A Compilation of the Messages and Papers of the Presidents. Volume 8, part 3: Grover Cleveland, First Term

by Grover Cleveland

When the relations created between the Government and these companies by the legislation referred to is considered, it is astonishing that the claim should be made that the directors of these roads owed no duty except to themselves in their construction; that they need regard no interests but their own, and that they were justified in contracting with themselves and making such bargains as resulted in conveying to their pockets all the assets of the companies. As a lienor the Government was vitally interested in the amount of the mortgage to which its security had been subordinated, and it had the right to insist that none of the bonds secured by this prior mortgage should be issued fraudulently or for the purpose of division among these stockholders without consideration.

The doctrine of complete independence on the part of the directors of these companies and their freedom from any obligation to care for other interests than their own in the construction of these roads seems to have developed the natural consequences of its application, portrayed as follows in the majority report of the commissioners:

The result is that those who have controlled and directed the construction and development of these companies have become possessed of their surplus assets through issues of bonds, stocks, and payment of dividends voted by themselves, while the great creditor, the United States, finds itself substantially without adequate security for the repayment of its loans.

The laws enacted in aid of these roads, while they illustrated a profuse liberality and a generous surrender of the Government's advantages, which it is hoped experience has corrected, were nevertheless passed upon the theory that the roads should be constructed according to the common rules of business, fairness, and duty, and that their value and their ability to pay their debts should not be impaired by unfair manipulations; and when the Government subordinated its lien to another it was in the expectation that the prior lien would represent in its amount only such bonds as should be necessarily issued by the companies for the construction of their roads at fair prices, agreed upon in an honest way between real and substantial parties. For the purpose of saving or improving the security afforded by its junior lien the Government should have the right now to purge this paramount lien of all that is fraudulent, fictitious, or unconscionable. If the transfer to innocent hands of bonds of this character secured by such first mortgage prevents their cancellation, it might be well to seek a remedy against those who issued and transferred them. If legislation is needed to secure such a remedy, the Congress can readily supply it.

I desire to call attention also to the fact that if all that was to be done on the part of the Government to fully vest in these companies the grants and advantages contemplated by the acts passed in their interest has not yet been perfected, and if the failure of such companies to perform in good faith their part of the contract justifies such a course, the power rests with the Congress to withhold further performance on the part of the Government. If donated lands are not yet granted to these companies, and if their violation of contract and of duty are such as in justice and morals forfeit their rights to such lands, Congressional action should intervene to prevent further consummation. Executive power must be exercised according to existing laws, and Executive discretion is probably not broad enough to reach such difficulties.

The California and Oregon Railroad is now a part of the Central Pacific system, and is a land-grant road. Its construction has been carried on with the same features and incidents which have characterized the other constructions of this system, as is made apparent on pages 78, 79, and 80 of the report of the majority of the commissioners. I have in my hands for approval the report of the commissioners appointed to examine two completed sections of this road. Upon such approval the company or the Central Pacific Company will be entitled to patents for a large quantity of public lands. I especially commend to the attention of Congress this condition of affairs, in order that it may determine whether or not it should intervene to save these lands for settlers, if such a course is justifiable.

It is quite time that the troublesome complications surrounding this entire subject, which has been transmitted to us as a legacy from former days, should be adjusted and settled.

No one, I think, expects that these railroad companies will be able to pay their immense indebtedness to the Government at its maturity.

Any proceeding or arrangement that would result now, or at any other time, in putting these roads, or any portion of them, in the possession and control of the Government is, in my opinion, to be rejected, certainly as long as there is the least chance for indemnification through any other means.

I suppose we are hardly justified in indulging the irritation and indignation naturally arising from a contemplation of malfeasance to such an extent as to lead to the useless destruction of these roads or loss of the advances made by the Government. I believe that our efforts should be in a more practical direction, and should tend, with no condonation of wrongdoing, to the collection by the Government, on behalf of the people, of the public money now in jeopardy.