The Railroad Question Part 17

"Here we have no national funded stock in convenient sums for small investment, and which, being sure, is really a great blessing to the ma.s.s of those who wish to invest moderate sums as a protection against age or calamity. In those countries where such opportunities exist, it removes all temptation to invest small sums in these enterprises, which, however necessary for the public, such small owners can but poorly afford to aid in carrying forward, and which consequently should in justice either be guaranteed or owned by the State, or at all events aided by State credit, when they become indispensable for the public convenience."

Upon the subject of eminent domain Redfield says:

"That railways are but improved highways, and are of such public use as to justify the exercise of the right of eminent domain, by the sovereign, in their construction, is now almost universally conceded."

Kent says in his "Commentaries on American Law":

"The right of eminent domain, or inherent sovereign power, gives to the legislature the control of private property for public uses, _and for public uses only_.... So, lands adjoining New York ca.n.a.ls were made liable to be a.s.sumed for the public use, so far as was necessary for the great object of the ca.n.a.ls.... In these and other instances which might be enumerated, the interest of the public is deemed paramount to that of any private individual; and yet, even here, the const.i.tutions of the United States and of most of the States of the Union have imposed a great and valuable check upon the exercise of legislative power, by declaring that private property should not be taken for public use without just compensation.... It undoubtedly must rest, as a general rule, in the wisdom of the legislature to determine when public uses require the a.s.sumption of private property; but if they should take it for a purpose not of a public nature, as if the legislature should take the property of A and give it to B, or if they should vacate a grant of property, or of a franchise, under the pretext of some public use or service, such cases would be gross abuses of their discretion, and fraudulent attacks on private right, and the law would clearly be unconst.i.tutional and void."

Concerning the construction of corporate powers Kent lays down the following rule:

"The modern doctrine is to consider corporations as having such powers as are specifically granted by the act of incorporation, or as are necessary for the purpose of carrying into effect the powers expressly granted, and as having no other. The Supreme Court of the United States declared this obvious doctrine, and it has been repeated in the decisions of the State courts. No rule of law comes with a more reasonable application, considering how lavishly charter privileges have been granted. As corporations are the mere creatures of law, established for special purposes, and derive all their powers from the acts creating them, it is perfectly just and proper that they should be obliged strictly to show their authority for the business they a.s.sume, and be confined in their operations to the mode and manner and subject matter prescribed."

As to the duties of common carriers he says:

"As they hold themselves to the world as common carriers for a reasonable compensation, they a.s.sume to do and are bound to do what is required of them in the course of their employment, if they have the requisite convenience to carry and are offered a reasonable and customary price; and if they refuse without just ground, they are liable to an action."

Judge Cooley, in his very able work, "Const.i.tutional Limitations,"

refers to the so-called vested rights of corporations and the abuse growing out of them as follows:

"It is under the protection of the decision in the Dartmouth College case that the most enormous and threatening powers in our country have been created, some of the great and wealthy corporations actually having greater influence in the country at large, and upon the legislation of the country, than the States to which they owe their corporate existence. Every privilege granted or right conferred--no matter by what means or on what pretense--being made inviolable by the Const.i.tution, the Government is frequently found stripped of its authority in very important particulars, by unwise, careless or corrupt legislation; and a clause of the Federal Const.i.tution whose purpose was to preclude the repudiation of debts and just contracts protects and perpetuates the evil."

The late President Garfield, in one of his legislative speeches, called attention to the fact that Chief Justice Marshall p.r.o.nounced the decision in the Dartmouth College case ten years before the steam railway was born, and then said:

"I have ventured to criticise the judicial application of the Dartmouth College case, and I venture the further opinion that some features of that decision, as applied to the railway and similar corporations, must give way under the new elements which time has added to the problem."

Charles Fisk Beach, Jr., in his recent work ent.i.tled "Commentaries on the Law of Private Corporations," well defines what const.i.tutes dedication to a public use. He says:

"Whenever any person pursues a public calling and sustains such relations to the public that the people must of necessity deal with him, and are under a moral duress to submit to his terms if he is unrestrained by law, then, in order to prevent extortion and an abuse of his position, the price he may charge for his services may be regulated by law. When private property is affected with a public interest it ceases to be _juris privati_ only. This was said by Lord Chief Justice Hale more than three hundred years ago in his treatise _De Portibus Maris_, and has been accepted without objection as an essential element in the law of property ever since."

Treating of the fiduciary position of directors and officers of corporations, the same author says:

"The directors, officers and agents of a corporation are held to the general rule of law resting 'upon our great moral obligation to refrain from placing ourselves in relations which ordinarily excite a conflict between self-interest and integrity.' The directors and officers are the agents of the company, and while acting in that capacity for it cannot deal with themselves to the detriment of the corporation. All contracts of that character are voidable at the option of the corporation."

And further he says:

"A director whose personal interests are adverse to those of the corporation has no right to act as a director. As soon as he finds he has personal interests which are in conflict with those of the company he ought to resign."

T. Carl Spelling, in his treatise on "The Law of Private Corporations,"

says of pooling arrangements:

"Courts long ago exercised jurisdiction to regulate rates of _quasi_ public corporations, and on the same principle will refuse to enforce pooling contracts between railroad and gas companies. Such contracts are void as against public policy.... There is substantial harmony between the English and American definitions of monopoly, the two countries agreeing that contracts entered into by and between two or more corporations, the necessary result of whose performance will crush and destroy compet.i.tion, are illegal."

Upon the subject of eminent domain Mr. Spelling remarks:

"That the legislature may thus select any agency it sees fit for the exercise of eminent domain, and also that it may determine what purposes shall be deemed public, are propositions too deeply rooted in the jurisprudence of this country to admit now of doubt or discussion. Making an application of this doctrine to railway operations, conceding it to be settled that these facilities for travel and commerce are a public necessity, if the legislature, reflecting the public sentiment, decide that the general benefit is better promoted by their construction through individuals or corporations than by the State itself, it would clearly be pressing a const.i.tutional maxim to an absurd extreme if it were to be held that the public necessity should be only provided for in the way which is least consistent with the public interest.... The power of eminent domain being an inherent element of sovereignty, it cannot be divested out of the State or abridged by contract or treaty so as to bind future legislatures. Nor can the right be divested by private contract."

Concerning State control of corporations the same author says:

"The subordination of all private interests to the purposes of government, subject only to the condition that the object to be accomplished shall be one in which the public has an interest, is no longer an open question. In its general bearing this principle is too well settled and uniformly recognized--underlying the adjudications by courts of all cases involving const.i.tutional provisions--to require more than a mere statement."

And again he says:

"Nor is it longer necessary to seek a justification of the common practice of regulating the rates of charges and general management of railroads on the ground that they have received valuable franchises of a public nature and had important powers of sovereign character conferred upon them.

That may be an important political consideration, and as such may strengthen the argument in favor of the right; but the right itself rests upon firmer ground, and upon other considerations than that of pecuniary consideration derived from the State. The State may regulate their business, not because they are corporations, nor yet because they are corporations of a particular kind, but because they, like the individuals of which they are composed, are subject to the laws which say that when one devotes his property to a use in which the public has an interest, he in effect grants to the public an interest in that use, and must submit to be controlled by the public for the common good to the extent of the interest he has thus created."

CHAPTER XI.

RAILROADS AND RAILROAD LEGISLATION IN IOWA.

The first survey for a railroad in the State of Iowa was made in the fall of 1852. The proposed road had its initial point at Davenport and followed a westerly course. It was practically an extension of the Chicago and Rock Island Railroad, which was then being built between Chicago and the Mississippi River. On the 22d day of December, 1852, the Mississippi and Missouri Railroad Company was formed, its object being to build, maintain and operate a railroad from Davenport to Council Bluffs. The articles of a.s.sociation were acknowledged before John F.

Dillon, notary public, and filed for record in the office of the Recorder of Scott County, on the 26th of January, 1853, and in the office of the Secretary of State on the first day of February following.

In 1853 the Mississippi and Missouri Railroad Company entered into an agreement with the Railroad Bridge Company of Illinois for the construction and maintenance of a bridge over the Mississippi at Rock Island. The work was commenced in the fall of that year, and the bridge was completed on April 21, 1856, it being then the only bridge spanning the Mississippi River. The first division of the Mississippi and Missouri Railroad, extending from Davenport to Iowa City, was completed on the first of January, 1856, and was formally opened two days later. A branch line to Muscatine was completed shortly thereafter. On the first day of July the State of Iowa had in all sixty-seven miles of railroad, bonded at $14,925 a mile, which at that time probably represented the total cost of construction. The earnings of these sixty-seven miles of road during the six months following July 1, 1856, amounted to $184,193, or $2,749 per mile, which was equal to an annual income of about $5,500 per mile.

On the 15th of May, 1856, Congress granted to the State of Iowa certain lands for the purpose of "aiding in the construction of railroads from Burlington, on the Mississippi River, to a point on the Missouri River near the mouth of the Platte River; from the city of Davenport, Iowa, by way of Iowa City and Fort Des Moines, to Council Bluffs; from Lyons City northwesterly to a point of intersection with the main line of the Iowa Central Air Line Railroad near Maquoketa, thence on said line running as near as practical to the forty-second parallel across the State; and from the city of Dubuque to the Missouri River near Sioux City." The grant comprised the alternate sections designated by odd numbers and lying within six miles from each of the proposed roads. Provision was also made for indemnity for all lands covered by the grant which were already sold or otherwise disposed of.

The wisdom of the land-grant policy has been questioned. When these grants were made it was believed by many that railroads would not and could not be built in the West without such aid. While others did not share this opinion, they at least supposed that land grants would greatly stimulate railroad enterprise and lead to the early construction of the lines thus favored.

The land grant of the Mississippi and Missouri Railroad was a mere donation for that part of the line which was already completed at the time the grant was made; and the extension of this line, as well as the construction of the other lines to which the grant applied, was not made as fast as had been antic.i.p.ated. The price of all Government lands lying outside of the land-grant belts was $1.25 per acre. To reimburse the public treasury for the loss resulting from these grants, the price of lands situated within the land-grant belts was advanced to $2.50 per acre, practically compelling the purchasers of the even-numbered sections of land, instead of the Government, to make the donation to the railroads, it being supposed that the benefits resulting to those regions from the immediate construction of railroads would correspondingly enhance the value of the alternate sections of land reserved by the Government. Designing men soon saw the advantages which the situation offered. They combined with their friends to organize companies for the construction of the land-grant roads, built a small portion of the proposed line, to hold the grant, and then awaited further developments, or rather the settlement of the country beyond.

There are those who believe that the doubling of the price of Government land within the belt of the proposed land-grant roads greatly r.e.t.a.r.ded immigration and with it the construction of roads. They hold that, had no grant whatever been made to any railroad company and had equal compet.i.tion in railroad construction been permitted, the Iowa through lines, instead of following, would have led, the tide of immigration.

It has been seen that in 1856 the Mississippi and Missouri Railroad was completed as far as Iowa City. On the second day of June of that year its Board of Directors asked the Governor of the State to convene the General a.s.sembly in extra session, to consider the disposition which should be made of the recent Congressional grant. This urgency might lead one to suppose that the company was anxious to extend its line at the earliest opportunity. The General a.s.sembly was convened, and the land given to the State by Congress for the purpose of aiding in the construction of a railroad from Davenport to Council Bluffs was given to the Mississippi and Missouri Railroad Company. The act was approved by the Governor on July 14, 1856, and three days later the company "a.s.sented to and accepted the grant." It then executed mortgage after mortgage, and built a branch line through quite a populous territory, from Muscatine to Was.h.i.+ngton, but the main line made very slow progress.

In 1865 the bonded debt of the company amounted to $6,851,754, although the line was completed only to Kellogg, in Jasper County, about forty miles east of Des Moines. In spite of the fact that the cost of operating the road had from the beginning varied but little from 60 per cent. of its gross receipts, its president, in a circular letter to the stock-and bondholders, dated October 20th, 1865, made the statement that the company was "driven to the necessity of selling the road or reorganizing." In 1866 suit was brought in the Circuit Court of the United States for the District of Iowa for the foreclosure of the company's mortgages, and a decree of foreclosure was entered on the 11th day of May of that year. The property was sold on the 9th day of July following at Davenport, and was purchased by the Chicago, Rock Island and Pacific Railroad Company, which was incorporated in this State a few weeks previous to the sale, for the purpose of acquiring the railroads built by the Mississippi and Missouri Railroad Company with all its appurtenant property, "and all the rights, privileges and franchises granted by the act of Congress of May 15th, 1856, to the State of Iowa, and by the State of Iowa granted to the said Mississippi and Missouri Railroad Company, and when so acquired to maintain and operate the said railroad." It is a significant fact that all the corporators of the new company, except one, were directors of the bankrupt company. On the 20th of August, 1866, the Chicago, Rock Island and Pacific Company of the State of Iowa consolidated with the Chicago, Rock Island and Pacific Railroad Company of Illinois, and conveyed all its property, powers and franchises to the consolidated company. The validity of the consolidation was questioned by a large number of stock-and bondholders, and the courts were appealed to to issue injunctions restraining the consolidated company from extending its line or expending any money obtained through the sale of its securities. In this predicament the company turned to the Iowa legislature for protection. Anxious to secure the early completion of the road, the Twelfth General a.s.sembly, by an act approved February 11th, 1868, recognized the consolidated company, and resumed and granted to it "all right or interest" which the State had in the lands previously granted to the Mississippi and Missouri Railroad Company. The act expressly provided, however, that the Chicago, Rock Island and Pacific Railway Company should "at all times be subject to such rules, regulations and rates of tariff for transportation of freight and pa.s.sengers as may from time to time be enacted and provided for by the General a.s.sembly of the State of Iowa," and that if the company should neglect to comply with any of the requirements of the act, it should forfeit to the State all its franchises and corporate rights acquired by or under the laws of the State, and all lands granted to aid in the construction of its road. The line was completed to Council Bluffs in June, 1869.

The lands in aid of the construction of a railroad running across the State, as nearly as practicable along the forty-second parallel, were granted by the General a.s.sembly to the Iowa Central Air Line on the 14th of July, 1856, but as this company failed to fulfill the conditions of its grant, it was, on the 17th of March, 1860, transferred to the Cedar Rapids and Missouri River Railroad Company. This company completed the road to Marshalltown in 1862, to Nevada in 1864, to Boone in 1865, and to Council Bluffs in the fall of 1867.

The Burlington and Missouri River road reached the Missouri River but a few months later. Ten years after this company had received its grant, its line had only been completed as far as Albia, in Monroe County. In 1867 the road was built little more than half across the State. But it managed not to be far behind its two rivals on the north in reaching the Missouri River.

At first sight it might seem as if these companies had all at once become awake to their obligations. When it is remembered, however, that in 1869 the junction of the Union Pacific and Central Pacific railroads was effected, and thus a continuous line across the continent formed, the conclusion lies near that the haste with which the three Iowa land-grant roads were completed was simply the result of a strife for the large amount of through business which the completion of the Pacific route promised to bring to them.

No such inducement existed for the Dubuque and Sioux City Company, and twelve years after receiving its grant it had not yet built half of its line. In his message to the Twelfth General a.s.sembly, delivered January 14, 1868, Governor Stone said: "Under the provisions of the act adopted by the General a.s.sembly, at its extra session (in July, 1856), this (the Dubuque and Sioux City) company became the beneficiary of the grant designed to secure the construction of a railroad leading from Dubuque to Sioux City, and this valuable donation was accepted from the State, with all the terms and conditions imposed. A large portion of this grant has already been absorbed by the company, in various ways, by pretended sales and inc.u.mbrances. This road has been constructed to Iowa Falls, a distance of 143 miles from Dubuque, but I am unable to discover any reliable evidence of earnest intention on the part of this company to construct the line to its terminal point on the Missouri River."

The Governor further recommended that the General a.s.sembly pa.s.s an act resuming the control over these lands. At about the same time an agreement was effected between the Iowa Falls and Sioux City Railroad Company (which was organized in the fall of 1867) and the Dubuque and Sioux City Railroad Company, by which the latter transferred to the former its land grant for the unfinished portion of the Dubuque and Sioux City road. This agreement was confirmed by the General a.s.sembly, through an act approved April 7, 1868. The road was completed to Fort Dodge in August, 1869, and to Sioux City a year or two later. The entire line was then leased to the Illinois Central.

The land grant to this line of road embraced over 1,000,000 acres of the finest lands of the State. We can appreciate the magnitude of this donation when we consider that, had these lands been sold at only $8 per acre, the proceeds would have paid the whole expense of building and equipping the road from Dubuque to Sioux City. The lands granted to the C., R. I. & P. R. R. were sold at an average price of over $8 per acre, and those of the B. & M. at over $12 per acre.

Among the other important land grants is that made to the McGregor Western Railroad Company. This company was the successor of the McGregor, St. Peters and Missouri River Railroad Company, which was organized in 1857 for the purpose of constructing a railroad from McGregor to the Missouri River. The construction of the road was commenced in 1857 at McGregor. Large local subscriptions were taken along the proposed line, the writer being one of the subscribers. Work was continued the next year until much of the heavy grading had been done, when the road was allowed to go through the process of foreclosure, like many other roads built in the West at that time. The old stock was completely wiped out, and new owners came into possession of the property, reorganizing under the name of the McGregor Western Railway Company. Nearly all the early investments of Iowa people were thus confiscated by the same cla.s.s of men who now cry out loudly against confiscatory measures. By an act of Congress approved May 12, 1864, the State of Iowa was granted, for the use and benefit of the McGregor Western Railroad Company, every alternate section of land designated by odd numbers for ten sections in width on each side of the proposed road.

The act contained the condition that in the event of the failure of said McGregor Western Railroad Company to build twenty miles of said road during each and every year from the date of its acceptance of the grant the State might resume the grant and so dispose of it as to secure the completion of the road in question. The McGregor Western Railroad Company failing to comply with the conditions of the grant, the General a.s.sembly on the 27th day of February, 1868, resumed the lands and on the 31st day of March of the same year regranted them to the McGregor and Sioux City Railway Company. The act specially provided that the company accepting the grant "shall at all times be subject to such rules, regulations and rates of tariff for the transportation of freight and pa.s.sengers as may from time to time be enacted and provided for by the General a.s.sembly of the State of Iowa, and further subject to the conditions, limitations, restrictions and provisions contained in this act and in the acts of Congress granting said lands to the State of Iowa." It also contained the condition that at least twenty miles of road should be built by the company every year and that the whole road should be completed to the intersection of the then proposed railway from Sioux City to the Minnesota State line by the first day of December, 1875.

The McGregor and Sioux City Railway Company also failing to comply with the terms of the grant, the lands were again resumed by the General a.s.sembly on March 15th, 1876, and regranted to the McGregor and Missouri River Railroad Company upon the condition that it complete the road to the intersection of the Sioux City and St. Paul Railroad on or before the first day of December, 1877.

But the State found itself again disappointed, and two years later the General a.s.sembly for the third and last time resumed its grant and then conferred it upon the Chicago, Milwaukee and St. Paul Railway Company upon the express conditions that it complete the road to Spencer on or before the first day of January, 1879, and to Sheldon within a year thereafter, and that the road should at all times be subject to State control. The road was completed to Sheldon without delay, and on the 30th of November, 1878, the Governor of the State certified to the Secretary of the Interior that the Chicago, Milwaukee and St. Paul Railway Company had completed its road from Algona to Sheldon in compliance with the conditions of the original grant and the laws of the State.

It thus took over twenty years to complete this road. Ten years after its construction had commenced it had only reached Calmar in Winnes.h.i.+ek County. In 1869 the road was completed to Clear Lake and in 1870 to Algona. This point remained its terminus until it pa.s.sed into the hands of the Chicago, Milwaukee and St. Paul Railway Company.