The result is that those who have controlled and directed the construction and development of these companies have become possessed of their surplus assets through issues of bonds, stocks, and payment of dividends voted by themselves, while the great creditor, the United States, finds itself substantially without adequate security for the repayment of its loans.

The laws enacted in aid of these roads, while they illustrated a profuse liberality and a generous surrender of the Government’s advantages, which it is hoped experience has corrected, were nevertheless passed upon the theory that the roads should be constructed according to the common rules of business, fairness, and duty, and that their value and their ability to pay their debts should not be impaired by unfair manipulations; and when the Government subordinated its lien to another it was in the expectation that the prior lien would represent in its amount only such bonds as should be necessarily issued by the companies for the construction of their roads at fair prices, agreed upon in an honest way between real and substantial parties.  For the purpose of saving or improving the security afforded by its junior lien the Government should have the right now to purge this paramount lien of all that is fraudulent, fictitious, or unconscionable.  If the transfer to innocent hands of bonds of this character secured by such first mortgage prevents their cancellation, it might be well to seek a remedy against those who issued and transferred them.  If legislation is needed to secure such a remedy, the Congress can readily supply it.

I desire to call attention also to the fact that if all that was to be done on the part of the Government to fully vest in these companies the grants and advantages contemplated by the acts passed in their interest has not yet been perfected, and if the failure of such companies to perform in good faith their part of the contract justifies such a course, the power rests with the Congress to withhold further performance on the part of the Government.  If donated lands are not yet granted to these companies, and if their violation of contract and of duty are such as in justice and morals forfeit their rights to such lands, Congressional action should intervene to prevent further consummation.  Executive power must be exercised according to existing laws, and Executive discretion is probably not broad enough to reach such difficulties.

The California and Oregon Railroad is now a part of the Central Pacific system, and is a land-grant road.  Its construction has been carried on with the same features and incidents which have characterized the other constructions of this system, as is made apparent on pages 78, 79, and 80 of the report of the majority of the commissioners.  I have in my hands for approval the report of the commissioners appointed to examine two completed sections of this road.  Upon such approval the company or the Central Pacific Company will be entitled to patents for a large quantity of public lands.  I especially commend to the attention of Congress this condition of affairs, in order that it may determine whether or not it should intervene to save these lands for settlers, if such a course is justifiable.