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it succeeded, by paying large premiums, in acquiring a
minority interest in the Tide Water Company's stock. This
move, together with the continued hostility of the railroads,
led to a virtual surrender on the part of the Tide Water
interests in 1883. 27 The contracts of agreement provided
that the total pipe line business of the two groups should be
divided between the Tide Water and National Transit com-
panies in the proportions of 11.5 percent and 88.5 percent,

M Report on Petroleum Industry, Part I, p. 23.
"Ibid., p. 50.
Ibid., p. 54.



The Dissolution of the Standard Oil Company 65

respectively. 28 The total business of the refineries of these
two groups was divided in the same proportions. The Tide
Water Company has since remained a part of the Standard
Oil system. For a time these two pipe line companies were
alone in the trunk line business. The experience of the Tide
Water enterprise discouraged the construction of independ-
ent linas for several years.

Thus, during the first period, the Standard obtained
control of from 90 to 95 percent of the oil refining business,
and nearly as large a control of the pipe lines, first of the
local pipe lines and later of the trunk lines. Its position
was established primarily through the aid of railroad dis-
crimination, and secondarily through pipe line control.
The rebate ranging from a cent to a cent and one-half per
gallon was sufficient in itself to give a monopoly in the terri-
tory affected. * The railroads, in conspiring with the Stand-
ard, gave the latter its monopoly. The Standard covered
its agreements with the greatest secrecy and repeatedly de-
nied the true relations which existed between it and the other
oil interests which had been acquired. Throughout the peri-
od unfair methods of competition were used and the efforts
of the independent refiners and crude oil producers to secure
legislative and judicial relief were defeated.

The second period of the oil combination, beginning with
the Standard Oil Trust agreement of 1882 and ending in
1899, is known as the "trust period." The agreement of
1879 gave place to a new trust agreement in January 1882. 29
The latter is a typical example of the trustee device. By
the terms of this agreement the stocks with all their voting
rights and the control over the business and affairs of forty
corporations representing the Standard interests were turned
over to a board of nine trustees to be held for all the parties
in interest jointly during the lives of the survivors and sur-
vivor of the trustees named in the agreement and for twenty-
one years thereafter. In exchange for the 35,000 shares of
stock held by forty-one stockholders, a value of $55,710,698,
the trustees issued 700,000 certificates, the ratio of exchange

38 Report on Petroleum Industry, Part I, p. 54.
29 Ibid., pp. 361-69.



66 Trust Dissolution

being 1 to 20. 30 Of the 700,000 trust certificates, seven men
received 451,100. John D. Rockefeller received 191,700, or
27.4 percent of the total. These certificates represented
the holder's equity in the total property of the combination
and served as a basis for declaring dividends.

The railroad discriminations during the first ten years of
the trust period, if perhaps less audacious than before, were
still flagrant. 31 In 1884, the Standard interests entered into
an agreement with the Pennsylvania Railroad whereby the
latter was to be credited with the transportation of 26 per-
cent of the entire shipment of petroleum to the seaboard,
whether by rail or by pipe line. 32 In return it was agreed
that all joint rates from any delivery point of the Standard's
feeding pipe lines to any refining or terminal point should be
fixed by the railroad, subject to the advice and concurrence
of the Standard. The rail rate which for several years had
been 33 cents per barrel from the Pennsylvania oil fields to
the seaboard was now raised and maintained at 45 cents per
barrel for many years. Since the cost of pipe line transpor-
tation was so much less than by rail the agreement provided
that, wherever possible, the railroad could turn the oil over
to the Standard's pipe line and the rail rate would be di-
vided. The pipe line maintained the same high rate as the
railroad. The result was that the independent refiners were
practically prohibited from establishing refining plants at
the seaboard where they would be near the large markets
offered by the seaboard cities.

Other instances of railroad discriminations during the
trust period were agreements with transcontinental rail-
roads, which provided temporary and secret reduction of
rates to the Pacific coast to allow the Standard to accum-
ulate large stocks of oil. 33 Then at the suggestion of the
Standard the rates would suddenly increase. Another form
of discrimination which excited much hostility among the
independent shippers was the giving of lower rates on oil in
tank cars than in barrels, a favoritism to the largest shippers

Brief of Facts and Argument for Petitioner, V. I, p. 62.

"Report on Petroleum Industry, Part I, pp. 73-76.

"Ibid., p. 74.

88 Ibid., pp. 74-5.



The Dissolution of the Standard Oil Company 67

using tank cars. In the territory south of the Ohio river
the rates charged to barrel shippers in carloads ranged
from 50 to 200 percent above the rates charged for tank
cars. Though the concessions were less, similar discrimina-
tions were practiced in other sections of the country.

A belief became quite prevalent in the oil regions that
combined opposition to the Standard was useless. However,
two conspicuous instances of individual opposition Were
shown by the firm of Scofield, Shurmer and Teagle, and by
George Rice. 34 The former had agreed with the Standard in
1876 to limit its annual output of refined oil to 85,000 bar-
rels in return for equal transportation rates received by the
Standard. This arrangement was exceedingly profitable be-
cause of the wide margins of profit secured. The firm began
to exceed slightly its 85,000 barrels, offering the Standard
one-half of the excess profit. The Standard refused the
offer and in 1880 shut off the firm's supply of crude oil which
now came through the Standard's pipe line. The firm ac-
cepted the challenge and sought to carry on a business inde-
pendently of the Standard and its rebates. The Standard
was bold enough to bring an injunction suit to force the firm
to fulfill its agreement an agreement in restraint of trade.
The case was so evident that no one could expect any court
to uphold such an agreement. For many years the firm
found their lot hard, having to pay rates as much as double
those of the Standard. After a number of years the firm
brought suit against the railroad for giving rebates. The
case finally reached the Supreme Court of Ohio in 1892 where
the firm won in securing equal rail rates, but the discrimi-
nations for more than ten years had almost ruined their busi-
ness.

The opposition of George Rice also grew out of railroad
discrimination and was important in showing that the Stand-
ard still received rebates on oil shipped by others. Mr. Rice
built a refinery at Marietta, Ohio, in 1873. In 1878 his
business was practically stopped by a local advance in rates
amounting to 100 percent. Not being able to secure more

"Tarbell, The History of the Standard Oil Company, V. II, pp.
63-87.



68 Trust Dissolution

reasonable rates or rebates Mr. Rice built a pipe line of his
own in 1885. In the same year he brought suit against the
receiver of the Cincinnati and Marietta Railroad. The suit
revealed an agreement between the Standard and the railroad
whereby the Standard got a rate of ten cents per barrel, and
for others the rate was fixed at thirty-five cents. This alone
was a very large discrimination but the railroad also turned
over to the Standard twenty-five cents for each barrel
shipped by the independents. Within twelve days after the
court had ordered that the records should be produced the
Standard paid to Mr. Rice all that it had received from the
railroad on his shipments. Refunds were likewise made to
two other refiners in the same city.

The combination continued the policy of absorbing com-
petitors. Between 1882 and 1892 stocks were acquired in
about 78 corporations, not including the 40 that originally
entered the trust. 35 Some of these corporations were created
by the trustees. Such were the Standard Oil Companies of
several states. Others were competing corporations. Often
plants were dismantled as soon as acquired. In 1892 the
total number of corporations held by the trustees was 84.
Some of the acquisitions were made by the issuance of new
trust certificates, others in cash out of the earnings con-
trolled by the trustees. During the ten years $12,225,400
in trust certificates were issued for this purpose. These
additional certificates, together with a dividend in trust
certificates of $15,034,600 in 1887, brought the total issue
up to $97,250,000.

The independents met almost insurmountable opposition
from the Standard in their attempts to construct a pipe
line to the seaboard during this period. They had sought
legislative measures to restrict the excessive pipe-line rates
and to require the delivery of oil to all persons desiring oil
at the different shipping points, but all bills to this effect
were opposed by the Standard and failed of passage. In
1891 they determined to build a pipe line because the prices
of crude oil at the wells were very low compared with the
prices of refined oil at the seaboard. The Producers' Oil
35 Brief of Facts and Argument for Petitioner, V. I, pp. 62-3.



Tlie Dissolution of the Standard Oil Company 69

Company was organized and a pipe line was laid from south-
western Pennsylvania to Corapolis, near Pittsburg, from
whence the company expected to ship by rail to the seaboard
for the export market. But before it was completed in 1892
the Standard had so lowered the price of crude oil at the
seaboard that not a barrel was shipped by the new company.
As a result the pipe line was extended, after overcoming the
opposition of several railroads whose tracks were crossed, to
Oil City. The independent refiners at this point, who were
dependent upon the Standard, organized into the Producers'
and Refiners' Oil Company, and aided in the construction of
this extended line which has since furnished them their crude
oil. The latter company was controlled through stock
ownership by the Producers' Oil Company. Later fche
Standard interests acquired a majority of the stock of the
Producers' Oil Company, paying very high prices for some of
the shares, but were unable to vote them because, according
to the laws of Pennsylvania, a transfer of interest in a lim-
ited partnership could be prevented by a majority vote of
the remaining members and stocks. The Standard made a
test of this law in the courts and the law was upheld.

In the same year, 1891, and growing out of the same
conditions, other independents organized the United States
Pipe Line Company for the purpose of constructing a pipe
line to the seaboard. Every possible obstruction was placed
in its way, both by the Standard and by the railroads, but
the evidence shows that the latter were acting in the interest
of the Standard. They never opposed the Standard when it
wanted to cross their lines. The pipe line company expected
to extend its line to New York Harbor but the first section
was to be built to Hancock, New York, where shipments for
the seaboard would be turned over to the railroad. This
section of the line was completed except across the right of
way of the Erie Railroad which maintained a force of men
for three months to prevent making a connection. The
company then took up 70 miles of its pipes and built the line
to Wilkes-Barre, contracting with the Central Railroad to
deliver its oil by rail at the seaboard. In building this section






70 Trust Dissolution

opposition from four railroads caused much delay and in
some cases demanded court action.

Opposition of even a more serious nature was encountered
by independent refiners and pipe line companies through the
manipulation of the prices of oil by the Standard. The
price of crude oil was raised at the wells and the price of
refined oils much reduced at the seaboard. These conditions,
which prevailed from 1893-5, were very depressing to the
independents, and some of the largest independent refineries
were forced out of business. For a time the United States
Pipe Line carried oil for nothing in the interests of the
producers and independent refiners. The Standard also
acquired one-third of the stock of the United States Pipe
Line Company. The stockholders of the latter refused to
let the Standard interests attend their meetings or vote the
stocks. In the court action that resulted the pipe company
lost their contention in the lower court and their appeal to
the Supreme Court of the state was quashed on technical
grounds. The pipe line company then put its remaining
stocks in a voting trust to prevent the Standard from get-
ting them.

In 1895 the United States Pipe Line undertook to com-
plete its line to New York Harbor. The first opposition
came from the Pennsylvania Railroad which refused the right
to cross its tracks. The pipe line company managed to
purchase an acre of ground along a river bank to which the
railroad did not have title, and laid its pipe further to the
tracks of the Delaware, Lackawanna and Western Railroad.
Here the employees of the railroad and pipe line came to-
gether in a hand-to-hand fight. Both parties agreed to take
the issue to the courts and after six months a decision of the
lower court allowed the pipe line to cross. Pending an appeal
by the Standard interests the line was laid 50 miles further
to another railroad shipping point. In attempting to ex-
tend the line to New York Harbor it was found that the
Standard interests had taken out exclusive rights of way up-
on long strips of land running up and down across the coun-
try. Next, the Supreme Court of New Jersey reversed the
decision of the lower court and the pipe line company, finding



The Dissolution of the Standard Oil Company 71

from its experience that it was impossible to cross a state
having no law giving the right of eminent domain to pipe
lines, took up all its pipe lines in New Jersey and built its
line south from Wilkes-Barre to a seaboard point near
Philadelphia. This section was completed in 1901, nine
years after the line had been commenced.

The Pure Oil Company was organized in 1895 for the
support of the independents who were tempted to sell out
to the Standard because of the depressed oil prices during
the years 1893-5. S6 This corporation was a selling agency
for the independents, largely in the export market. Five
years later the authorized stock issue of the company was
raised from $1,000,000 to $10,000,000 and a majority of the
stock of the Producers' Oil Company, the Producers' and
Refiners' Company and the United States Pipe Line Com-
pany, was turned over to it. The stocks in all the companies
were put in a voting trust so that they could not be secured
by the Standard. The Pure Oil Company has since remained
independent but owing to its small capacity compared with
that of the Standard it has never restored competition in
the oil business.

In 1891 still another important pipe line system was
begun by independent interests, a group of Pittsburg
bankers. 37 The gathering system, which was very large,
was known as the Mellon Line, while the trunk line, completed
by the same interests in 1893 and extending 271 miles to
the seaboard near Philadelphia, was known as the Crescent
Pipe Line. In order legally to purchase this line the Stand-
ard interests, after several attempts, succeeded in securing
the repeal of a Pennsylvania law prohibiting the consolida-
tion of pipe lines. This occurred in 1895, during the period
of depression in the oil prices, and immediately after the
law was repealed this entire pipe line system, including its
terminal refineries, was purchased by the Standard. Several
other important competing pipe lines, not extending to the
seaboard, and running from two to three million barrels an-

86 Report on Petroleum Industry, Part I, pp. 126-134.

87 Ibid., Part I, p. 83; Brief of Facts and Argument for Petitioner,
V. I, pp.



72 Trust Dissolution

nually, were also acquired by the Standard during the trust
period.

In 1890 the State of Ohio brought suit against the
Standard Oil Company of Ohio, charging that the company
had violated the laws of the state by entering into the
trust agreement of 1882, and asking that its charter be
forfeited. 38 The case was thoroughly argued for a period
of about two years. In March, 1892, the Supreme Court of
Ohio rendered a decision declaring the trust agreement to
be illegal, but instead of revoking the company's charter
the court only ordered the company to cease its connection
with the trust. The company promptly announced that the
entire trust would be terminated. The trustees assumed the
title of "liquidating trustees" and went through with volun-
tary dissolution proceedings.

At this time the number of corporations controlled by
the trustees was 84* and the issue of trust certificates $97,-
250,000. The trustees first sold property held by them to
the amount of $1,579,400 and distributed the proceeds.
Then the trustees transferred from themselves the stocks of
64 of the 84 corporations held by them to certain of the
20 remaining corporations. The shares of these 20 com-
panies selected to receive the stocks were virtually owned
by the nine trustees, or the members of their immediate
families or associates. These companies were then, and
remained thereafter, the principal companies comprising the
Standard Oil combination. The trustees next proceeded to
make a pro rata distribution of the stocks of these 20 com-
panies. The stock of the 20 companies was divided into
972,500 parts, corresponding to the number of trust certif-
icates. Each certificate holder desiring to cancel a certif-
icate received ^7^VtfP ar t ^ ^he stock of all the companies
held by the trustees. The nine liquidating trustees, the
members of their immediate families and associates, owning
a large majority of the certificates, were practically the only
ones who liquidated their certificates, and obtained stock in
the sub-companies. Since the trustees continued to pay the
same dividends upon the certificates as they did upon the
88 Report of Petroleum Industry, Part I, pp. 76 et seq.



The Dissolution of the Standard Oil Company 73

stocks of the sub-companies and refused to pay dividends on
fractional shares, the small holders of certificates did not
liquidate their holdings. As a result the nine trustees with
a few others, controlling a majority of the stocks of each
of the companies, held the only stocks voted at the annual
meetings. The large body of trust certificate holders who
did not turn in their certificates had no vote in the manage-
ment of these companies. This condition remained until
about 1898-9.

The concentration of the stock within the 20 companies
and the manner in which the distribution was made plainly
showed an attempt to evade the decision of the court while
appearing to comply with it. The trust remained with
substantially the same organization as before. The same
nine trustees had a control as complete and direct as before
and the greatest secrecy surrounded all that was done. The
leaders testified in court that the trust was dissolved in ac-
cordance with the decision of the court. 39

We have already shown how the Standard interests, fol-
lowing the dissolution, worked as a unit in preventing the
construction of independent pipe lines, manipulating oil
prices, and acquiring a monopoly of the trunk pipe line
systems. The belief became general that the dissolution
of the trust had not been sincerely attempted and was being
avoided by means of a subterfuge. The trustees refused
to liquidate a trust certificate on the ground that it would
result in breaking up the certificate into a number of almost
infinitesimal fractions of corporate shares. 40 As an incident
growing out of the suit that followed, the Attorney General
of Ohio, by order of the Supreme Court of the State, insti-
tuted contempt proceedings against the Standard Oil of
Ohio in 1897, charging that the latter had not withdrawn
from the trust as required by the decree. After a large
amount of testimony was secured the Standard, fearing the
results of this suit, changed the form of its organization in
1899, and the suit was dismissed in the following year.

The third period of the Standard Oil history began with






"Brief of Facts and Argument for Petitioner, V. I, p. 67.
40 Report on Petroleum Industry, Part I, p. 81.



74 Trust Dissolution

the organization of the holding company in 1899. The
Standard Oil Company of New Jersey was chosen for this
purpose and its charter was amended. The Standard inter-
ests transferred their various properties and stocks to this
New Jersey company, the parent holding company. The
outstanding stock of the latter was converted into common
stock and the issue increased to $97,250,000, an amount
equal to the trust certificate issue of 1892. Each trust
certificate was exchanged for a share of stock in the Stand-
ard Oil of New Jersey. A share of stock represented a frac-
tional ownership in all the interests and properties of the
combination. The original stocks of all the companies were
held in the treasury of the company. The reorganization
made no essential change in the position of the Standard
interests in the oil industry because they were kept intact.
The few largest shareholders still retained the same propor-
tion of dominant control as in 1882. The change was in
form only. It was effected by an exchange of paper, piece
for piece, each representing the same equity, but it gave the
combination legal standing.

Although this period of the Standard's history extends
to the dissolution of the company in 1911, a general view of
the Standard's position with particular reference to the
years 1904-6 will be given as the suit to dissolve the com-
pany was begun about this time. Although the Standard
never acquired a monopoly in the production of crude oil,
yet, because of its control of the refineries, pipe-lines, and
marketing facilities, it has always been able to fix the price
for the crude oil that it buys. 41 The production of crude
oil is a risky enterprise in most regions and the Standard
has tended to leave others do the risky things in the oil
business. It did not become an important producer of crude
oil until the latter part of the eighties. Its greatest produc-
tion was in the Appalachian, Lima-Indiana, and Illinois
fields, the fields where crude oils yielded the largest propor-
tion of illuminating and lubricating oils. These fields were
also the most dependent on distant pipe-line transportation.
Of the total production in the Appalachian and Lima fields
41 Report on Petroleum Industry, Part I, p. 113.



The Dissolution of the Standard Oil Company 75

the Standard produced 11,019,205 barrels, or 24.44 percent,
in 1890, and 18,469,049 barrels, or 35.58 percent, in 1898. 42
During 1906-7 extensive acreage and production was secured
in the Illinois fields. At this time the Standard's production
in the other fields was relatively unimportant.

In all the important oil fields except Texas and Cali-
fornia, the Standard bought from 80-99 percent of the crude
oil and had almost unlimited power to fix the price of crude
oil, as well as the price of finished products. 43 The extensive
investigations of the Bureau of Corporations grew out of
complaints to Congress on the part of the crude oil pro-
ducers of Kansas who were suffering from a sudden and
extraordinary reduction in the crude oil prices offered by the
Standard, which, because of its pipe line control, was prac-
tically the sole purchaser of crude oil in this field. The
Standard would not allow crude oil through its pipe lines
for any except its own refineries. The Governor urged the
building of a state refinery, claiming there was then no com-
petition. The construction of one was begun but it was
declared unconstitutional. The Kansas refiners then pro-
ceeded to build a pipe line to the Gulf and the state attempted
to abolish discrimination.

The Standard, however, continued to receive extensive
railroad preferences and discriminations. In 1903 the Elkins
amendment, dealing wholly with railroad discrimination, was



Online LibraryMerle Raymond ThompsonTrust dissolution → online text (page 6 of 26)