposes of communication, travel and transportation, so far as the public and government are concerned, as one connected and continuous line without discrimination of any kind in favor of the business of any or either of said companies, or adverse to the road or business of any or either of the others, and upon such basis and contract with the said railroad company and its branches did grant to the Union Pacific Railroad company and branch companies large subsidies in bonds and lands of the United States, all for the purpose of aiding in the construction of said roads to be operated as aforesaid; and
WHEREAS, It is alleged that the said Union Pacific Railroad company and its branch companies, being the Kansas Pacific, the Denver Pacific, the Central Pacific of California, the Burlington and Missouri River company, and the Sioux City branch, have heretofore neglected, and still do neglect and refuse to operate their roads in accordance with said acts of Congress, but have heretofore operated, and still do operate them in open violation of the same; and
WHEREAS, It is alleged, that by reason of said defaults and on account of the same, the government of the United States and the public have been, and are still being damaged and deprived of their just and lawful rights and privileges as stipu- lated, defined and agreed upon in said acts; therefore, be it
Resolved, That the President of the United States be and he is hereby requested to inform the Senate what legal impediments, if any, exist which prevent him from executing said laws in accordance with the obligations accepted, and agreements made by said Union Pacific Railroad company and branches with the United States, as stipulated and agreed upon in the several acts aforesaid.
The speech and resolution, and the attention attracted to the subject, together with Chaffee's well known energy in fighting out his battles, spread consternation among the Union Pacific syndicates, and at once brought the new Senator into great prominence. Poppleton, the attorney of the railway company, apprehending the effect, tele- graphed from Omaha to have action upon Chaffee's resolution post- poned for a short time, pending a decision upon the points in con- troversy by Judge Dillon. The Senators from Nebraska offered substitutes, both modifying, and, in effect, destroying the principal points raised by Mr. Chaffee. Senator Thurman of Ohio became the leading champion of the original resolution, and made a lengthy argu- ment in its support, claiming that Congress had a right under the power of its acts to make the Union Pacific pro rate with every road that
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tapped it, no matter by what authority it was built. He qucted and analyzed the laws, especially that of 1874, which declared that the Denver Pacific should be considered a part of the Kansas branch, and made it a penal offence for the officers of the Union Pacific not to treat it as a branch, giving the injured party the right to bring an action in the courts for damages in case of such refusal. He believed in com- pelling the Pacific road by all the power of the government, if need be, to pro rate with the Kansas line, and to acknowledge it as a branch road.
The resolution went to the President, who referred it to the Sec- retary of the Interior, and he to the Attorney General, to examine and report the facts and the law on the subject. By the force of these pro- ceedings it became manifest that the Union Pacific would be compelled to obey the law. Toward the last of December, 1877, orders were issued to cease charging prohibitory rates east and west of Cheyenne, and return to reasonable tariffs. On the 14th of April, 1878, Mr. Chaffee made another speech on the Pacific Railroad bill, exposing still further, the ruinous effects of the discriminations practiced on local traffic.
At the election of directors for the Kansas Pacific held at Lawrence, May 2d, 1878, Dillon, Ames and Gould were chosen, which indicated that a compromise had been reached, and also an early consolidation of the roads. Soon afterward the Kit Carson branch to West Las Animas was sold at public auction, and the rails taken up. On the 22d of October, Sylvester T. Smith was appointed receiver of the Kansas Pacific by Judge Foster. Mr. Smith had been connected with it from its inception, most of the time as auditor. Under his management the road was practically rebuilt and put in good order.
March 7th, 1879, the Union Pacific assumed control, and Smith was discharged as receiver, June 4th. The manner in which Gould and his confederates obtained possession is thus defined by the report of the railway commissioners heretofore referred to. In 1877, the com- pany being in desperate straits, and to prevent a foreclosure, issued a funding mortgage amounting to $1,500,000, to pay its defaulted coupons. Denver Pacific stock amounting to 29,979 shares, was trans-
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ferred with other securities, to the trustees of that mortgage. At this time the securities of the road were selling at very low prices. The company was badly involved in debt, and engaged in an expensive war with the Union Pacific in its efforts to compel a pro rate, therefore, Gould and his associates, having undoubtedly conceived a scheme for the absorption of the property at a mere nominal cost, began to purchase these securities in a quiet way. In this manner several million dollars worth of the stock, income bonds, Denver extension bonds, funding bonds, etc., etc., were collected. Their scheme being perfected in 1878, they began preparations for the reorganization of the Kansas Pacific and Denver Pacific companies on this plan :
A committee was to be formed to hold the securities of the com- pany which should be delivered to it at certain agreed rates for the stock, and different classes of bonds. The interests of the various parties in this pool, which were represented by the reduced figures of the par value of their securities, multiplied by the agreed factor for reduction, were to be liquidated by the issue of new stock, dollar for dollar, in such amounts as to equal the reduced values. The scheme applied to all the stock and securities of the company except the debt to the government, and the first mortgage bonds, which equaled it in amount, and the Denver extension bonds. The effect of this agree- ment was to reduce a total of stock and bonds amounting to $17,330,350 to the sum of $4,855,300.
Reorganized upon this basis, the Kansas Pacific company would have had a bonded indebtedness of $18,848,000 representing the first mortgage bonds and the government lien, and $4,855,300 of stock. In 1879 Gould bought out the St. Louis parties, which gave him control of the road. Dillon was made president and a general change of officers occurred. Immediately afterward the scheme for the reduction of the Kansas Pacific securities was dropped and another substituted, whereby it was proposed to retire the outstanding securities and defaulted coupons by means of a general consolidated mortgage, under which the outstanding bonds and coupons were to be commuted at the same rates
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as in the agreement of April 24th, 1878. No provision was made for the stock. Meanwhile, Gould had sold out the larger part of his Union Pacific stock. The consolidation of the two roads took place a short time after.
Gould managed the Denver Pacific stock in the following manner : This stock was held, as already mentioned, by the trustees of the funding mortgage used to extricate the Kansas Pacific from its financial difficulties. After the substitution of the consolidated mort- gage of May, 1879, the funding bonds all held by Gould and his partners were converted under the terms of that mortgage, and the 29,979 shares of Denver Pacific were assigned to the trustees of the consolidated mortgage.
This exceedingly ingenious project did not reach fruition, however, owing to a breach between Gould and his Boston associates, in regard to terms. Gould, to revenge himself upon them, and to demonstrate to their beclouded minds the magnificent sweep of his genius and power, took the first train for Kansas, and in a few days purchased the Missouri Pacific road from St. Louis to Kansas City, paying $3,000,000 therefor ; also a controlling interest in the Kansas Central, the Central Branch of the Union Pacific from Atchison about fifty miles north of the Kansas Pacific, and westerly on a parallel with the Kansas Pacific for one hun- dred miles. This interest also included the control of five small branch roads connecting with the Central branch. He already controlled the Kansas Pacific. His plan was to construct a Pacific railroad from St. Louis to the Pacific Ocean, by extending the Kansas Pacific through the Loveland Pass above Georgetown to Salt Lake, and thence to San Francisco by a traffic arrangement with the Central Pacific, with the ultimate design of wrecking the Union Pacific, which effect he was con- fident would be produced. Having with wonderful celerity and force accomplished his principal aims, he gave the entire scheme to the public in the most ostentatious manner possible. Say the commissioners, "Its effect on the Boston directors, were it not for the magnitude of the interests involved, would appear almost ludicrous. They appear to
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have been, one and all, terror-stricken." At all events, they came speedily, and, it would seem, abjectly humble to the terms proposed by Gould for the act of consolidation. They were compelled to accept Kansas Pacific stock as manipulated by him, as the equal, dollar for dollar, of the Union Pacific stock. He was master absolute of the situ- ation, and made his arrangements with full knowledge of his power to do as he pleased with the rebellious directors. The agreement when drawn, was promptly signed.
"A singular feature of this extraordinary transaction," says the report, "is that a small percentage of all the bonds and stocks of these . branch lines had been taken from Mr. Gould by all the parties to this agreement at the same prices which he himself had paid. The result was, that when he had terrified them into submission to the general terms of the consolidation, and the minor subject arose of fixing the terms on which he should dispose of branch lines and connections (pur- chased by him at extravagant rates with the intention of effecting his transcontinental scheme, but which, after the consolidation he no longer desired to hold) he had so arranged their personal interests, that when the adjustment of these terms became a matter of discussion, all of these trustees and directors had been placed in such a position that a concession of good terms to Mr. Gould himself would automatically result in a large profit to the other directors agreeing to the terms proposed."
The ultimate effect of this agreement was to make the Union Pacific company assume all the stock of the Kansas Pacific and the Denver Pacific, and "all of their bonded debt and obligations of every nature." He conceived and executed the ingenious device whereby "the intended consolidated company was provided with stock for the purpose of paying to Mr. Gould and his associates the agreed prices for the branch lines' securities. The agreement contained the following clause : The Denver Pacific capital, now an asset of the Kansas Pacific, to be used after conversion into Union Pacific railway stock, to pay for
J. B . Crocker
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shares and bonds of St. Joseph and Western railroad company, and St. Joseph bridge, as hereafter stated, and for other purposes.
"This stock had no value whatever, except as controlling the con- nection between Denver and Cheyenne. It was held by Jay Gould and Russell Sage as trustees of the Kansas Pacific consolidated mortgage, for the protection of the bonds issued under that mortgage. It would certainly have puzzled a convention of lawyers to have devised a method by which this stock, so held on the 14th of January, 1880, could have been applied within ten days thereafter to the purposes intended by the agreement quoted, and yet this extraordinary feat was performed. A suit was manufactured, in which the Kansas Pacific Railroad company was made the plaintiff, and Jay Gould and Russell Sage the defendants, and the entire machinery of complaint, answer, trial, decree and exe- cution was carried to a finish by the 23d day of the same month."
Gould held in addition 10,000 shares of stock, bought for ten cents on the dollar from the commissioners of Arapahoe County, which he delivered to the Kansas Pacific company at the cost price. All the Denver Pacific stock acquired as above, was put into the trust, and the consolidation took place on the 24th of January, 1880. It increased the stock of the Union Pacific from $36,668,000 to $50,668,000, and the bonded indebtedness from $88,471,285.23 to $126,818,046.09, and the miscellaneous indebtedness from $4,072,854 to $9,677,018.
The scheme set forth above, was regarded as scarcely less than infamous by certain of the original stock and bondholders, and while several attempts were made to bring the perpetrators to justice, they resulted in failure. Certain extensions and branch lines being necessary under this arrangement, new stock to the amount of $10,000,000 was issued, the Julesburg line built, and the South Park pushed to com- pletion and subsequently absorbed (November, 1880), when the whole was transferred by Gould to the Union Pacific, thereby greatly increasing its burdens. In 1883 this wily operator closed out his con- nection with the Union Pacific by a characteristic device of unloading at large profits to himself and his partner, Mr. Sage, and subsequently
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acquired the southwestern system of roads to which he now holds. From this time forward the Union Pacific has been engaged in an incessant struggle with debt and aggressive competition, and has many times been near the verge of bankruptcy.
On the 2d of April, 1878, Judge Hallett appointed George W. Clayton and D. M. Edgerton receivers of the Denver Pacific Railroad and telegraph companies, at the suit of the commissioners of Arapahoe County. The board, as stated elsewhere, became alarmed lest the violent contentions and rivalries existing between the Kansas Pacific and the Union Pacific companies, in which the Colorado Central became an important agent of destruction to the business of the Denver road, should destroy it altogether. Hence, the commissioners determined to place the property in which the people held a large interest, under the pro- tection of the federal court. Mr. Clayton was one of the wealthiest and most reputable of our citizens. Mr. Edgerton was then president of the Kansas Pacific.
On the 10th of August, 1869, the. Denver Pacific company had executed a mortgage to J. E. Thompson, Adolphus Meier and John Evans, covering all its property, including the land grant. As already defined, the Kansas Pacific secured the control, and in its management virtually destroyed it. On the 6th of January following, Judge Hallett discharged receiver Edgerton, but retained Mr. Clayton, to whom full charge under orders of the court was given. At the annual meeting of the stockholders of the company held May 5th, 1879, the following directors were chosen : Jay Gould, John D. Perry, C. S. Greeley, Sidney Dillon, D. H. Moffat, W. S. Cheesman, Freeman B. Crocker, John P. Devereaux and D. M. Edgerton. The latter was elected President, D. H. Moffat Vice-President and Treasurer, R. R. McCormick Sec- retary. The reader need not be told the effect of this introduction of Gould and Dillon, and others, after what has been related. It meant the absorption by the Union Pacific of the road in question, to be used as might suit them to use it. On the 27th of May, 1879, Gould came out to inspect the South Park road, then completed to Kenosha Hill.
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and thereafter became an important factor in that enterprise also. On the 16th of July, Justice Miller rendered a decision in the Denver Pacific suit, discharging receiver Clayton, and turning the property over to Messrs. Evans and Dulman, trustees for the bondholders. In August, Gould purchased a majority of the first mortgage bonds of the road, and assumed control September 29th, 1879. On the 28th of October, Gould purchased, through W. S. Cheesman, the stock held by Arapahoe County, in the Denver Pacific and South Park roads. The board of commissioners, after a full and definite understanding with Mr. Chees- man, agreed to sell to Gould and the Denver & South Park Construction company, the stock held by the county in both roads, at ten per cent. of par value for the Denver Pacific, and fifty per cent. of par value for the South Park, subject to ratification by a vote of the people at an election to be called for the purpose, which was subsequently accomplished December 2d, 1879. Gould accepting the terms, the road fell into his hands, and afterward became a part of the Union Pacific, Omaha Short line. The stock was transferred by Freeman B. Crocker, chairman of the board, and the proceeds, $250,000, invested in four per cent. United States bonds, for the benefit of the county.
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CHAPTER XIX.
THE COLORADO CENTRAL RAILROAD- LOVELAND SEIZES THE ROAD AND SUCCESSFULLY HOLDS IT-HOW IT WAS ACCOMPLISHED-DESTRUCTIVE STORMS AND FLOODS- D. H. MOFFAT APPOINTED RECEIVER-FORCIBLE ABDUCTION OF JUDGE STONE- CARRIED INTO THE MOUNTAINS BY MASKED MEN-ALARMING RUMORS-TROOPS CALLED OUT-MOFFAT'S NARROW ESCAPE-STONE'S EXPERIENCE WITH HIS CAP- TORS-EXTENSION OF THE ROAD TO FORT COLLINS AND CHEYENNE.
In 1863, W. A. H. Loveland and E. B. Smith of Golden, resolved to construct a wagon road in the direction of the gold mines of Gilpin County, via the Cañon of Vasquez Fork, or Clear Creek. After an expenditure of about fifty thousand dollars, which well nigh exhausted their resources, it was completed to the foot of Guy Gulch, about six miles from Golden. From the time of his first location at Golden, Mr. Loveland had kept constantly in mind the importance and the feasibility of an iron road to the mines by this route, and he clung to the idea with unfaltering tenacity. He went before the legislature of 1865, of which he was a member, and secured a charter, the incorporators named in the bill being Henry M. Teller, John T. Lynch, John A. Nye, W. A. H. Loveland, Thomas Mason, A. Gilbert, Milo Lee and Enos K. Baxter, of Colorado, with the names of several capitalists residing in eastern cities. This charter has been quite fully defined in the first volume of this history, and need not be repeated here. In the summer of 1865, Edward L. Berthoud made a careful survey of the route, Mr. Loveland bearing the cost. The road was first intended to be of standard gauge, as very little was then known of any other gauge, but when the estimates were formulated, it was found that the expense would be too great unless it could be made a part of the Pacific Railway, then being actively con-
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sidered. In January, 1866, Berthoud suggested the feasibility of a narrow gauge road, and it was taken under advisement, though nothing further transpired until the Pacific surveys approached the Rocky Mountains, when its practicability was again brought forward. On the roth of April, 1870, Berthoud located and staked the present mountain division of the Colorado Central. In September, 1871, the Union Pacific interest in Colorado contemplated a connection with the trans- continental line at Pine Bluffs, 134 miles east. It was discussed for a year or so, and then abandoned for a better line to Julesburg. Grading upon the line was commenced in September, 1872, and completed to Longmont, April 17th, 1873, when it was stopped by the disastrous financial panic of that year.
Reverting back to the completion of the first division of the Col- orado Central, from Golden to Denver, in 1870, it may be stated that, owing to the great hostility of the projectors to Denver, they refused to enter the latter place by a direct line, hence they built to the mouth of Clear Creek, whence their trains were switched in over the rails of the Denver Pacific, an awkward, inconvenient and expensive arrangement. After some years of operation in this manner, the company, toward the last of October, 1874, decided to change to a more direct route, the survey for which left the original line near Mr. Yule's house, three and a half miles nearly due northwest of the old Rio Grande depot, near which its new station was afterward established. The correction of this error saved the company about two miles of distance, and rendered it wholly independent of the Denver Pacific.
We now take up an important chapter of history. For some time in 1875 there had been reports of negotiations on the part of the Kansas Pacific, for the purchase of a controlling interest in, and a consolidation of the Colorado Central with that road. Such negotiations were brought forward at a meeting of the directors held in Golden, December 8th, 1875, at which President Teller offered a resolution to the effect that the company accept the proposition of Robert E. Carr to purchase the stock of the said company held by residents of Colorado, at twenty per cent.
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of their par value, payable in the bonds of Boulder and Gilpin Counties at par, and it was adopted. Mr. Teller then submitted another reso- lution, ratifying an agreement made between the Kansas Pacific and Union Pacific Railroads, April 23d, 1875, to consolidate the Colorado Central with the Kansas Pacific, and this also was adopted. This was the first intimation Mr. Loveland had received in distinct form of the purpose to carry out the proposed consolidation, but it being a director's meeting which he could not control, he simply acquiesced for the present and bided his time.
The movement coming to the knowledge of the citizens of Boulder County, they rose up in rebellion against the arrangement, refusing to surrender the stock which that county held in exchange for the bonds it had issued. They had made searching inquiry into the financial affairs of the company, and found reason to believe that its stock had no value whatever. They averred also, that the Colorado Central company had neglected to fulfill the terms of its contract, made when the bonds were voted. Matters ran along for some time without further difficulty of sufficient importance to be recited here.
On the 18th of May, 1876, the stockholders held a meeting at Golden for the election of directors, and such other business as might come before them. At this meeting some rather extraordinary pro- ceedings were had. While the representatives of the stock were entirely harmonious, no clouds appearing upon the surface of their deliberations, which were quietly conducted, the result of their secretly pre-arranged programme proved very disastrous to the majority interest held by E. W. Rollins for the Union Pacific. It was, in the first instance, an absolute rejection by the three counties of Gilpin, Jefferson and Boulder of the agreement of consolidation, which had been adopted by the directors in December, 1875, and the substitution of an entirely different scheme, involving an entire change of management and control. The record of the proceedings showed that the meeting was held pursuant to call of President Teller. He being absent, Mr. W. A. H. Loveland was called to the chair. For the election of directors for the ensuing year,
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Messrs. John C. Hummel, E. L. Berthoud and Oren H. Henry were chosen inspectors of the vote. The shares and proxies were turned over to them and a recess taken to afford them opportunity to examine and report upon the same. Having performed their duties, and the stock- holders having cast their ballots for eleven directors, the inspectors, after canvassing the same, presented their report in writing.
Mr. E. H. Rollins, treasurer of the Union Pacific company, had sent a proxy to E. W. Rollins, his son, who was treasurer of the Colorado Central, to vote 7,200 shares of the stock of the company. This proxy was declared by the inspectors to be illegal and void, therefore it was thrown out, as also another proxy issued by Mr. J. W. Gannett. The canvass of the vote made under these conditions gave the following directors for the ensuing year: Joseph A. Thatcher, Thomas I. Rich- man, Oren H. Henry, John C. Hummel, Edward L. Berthoud, Wm. A. H. Loveland, Charles C. Welch, Gilbert N. Belcher, John H. Wells, John Turck, and Oliver Ames, the latter being the only Union Pacific representative chosen.
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