‘ ‘towns grew up.

378

AMERICAN RAILROAD JOURNAL;

’I‘ll1c~Bil(I.fl’au-o and Nevv York City Ruilroutl.
To run nnrroa or TI-IE RAILROAD JOURNAL.
Sin--

The enlightened interest which you take in the

prosperity of our great internal communications,

induces me to address you this COI]1l11lll1‘lCi‘tl)'lOI1.---

It is suggested by the perusal of the report of the

Committee, lately appointed by the creditors of the

Buillalo and New York City Railroad to investigate

its afi‘airs. The Committee exonerate the Direc-

tors and ofiler.-rs of the Company entirely, from
any tliing like bad faith, and this makes it the

more easy to discuss the subject; for whatever I

shall saywill not be attributed to personal feeling

or partizan zeal. In fact you will see that my
reinarks are entirely of a legal tendency, and are
such as I suppose would suggest themselves to any
professional person reading this report, and thus
led to consider the technical questions growing
out of the character of what are called Railroad
securities. Millions and hundreds of millions are
invested in railroad bonds. These bonds are held
every where, here and abroad——havc been created
in every State. It is a national interest. There
can be no object, therefore, in impairing their
credit. There is every inducenient to uphold
them. The best way to do that in in time, while
the general prosperity of‘ the country is grcat—-
trade lucrative-—-travel of‘ all kinds general, now
to consider the diiliculties, it’ there be any, that
present themselves, and thus, as far as possible,
guard against them. In the first place, to under-
stand the subject,wh-at is the Baflrtlu and 1‘-feiv

York Cit?/Rail?-cad?    V  ‘ - 
This question will be best answered by a few

words of‘ historical reminiscence as to the internal

communications of our State‘. The first great idea
of developing the resources oi‘ New York, was to
complete the water communication from the ocean
to the Lakes. So a point was selected on the

Hudson where navigation ceased, and the Canal

was made to Buffalo. '

For this we have mainly to thank Morris and ,

Clinton, two of the race of able and l'ar-seeing
statesmen of whom New York once could boast.
Timeirolled on, and along the line of the canal,
and in the fertile country which it opened, great

Rail, and naturally, neccssai-il_v,tl1e first railroad
in the State followed the tow path of the canal,
and took advantage of the population that had
grown up along its level banks. ’I‘hen were suc-
cessively formed the several links of the chain
from Albany to Bufi"al0 that is now known as the.
Central road, finally completed to New York by
the bold and original conception of the Hudson
River line. When all this was done, or while it
was being done, it appeared, however-_, t,hm-, 1,-he
communication by rail, instead of taking a (11-

, rect -course from New York to the Lakes, described

a huge right angle, of which Albany was the apex,
and entirely overlooked the whole country known
as the Southern Tier of counties." To this was
due the creation of the New York and Eric Rail-
road. That vast work has been ‘attended by vari-
ous fortunes. Its early earcerwas certainly marked
by remarkable blunders, some of which are still
attested by the long lines of piles which the tra-
velerfs eye now contemplates with wonder in the
meadows of Chemung. But, of all the blunders
committed bythe original directors of the road,

, _

ce1'tainly the choice of the two termini was the
greatest. Instead of starting from New York, they
selected Piermont, thirty miles distant, as the point
of departure, and, instead of coming out on the
Lakes at l"5ufl“alo, they chose Dunkirk as their
resting-place. 'I‘heir former error was corrected,
and New York is new as it should be, the terminus
of the road. The other blunder still remains un-
altered, and thus we have two great lines of rail-
road from New York to the Lakes——the one wind-
ing hugely out of the way, the other ending at a
point without harbor or a population. To this
policy or impolicy of the Erie Railroad was owing
the creation of‘ the Buffalo and New York City
Railroarl——startiug from Buffalo and running 91
miles, to strike the Erie railroad at llornellsville,
128 miles from Dunkirk and'332 miles from New
York, and so to make a direct communication be-
tween New York and Bufl'alo, by the way of the
Erie road. This work begun in 18~l5—-was com-
pleted in 1852. Running through one of‘ the
greatest and most powcr.i'ul States in the Union,
connecting directly with the city of New York at
one end and at the other with Buifalo, the great
port of Lake Erie, its securities have been readily
taken by the most sagacious of our capitalists,
and upwards oi‘ two millions of them are now
held for domestic and fore-i.e'n account.

It is to the allairs of this road that I now solicit
attention.
The capital of this road was nominally $1,500,000

Tlicn came the invention of‘ the ,

But of- this there haspbeen paid in only $798,000
but little more than liall’, ‘

‘ ’  It-soon became necessary to 1-aisomoney. This

has been efi'ected« thus ':
’l.‘wo mortgages "were executed on two halves of
of the read, together making one lirst inortgage
on the road, for. . . . . . . . . . .. .. . . .. .:B~?1,200,000
These sums M'U1‘0 less than two mil-
. lions to make a road nearly 100
miles long. More money was want-
ed. So a second mortgage was exe-
cuted on the whole road for . . . . . . . . {$500,000
And a third for . . . . . . . . . . . . . . . . . . . . $510,075,000
With a proviso however that only . . . . EH35? 5,000
should be issued till the 2d. mortgage
should be taken up. Since then, in-
come bonds have been issued and a
large floating debth run up, till the
total cost of the road reaches . . . . . . . $3,552,085
Ofwliich is capital.... . .... . .'. .... . . er/98,400
Debt funded and floating . . . . . . . . . . . . 2,753,635
This debt is now represented by five classes of
creditors——-First mortgage—-Second mortgage~—
'1‘hird mortgage, Income bonds and Judgment
creditors, (those who have obtained judgment on
their advances.) Now the fundamental error in
this operation is the disparity ,of the capital stock
as compared with the debt. If the road were all
awnel by the stockholders and there were»/za debt,
there could be no danger of a sacrifice of the
p1'ope1‘ty. If the debt were snialt there would be
a large capital interested in preventing a sacrifice
of the road. But here are have live dollars of
debt for every one of capital. In case of clifiicu1-
ty, this state of’ things is just as fatal to a railroad,
as it would be to an individual. This is plain
enough, but how has it arisen '1 In the first place
from the absurd miscalculation that is always
made in regard to the cost of a public work.
In the pamphlet published by the company

‘wl1’en’“the first bonds and mortgage were issued,
it was siatcd that the whole cost of the road
would be one million and a half“ fully to com-
plete and equip the work.”

This was the estimate. The actual cost is three ‘I

7m'ZZio7é.s and r1. half, and in fact this does not ap-
pear excessive for a road 01 miles long, and well
made, well fenced, and fully equipped. Such is
the experience that makes the calculations of‘ our
Engineers a bye word and a laughing stock. Look
again as to the classification of the creditors.
There are five classes of them. First, second,
third mortgages, income bondholders and judg-
ment creditors. I-Iero again in case of difliculty
the most serious complication presents itself‘. If‘
there was but one class of creditors they would
be all equally interested in protecting the proper-

ty. But here, unless there is a remarkable spirit”

of‘ forbearance and patience, there will be a gan-
eral scramble ; the ingcnuty oflawyers will be sharp-
ened by the avidity of creditors running a race of
priority, and in such a state of things it does not
require a prophet to foretell that the interests of
the stockholders must be, and those of‘ the road
may be, sacrificed. , -

See what has already taken place. The first mort-
gages are mortgages ofboth real and personaljestate
and purport to convey the road and its equipments,
locomotives, cars &c. But here, a seriousuquestion
presents itself‘. Our laws in this State require a
mortgage of"/eat estate to be ‘2‘cr.0)'(Zccl in the coun-
ty clerks oIfice—-—of _pcrsa'/ml property to be ,/ilezl
inthe totovz. clerics ojicc;
cars. are personal property. The mortgage in
question was only recorded as a mortgage of real
estate, not filed as a mortgage of‘ chattels. A
sharp creditor gets judgment, detects the over-
sight levies on all the personal property and forces
the company to execute a chattel mortgage on
the rolling stock for his special and prior se-

curity, thus cutting away (if his law be good,) a‘

very serious part of the security of the first mort-
gage creditors. ,

Again another creditor gets judgment, levies on
the Rolling Stock subject to the mortgage, and the

whole rolling stock is sold. to a judgment credi- V

tor, andbought in for $l}§15,000——this time it is done
really for they benefit of the Road, but if the law
above stated is correct, the Company has been
deprived of all possibility of running its Road,
audits, whole stock of engines and cars have been
sold. to pay a debt of $15,000. What a state of
things is this 'l- _

It will be observed that all this results merely

from a want of attention to proper legal formali— I

ties. I am not saying that the proceedings of the
creditors against the Rolling Stock are well taken,
but it is plain that questions have been left open
which should not have been.

Other questions present themselves as to the
general character of mortgages oi‘ ‘ this kind
They are mortgages in trust.
trusts, the bondholders cannot proceed except
through the mortgagees. Wliatrules are to govern
the trustees as to taking proceedings Cl Are they
to act for the benefit of a single mortgagee’! Or are
they, to wait the decision of a majority in inter-
est, or are they to be governed by their own dis-
cretion as to what the true interests of the bond-
holders require.

‘ We all know that the law of trusts has been a

New locomotives and

Thc Ceshz:£«_/zcc ,