Civil War and Reconstruction in Alabama

by Walter L. Fleming

The Alabama and Chattanooga Railroad was the first of the roads to apply for aid under the indorsement law, and was in the worst condition. The story of this road is the story of all, only of greater length and more disgraceful. The Alabama and Chattanooga Railroad Company was made up of two older corporations, which, passing into the hands of Boston financiers, united in order to secure the spoils from the state. Before the union the officials had secured special legislation for one of the old roads, the Wills Valley. The sharpers who were engineering the scheme had agents at Montgomery when the Reconstruction legislature met, and these were instrumental in having the indorsement raised from $12,000 to $16,000 a mile. The second corporation was the Northeast and Southwest Alabama Railroad.[1651] The proposed road would be 295 miles long, and when completed would be entitled to $4,720,000 from the state in indorsed bonds. The law was explicit in regard to indorsation, but Governor Smith, notwithstanding his opposition to the principle of the law, was criminally careless, if no worse, in the way he administered it. The first 20 miles were not built as required by law, but were purchased from the old Northeast and Southwest Alabama Railroad. Moreover, the road was never properly equipped, and the 20 miles from Chattanooga, on which indorsement amounting to $320,000 was secured, were only rented from another corporation (which was already indorsed to the amount of $8000 per mile by the state of Georgia), and the rent was paid from the proceeds of the indorsed bonds, which by law should have been applied only to construction and equipment. Nor was the rented road equipped.[1652]

The indorsed bonds of the road to November 15, 1869, amounted to $1,800,000,[1653] and Auditor Reynolds reported in 1870 that the indorsement to September 30, 1870, was $3,840,000 on 240 miles.[1654] These figures should have been correct, but they were not. In fact, 240 miles had been roughly finished, but the indorsement was far above the legal limit. On December 5, 1870, a few days before he retired from office, Smith reported to the legislature that he had indorsed the Alabama and Chattanooga road for $4,000,000 for 250 miles.[1655] The facts, as afterwards disclosed, were that only 240 miles were completed, and of these only 154 were in Alabama. Yet he had issued bonds to the amount of $4,720,000, covering not only the whole 295 miles of the proposed road, but also including $580,000 in excess of what the law allowed to the completed road, which with equipment was worth only $4,018,388. So here were $1,300,000 in bonds which were clearly fraudulent. There was no further indorsement of this road.[1656]

As if the enormous issue of indorsed bonds was not enough for the Stantons of Boston, who were in control of the corporation, a second descent of railroad promoters was made on the legislature in 1869-1870, and $2,000,000 in direct state bonds were obtained for the Alabama and Chattanooga Railroad. Indorsement was not enough for them. The act stated that the bonds were to be issued from time to time as needed for use in construction within the state, and in return the railroad lands were to be mortgaged to the state.[1657] In order to secure the passage of this act, the most shameful bribery was resorted to by the agents of the railroad and of the New York capitalists who were financing the Stantons. One of the Stantons came to Montgomery, also an agent from the banking house of Henry Clews & Company, and agents from other houses interested in the Stanton scheme. The Stantons themselves had no money except what they received from the state. On February 4, 1870, the bill failed in the House; but on February 5 a reconsideration was moved and the bill was referred back to the committee with directions “to report within fifteen minutes.” The report was favorable, and the members having seen the light, the bill was passed by a vote of 62 to 27.[1658] From the first, specific charges of bribery had been made against those who, within three days, had changed from active opposition to support of the measure.[1659] A year later the House had a majority of young and inexperienced Democrats, and they ordered an investigation. The Senate, with one solitary exception, was still Radical. The investigation brought to light many unpleasant facts relating to the methods employed in securing the passage of the $2,000,000 appropriation and other railroad bills. Jerre Haralson, a negro member, told his experience. Jerre was opposing the grant and posing as a Democrat because he had not been sufficiently remembered on previous occasions when the spoils were divided. Hearing that something was to be divided, he went to Stanton’s room, where, he said, there were many members. Caraway, the negro member from Mobile, told Haralson that he (Caraway) would not vote for the grant for less than $500. Stanton had four rooms at the Exchange Hotel, to which, at his invitation, all the purchasable members went. Stanton would take the members, one at a time, into the hall, after which that member would leave. Haralson, to his sorrow, was not called into the hall, but the next day he heard from the other negro members that money was to be had, so he called again. Stanton then accused Haralson of being a Democrat, but Haralson replied that he had left that party, and after receiving a “loan” of $50, he went home.[1660]

George B. Holmes, of the firm of Holmes & Goldthwaite, bankers, testified that Gilmer, president of the South and North Alabama Railroad (Stanton had all the roads in need of “boodle” working with him), asked him for $25,000 to be used at the capitol. Gilmer told Holmes that the banker of the road had refused it, as had also the Farley bank. Finally, Farley and Holmes each agreed to furnish $12,000 to Gilmer. John Hardy, the chairman of the committee, had asked for $25,000 to oil the bearings of the political machine, and for that amount had agreed to have the bill passed. At the last moment Hardy demanded $10,000 more, which Holmes obtained from Josiah Morris. The committee was thus gotten into condition “to report within fifteen minutes,” and the legislature made ready to accept the report.[1661] Two years later, Governor Lindsay stated in his message that the Alabama and Chattanooga $2,000,000 bill had not passed the legislature by the two-thirds vote as required by law.[1662] The law provided for the issue of the state bonds for $2,000,000 from time to time as the road was completed. Instead, however, they were issued in reckless haste, within a month, and hurried away to Europe for sale. The proceeds were used to build a hotel and an opera house in Chattanooga, where Stanton was accused of trying to imitate Fiske and Gould of Erie.[1663]

When Governor Lindsay went into office, he could not find the “scratch of a pen” relating to railroad indorsement. Governor Smith, as later developments showed, had become careless with his bond indorsement and kept no records, or else destroyed them or carried them away. Auditor Reynolds reported in 1871 that his office had official knowledge only of the indorsement of the Mobile and Montgomery road.[1664] In his message of January 24, 1871, Lindsay said, “To what extent bonds under the various statutes have been indorsed and issued by the state it is impossible to inform you. No record can be found in any department of the action of the executive in this regard.” None of the securities required by law could be found. Lindsay was unable to ascertain even the form of the indorsed bonds, except those of the Mobile and Montgomery and the Montgomery and Eufaula roads. Lindsay telegraphed to Smith’s secretary, who replied that there was no record of the bond issues except the certificates of the railroad presidents. Lindsay found some of these, which were plain certificates: “This is to certify that five more miles of the (——) railroad has been finished.” On each five-mile certificate, like the one above, the road drew $80,000. Yet the law was strict in requiring proof of completion, of good rails, bridges, road-bed, and equipment. At this time 45 or 50 miles of the Alabama and Chattanooga road had not been completed, and 50 miles more had only a temporary track hastily thrown together in order to get the indorsement. Governor Lindsay believed that the road as planned promised great success, and was of the opinion that had the bonds been issued according to law the road would have been completed. He had to correspond with the railroad officials in order to ascertain the amount of the bonds.[1665] A few days before Smith went out of office he reported $4,000,000 indorsement on 244 miles of the Alabama and Chattanooga road. Lindsay found no record of this. Almost immediately (January, 1871) the Alabama and Chattanooga road defaulted in payment of interest, and Lindsay was authorized by the legislature to go to New York and provide for the payment of interest on 4000 bonds legally issued and held by innocent purchasers.[1666] Statements were constantly appearing in the state press that fraudulent issues had been made, and the Democratic papers were warning purchasers against them, declaring that when the people of Alabama again came into power, they had no intention of paying them.

The carpet-bag régime had numerous financial agents in New York, Philadelphia, Boston, London, Germany, and elsewhere. Most of the agents in New York gave Lindsay assistance in his investigations. Souter & Company stated they had sold 4000 first mortgage Alabama and Chattanooga bonds (all that were legal), and 2000 state bonds for the Alabama and Chattanooga Company, all for more than 90 cents on the dollar. Erlanger et Cie., of Paris, had purchased the state bonds at 95 cents in gold. Lindsay soon discovered that 1300 Alabama and Chattanooga bonds in excess had been issued, 580 in excess of what the road would be entitled to when completed. Braunfels of Erlanger et Cie. testified that he had loaned $300,000 on 500 bonds numbered between 4000 and 4720. The trustees under the first deed of trust held bonds 4720 to 4800 and had refused to sell them, knowing them to be fraudulent; 344 bonds of the fraudulent excess had been partly sold and partly hypothecated to Drexel & Company of Philadelphia; thirty had been hypothecated to a firm in Boston for locomotives. Lindsay saw some of these fraudulent bonds, which were signed by Governor Smith and sealed with the seal of the state.[1667] Lindsay, through the state agents, Duncan, Sherman, & Company, recognized as legal the first 4000 of these indorsed bonds and the 2000 state bonds and ordered interest to be paid on them. All the others were rejected as fraudulent.[1668]

The acts of February 25 and March 8, 1871,[1669] authorized the governor to pay interest on the Alabama and Chattanooga bonds which were in the hands of innocent purchasers on January 1, 1871. At that date at least 500 of the fraudulent issue had not been sold. The other 700 or 800 bonds numbered above 4000 were declared fraudulent by Lindsay on the ground that the part of road which called for the extra bonds simply did not exist. At this time he paid interest on the railroad bonds, amounting to $545,000,[1670] and later to $834,000. No interest was paid on bonds held by the road or hypothecated by its officials. The governor was authorized to proceed against the road, and, in July 1871, Colonel John H. Gindrat, the governor’s secretary, was ordered to seize the road and act as receiver. The road had ceased running two weeks before. Stanton claimed that the default had been caused by the threats of repudiation, and when Gindrat went to take charge every possible obstacle and embarrassment were imposed by the company. Besides, at the Mississippi end of the line the employees had seized the road in order to secure their pay. Gindrat pacified them, and went slowly along the road toward Georgia, where he was stopped at the state line. Not only had Alabama indorsed that part of the road within Georgia and Tennessee, for $16,000 a mile, but Georgia had also indorsed it for $8000 a mile, and the part within her boundaries she seized. The governor was forced to employ a large number of attorneys and institute legal proceedings, not only in Alabama, but also in Georgia, Tennessee, Mississippi, and in the Federal courts. Bullock, the carpet-bag governor of Georgia, would not run the road in Georgia in connection with the Alabama section, and not until there was a new governor (Conley) could connections be made over the whole line.[1671]

For his action in repudiating the fraudulent bonds and in seizing the road, Lindsay was much abused by all the railroad interests, by the hungry promoters who wanted more money from the state, and by a section of his own party which was influenced by prominent Democrats who were officers of the road,[1672] and especially by influential Democratic lawyers. This fact was important in weakening the Democratic cause in 1872. There were some who opposed the seizure of the road because they believed that in the then unsettled condition of affairs the state would not be able to manage the road successfully; there were others who believed that the state should not acknowledge the legality of the indorsement by seizure of the road. The Debt Commission in 1876 reported that, although the laws were strict, yet they had been violated in letter and in spirit before indorsement. But though many (including the Debt Commission) believed the issues illegal, yet by the seizure of the road the state acknowledged the obligations.[1673]

The history of the road while in the hands of the state authorities was not pleasant to Democrat or Radical. The state had first seized the section of the road that was in Alabama, and had gone into the state courts to get the remainder. The litigation promised to be endless, and the case was taken to the Federal courts. Finally the road was sold at a bankrupt sale, and Lindsay purchased it for the state, paying $312,000. The Circuit Court reversed this action, and there was a new case in which Busteed, district judge, adjudged the company bankrupt. In May, 1872, the Federal court placed the road in the hands of receivers for the first mortgage bondholders, who were to issue $1,200,000 in certificates to run the road,—this to be a lien prior to the claim of the state. August 24, 1874, the same court placed the road in the hands of the trustees of the first mortgage bondholders.

The road, while in the hands of the state receiver, was either badly managed or was unsuccessful because of the obstruction by the other roads and by capitalists. Several attempts were made, by Governors Lindsay, Lewis, and Houston, to sell the road, but with no success. Finally, in 1876, the Debt Commission arranged with the holders of the first mortgage bonds to turn over to them the whole claim of the state to the road, the state paying $1,000,000, besides the interest, to be out of the business.[1674]