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Another cause of unprofitableness in some of the railroads of Massachusetts is the numerous errors in the original location of roads; want of foresight in providing funds, and neglect of directors, agents, &c., &c. The investigating committee of the Vermont and Massachusetts Railroad, in their report to the stockholders, state :

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'It may be proper to bring to your notice what seems to us as certainly one of the most serious mistakes which have occurred in the location of your road, running, as it does, by way of Gardner and Templeton, instead of by way of Winchendon, and from thence to the line of the road as it now is at Royalston. Had the line through Winchendon been adopted, it would, in our opinion, have been of incalculable advantage to this company. Application was made to the county commissioners for a change of location, but after a long and expensive trial, it was refused. Application was also made to the Legislature, which also, after a very violent opposition, was refused. The then board of directors, having no doubt but that the change of line would be granted, without hesitation or delay, and in anticipation of the grant, proceeded to construct the road towards Winchendon, and expended. thereon $29,965, on what is now a part of the Cheshire Road; but for which the Vermont and Massachusetts Railroad Company have only received $20,000, making a loss of $9,695; to which, if there be added the loss of interest, the expenses of the trial before the county commissioners, and the expenses attending the application to the Legislature, &c., it will be seen that the loss has been a pretty severe one, aside from the loss of business which would have been secured, had the line to Winchendon been adopted." Again they state, "It will be perceived that the number of shares issued, and to be issued, will exceed the number authorized by the charter, by the number of 1,074 shares." Rather a loose way of doing business, one might feel authorized in exclaiming. According to the same document, the sum of $80,476 has been expended in interest upon temporary loans. The road was chartered in 1844 with a capital of $2,500,000. The par value of the shares was $100. In October, an issue of a large number of shares, at $75, was made. In November, 1848, another issue was made, at $50. Large sales of the bonds of the company were made at a discount of from 12 to 15 per cent. The road was finished February 20th, 1849, at a cost of $3,160,301. So that, what with errors in original location, want of foresight in providing funds, and delay in opening the road, at least $500,000 has been lost to the stockholders. But the road is now under a new direction, and with attention and economy in management, will no doubt be a productive property.

The investigating committee of the stockholders of the Old Colony Railroad, in the report before alluded to, state "That the earnings of the road for the year 1849 were $275,067; the running expenses were $207,616; leaving a balance of $67,450; but from that amount should be deducted interest and sundry other items, amounting to $59,595; leaving a net profit of $7,875, upon a capital of $1,836,164. Your committee think that it is a great mistake to make no allowance for depreciation in managing the property, which is deteriorating by use. The question now arises, from what sources the dividends which have been declared and paid, as the earnings of 1847 and 1848, were derived; and the committee are satisfied that these dividends were paid out of the capital of the company. The last dividend which the company made was $48,393, or 3 per cent on the capital, and was payable on the 22d January, 1849. But there were no funds in the treasury for the payment of this dividend, although the directors, on the re

port of 1848, made the most flattering statements in regard to the situation of the road. Nothing was to be done but to create new stock and bonds, to provide means for paying the dividend; and accordingly, on the 9th January, 1849, the directors created 3,200 shares of additional stock, at $75 per share, and $320,000 of bonds, at 90 cents on the dollar, payable in instalments; the first instalment on both stock and bonds being payable on the same day that the dividend was to be paid. The dividend was thus provided for, and actually paid out of the capital stock of the company. The amount of extra interest which has been actually paid by the company on notes and memorandum checks, from November 30th, 1847, to October 5th, 1849, above the legal interest, was $38,048-an average of nearly 16 per cent per annum. The reserved fund, ($14,142,) as represented in report to stockholders, in 1848, is of no value; it could not be relied upon to pay one dollar of the company's liabilities. It was made up of cross entries, for the purpose of swelling the credit of income, applicable to dividends, and to represent the company as being in a more prosperous situation than it really was. On the 30th November last, there were outstanding liabilities against the company, not mentioned or alluded to in the director's report, amounting to $12,966. How can it be said that there is a reserved fund, when an amount of debts larger than the reserved fund, properly chargeable to income, is not deducted therefrom?"

We hope that there is some mistake in the testimony of Mr. E. H. Derby,* that the reserved funds of most railroads are similar to ours, consisting "of cash items absorbed by construction, and due therefrom to income account," as it would materially affect the soundness of other roads.

The following table will exhibit the amount of reserved funds, and also the amount of funded and floating debts of seven of the principal railroads of Massachusetts, taken from the annual reports to the Legislature in January last:

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The investigating committee of the Old Colony Railroad further state:"That 2,069 shares of stock were unauthorizedly issued; that the practice of an agent of the road making purchases of himself is much to be deprecated; that the treasurer's department was carelessly managed; that the superintendent, from fear of giving offense, had not dismissed employees when they should have been discharged for incapacity or unfaithfulness; that abuses had existed for a long time in the management of the paintshop; that work had been done by the foreman and his son on Sundays, for the purpose of obtaining from the company double pay, which was allowed for work done on the Sabbath; that the number of free passes unjustifiably reached to the number of 6,541 during the last year; and numerous other abuses of a greater or less magnitude.'

* See appendix to Report, page 23, in answer to Interrogatory 47.

The committee, however, come to the conclusion that the losses of the company are attributable to the injudicious system of management which has prevailed, and that by the application of judicious reforms, the property may be rendered productive.

The investigating committee of the Boston and Maine Railroad Co., in their report to the stockholders, state:-"Upon looking into its affairs, one of the first things which attracted our attention, as requiring retrenchment, was the enormous expenses of the establishments for the manufacture of engines and cars at Boston and Lawrence. The amount invested in them was $131,594; the annual expenditures for labor, materials, &c., &c., was $164,414; the value of cars and engines manufactured, and value of repairs done, was estimated at $109,781 per annum; showing a balance against the shops, exclusive of interest, insurance, and taxes, of $54,633. Your committee are of opinion that such large manufacturing establishments, even under the most judicious management, are not desirable, as appendages to railroads. From the most diligent inquiry, they have not been able to learn that any railroads which have embarked in such experiments, have realized an adequate remuneration therefor. And in the large outlays made to carry on the operations of the engine and car shops, they think they have discovered one of the principal causes of the present condition of the finances of the company; and that with the retrenchments and curtailments which can be properly applied therein, a very great saving may be made to the road. The committee have, therefore, unanimously come to the conclusion, that the best course to be pursued by the company, is to abandon the engine-shop at the island in Charles River, as a manufactory, or as a place for general repairs, and to reduce the force at Lawrence to one adequate only to repairs. Your committee are further of opinion, that the free ticket list should be reduced, having ascertained that 5,016 passengers were transported over the road in May last without fare; in the month of June, 3,199; and in the month of July, 2,390. In conclusion, your committee would state, that a board of directors, who will devote their personal attention to the affairs of the company, and guard against extravagant expenditures, with the same care and scrutiny which they devote to their private interests, are the proper persons to whom this business should be entrusted. Were the rights and property of this corporation the estate of a private individual, of good business capacity, no one can doubt that it would be one of the most lucrative investments which could be made; and so it must become, under prudent and judicious management, as a corporation."

The charge of "interest" seems to be a considerable item of expenditure upon several of the railroads of Massachusetts; though how it can well be, in a business in which the operations are almost exclusively in cash, it is somewhat difficult to conceive. The following will show the amount paid by six of the principal companies in 1849:

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The Western, Eastern, and Boston and Maine railroads, have a loan from the Commonwealth, upon which only 5 per cent per annum of interest is paid, which enables them to pay better dividends than their less fortunate associates. The Commonwealth is also a large stockholder in the Western Railroad. The policy of a State becoming a partner in the conduct of any

business, whether railroad, bank, or college, may seriously be called in question. In 1847, the Vermont and Massachusetts Railroad Company applied to the Legislature of Massachusetts for a loan, but the application was refused. The subsequent career of that company will show that the Commonwealth fortunately escaped what would have proved a severe infliction.

The practice of issuing bonds appears to be growing in favor, but an inspection of the several railroads of Massachusetts will show that those roads are most profitable whose capital is exclusively owned in shares.

If the net income of the Massachusetts railroads is constantly diminishing, how, it will naturally be asked, are the dividends kept up? The following list will show that the railroads named below, divided in 1849 more than their net earnings :—

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But, it will be replied, most of the railroads have a reserved fund, or surplus! Very true. Very true. But have they not also a floating debt? By reference to a preceding page, it will be seen that their floating debt is nearly five-fold greater in amount than that of their surplus. In the language of the investigating committee of the Old Colony Railroad Company," how can there be a reserved fund, when an amount of debts exists larger than the reserved fund."

The directors of the Fitchburg Railroad Company, in their annual report to the Legislature, January last, state the following facts:

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By all which, one would be led to believe that the net available means of that road exceeded the amount of dividends, on the 31st December last, $25,900; and that $19,332 were added to the surplus fund; though what becomes of the difference between the two amounts ($6,568) is somewhat unfathomable. But, we apprehend that Bennett or Comer, or any correct accountant, would state the case thus:

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Excess of dividends over net available means in 1849...

$237,900

164,938

$402,838

195,256

$207,582

212,000

$4,418

It would be well if such fallacies were done away with, and the capital of that company made to represent the actual cost, instead of exhibiting, as it does in the case of that company, a difference of $176,012. The amount of net earnings upon the cost of the Fitchburg Railroad Company, and the dividends declared in 1849, may be thus stated:

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The Worcester, Lowell, Fitchburg, and Old Colony, have very wisely raised their fares to the level of the Western, Eastern, and other well-managed railroads; and the result has been an improvement in the condition of their affairs.

Upon the whole, Massachusetts with her one mile of railroad to each seven square miles of her geographical surface, may well be proud of her system of internal improvements. Her metropolis may be compared to a hand with seven fingers, stretching several thousand miles in as many different directions, into the interior. And from the foregoing facts and statements, the conclusion is justifiable, that railway property can be made remunerative to its owners, provided the following principles be kept steadily in view :

First. Ample means should be provided for construction, before commencing the enterprise.

Second. The rates for transportation of passengers and merchandise should be such as to secure the largest income with the least expense.

Third. "Every business by itself," is a good maxim among railroad companies, as in commerce or manufactures. The business of a railroad company should be exclusively confined to the transportation of passengers and merchandise; and any departure therefrom cannot but be attended with danger. Let these things be, and all will be well.

JOURNAL OF MERCANTILE LAW.

COMMERCIAL CODE OF SPAIN.

NUMBER XIII.

D. M. B.

We continue our translations from the Codigo De Commercio of Spain. The present number relates to

CAPTAINS, OFFICERS, SEAMEN, AND SUPERCARGOES OF SHIPS AND VESSELS. CONCERNING MASTERS OF VESSELS.-634. The captain of a vessel must be a native of the kingdom of Spain, and a person capable of contracting and binding himself.

Strangers cannot be masters, unless they have a letter of naturalization, being also required to give security for the faithful performance of their trust, equiva lent to one-half, at least, of the value of the vessel which they may command. 635. The master of a vessel must be skilled in the art of navigation.

His examination, and other requisites neccessary to exercise this charge, shall be according to what is prescribed by the Ordinances of Matriculation of the People of the Sea.

636. The naviero (ship's husband) who reserves to himself the right to exercise the captaincy of the vessel, and has not the letters-patent of a captain, according to said ordinances, shall be limited to the economical administration of the affairs of the vessel, availing himself, so far as respects the navigation of the vessel, of the services of a captain, approved and authorized in the terms which the ordinances aforesaid prescribe.

637. The captain, who is a native of Spain, shall be obliged to give security, or not to do so, according as he may contract with the naviero.

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