The improvement of the leased property and the undertaking of new construction were obviously the real considerations for the lease. For the rest the terms of the lease carried out the spirit of the Gleaves Act by providing that the lease should terminate and all rights under it should cease if the demised premises, or the lessee corporation, should ever, by or through any corporate act of the latter, become, during the period of the lease, subject directly or indirectly to the control or dominion of any person, company, or corporation having railway terminal facilities on the Bay of San Francisco. Likewise the lease was to terminate if the party of the second part (the railway) should enter into any combination, arrangement, pool, trust, or agreement with any railroad corporation, or individual, having railroad terminal facilities upon, or adjacent to, the water-front of the city of San Francisco, for the purpose of preventing or limiting competition in the business of carrying freight or passengers. This wording permitted merger or agreement between the San Francisco and San Joaquin Valley Railway and the Atchison, Topeka and Santa Fé Railway Company, but not between the former company and the Southern Pacific, and was quite evidently intended to have this effect. In accordance with the terms of the Gleaves Act, the lease was made non-assignable.[483]
Reasons for Consolidation
A very interesting statement issued in October, 1898, by a vice-president of the Valley road, Robert Watts, explains the development of the relations between the Santa Fé and the San Francisco and San Joaquin Valley Railway with what appears to have been considerable frankness. This statement is valuable enough to be quoted at length:
I have said that the Santa Fé Railroad was not consulted upon the organization of the Valley Road. This is strictly true. But it is also true that shortly after we began work that discussions arose among ourselves and the public as to a probable connection with that road, but we were not organized with that object in view. Wherever we have gone in the San Joaquin Valley the people have asked us when we would connect with the Santa Fé road....
For a little time we clung to the belief that we could make a traffic arrangement with the Santa Fé road, and from the day that we saw that connection with that road was inevitable we worked toward that end. We worked to keep the Valley Road in its original form, and give original stockholders a personal interest in the terminus of an overland line. But we found that our stockholders were not all actuated by the same sentiment that actuated the directors and trustees.
When we began to negotiate with the Santa Fé people we found that some of our richest stockholders had sold their stock at 50 cents on the dollar; and when we talked traffic arrangement with the Santa Fé people they showed us that in that way the Southern Pacific people could quietly buy in a control of the stock and could then abrogate their traffic agreement at the conclusion of the trusteeship in less than seven years and leave them no better off than they were.
It was only when we saw that there was absolutely no hope of making the overland connection without a sale of the stock and there was a possibility, if not a danger, that the Southern Pacific Company might obtain control of the stock of the road that we decided to talk with our stockholders and we laid the whole matter before them and told them not to sell their stock at less than par and then the option was taken upon the stock and it will undoubtedly be closed.[484]
This statement of Mr. Watts bears out the conclusion at which we had already arrived, namely, that the promoters of the Valley road appreciated from the first that they must connect their enterprise with some larger system in order to be permanently successful. At the same time the prominent mention of the Santa Fé Railroad in the statement, a railroad system which had neither rails in the San Joaquin Valley nor termini on San Francisco Bay, suggests why the promoters were willing to accept the restrictions imposed by the trust agreement of 1895 and by the China Basin lease.
Transfer of Control