Today in Legal History: Credit Mobilier Scandal

On February 18, 1873, the House of Representatives voted to find Oakes Ames (R-Mass.) guilty of bribery. Though the House contemplated ejecting him from office, Ames was instead censured. Too many other representatives had stock in Ames’ company, Credit Mobilier.

Oakes Ames had bought into a company called Credit Mobilier to finance the building of the railroads. Abraham Lincoln had encouraged him to do so; it was of national importance to get stable transport to the West. Ames continued to serve in Congress and recruited many of his colleagues to invest. It was a great investment as returns were running at 90% in 1867.

Credit Mobilier was in charge of building the Union Pacific Railroad, but did so at an incredibly inflated rate. When Credit Mobilier wasn’t charging twice as much as it cost to build, the company would “build” the same section of railroad more than once. It is estimated that Credit Mobilier made over $23 million while the railroad was left barely solvent. It was the Enron of its time.

Congress tried to get some of the money back by passing legislation (17 Stat. 509) to file suit. Eventually, the case made it to the Supreme Court. In U.S. v. Union Pac. R. Co., 98 U.S. 569 (1878), the Supreme Court decided that the above mentioned legislation was unconstitutional and that the government could not collect on the bonds made for the railroads until they matured. According to the Supreme Court, the railroads had been built, so Credit Mobilier was under no obligation beyond the contract.

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