In spite of the ruin wrought in so large a portion of her territory, and of minor and ordinary losses, the period in view was one of prosperity. The population, which had risen from 439,706 in 1870 to 597,407 in 1875, increased to 780,773, according to the census of 1880. The wheat crop, which had been 30,000,000 bushels in 1877, touched 40,000,000 in 1880. The most striking evidence of material development is seen in railroad building. In the four years 1873-76 but 87 miles had been added to the 1900 miles of construction in the eleven years ending with 1872. This mileage was increased in the six years beginning with 1877 to 3278; 446 were added to the St. Paul and Pacific (now Great Northern) system.
How a corporation left in the panic year 1873 in a condition of hopeless bankruptcy was resuscitated and put into vigorous life is a story which the reader will be interested in. The “Division roads,” the main line from St. Paul to Breckenridge and the branch to St. Cloud, had gone into a receiver’s hands in August, 1873. The “Extensions” to St. Vincent and Brainerd, of which 140 miles in detached portions had been built, remained in the control of the stockholders till October, 1876, when they were turned over to trustees of the bondholders, according to the terms of the company’s contract with them. These trustees employed as their general manager the same gentleman who for three years had been receiver of the Division roads. The stockholders having given over the task of completing the roads and retaining ownership, it remained for the bondholders to decide between putting in several more millions of dollars to complete and equip the roads, or giving up and letting the property go to sale under pending foreclosure proceedings. Had they taken the former course and selected honest and capable agents, they would have not merely escaped great losses but realized large profits. The greater portion of the bonds of the system, over $17,000,000, were owned in Holland, and they had been placed by their holders in the hands of a syndicate of Dutch bankers to be controlled for the common interest.
The drift of affairs had been watched by three deeply interested persons. Donald A. Smith, residing at Winnipeg and representing that city in the Dominion parliament, was chief commissioner of the Hudson’s Bay Company. That company had many millions of acres of land in Manitoba, and was desirous to obtain railroad connections through Minnesota with the outside world. He particularly desired the completion of the St. Vincent Extension. Another was Norman W. Kittson, an old associate of Sibley in the fur-trade and politics, still interested in the Red River trade. The third was James J. Hill, who had come from Canada to Minnesota as a boy of eighteen in 1856. He had been in Mr. Kittson’s employ in his Red River business, had built up a rival line of steamboats and barges, and made it for Mr. Kittson’s interest to take him into partnership. These three men had journeyed up and down the Red River till they knew every foot of the stream and the lands drained by it. Early in 1874 Mr. Smith asked Messrs. Kittson and Hill to collect for him all the information accessible in regard to the St. Paul and Pacific system, its lines completed or unfinished, its terminals, equipment, land grants, and in particular the stock and bonds. The consultations which followed were fruitless. “There seemed no way to get in.”
Two years later, when it became evident that the Dutch bondholders were bound to realize what they could and let the properties go, there appeared a way to get in. 1876 was one of the grasshopper years in Minnesota. The crop was light and prices were low. Rates and fares were so high as to discourage railroad traffic. The net earnings of $300,000 on the system were a drop in the bucket compared with the interest charges of nearly $2,000,000. In March, 1876, Mr. Hill and Mr. Smith were again in consultation, and resolved on an effort to obtain control by buying all, or nearly all, the bonds held in Holland. Delays and discouragements postponed action. It was not till May, 1877, that Mr. George Stephen, president of the Bank of Montreal, was induced to consider taking a hand in the deal. In September, after a visit to Minnesota, he went to England in full expectation of enlisting the necessary capital, the Dutch committee having accepted a conditional offer of cash for their holdings. To his surprise Mr. Stephen found no English capitalists willing to send good money where so much bad money had gone. To all appearance the project was a failure. The associates, however, learning that the Dutch were still fierce to sell, submitted to them in January, 1878, a proposition to buy their bonds at agreed prices and pay in the bonds of a new company to be formed, which should buy the properties at the now impending foreclosure sales. As a “sweetener” they were willing to throw in $250 of six per cent. preferred stock with every $1000 bond of the new company.
In the articles of agreement signed March 13, 1878, the Dutch committee agreed to this proposition and consented to extend the time of payment for their bonds six months after the last of the six foreclosure sales. For their 17,212 one thousand dollar bonds, including coupons for unpaid interest, they accepted $3,743,150. The associates bought large amounts of “minority bonds” at similar figures. As they agreed to pay interest on the bonds of the new company at seven per cent., they were empowered to take immediate control and operation of the completed lines and to resume construction on the St. Vincent Extension, whose completion was greatly desired. On May 23, 1879, the St. Paul, Minneapolis and Manitoba Railway Company was organized, and at the foreclosure sales in the following month bought all the franchises and assets of the expiring St. Paul and Pacific Railroad Company, including those of the Division lines. Mr. James J. Hill at once became the general manager of the roads, and began a career of railroad operation with few if any equals in the country. Better times had come, but it was mainly the vigor, economy, and discipline of the management which soon swelled the earnings into millions.
The great financial exploit of the “associates” was followed by tedious, exasperating, and costly litigation. About the time of the foreclosure sales in June, 1879, Jesse P. Farley, who had been receiver of the Extension roads and general manager of the Division lines, brought suit in the district court of Ramsey County against Messrs. Kittson and Hill to recover from them one third of all moneys, securities, and effects which were accruing to them from the operation. In his complaint Mr. Farley alleged that “in the summer of 1876” a parol agreement had been made by the defendants and himself to undertake jointly the purchase of the bonds of the two railroad companies, the three to share equally in the net proceeds. In his testimony, he deposed that the two defendants had no knowledge of the great opportunity until revealed by him at the time mentioned. It was because of his intimate knowledge of the affairs of the companies, of his understanding of railroad finance, and his long experience as a railroad manager, that they were unwilling to make any adventure without his coöperation; and, to induce him to enter into the contract, they agreed to consider his knowledge and skill equivalent to the money they would severally procure. This part of the bargain was to remain a secret. The defendants denied that any such contract had been made, or that any conversation in relation to such an agreement had ever been had. They had been familiar with the condition and finances of the companies long before the time of the alleged contract. The district court found in favor of the defendants, as also did the Supreme Court of Minnesota on appeal. The Supreme Court, however, appears to have considered that there was a contract between the parties, but that it aborted when in the late fall of 1877 the “associates” were balked in the effort to borrow money in England with which to buy the bonds for cash.
Encouraged by this recognition of a contract, Mr. Farley brought suit in the United States District Court for Minnesota in December, 1881, setting up substantially the same allegations. Defeated here, he took an appeal to the Supreme Court of the United States, which in 1887 remanded the suit to the Circuit Court for a novation of proceedings. The printed pleadings, testimony, exhibits, and arguments fill more than five thousand octavo pages. The Circuit Court held with the defendants that no contract had been made, and that the plaintiff, standing in the relation of a trustee, could not honorably or legally have embarked in any such enterprise.
When Farley’s appeal reached the Supreme Court of the United States, in October, 1893, that tribunal sustained the decision of the Circuit Court so far as it denied the making of the alleged contract. The plaintiff had not proven his allegations, and his story was inherently improbable. The court had no occasion to pass on the impropriety of an agreement never made.