The change from a 50-cent to a 30-cent valuation was made ostensibly because Crocker and Company could not realize more than 30 cents on the stock which they were receiving. As a matter of fact, Crocker could not sell Central Pacific stock at any price, so that the alteration of the contract merely increased his chance for a speculative gain, to be realized after construction should have been completed. Mr. Stanford has said that the directors did not care very much what the prices were, so long as the work was done. Under the contract, the Central Pacific Railroad itself, through Mr. Huntington, purchased locomotives and cars for Crocker and Company, and charged for them at cost.[109] Bonds were also sent from San Francisco to Huntington, but it was Huntington’s impression that they were sold for the company, not for the contractors. In any case, Huntington rendered an account every month of what he had done, and Hopkins settled with the company or with the contractors, as the case might be.[110] Describing the situation at a later date, Crocker said, “It was decided that I should go on immediately and see what I could do. I did go on until we got tied up in suits and I had to stop. I could not get any money. They had all the money I had, and all I could borrow. That was the time that I would have been very glad to take a clean shirt, lose all I had, and quit.”
The total payments made to Charles Crocker or to Charles Crocker and Company, under the various arrangements just described, were as follows:[111]
Total Amount Paid Charles Crocker and Company on His Contract and for Extra Work
| Cash, or its equivalent, including material furnished him | $8,853,117.93 |
| Bonds, taken at par | 100,000.00 |
| Stock, taken at 50 cents on the dollar | 2,696,200.00 |
| Stock, taken at 30 cents on the dollar | 11,947,530.00 |
| Stock, taken at par value | 57,980.22 |
| —————— | |
| Total | $23,654,828.15 |
| ═════════ | |
If we take the cash payments at par and the bonds at 75, this would make the tidy sum of $69,210 per mile on 129 miles. When we bear in mind that Crocker accepted the contract for the first 18 miles out of Sacramento at a price including a cash payment of only $13,800 per mile, and that the arrangements with the small contractors who followed him were distinctly less favorable, it is possible to say with some confidence that the profits on the Crocker contracts were considerable. Whatever they were, Mr. Crocker shared them with his associates by depositing at a later date $14,000,000 in Central Pacific stock in the treasury of the Contract and Finance Company, (discussed in the next section) for the benefit of the stockholders of that organization. Inasmuch as Stanford was one of the principal stockholders in the Contract and Finance Company, his later categorical denial before the United States Pacific Railway Commission that he had participated in the profits of the Crocker contracts makes interesting reading.[112]
“Contract and Finance Company”
When the Central Pacific approached the state line of California in the latter part of 1867, the associates told Mr. Crocker that they did not think it best for him to go any further. They said they wanted more capital—they wanted to engage heavy men in the enterprise.[113] Crocker had not been successful in persuading capitalists to go in with him, while it was believed that investors were deterred from taking stock in the Central Pacific by reason of the liability which would be thereby incurred under California law. Either Huntington or Stanford—both claim the credit—conceived the idea that there would be an advantage in organizing a corporation to undertake the construction work. The subject was mentioned on the occasion of one of Huntington’s visits to California, although the company was formed while Huntington was in the East.[114] The name finally decided upon for the new corporation was that of “Contract and Finance Company.” Articles of association were filed in October, 1867. W. E. Brown, Theodore J. Milliken, and B. R. Crocker attended to the details. Milliken was a merchant in Sacramento, and the other two were connected with the Central Pacific.
According to its articles of incorporation, the Contract and Finance Company was formed for the purpose of engaging in and carrying on the business of constructing, purchasing, leasing, selling, holding, maintaining, operating, and repairing railroads, wagon and transit roads, steamboats, vessels, telegraph lines, and rolling stock of railroads; the purchasing, holding, hypothecating, and selling of bonds and stocks issued by railroad and other companies or corporations; the purchasing and using of iron and other materials for railroad and telegraph lines; the borrowing and loaning of money; the conducting of an express and stage business, and any and all other kinds of business connected with or pertaining to railroads and telegraph lines; the transportation of persons and property, on land and water; and the purchasing, holding, leasing, and selling of real estate of all kinds. The capital stock was set at $5,000,000.
Failure to Attract Outside Capital
It is the unanimous testimony of the associates that the real and only reason for forming the Contract and Finance Company was that outside capital might be induced to come in. Huntington says that when the company was organized, he went with new energy to capitalists in the East to induce them to take a share in the risks and profits of construction. Yet from the point of view of attracting outside capital, the Contract and Finance Company was a complete failure. William and Commodore Garrison, of New York, A. A. Selover, Moses Taylor, and William E. Dodge, among others, considered the matter, but all concluded that the risk was too great. In California, Stanford applied to D. O. Mills, W. C. Ralston, Haggin and Tevis, Michael Reese—in short, to everybody whom he thought he might possibly induce to take an interest—but in vain.[115] The result of the failure to secure outside subscriptions to the Contract and Finance Company was that the associates had to take up the stock of that company themselves. Crocker was made president at an early date, and apparently took the bulk of the stock in the first instance. Then, when it was evident that no outside investors would come in, he put the stock back, and Stanford, Hopkins, Huntington, and E. B. Crocker took equal shares with him—each subscribing for 10,000 shares out of the 50,000 outstanding.[116] Later a little stock was disposed of to outsiders, but when the Contract and Finance Company got into the courts the associates bought this back.