Chapters on the History of the Southern Pacific

by Stuart Daggett

The relations thus begun rapidly became more intimate. As early as 1868, Mr. and Mrs. Colton had invitations from Mr. Crocker and passes to travel on the Central Pacific. In 1869 or 1870 the two families visited the Yosemite together, and in 1871-72, when the Crockers went to Europe and the two Crocker boys were left behind at a military academy in Oakland, the Coltons looked after the children generally, and had them at the Colton house for week-ends.[218]

It was through his acquaintance with the Crockers that Mr. Colton met the other members of the Stanford group. Mr. Huntington was favorably impressed with him; Stanford and Hopkins less so. Huntington was becoming dissatisfied about this time with the amount of work done by his associates, and the suggestion soon made that Colton join the other members of the group and share the burden of managing the Central Pacific enterprise with them, met his approval. “I was worked,” he said later, “up to my full capacity, whatever that might be. Mr. Crocker was in the habit of going to Europe and having a good time and the Governor owned ranches, and his horses took a great deal of his time; in fact, the Governor never could confine himself right to the office; that is, I don’t consider that he could, to close, hard work, and we wanted somebody there to do that work; and Mr. Colton convinced me that he, of all men, was just the man that we wanted.” And again, speaking of his partners and of Colton, Huntington said: “He knew I was not satisfied with some things that my associate co-directors were doing there. The way they used to go to Europe and go away from business, while I was working every day in the year almost, and about fourteen hours a day; he knew I was not quite satisfied with the hours they put in.”[219] The fact that Mr. Hopkins’ health was not strong was an additional reason for taking in a new partner.

Agreement Signed

The result of these preliminary discussions was the conclusion of an agreement, dated October 5, 1874, whereby Colton received 20,000 shares of Central Pacific Railroad stock and 20,000 shares of Southern Pacific stock in return for his promissory note for $1,000,000, maturing in five years.[220] At the same time it was mutually understood that Colton should share in all the responsibilities and liabilities of the associates for five years in proportion to his stockholdings, and should stand in their shoes, as it were, holding the same positions and relations which they had to the Central Pacific Railroad, and to the Contract and Finance Company. The contract called for no cash payment, for obvious reasons.

Mr. Huntington says he felt in 1874 that Colton was receiving something very handsome, and the opinion was not without some justification. Certainly, in the long run the opportunity to share in the profits of the associates was valuable. Colton was not a man of large means to begin with, yet after two years and three months with the Central Pacific, he inventoried his assets at $961,506.18,[221] and at the time of his death his rent roll alone amounted to $2,500 to $3,000 a month.[222]

This was a very substantial compensation, even for very valuable service. But on the other hand, it is evident that Mr. Colton put himself entirely in the hands of the associates when he signed the agreement and the promissory note which have been described. He not only pledged his services for five years, but he assumed an unconditional liability to pay $1,000,000 at the end of this period, in return for which he obtained only 40,000 shares of unsalable securities and a right to participate in the management of the associates’ property which was revocable at the pleasure of Huntington and his friends at any time within two years. This was a dangerously exposed position. It was not a wise thing even for the Huntington-Stanford group to put Colton in such a predicament, and much subsequent difficulty resulted therefrom.

In 1876 the associates served notice on Mr. Colton, dissevering his connection with them. Mr. Crocker relates that Colton was very much affected. He said, according to Crocker, “It is generally known that I am here with you, and there is no one knows these relations are only temporary, and it will be next to ruin to me to have them dissevered now.” In fact, he wept. Crocker later testified that he liked the general very much, and was touched by his distress. Colton wished him to go and see the others, and Crocker did so. The result was that the notice was reconsidered and a second contract made.[223] After this, Colton bought one-ninth of the capital stock of the Western Development Company, and commenced to deposit money with that organization in the same manner as did the other members of the group.

“Financial Director”

During substantially the whole period from 1874 to 1878, Colton took active charge of the financial affairs of the Huntington group at the San Francisco end. His office and title beginning August 31, 1875, was that of “financial director.” Formally he acted under the direction of the treasurer of the company, Mr. Hopkins. Practically he reported to Mr. Huntington and perhaps to Mr. Crocker, more than to Mr. Hopkins, but exercised a good deal of independent initiative.[224] With the operation of neither the Central Pacific nor the Southern Pacific had he anything to do. On the other hand, it was either Colton in San Francisco, or Huntington in New York, as we shall presently see, who attended to the negotiation of short-time loans, often necessary to take care of interest on the railroad properties. It was also Colton who had particular charge of the many affairs of the Western Development Company;[225] it was Colton who was responsible head of the Rocky Mountain Coal and Iron Company’s mine at Ione; and it was Colton who took particular interest in finding a market for the output of this corporation.[226]