The Pacific Scandal is one of the most notorious events in Canada's political history -- it revealed corruption in the highest levels of government, bringing down then-Prime Minister Sir John A. Macdonald (though only temporarily) and calling into question the integrity of the Conservative party, to the point where they were ousted from power in the federal election that followed it.
The British North America Act of 1867 which united Ontario, Quebec, Nova Scotia, and New Brunswick into the Dominion of Canada originally contained a clause which dictated the improvement of the existing intercolonial railway system. This was later repealed; but a condition of British Columbia's entry into Confederation in 1871 was similar, in that it demanded the construction of a transcontinental railway to link the new west to the east.
According to the agreement that was struck, the railway was to be completed within ten years of it being chartered in Ottawa in 1872. But appeasing British Columbia wasn't the only motivating factor. Macdonald and his Cabinet had to keep a wary eye on annexationists in the United States, who had expressed designs on the British North American land west of what had been Upper Canada, particularly after 1867's Alaska purchase: US Secretary of State W.H. Seward predicted during a speech shortly after the purchase that the entire North American continent "shall be, sooner or later, within the magic circle of the American union."
Macdonald gave the charter to a Montreal businessman, Sir Hugh Allan, with the intent of a fully Canadian route westward; however, Allan had come to an agreement with an American colleague which saw the railway deviating south into the United States before turning to the west.
Macdonald and his Conservatives opposed the plan; Allan was not one to give in easily, however, and proceeded to buy his way into the good graces of prominent Canadian politicians and businessmen with considerably-sized monetary gifts and stocks. Naturally, Allan also helped the Conservative party in the autumn 1872 election, shelling out $35,000 to Macdonald himself, as well as $50,000 to Georges-Étienne Cartier and $115,000 to Hector Langevin, both of whom were Conservatives in influential constituencies.
The money was earmarked for use in the campaign; such corporate sponsorships aren't unknown. What happened next is where it became questionable: Macdonald, who had underestimated his campaign expenses and spent more than he had, sent a desperate telegram to Allan six days before the election itself. The telegram read as follows:
I must have another $10,000. Will be the last time of calling. Do not fail me. Answer today.
Allan sent Macdonald the money he had requested -- but he also kept the telegram in his files, presumably so that he would have some bargaining power should the need arise at any point in the future. The telegram made its way to the office of Allan's lawyer, John Abbott, where it was held for safekeeping.
By this time the Liberal party had grown suspicious of the exorbitant Conservative election budget, and had begun to assemble documentation of Allan's campaign donations, alleging that Allan had offered them in exchange for the railway contract. A law student from McGill University, working in Abbott's office, managed to lay hands on the telegram. He turned it over to the Liberals, who then produced it in the House of Commons, and the game was up.
A motion of confidence was held in the House in November 1873. After six days of debate the issue was resolved by a single deciding vote, that of an independent MP from Manitoba; the Conservatives were defeated, forcing the dissolution of Parliament and the calling of an election.
The 1874 election, almost entirely based on the issue of integrity in government in light of the Pacific Scandal, was won by the Liberals. John A. Macdonald, convinced that his political career was finished, threatened to resign as party leader. The Conservatives, reduced to the official opposition in the House, were in a shambles.
Of course, none of the parties involved came out of the Pacific Scandal any worse for wear. Macdonald was convinced to withdraw his resignation; he was later re-elected and served again as Prime Minister until his death in office in 1891. John Abbott also served as Prime Minister, for the year following Macdonald's death. Hugh Allan's railway project was a resounding success, and made him a fortune. Hector Langevin, who received the most of any Conservative politician during the election campaign, became a Cabinet minister under Macdonald and was knighted by Queen Victoria.
The only one who seems to have been forgotten entirely is the law student who appropriated the telegram from Abbott's office. No-one even remembers his name.
Sources:
Tetley, William. Epilogue: The Student and the Scandal. McGill News Alumni Quarterly, Fall 2003. http://www.mcgill.ca/news/archives/fall2003/epilogue/
Canadian Pacific Railway: Linking Canada. http://collections.ic.gc.ca/heirloom_series/volume4/28-31.htm
Pacific Scandal. Wikipedia. http://en.wikipedia.org/wiki/Pacific_Scandal
The Honourable Sir John Joseph Caldwell Abbott. Library and Archives Canada. http://www.collectionscanada.ca/primeministers/h4-3081-e.html | 
