Chesapeake and Ohio Canal Company records

Now a national park, the Chesapeake and Ohio Canal was once a major transportation artery that ran parallel to the Potomac River from Cumberland, Maryland, to Georgetown in the District of Columbia. The canal operated from the mid-nineteenth century into the 1930s and was used primarily for the transportation of coal and bulk agricultural products. These products, produced in the inland regions of the developing nation, were vital to the continuing prosperity of Tidewater cities and towns such as Baltimore and Washington.

The need for an accessible and dependable transportation corridor connecting inland regions with the Tidewater was recognized as early as 1750. George Washington called for construction of a series of short canals and locks to circumvent unnavigable stretches of the Potomac River and helped to organize the Pawtomack Company to achieve that end in 1785. The Pawtomack Company failed after Washington resigned to become President of the United States. That company was succeeded by the Potomac Canal Company, which functioned between 1819 and 1823. In 1823, this company was reorganized to form the Chesapeake and Ohio Canal Company.

The goal of the Chesapeake and Ohio Canal Company was to build a canal that would join the Ohio River with the Chesapeake Bay as a part of the development of a water transportation system throughout the United States. At the height of enthusiasm for the project, a possible connection with the Erie Canal and the Great Lakes was also considered. Between 1823 and 1828, the company developed a finance plan that depended on contributions from private citizens, the federal government, and the governments of Maryland, Virginia, and the District of Columbia. After the canal was planned for the Maryland side of the Potomac between 1823 and 1825, Virginia withdrew financial support from the corporation, thus precipitating the first of many financial crises that characterized the history of the canal.

By 1827, enough funds had been raised, largely through greater emphasis on private subscriptions, to plan for construction, and on July 4, 1828, construction was begun. Somewhat ironically, construction of the Baltimore and Ohio Railroad was initiated on the same day. Bitter competition persisted between these two firms throughout the history of the canal. Development and modernization of railroad technology eventually had a significant impact on canal transportation throughout the United States, and the Chesapeake and Ohio Canal was no exception.

Partially as a result of the developing political influence of the railroad, the federal government withdrew financial support for the construction effort in 1834. As a result, the pace of canal construction slowed; eventually an issue of bonds to complete construction was approved by the Maryland state legislature in 1844. These bonds were mainly purchased by private speculators, and funds raised enabled completion of the canal as far as Cumberland, Maryland, in October 1850.

The population of the inland Potomac River valley grew sharply following completion of the canal. The economy also greatly expanded and diversified during the period preceding the Civil War as enhanced transportation allowed greater access to Tidewater markets such as Baltimore and Washington.

The Civil War had a direct impact on the operation of the canal. Many of the battles were fought in close proximity to the it. The earliest of these was John Brown's raid on Harpers Ferry in 1859. The canal lay near the border between the North and the South, and throughout the war Confederate troops made repeated attempts to destroy aqueducts and feeder dams along the canal. Although trade resumed shortly following the end of the war in 1865, the rapid development of railroad technology during the conflict had a lasting negative impact on canal transportation of building materials, agricultural products, and coal.

A. P. Gorman assumed the presidency of the Chesapeake and Ohio Canal Company in June 1872. As a result of his administration, the political influence of the Democratic Party became a powerful force in the operation of the canal, and the company eventually became a patronage tool for the party. The period of 1870 to 1875 was one of unprecedented prosperity for the canal, partially as a result of this political favoritism.

The profitability of the canal was deeply affected by the great nationwide depression that gripped the country in the latter half of the 1870s. In addition, the canal was nearly destroyed by massive flooding in 1877. Following this flood, the Maryland legislature approved the sale of bonds to finance repair work aimed at partially restoring profitability of the canal. A measure of profitability was accomplished by means of the political connections established by those operating the canal at the time of the bond issue.

The operators of the company, led by A. P. Gorman, developed a plan to sell the authorized repair bonds to make capital improvements and enhance competitiveness. This scheme was challenged in court in 1880 by Daniel K. Stewart, a holder of bonds issued in 1844 for the original construction. The company achieved a partial victory enabling them to sell the bonds, but the capital improvements plan was effectively scuttled following public criticism of it by the Governor of Maryland and other public figures who were political rivals of Gorman.

The canal was again nearly destroyed by flooding in 1887, and another large scale sale of bonds authorized by the 1878 legislation was initiated. These bonds, unlike the bonds issued in 1844, mortgaged the physical property of the canal rather than its future earnings. Most of these were purchased by the Baltimore and Ohio Railroad Company through several holding corporations. The railroad, which had also been buying bonds from the earlier issue of 1844 through other holding companies, eventually held the majority of canal bonds from both 1844 and 1878.

The canal was virtually destroyed by a flood of unprecedented proportions on June 1, 1889, and, in December of that year, the Baltimore and Ohio Railroad Company petitioned the Washington County Circuit Court for the appointment of trustees for purposes of foreclosing on its bonds. The petitions were consolidated as George S. Brown et al. vs. the Chesapeake and Ohio Canal Company and were assigned case numbers 4191 and 4198 equity.

These two cases were, in essence, bankruptcy proceedings ostensibly intended to pay off the canal company's debts through the sale of its assets. However, the Baltimore and Ohio Railroad Company wanted to protect its interest in the right-of-way to thwart competition from other railroads. This was accomplished in two ways. The railroad purchased the canal interest of the state of Maryland in small increments between 1904 and 1908. At the same time, the trustees operated the canal company at a loss, while railroad backers founded the Chesapeake and Ohio Transportation Company. This transportation firm utilized the canal to realize a small profit, thus preventing a court-ordered sale by creating the illusion that the company would eventually be able to pay off its debts. This strategy remained effective until 1938.

In 1938, as a result of the Great Depression, the Baltimore and Ohio Railroad Company was itself in difficult financial straits. When the last of the canal trustees died, a board of receivers was appointed on May 4, 1938, by the Washington County Circuit Court at the request of the railroad. The close ties between the receivers and the Baltimore and Ohio Railroad, revelations that the majority of the bond issues of 1844 and 1878 were also held by the railroad, and public disclosure that the railroad had purchased Maryland's interest in the canal made it evident to the public that the receivers intended to dissolve the canal's property and assets solely to profit the railroad company. A part of this strategy was the development of a court-approved plan for disposal of debt in which the bonds of 1877 would be honored before all other debts, allowing the profits from sale of canal property to go directly to the railroad; minority bond holders and contractors who had performed work on the canal would be forced to sustain losses. This plan precipitated a flood of claims against the canal company ranging from charges of non-payment of wages and materials costs to illegal transfer of leases.

The canal and its associated lands and structures were sold to the federal government through the Reconstruction Finance Corporation in 1938. As a precondition of this sale, lands that the Baltimore and Ohio Railroad Company wished to acquire were excluded from the sale and directly transferred as payment for outstanding bond debts. The proceeds from the sale to the federal government were approximately two million dollars, the vast majority of which also went to the Baltimore and Ohio Railroad Company.

Most of the claims filed as a result of the dissolution plan were subsumed under Brown et al. vs. the Chesapeake and Ohio Canal Company. However, an independent appeal of the dissolution plan was filed by Rinehart S. Cohill in October 1939. Cohill was a minority holder, through inheritance, of a series of bonds issued under the authority of 1844. Cohill filed an appeal to block disbursement of the federal funds directly to the Baltimore and Ohio Railroad Company. This suit was also settled to the advantage of the railroad.

Following the sale to the federal government, the canal right-of-way was initially considered for construction of a multi-lane federal highway. Public opposition to this plan was immediate and widespread. The leader of the opponents of the highway plan was Supreme Court Justice William O. Douglas, who in 1954 led a hike of the length of the canal to publicize its scenic beauty. The media attention given the hike and growing opposition to the planned highway led the federal government to reconsider, and the highway plan was scrapped. By the end of 1954, the Department of the Interior decided to create the Chesapeake and Ohio Canal National Historic Park.