ISTHMIAN CANAL.

COMMITTEE ON INTEROCEANIC CANALS,

UNITED STATES SENATE,

Washington, D. C., Thursday, May 10, 1906.

The committee met at 10.30 o'clock a. m.

Present: Senators Millard (chairman), Kittredge, Morgan, and Taliaferro.

TESTIMONY OF WILLIAM NELSON CROMWELL, ESQ.-Continued.

Senator MORGAN. We rather wandered off yesterday, Mr. Cromwell, from the line of examination that I wanted to observe.

Mr. CROMWELL. Senator, before you continue, may I make a brief correction of your statements?

Senator MORGAN. Certainly.

Mr. CROMWELL. In your examination yesterday, Senator, at page 3061, you stated that it appears from the minute book that in 1893 there was a purchase of rolling stock by the railroad company from the liquidator of the old company. I have examined the minute book and find that the transaction to which you referred did not occur in 1893.

Senator MORGAN. Well, when did it occur?

Mr. CROMWELL. It occurred in 1892, sir.

Senator MORGAN. 1892? Well, I was mistaken in the date.

Mr. CROMWELL. The mistake is material, because I was not a director in 1892, and I was a director in 1893.

Senator MORGAN. Now, what was that transaction? Just explain it to the committee.

Mr. CROMWELL. I know nothing of the transaction, sir, except as contained in the minutes.

Senator MORGAN. Explain it from the minutes.

Mr. CROMWELL. Yes, sir. The minutes, Senator, of June 14, 1892, contain the following [reading]:

"Purchase of rolling stock from the liquidation of the canal company. Mr. Oppenheim stated that after an extended consideration of the topic, which had previously been the subject of a proposed convention between the two companies, he had agreed with the liquidator upon a basis of settlement which involved the payment of a lump sum of $360,000, in easy payments, for the purchase of the entire rolling-stock plant of the canal company now in use by the railroad company, for the settlement of the accumulated rentals due on that ground, and for the settlement of the sum of $40,000 now due to the railroad company for account of reconstruction of wharf No. 5. Whereupon it was resolved that a full report, which should

embody the reasons for these conclusions, be prepared by the secretary and submitted to this committee at a later meeting for its approval and adoption."

At the next meeting, on June 21, 1892, the following entry appears: "Purchase of C. P. rolling stock; payment of amount due by liquidation to Panama Railroad Company for wharf No. 5.

66 The settlement of the above matters was one of the objects of your delegates' visit to Paris, and as the result of several conferences held with the liquidator or his representatives we now present the following arrangement, to date from July 1, 1892, with the recommendation that it be ratified and put into execution by the board." Then follows a long minute. I will read sufficient of it to show what it is. [Reading:]

"The Panama Railroad purchases from the liquidation all the C. P. rolling stock belonging to it on the Isthmus, consisting, on March 31, 1892, of 27 locomotives, 256 box cars, 234 coal cars, and 443 flat cars. The liquidation cancels the debits made for locomotive rental (at the rate of $2,022.50 per month) since July 1, 1890; in other words, gives us a credit on their Isthmus books of $48,540. The Panama Railroad agrees to pay to the liquidation the sum of $400,000, from which $40,000 is to be deducted as an indemnity due the railroad for the reconstruction of wharf No. 5. The balance, namely, $360,000, becomes due on July 1, 1892, and runs at 4 per cent interest until paid," etc.

From this minute it appears, Senator, that the transaction to which you referred did not occur in 1893, but did occur in 1892. At that time I had no acquaintance of any nature, sort, or description with the Panama Railroad Company or any of its directors or parties. Senator MORGAN. You were not, then, a stockholder?

Mr. CROMWELL. I was neither a stockholder nor a director; so that the transaction has no relation to me.

Senator MORGAN. Well, that transaction left the railroad company the owner of all of its rolling stock-all the rolling stock and property upon the road?

Mr. CROMWELL. It left it the owner of the rolling stock described in the lines that I have just read to you.

Senator MORGAN. The liquidator of the old company, being at that time the owner of sixty-eight thousand and odd hundred dollars of the stock, was, in effect, selling that property to his company-to himself, as liquidator-was he not? That was the effect of it?

Mr. CROMWELL. No, sir; because he did not own a corresponding property interest in the canal company, which was the purchaser. Senator MORGAN. I do not quite understand that explanation.` Mr. CROMWELL. Perhaps we are at cross-purposes regarding shares. Senator MORGAN. Yes. It seems to me very clear that the liquidator of the old company, being at that time the owner of all the stock that had been purchased, the sixty-eight thousand and how many shares?

Mr. CROMWELL. Sixty-eight thousand five hundred and thirtyfour, I think. That is near enough for present purposes.

Senator MORGAN. Yes. When that liquidator sold the rolling stock of the railroad company to the railroad company he was selling it to himself.

Mr. CROMWELL. Its practical effect would be that.
Senator MORGAN. That is the practical effect ?

Mr. CROMWELL. I think it would be practically so, with a small difference of the minority interest.

Senator MORGAN. In other words, that was the beginning of the enterprise, as I understand it-I do not know whether you understand it that way-by which the Panama Canal Company was using this railroad company, this American institution, for the purpose of getting out of it all the money that was possible to be realized by the canal company. That was the way it was running.

Mr. CROMWELL. That is your inference, Senator. There is no warrant for it.

Senator MORGAN. That is my inference.

Mr. CROMWELL. The rolling stock, I understand, was worth the sum paid for it, and therefore the railroad company received the value.

Senator MORGAN. You say the rolling stock was worth the sum paid for it?

Mr. CROMWELL. Yes, sir; and therefore the railroad company received value, and there was no depletion.

Senator MORGAN. Was that before or after the date of the organization of the new company?

Mr. CROMWELL. That was before the date of the organization of the new company.

Senator MORGAN. How long before?

Mr. CROMWELL. The New Panama Canal Company was formed in October, 1894, the record states.

Senator TALIAFERRO. May I ask a question there in this connection, Senator?

Senator MORGAN. Certainly.

Senator TALIAFERRO. How did this rolling stock become the property of the canal company?

Mr. CROMWELL. I do not know, Senator; I had no previous acquaintance with the canal company at all.

Senator MORGAN. They had never bought anything except the stock.

Senator TALIAFERRO. I understand. I was addressing my inquiry to the witness's attempted explanation that the property was worth what the railroad company paid for it.

Mr. CROMWELL. Yes, sir.

Senator TALIAFERRO. If that is so, and the railroad company had need for the rolling stock, why did they not buy it directly themselves?

Mr. CROMWELL. Buy it directly from where?

Senator TALIAFERRO. In the open market.

Mr. CROMWELL. Because this was ready at hand, and could be bought cheaper than you could buy rolling stock in the market. Senator TALIAFERRO. What was the canal company doing with it? How did they happen to have rolling stock on hand that was needed. by the railroad company?

Mr. CROMWELL. I do not know, Senator. I know they were in the midst of partial construction at that time, and they were in construction and had their own equipment, just as the canal company has

equipment of its own now, using it for their own tracks; I do not mean for commercial tracks alone-not for commerce, you see, but for the transportation of their material and their excavation work. And this equipment was owned by the canal company, in furtherance of its work, which was quite independent of the work of the railroad. Senator TALIAFERRO. Then your presumption or understanding is that this rolling stock which was bought from the canal company by the railroad was rolling stock used for construction purposes? Mr. CROMWELL. For construction of the canal.

Senator TALIAFERRO. Yes; I say for the construction of the canal? Mr. CROMWELL. Yes, sir.

Senator TALIAFERRO. What did the railroad company wish with the rolling stock to construct the canal?

Mr. CROMWELL. To use it for the purposes of its own business affairs. To use it in its own system.

Senator TALIAFERRO. So that the railroad company would thereafter be constructing the canal, or that part of it in which this rolling stock was used?

Mr. CROMWELL. No, sir; for its operations.

Senator TALIAFERRO. I understood you to say that this was not stock that entered into the commercial operations of the railroad?

Mr. CROMWELL. I did not say, Senator, that it did not enter into it. I say that the canal company had rolling stock independent of the rolling stock which the railroad company needed for its commercial operations.

Senator TALIAFERRO. Well, now, Mr. Cromwell, is it a fact that the character of rolling stock that the canal company would use in its construction operations would be suitable for the commercial purposes of the railway company?

Mr. CROMWELL. Not for general commercial purposes, but only for such purposes as would be incident to the construction of the canal, naturally. It would not be useful, all of it, in the current commercial use, but it would be useful as an adjunct to the canal work. So, in fact, I may say that I know nothing of the transactions. It occurred before my experience, and I only know of it as a matter of historical interest.

Senator TALIAFERRO. I took it up with you because you undertook to explain it. I am perfectly willing to dismiss the subject on your statement that you are not familiar with the facts.

Mr. CROMWELL. I thank you, Senator, for that statement, because that is the truth. I have no knowledge about it, except the general knowledge that the company acquired it because the canal company did not need it at that time. I may say that all these transactions have been ratified by the stockholders, years in and years out, again and again, so that they have passed into recorded history.

Senator MORGAN. Did you assist in the ratification of them?
Mr. CROMWELL. Always.

Senator MORGAN. How much cash money was paid for that stock to the canal company?

Mr. CROMWELL. For the rolling stock?

Senator MORgan. Yes.

Mr. CROMWELL. I know nothing but what the minutes state. Senator MORGAN. What do they show there? I want to get that. Mr. CROMWELL. The minutes state that the consideration was.