EARLY RAILROAD CORPORATE CHARTERS

1
EARLY RAILROAD CORPORATE CHARTERS 1. Railroads
were a unique form of highway and no one knew
when they first began as businesses how they were
to so sharply diverge from turnpikes and canals.
2. Railroad corporate charters were granted by
the States. In the beginning, this required
special legislation but later on general laws
were enacted that set up a formal administrative
procedure to grant articles of incorporation.
The transcontinental Pacific railroads were the
only ones to receive charters from the Federal
Government.
2

• A Corporation is a fictitious person created by
  law and endowed with many of the functions of a
  human being. It may possess property and a
  treasury distinct from its members, and debts due
  to or by the corporation are not debts due to or
  by the individuals composing it. Corporations
  can sue and be sued and they can be criminally
  prosecuted, fined, and dissolved by the
  sovereign. In U.S. law the Supreme Court has
  extended portions of the Bill of Rights to
  corporations (e.g., within limits, freedom of
  speech).
• 4. The early railroad charters were very loosely
  written and gave the corporation great leeway.
  The charters usually set the number of directors,
  the amount of capital stock (this was oftentimes
  way out of line with the size of the railroad),
  the borrowing authority (usually very vague and
  subject to great abuse in the 19th Century),
  annual reports, the description of the route
  along with the required crossings.

3

• Some of the early Charters used the Canal Model
  that is, the fees collected from shippers were
  divided into a Toll Charge (the fee for using the
  canal/railway) and a Transportation Charge (the
  fee charged by the canal boat operator/freight
  car operator).
• 6. Most importantly, and the reason why
  railroads were very unusual, the State would
  grant the railroad the power of eminent domain
  (that superior dominion of the sovereign power
  over property within the State which authorizes
  it to appropriate it for public use). Without
  such power, the railroad could not construct its
  line over the best possible route without being
  blackmailed by property owners. However, it was
  a two edged sword as it made the railroads
  politically vulnerable to those who lived along
  its right-of-way.

4

• Why Railroads had Political Problems
• Unique Form of Highway They owned the highway
  and the vehicles on the highway As such they
  were Common Carriers (under the Common Law) and
  provided their services to the general public
  under authority provided by the State (see C.).
• They Have Never Been fully Private Businesses
  They had to borrow the power of eminent domain
  From the Government (state and federal)
• Price Discrimination against Places (Towns and
  Cities) People (businesses) and types of
  Traffic (value based pricing) (Topic 5)
• They Could Not be Liquidated (i.e., declared
  bankrupt under normal Common Law) (Topic 5)
• The Complaints of the Farmers (Topic 6)
• F. Widespread Corruption (Topic 7)