The most direct railroad route from Sacramento to San Francisco is by way of Vallejo or Benicia, across the Straits of Carquinez, and along the eastern shore of San Francisco Bay. In 1865, after the Central Pacific had begun work in earnest, the California Pacific Railroad Company was incorporated to occupy this route from Sacramento as far as Vallejo. Contracts were let, though no material progress was made for two years. In 1867 the work was taken up with fresh energy, and in 1869 the road was finished between Vallejo and Sacramento, with a branch from Davisville to Marysville. The newly built Napa Valley Railroad from Adalanta, California, to Calistoga, was acquired at the same time. In 1870 the system reported 163 miles of road, of which 22 miles consisted of a ferry connection from Vallejo to the city of San Francisco.
It seems more probable that the California Pacific was originally intended as a connection for the Central Pacific than that it was built as a competitor with the larger road. This was satisfactory enough to the Central Pacific so long as this company terminated at Sacramento. But there is no manner of doubt that the California Pacific became a formidable competitor to the Central Pacific when the latter acquired its circuitous line to Oakland via Stockton. This was especially true with respect to the passenger business. The distance from Sacramento to San Francisco via Vallejo was 87 miles, via Stockton 137½ miles; the time via Vallejo was 3½ hours, via Stockton 5 hours. It appears that transcontinental passengers on Central Pacific trains often changed cars at Sacramento, sacrificing the balance of their through ticket and paying extra fare in order to save time.[154] Of the local passenger business between Sacramento and San Francisco, the California Pacific claimed three-fourths. How large a share of the freight went by the shorter line does not appear, but it must have been considerable, for Mr. Stubbs later estimated that the cost of operating the Benicia route could not have been more than 50 per cent of the cost of operating the Western Pacific,[155] and it is in evidence that the Central Pacific sent most of its freight via Benicia as soon as it obtained control of both lines.
It should be remembered also that in addition to its competition for local business, the California Pacific had ambitious plans in other directions. We know, for example, that it proposed an extension eastward via Beckwourth’s Pass to a connection with the Union Pacific, at or near Ogden. This line was to be built by the California Pacific Railroad Eastern Extension Company, incorporated at Sacramento in March, 1871, with a capital stock of $50,000,000.[156] Other reports credited it with an intention to enter the San Joaquin Valley;[157] while its influence in Sonoma, Marin and Napa counties was recognized. In short, by 1870 the California Pacific was not only important in respect to what it had actually accomplished, but it had in it the germ of a railroad system in no way inferior to that of the Central Pacific itself.
Rival’s Weakness
Unfortunately for the California Pacific, the company’s physical and financial position in 1871 did not measure up to the magnitude of its ambitions. Counsel for the Central Pacific in later years drew a vivid picture of the condition of the railroad in 1867 which probably contained more than a grain of truth. According to this account, the right-of-way of the California Pacific was unfenced, its sidings were few, and its stations were insufficient. The road-bed was almost wholly unballasted, and inadequately supplied with ties. Embankments were so narrow that the ends of the ties projected on both sides. The slope of the cuts was insufficient and upon the Napa branch the rails were fastened to the ties with wrought nails without heads which were bent back over the flanges of the rails after being partly driven, in order to hold the rails in position.[158]
On the other hand, in spite of the imperfect character of its construction, the California Pacific had paid large prices to contractors in its bonds and stock. In December, 1870, the company was compelled to borrow money to meet the January interest of 1871. By the following spring it was indebted to the extent of $8,450,000, of which $1,200,000 was floating debt, and had to prepare to meet an annual interest charge of $667,500. This was more than the company’s earnings could stand.
In 1871 the Central Pacific, taking advantage of the weakness of its rival, proceeded to the attack by arranging to construct a branch from Sacramento, by way of Davisville, to Vallejo. In pursuance of this arrangement it accumulated iron and ties, made surveys, and succeeded in effecting a contract with an organization known as the Bridge Company of the City of Sacramento, for the exclusive use of its bridge for their new enterprise.[159] The California Pacific was already suffering from the competition of river boats, and the construction of the new road would have ruined it. The pressing nature of the danger was appreciated by the managers of the road, and Milton S. Latham, director and treasurer of the California Pacific, and agent for the holders of three-fourths of the capital stock of that company, promptly opened negotiations with the Central Pacific, through Collis P. Huntington, for an adjustment of difficulties. This was precisely the situation which the Central Pacific desired to bring about.
Control of California Pacific Acquired
The agreement that resulted from the conditions described may probably be explained as an elaboration of the Central Pacific’s statement to Mr. Latham that the company was willing to buy the California Pacific but did not have the money. It took the form of the following consecutive transactions:
By agreement dated July 13, 1871, between Latham, Leland Stanford, and Mark Hopkins, Mr. Latham agreed to deliver 76,101 shares of the California Pacific Railroad Company, to assign three-fourths of the capital stock of the California Pacific Eastern Railroad Extension Company to the other parties to the contract, and to stipulate that the total indebtedness of the two companies named should not exceed $8,421,000. In consideration of this delivery, Stanford and Hopkins agreed to pay to Latham $1,579,000 in bonds of the California Pacific Railroad Company.