# The History of the Standard Oil Company/Volume 2/Chapter 14

CHAPTER FOURTEEN
THE BREAKING UP OF THE TRUST
THERE was no characteristic of Mr. Rockefeller and his great corporation which from the beginning had been more exasperating to the oil world than the secrecy with which operations were conducted. The plan of the South Improvement Company had only been revealed to those who signed an agreement to keep secret all transactions they might have with it. The purchase in 1874 and 1875 by the Standard Oil Company of Lockhart, Frew and Company of Pittsburg, of Warden, Frew and Company of Philadelphia, and of Charles Pratt and Company of New York was so thoroughly concealed that Mr. Rockefeller, five years after it occurred, dared make an affidavit that it had never occurred! Men who entered into running arrangements with Mr. Rockefeller were cautioned "not to tell their wives," and correspondence between them and the Standard Oil Company ​was carried on under assumed names! Whenever the subject of the relations between the various companies came up in a lawsuit or an investigation, a candid and straightforward answer was always avoided by both Mr. Rockefeller and the men known to be associated with him in some way. For instance, in 1879, when H. H. Rogers was before the Hepburn Committee, an effort was made to find out what relation the firm of Charles Pratt and Company, of which he was a member, sustained to the Standard Oil Company. Mr. Rogers's testimony was a masterpiece of good-natured evasion, and all that the examiners could get, though they returned again and again to the inquiry, was that Charles Pratt and Company worked "in harmony" with the Standard Oil Company.
When ex-Governor Nash of Ohio was investigating the relations of the Cleveland and Marietta Railroad and the National Transit Company, try his best he could not find out anything definite. In his report Mr. Nash said: "I have purposely referred to the parties who entered into this arrangement with Receiver Pease and his freight agent, J. E. Terry, as the parties represented by O'Day and Scheide, for the reason that I have not been able to ascertain who or what the parties are." That they were officers of the National Transit Company he had evidence, but what relation had the National Transit Company to the Standard Oil Company? Was it a part of it? Mr. Nash was unable to find from Mr. O'Day, closely as he might question him.
In the Buffalo case, when John D. Rockefeller was on the stand, he was put through a questioning in regard to the relations of the persons concerned in the suit to the Standard Oil Trust, whose existence he admitted. Mr. Rockefeller answered all the questions his lawyers would allow, but at the end the ​plaintiffs had gained little or nothing, and there was a strong impression, from the attitude of his lawyers rather than from that of Mr. Rockefeller, that an effort was making to conceal the nature of the agreement or charter or whatever it was under which the companies involved were working. Naturally enough this attitude inspired resentment and aggravated the feeling that this secrecy meant evil-doing. When the epidemic of trust investigation broke out in 1888, and the Standard Oil Trust was brought up for examination, there was a general public demand to have the matter cleared up. The first investigation of importance took place in February, 1888, in New York City, and by the direction of the Senate of New York State. A list of more than a score of trusts was in the hands of the committee, and, with the limited time at their disposal, it was certain that they could not look into more than half a dozen. There seems to have been no hesitation about including the Standard Oil Trust. "This is the original trust," wrote the committee. "Its success has been the incentive to the formation of all other trusts or combinations. It is the type of a system which has spread like a disease through the commercial system of this country."
There were several things the committee wanted to know about the Standard Oil Trust, and its president was summoned for examination, (1) What was it? Was it an organisation recognised by any law of the land? Long ago men had decided that partnerships, corporations, companies, in which men united to do business, must be regulated by law and subjected to a certain amount of publicity, if the public good was to be protected. Was the Standard Oil Trust within or without the law? (2) By the testimony of its own members, in other years the Standard Combination controlled from eighty to ninety per cent. of the oil business of the country. Was this supremacy due in any measure to special privileges, such as discrimination in railroad rates? (3) Was its power used to manipulate ​production and prices, and to prevent men outside entering the oil business?
It was to learn these things that the commission summoned Mr. Rockefeller. Flanked by Joseph H. Choate, present Ambassador to the Court of King Edward and the most eminent lawyer of the day, and S. C. T. Dodd, a no less able if a less well-known lawyer, Mr. Rockefeller submitted himself to his questioners. In no case where he has appeared on the stand can his skill as a witness be studied to better advantage. With a wealth of polite phrases—"You are very good," "I beg with all respect"—Mr. Rockefeller bowed himself to the will of the committee. With an air of eager frankness he told them nothing he did not wish them to know. The committee had a desire to begin at the beginning. It evidently had heard that a short-lived organisation, called the South Improvement Company, had given Mr. Rockefeller his whip-hand in the oil business as far back as 1872, enabling him in three months' time to raise his daily capacity as a refiner from 1,500 to 10,000 barrels, and so they asked Mr. Rockefeller:
Q. There was such a company?
A . I have heard of such a company.
Q. Were you not in it?
A. I was not.
It is a perfectly well-known fact that Mr. Rockefeller owned 180 shares in the South Improvement Company, of which he was a director; that, when a public uprising caused the destruction of the company, he was one of the two men who tried to save it; also that the Standard Oil Company of Ohio was the only concern which profited by the short-lived conspiracy.
Another staggering bit of testimony concerned railroad rates. Asked if there had been any arrangements by which ​the trust or the companies controlled by it got transportation at any cheaper rates than was allowed to the general public, Mr. Rockefeller answered: "No, sir." As a matter of fact, the three great oil-carrying systems of the country—the Central, Erie and Pennsylvania—had all of them, for much of the period between 1872 and 1888, granted to Mr. Rockefeller rebates calculated to keep freight rates down for the Standard Oil Company and up for its competitors. Contracts and agreements to this effect are easily accessible to any one caring to investigate the quality of Mr. Rockefeller's "no." "No," said Mr. Rockefeller, "we have had no better rates than our neighbours," and then, with that lack of the sense of humour which, ethical qualities aside, is his chief limitation, he hastened to add: "But, if I may be allowed, we have found repeated instances where other parties had secured lower rates than we had."
Later in the day the committee, which seems to have known something of Mr. Rockefeller's former contracts with the railroads, returned to the subject, and the following colloquy, worthy of the study of all witnesses interested in how not to tell what you know, took place:
Q. Has not some company or companies embraced within this trust enjoyed from railroads more favourable freight rates than those rates accorded to refineries not in the trust?
A. I do not recall anything of that kind.
Q. You have heard of such things?
A. I have heard much in the papers about it.
Q. Was there not such an allegation as that in the litigation or controversy recently disposed of by the Interstate Commerce Commission, Mr. Rice's suit; was not there a charge in Mr. Rice's petition that companies embraced within your trust enjoyed from railroad companies more favourable freight rates?
A. I think Mr. Rice made such a claim; yes, sir.
Q. Did not the commission find that claim true?
A. I think the return of the commission is a matter of record; I could not give it.
Q. You don't know it; you haven't seen that they did so find?
A. It is a matter of record.
Q. Haven't you read that the Interstate Commerce Commission did find that charge to be true?
A. No, sir; I don't think I could say that. I read that they made a decision, but I am really unable to say what that decision was.
Q. You did not feel interested enough in the litigation to see what the decision was?
A. I felt an interest in the litigation; I don't mean to say that I did not feel an interest in it.
Q. Do you mean to say that you don't know what the decision was? that you did not read to see what the decision was?
A. I don't say that; I know that the Interstate Commerce Commission had made a decision; the decision is quite a comprehensive one, but it is questionable whether it could be said that that decision in all its features results as I understand you to claim.
Q. You don't so understand it? Will you say, as a matter of fact, that none of the companies embraced within this trust have enjoyed more favourable freight rates than the companies outside of your trust? Will you say, as a matter of fact, that it is not so?
A. I stated in my testimony this morning that I had known of instances where companies altogether outside of the trust had enjoyed more favourable freights than companies in this trust; and I am not able to state that there may not have been arrangements for freight on the part of companies within this trust as favourable as, or more favourable than, other freight arrangements; but, in reply to that, nothing peculiar in respect to the companies in this association; I suppose they make the best freight arrangements they can."
The committee had a vague idea that refineries outside of the Standard Combination had had a hard time to live, and asked if the trust had sought in any way to make the operations of outsiders so unprofitable that they would either have to come in or go out of the business.
"They have not; no, sir, they have not," replied Mr. Rockefeller.
"And they have lived on good terms with their competitors?"
​"They have, and have to-day very pleasant relations with those gentlemen."
It would have been interesting to have heard the comments of a number of gentlemen trying to carry on an independent business in 1888 on that answer: of the refiners in Oil City and Titusville, at that time preparing to carry their troubles to the Interstate Commerce Commission; of George Rice and others at Marietta, Ohio; of H. H. Campbell, of the Bear Creek Refining Company at Pittsburg; of Scofield, Shurmer and Teagle at Cleveland.
If all of Mr. Rockefeller's testimony had been of the nature of the above, the investigation would have been worth little to the people who demanded it. But when it came to the questions which, after all, it was most essential to have answered at that moment, Mr. Rockefeller, after some skirmishing, gave the committee as frank testimony as is on record from him. The information wanted was in regard to the organisation of the Standard Oil Trust. As pointed out in a previous chapter, there had been some kind of an agreement adopted in 1882, binding together the varied interests which controlled the oil business. But what it was, where it was kept, by what authority it lived, nobody knew. For six years it had succeeded in hiding itself. What was the understanding which had made a trust of a company? The committee asked to know. Mr. Rockefeller and his counsel were the soul of amiability under the demand. They had only one request, and Mr. Choate made it persuasively:
"If the committee please," he said, "I do not arise to make an objection to a request of the committee; we think that it is very proper that the committee should be made acquainted with this document and everything pertaining to it in order to advise them as to the nature and operation of this trust; at the same time, there are private interests and controversies involved which might be seriously prejudiced by a public exposition of its details, and therefore, in producing it, we, without asking the committee to make any promise or to commit themselves at all, request that while they make whatever use of it they please, it shall not be in all its details made a matter of public record ​or exhibition unless in their final judgment, after consideration of the matter, they shall consider it necessary. There are very important private interests involved that ought not, under the guise of a public investigation, to be interfered with."
The committee examined the document and concluded to include it in its report. Like all great things, it was simplicity itself—an agreement which anybody could understand, by which some fifty persons holding controlling interests in corporations, joint stock associations, and partnerships of different states, placed all their stock in the hands of nine trustees, receiving in return trust certificates. These nine trustees themselves owned a majority of the stock and had complete control of all the property. Mr. Rockefeller, when questioned, stated that one of the trustees was a responsible officer in almost every refinery or organisation in the trust; that the trustees, as a body, knew by reports and correspondence, and by frequent consultation in New York with active promoters of each concern, just how the business was going on. "We all know how the business goes," said Mr. Rockefeller; "we get reports once in thirty days showing what it has cost for everything."
The trustees evidently ran the entire great combination under the agreement. But consider the anomaly of the situation. Thirty-nine corporations, each of them having a legal existence, obliged by the laws of the state creating it to limit its operations to certain lines and to make certain reports, had turned over their affairs to an organisation having no legal existence, independent of all authority, able to do anything it wanted anywhere; and to this point working in absolute darkness. Under their agreement, which was unrecognised by the state, a few men had united to do things which no incorporated company could do. It was a situation as puzzling as it was new. The committee in reporting on what it discovered did nothing to solve the puzzle. It simply sounded a warning:
"The actual value of property in the trust control at the present time is not less than one hundred and forty-eight millions of dollars, according to the testimony of the trust's president before your committee. This sum in the hands of nine men, energetic, intelligent, and aggressive—and the trustees themselves, as has been said, own a majority of the stock of the trust which absolutely controls the one hundred and forty-eight millions of dollars—is one of the most active and possibly the most formidable moneyed power on this continent. Its influence reaches into every state and is felt in remote villages, and the products of its refineries seek a market in almost every seaport on the globe. When it is remembered that all this vast wealth is the growth of about twenty years, that this property has more than doubled in value in six years, and that with this increase the trust has made aggregate dividends during that period of over fifty millions of dollars, the people may well look with apprehension at such rapid development and centralisation of wealth wholly independent of legal control, and anxiously seek out means to modify, if not to prevent, the natural consequence of the device producing it, a device of late invention, namely, the aggregation of great corporations into partnerships with unbounded resources and a field of operations quite as extended as its resources. So much for the nature of the Standard Oil Trust. The committee regret that they are not able to make a more complete and satisfactory report as to the method of its operations and its effect upon public interests.
"The brevity of the time within which the investigation was required to be made rendered it impossible for your committee to do more than examine the persons most prominent in the management of its affairs. Its cause was thus presented to the most favourable light possible, and it is only fair to conclude that nothing was left unsaid by them that could be said in its favour. No witness came forward to accuse it of the great offences commonly laid to its charge. No proofs were made of its rapacity or of the greed with which it lays hold of every competitive industry, except such as might be drawn from the fact that it is the almost sole occupant of the field of oil operations, from which it has driven nearly every competitor. No witness appeared to prove its power over railroad and transportation companies and to wring from already impoverished lines better terms than other shippers, except such as might be drawn from the admission of its officers, made with hesitation, that this wealth and the amount of its business enabled it to obtain better terms than its poorer competitors."
The New York Senate made its investigation of trusts in February, 1888. In March the Committee on Manufactures of the House of Representatives began a similar inquiry. This committee, like the earlier one, made the Standard its princi​pal subject. Fully 1,000 pages of a report of 1,500 pages are devoted to Mr. Rockefeller's creation—five times the space given to the Sugar Trust, ten times that given to the Whiskey Trust. The testimony was wide in range. Indeed, from the volume alone, a pretty complete history of the Standard Oil Company up to 1888 could be written. Here are found the South Improvement Company charter and contracts in full. Here is Mr. Cassatt's testimony, taken in the case of the Commonwealth of Pennsylvania vs. the Pennsylvania Railroad, showing the character of the rebates the Standard Combination was able to secure from the railroads at that time. Here is a partial history of the growth of the Standard pipe-lines. Many personal histories of refiners driven out of business by the conditions brought about by railroad discriminations; full accounts of the war of the producing element on the Standard; all of the testimony in the Buffalo case, where two refiners were found guilty of conspiring to ruin an independent refining concern; the reports of the Interstate Commerce Commission in the cases of George Rice; and much interesting explanation of various matters by leading Standard Oil officials appear in the report.
Mr. Rockefeller was on the stand, and one item of his testimony affords a curious comparison. On the 28th of February, when before the New York Senate committee, Mr. Rockefeller was asked if he was not a member of the South Improvement Company.
"I was not," he replied.
On the 30th of the April following, when before the House Committee, the following colloquy took place:
Q. I want the names particularly of gentlemen who either now or in the past have been interested with you gentlemen who were in the South Improvement Company?
A. I think they were O. T. Waring, W. P. Logan, John Logan, W. G. Warden, O. H. Payne, H. M. Flagler, William Rockefeller, J A. Bostwick, and—myself.
It was in this investigation that Henry M. Flagler gave ​explanations of various operations of the Standard, which have been quoted in the course of this narrative, notably explanations of the South Improvement Company, of the ten-cent rebate secured from all the railroads in 1875, of the purchase of the Empire Transportation Company, of the rebate on other people's shipments enjoyed in 1878 by the American Transfer Company. Some of Mr. Flagler's testimony in this investigation compares as curiously with affidavits of his made in 1880 as does that of his great chief. For instance, in 1880 Mr. Flagler swore that "the Standard Oil Company owns and operates its refineries at Cleveland, Ohio, and also a refinery at Bayonne in the state of New Jersey. That at no other place in the United States does the said Standard Oil Company own, operate, or control any refinery or refineries."
But in this investigation the following colloquy took place:
Q. When did the Standard Company of Ohio first enter into an alliance with other refineries?
A. If you mean (by) an alliance, Mr. Gowen, I should say never.
Q. I am only endeavouring to aid your friends in getting at what they want. Here, I notice, they propose to prove by you—I will give it in this way—that on account of the disastrous condition of the refining business, the Standard, on October 15, 1874, entered into an alliance with a number of Pittsburg refineries.
A. That is more correctly stated by saying that the Standard Oil Company purchased the refineries owned by the parties in Pittsburg.
Q. Who were they?
A. Lockhart, Frew and Company, I think, was the company. Wait a moment. It was the Standard Oil Company of Pittsburg, it being a corporation, and Warden, Frew and Company, of Philadelphia, and, I should say, Charles Pratt and Company, of New York.
Q. Any others?
A. That is all.
Q. All those gentlemen, Warden, Frew and Company, and the Standard Oil Company of Pittsburg, Charles Pratt and Company, of New York, are now associated with you as parties interested in the present Oil Trust?
A. They are stockholders. The property formerly owned by them was at that time purchased by the Standard Oil Company.
Q. When you speak of purchasing their interest, you do not exclude them from their interest? They united with you and remained as your associates in the business?
A. If it was not from the fact that ours was a corporation, we might call it a copartnership.
Q. They becoming interested in yours, and you in theirs?
A. Yes, sir.
Q. And you simply used your name to represent the joint ownership, as it was a corporation?
A. Yes, sir.
Full as the testimony on the Standard Oil Trust gathered by the Federal committee of 1888 is, its report touched but one point, and that was its organisation. To the committee it seemed that the agreement under which the trust operated was such as to make it exempt from the anti-trust legislation which was then contemplated by Congress. The legislation proposed was directed against "combinations to fix the price or regulate the production of merchandise or commerce." Now a mass of testimony had been presented showing that, from the starting-point of the Standard's history with the South Improvement Company, its aim has been to regulate the output of refined oil so as to fix the price, but this testimony, the committee saw clearly enough, did not apply to the trust which it was investigating. For—so swore the trustees—they had nothing to do with the business operations of the separate concerns. They simply held the stock of the various corporations, exercised their right as stockholders, received and distributed the dividends. Each company did its own business in its own way. The trustees were not responsible for it. There was something humorous to those familiar with the oil world, in the idea of J. D. Rockefeller, William Rockefeller, J. D. Archbold, Henry H. Rogers, Charles Pratt, H. M. Flagler, Ben​jamin Brewster, W. H. Tilford and O. B. Jennings, having nothing to do, as trustees of the Standard Oil Trust, but to receive and divide dividends, engrossing and interesting a task as that undoubtedly was. But, as a matter of fact, nothing else could be settled on them by anything in the testimony. For instance, in 1887 there was an alliance formed between the Oil Producers' Protective Association and the Standard for limiting the production of crude oil (a movement of which we shall hear more later). This certainly was in restraint of trade. But, on examination, the committee found the contract had been signed by the Standard Oil Company of New York. The trustees had nothing to do with it! Taking up, point by point, the conditions of which the oil producers complained, not one of them could be fixed on the trust. It had made no agreements, signed no contracts, kept no books. It had no legal existence. It was a force powerful as gravitation and as intangible. You could argue its existence from its effects, but you could never prove it. You could no more grasp it than you could an eel. Certainly the Committee on Manufactures was justified in confining its report to pointing out the fact that the Standard Oil Trust agreement was a shrewd and slippery device for evading responsibility.
And there the investigations of 1888 ended. There had been much noise over them, and for what good? So asked the discontented oil public. It simply had secured the form of an agreement which could no more be touched by legislation than human greed. It was characteristic that the oil public, intent on immediate remedies, should be discouraged. If they had applied to their cause the same patience and foresight Mr. Rockefeller did to his, they would have realised that, as a matter of fact, a respectable first step had been taken toward their real goal, a goal which has not by any means been reached—that is, a legal form of organisation for corporations doing interstate business which would enable the pub​lic to know promptly if they were securing special privileges or were restricting trade. This first step was in securing the famous trust agreement. That was now in the hands of people given to thinking about things, and something came of it, even more quickly than the philosophical observer of public events might expect, and in this wise:
In 1887 there was elected to the attorney-generalship of Ohio a lawyer, something under forty years of age, named David K. Watson. Two years later Mr. Watson was a candidate for re-election. One day, while busy with his campaign, he came out of his office in the state-house on the public square in Columbus, and, crossing the street, stopped, as he often did, at a book-shop to look over new publications. He happened there on a small yellow leatherette volume entitled "Trusts." It was written by William W. Cook, of the New York bar, and cost fifty cents. Mr. Watson bought the book and spent the evening reading it. At the end he found the Standard Oil Trust agreement. It was the first time he had ever seen it. He read it carefully and saw at once that, if it was a bona fide agreement, the Standard Oil Company of Ohio was and had been for seven years violating the laws of the state of Ohio by taking the affairs of the company from the directors and placing them in the hands of trustees, nearly all of whom were non-residents of the state. Mr. Watson knew on the instant that, if this were a bona fide agreement and he were re-elected attorney-general of Ohio, it would be his duty to bring an action against the Standard Oil Company of the state. He laid the little book away until he knew the result of the election.
DAVID K. WATSON
Attorney-General of Ohio from 1887 to 1891. Mr. Watson brought suit against the Standard Oil Company in May, 1890, in the Supreme Court of Ohio.
FRANK S. MONNETT
Attorney-General of Ohio from 1895 to 1899. Mr. Monnett brought suit against the Standard Oil Company in 1897 in the Supreme Court of Ohio.
LEWIS EMERY, JR.
Independent oil operator and refiner. Leader in movement for free pipe-line bill and anti-discrimination laws. Founder of the United States Pipe Line.
GEORGE RICE
Plaintiff in numerous cases brought against the Standard Oil Company. Prominent independent witness in various State and congressional investigations.
"You would not dare do that, would you?" exclaimed Mr. Buchanan.
"I was young then," Mr. Watson told the writer in describing this interview, "and I supposed it was expected of a public officer to perform his duty. So I explained to Mr. Buchanan that there was a statute in Ohio which required an attorney-general to bring suit against any corporation which he had reason to believe was violating the laws of the state; that I had no personal feeling against the Standard Oil Company, but I meant to enforce the law against it as I would against any other company which I believed to be violating the law."
"I admire your courage," said Mr. Buchanan, "but I would not do it."
On May 8, 1890, Mr. Watson filed his petition in the Supreme Court of Ohio. The petition averred that, in viola​tion of the law of Ohio, the Standard Oil Company had entered into an agreement by which it had transferred 34,993 shares out of 35,000 to the trustees of the Standard Oil Trust, most of whom were non-residents of the state; that it was these trustees who chose the board of directors of the Standard Oil Company of Ohio, and directed its policy, and prayed that, on account of this violation of law, the company should be "adjudged to have forfeited and surrendered its corporate rights, privileges, powers and franchises, and that it be ousted and excluded therefrom, and that it be dissolved."
The petition came on the trust like a thunderbolt. There had been already more or less erratic and ill-advised anti-trust legislation in various states, but it had been framed in ignorance of the actual organisation of the trust, and carried out with a crude notion that the trust, in spite of the fact that it was already thoroughly intrenched in the business life of the country, could be destroyed by a hostile act of a Legislature. Mr. Watson's suit was something very different. It was an application of recognised laws to admitted facts. It brought the Standard Oil Company face to face with several legal propositions it did not like to meet. After a long delay an answer was filed by the Standard. To Mr. Watson's joy, the one thing he feared—the denial of the correctness of the agreement—made no part of this answer. It admitted the agreement, but it denied that the Standard Oil Company of Ohio was a party to it. The agreement was signed by the individual stockholders of the Standard Oil Company, not by the company in its corporate capacity. The Standard Oil Company of Ohio had nothing to do with the Standard Oil Trust. True, certain of its stockholders had turned over their stock to the nine trustees, but the company did its business as before, discharging all its duties as its charter required. This was the essential point of the defendant's answer. This, and the claim that if the court should hold that the action of the stockholders ​in becoming parties to the agreement in their individual capacity was a corporate act of the Standard Oil Company, even then the charter should not be forfeited, since the law barred an act committed more than five years before a petition was filed.
Anticipating that the trust would get together a strong array of counsel to defend its attacked member, Mr. Watson retained his personal and professional friend, John W. Warrington, an eminent lawyer of Cincinnati, to assist him. They were opposed by Joseph H. Choate, S. C. T. Dodd and Virgil P. Kline of Cleveland.
But, while the preparation for the argument of the case was going on, the courageous young attorney-general was beset on all sides for an explanation. Why had he brought the suit? What was the influence which had controlled him? Men in power took him aside to question him, incapable, evidently, of believing that an attorney-general could be produced in Ohio who would bring a suit solely because he believed it was his duty. Some suggested that some big interest, hostile to the Standard, was behind him; others said the suit was suggested by Senator Sherman, then interested in his anti-trust bill. Along with this speculation came the strong and subtle restraining pressure a great corporation is sure to exert when its ambitions are interfered with. From all sides came powerful persuasion that the suit be dropped. Mr. Watson has never made public the details of this influence in any documentary way, but the accounts he at the time gave different friends of it led to so much gossip in Ohio that in 1899 the attorney-general of the state, F. S. Monnett, made detailed charges of six deliberate attempts to bribe Mr. Watson to withdraw the suits. But one bit of documentary proof of the efforts to reach the attorney-general ever reached the public—that ​came out without his knowledge or consent, Mr. Watson claims, seven years after the suit was brought. It is interesting enough as evidence of the character of the pressure Mr. Rockefeller can set in motion when he will. Among Mr. Rockefeller's Ohio friends was the late Marcus A. Hanna, who was even then a strong factor in the Republican party of the state. A few months after the suit was brought he wrote Mr. Watson a letter of remonstrance. Many of Mr. Watson's friends saw this letter at the time and felt deep indignation over its contents. In 1897, when Mr. Hanna was a candidate for the United States Senate, an enterprising newspaper man of Ohio recalled that during 1890 it was common gossip in Ohio that Mr. Hanna had written the attorney-general a letter asking him to withdraw his suit against the Standard Oil Company. The correspondent sought Mr. Watson, who, so he avers, let him read the letter through, although he refused to allow him to copy it for publication. "No one could read it and ever forget it," said the correspondent; but to reinforce himself he sought persons who were associated with Mr. Watson at the time—yes, they remembered the letter perfectly. Certain of them said that they could never forget some of its expressions. Between them they pieced up the following portions of the letter which they declared correct and which the correspondent published in the New York World for August 11, 1897:
"I noticed some time ago that you had brought suit to take away the charter of the Standard Oil Company. I intended at the time to write you about it, but it slipped my memory. A few days ago while in New York I met a friend, John D. Rockefeller, and he called my attention to the fact that you had brought the suit, but did not ask me to influence you in any way."
GROUP OF CLEVELAND CITIZENS
Who called on John D. Rockefeller at his residence, "Forest Hill," on July 25, 1896, to thank him for his gift of park lands to the city. Mr. Rockefeller is in the centre of the group, the late Senator Marcus A. Hanna in the right lower corner, and Governor Myron T. Herrick in the centre of the top row.
The letter concluded with a reference to the present Secretary of State, John Sherman. Hanna wrote: "I understood that Senator Sherman inspired and instigated this suit. If this is so I will take occasion to talk to him sharply when I see him."
The letter was written on the typewriter and letter-heads of Hanna's business office in Cleveland.
Having secured this much, the correspondent, thinking it possible Mr. Watson might have answered Mr. Hanna's letter, undertook a bit of original investigation. He sought the files of the attorney-general's official correspondence for 1890, and the following is what he found. This letter certainly is evidence enough of the sort of letter Mr. Hanna had written even if the above restoration is not absolutely accurate:
Hon. Mark Hanna,December 13, 1890.
Cleveland, Ohio.
My dear Sir:—Your communication of the 21st ult. came to hand. The delay in answering it has been caused largely by my being ill for several days. I did not intend that bringing the action to which you refer in your letter should be an attack on my part on "organised capital," for I am aware that great business transactions require the union and concentration of moneyed interests, and fully appreciate what has been done in that direction, yet I cannot but feel that I am justified in bringing the suit against the Standard Oil Company, and believe that there are many things relating to the case which, if you understood, would cause you to entertain different views concerning it and my relation to it. Let me impress one thing on you with special particularity, and you may depend absolutely on its truthfulness. Senator Sherman never suggested or encouraged this suit, either directly or indirectly. This must be understood in its broadest sense. The report probably arose from the fact that the action was brought shortly after the Senator made his great speech in support of his anti-trust bill. You will hardly receive my statement with favour, I fear, but I am alone responsible for the action. No one encouraged me to bring it or knew that it would be brought until I determined to do so, and it is unfair to other persons to charge them with suggesting it or encouraging it. With the highest appreciation of your personal friendship, I am, with great respect,
Truly yours,
David K. Watson.
​The part which the terse phrase attributed to Mr. Hanna,
"NO MAN IN PUBLIC OFFICE OWES THE PUBLIC ANYTHING,"
played in the Senatorial campaign of 1897 is familiar to those who follow politics. It was kept standing for days in black-faced capitals at the head of the opposition newspapers in Ohio, and remained a potent weapon in the hands of Mr. Hanna's enemies to the time of his death.
Whatever the pressure Mr. Watson encountered, it had no effect on his purpose. He quietly went ahead, presented his brief, and, when the time came, he and Mr. Warrington argued the case. The following proposition from the brief presented by Mr. Watson and Mr. Warrington show tersely the line of their argument:
"Where the manifest object of an agreement is to unite corporations, partnerships and individuals into, or include them in a common enterprise, and control them through an agency unknown to the law of their creation, and all the officers, directors and stockholders of such corporations sign the agreement, and, in furtherance of its provisions, transfer their stock to such agency, permit the corporate executive agencies to make such transfers on the corporate books, submit without objection to the domination of the agency to which the stock is so transferred in the selection of directors and officers, and in the management of the corporate affairs and business suffer the corporate earnings to go to such agency and be placed and mingled with the earnings of the other parties in the combination so created, and, after deductions for uses of the combination, be divided as part of such common earnings among the persons interested, in such case the corporations become and are—or at least will be treated by the courts as—parties to such agreement and actors in its performance, although their corporate names are withheld therefrom. Such proceedings constitute actual corporate conduct, if not formal corporate action, on the part of each corporation.
"An agreement is in violation of law and void which in effect creates a partnership between corporations, or where its probable operation and effect—much more where its inevitable tendency—is to create a substantial monopoly, or is in restraint of trade or otherwise injurious to the public.
"Where a corporation, either directly or indirectly, submits to the domination of an agency unknown to the statute, or identifies itself with and unites in carrying out an agreement whose performance is injurious to the public, it thereby offends against ​the law of its creation and forfeits all rights to its franchises, and judgment of ouster should be entered against it.
"Even if the statute which prescribes a time within which an action against a corporation for forfeiture of its charter shall be commenced, be applicable to a case of this kind, yet, where the offences or acts committed or omitted by a corporation for which forfeiture of its charter is sought at the suit of the state, are concealed, or are of such character as to conceal themselves, such offences and acts as against the state are frauds, and such statute does not begin to run until the frauds are discovered."
Joseph H. Choate appeared for the defence. The most eminent lawyer in the country, his argument must have been anxiously awaited by Mr. Watson. Curiously enough, as it seems to the non-legal mind, Mr. Choate began his plea by a prayer for mercy. Whatever the sins of the Standard Oil Company of Ohio, pleaded Mr. Choate, do not take away its charter. Mr. Choate then proceeded with a strong argument in which he claimed "absolute innocence and absolute merit for everything we have done within the scope of the matters brought before the court by these pleadings."
The argument did not convince the court of the innocence of the Standard in the questions at issue. The court showed, out of the mouth of the trust agreement itself, that the Standard Oil Company of Ohio was "managed in the interest of the Standard Oil Trust—irrespective of what might be its duties to the people of the state from which it derives its corporate life." The court gave as its opinion that an act of a majority of the stockholders of a corporation affects the property of a company in the same way that a resolution by the board of directors affects it. "By this agreement," said the court, "indirectly, it is true, but none the less effectually, the defendant is controlled and managed by the Standard Oil Trust, an association with its principal place of business in New York City, and organised for a purpose contrary to the policy of our laws. Its object was to establish a virtual monopoly of the business of producing petroleum, and of manufacturing, refining and dealing in it and all its products, throughout ​the entire country, and by which it might not merely control the production, but the price, at its pleasure. All such associations are contrary to the policy of our state and void.
"Much has been said in favour of the objects of the Standard Oil Trust and what it has accomplished. It may be true that it has improved the quality and cheapened the cost of petroleum and its products to the consumer. But such is not one of the usual or general results of a monopoly; and it is the policy of the law to regard, not what may, but what usually happens. Experience shows that it is not wise to trust human cupidity where it has the opportunity to aggrandise itself at the expense of others. The claim of having cheapened the price to the consumer is the usual pretext on which monopolies of this kind are defended."
From all this the court decided the Standard Oil Company deserved punishment. The charter was not taken away—the statute of limitations being advanced as a reason for this leniency, although, as Mr. Watson and Mr. Warrington showed, the statute of limitations could hardly be pleaded in this case, when the state had been kept in ignorance by the concealment of the agreement. The company was allowed to live, but it was ousted from the privilege of entering into the trust agreement, from the power of recognising the transfer of the stock, and from the power of permitting the trustees to control its affairs. It was also ordered to pay the costs of the action.
The judgment of the court was not rendered until March 2, 1892, almost two years after the filing of the petition. As soon as it was received Virgil P. Kline, the chief counsel of the Standard Oil Company of Ohio, went to New York for consultation with the trustees. Five days later he wrote to ​Judge Spear, the chief justice of the Ohio Supreme Court, saying: "Decisive steps will be taken at once not only to release the Standard Oil Company from any relations to the trust, but to terminate the entire trust." But there were "practical difficulties" in the task. The company pleaded for a "temporary recognition," and he asked an interview where he could explain the situation. This was granted, and on the 16th of March Mr. Kline explained to the judges in chambers, to Mr. Watson, and to his successor in office, the situation of the company. The trustees had all but seven shares of its stock. Trust certificates had been issued for these ten years before. The Standard Oil Company did not know who held these certificates, and could only know through the trustees, therefore the trust certificates must be transferred back, the owners hunted up, and each one induced to make an exchange. A system must be devised for doing this. Anybody could see this would take time. The court was friendly in the matter, and Chief Justice Spear gave to Mr. Kline an informal note granting an extension. "The court is not disposed to change its order at this time," the chief justice wrote, "but, so long as those in control appear to be engaged, as now, in an honest effort to dissever the relations of the company with the trust, and liquidate and wind up the affairs of the trust, the court will not be disposed to interfere." Thus time was gained.
While Mr. Kline was securing time, the trustees were pushing a liquidation scheme. On March 11 the following notice was mailed to all holders of Standard Oil Trust certificates, and was published in a newspaper in each state where a Standard Oil Company had been organised:
NOTICE
A special meeting of the holders of Standard Oil Trust certificates will be held at the office of the trust, Number 26 Broadway, in the City of New York, on Monday, March 21, 1892, at eleven o'clock A.M., for the purpose of voting upon a resolution ​to terminate the trust agreement, in accordance with the terms of said agreement, and to take such further action as may be thereby rendered necessary.
H. M. Flagler, Secretary.
The meeting was held as called. Mr. Rockefeller was in the chair, and Mr. Dodd, who had drawn the trust agreement, now presented the resolution which was to dissolve it. The remarks with which Mr. Dodd introduced his resolution denied every point which the courts had charged against the combination:
"Something over ten years ago," said Mr. Dodd, "a few individuals owning stocks in a number of corporations engaged in transporting and refining oil, entered into an agreement by which their stocks were placed in the hands of trustees, and certificates were issued by said trustees showing the amount of each owner's equitable interest in the stocks so held in trust. This was not done in order to vest the voting power in the hands of a few persons, because the persons chosen as trustees then held, and always have held, the voting power by virtue of their absolute ownership of a majority of the stocks. It was not done to reduce competition, because the companies whose stocks were placed in trust were not competing companies, and could not be so long as their stocks were owned by these few persons. It was not done to limit production or to increase prices, but, on the contrary, was done to increase production, cheapen cost of manufacture, and to lower prices, and it has been successful in that object far beyond the anticipations of those who originated the plan. It was called a trust, because it was a trust in the sense in which the word was then understood. It vested a fiduciary obligation in a few for the benefit of many, and the trustees thus created have faithfully observed the trust confided in them.
"Other persons, however, found this trust plan a convenient one, and it is alleged that it has been adopted for and adapted to purposes quite different from those which actuated the framers of this trust. Whether these allegations be true or false, it is true that a trust is now defined to be a combination to suppress competition and to reduce production, and to increase prices. Public opinion has not unwisely been aroused against combinations for such purposes, and legislation of more or less severity, and rather more or less peculiarity, has been directed against them in seventeen or eighteen states of the Union. All such arrangements are now miscalled trusts, and all trusts are popularly supposed to partake of the same nature. For this reason, if for no other, it should be seriously considered whether this trust should not be terminated. So long as it exists, misconception of its purposes will exist.
"But another reason exists which seems to make it desirable to dissolve this trust. ​Some two years ago a quo warranto issued in the name of the state of Ohio against the Standard Oil Company, a corporation of the state of Ohio, setting forth this trust agreement and alleging that that corporation, by becoming a party thereto, had done an act beyond its power, and thereby had forfeited its charter. The defendant corporation denied that it was a party to the agreement, and alleged that the agreement was on its face, and plainly, an agreement only between individuals, owners of corporate stocks, relating to their personal property, and was neither made by the corporation nor for the corporation. The court, however, held that the agreement was a corporate agreement, and decreed, among other things, that the corporation must cease to permit trustees to vote upon stocks held in trust.
"As this agreement was not entered into as a corporate agreement, and as this decision gives it an effect quite different from the intent of the parties who entered into it, it seems better to end it."
It is probable that Mr. Dood had foreseen from the first just such an attack on his agreement as had come, for he had put into that instrument a paragraph providing for a dissolution, and it was in accordance with that article that the trust was now dissolved. The trustees were to continue to exist—under a new name: "Liquidating trustees." The property they had to take care of was vastly in excess of what it had been ten years before. Then the capital of the thirty-nine constituent companies was $70,000,000. These companies had been combined until they had been reduced to twenty, and their combined capital was now $102,233,700. Property of about $20,000,000 in excess of the capital was held by the trustees. Mr. Dodd's resolution provided for the division of this property, and for the transfer of the trust certificates back to the corporations to which they belonged. The individual holders of the trust certificates were to get in exchange a proportionate share in each of the twenty companies. "A will not get stock in one corporation and B in another; each will get his due ​proportion in the stocks of all," said Mr. Dodd. All of this change would make no difference with the management of affairs. Mr. Dodd assured the stockholders: "Your interests will be the same as now. The various corporations will continue to do the same business as heretofore, and your proportion of the earnings will not be changed."
The trustees went about liquidating at once, but it was not until the following November that the immense number of certificates held by them personally were exchanged. The process followed can be easily illustrated by Mr. Rockefeller's case. When the trust was ordered dissolved Mr. Rockefeller held 256,854 of the 972,500 shares of Standard Oil Trust which were out. He turned over to an attorney an assignment of this amount, with instructions to secure from each of twenty companies in the trust stock certificates for the portion belonging to him. The corporate stocks were turned over to Mr. Rockefeller, and the assignment of certificate, a properly framed and numbered document, was turned over to the liquidating trustees. This assignment of legal title, for all practical purposes, was the same thing as the trust certificate. It enabled the trustees to collect dividends from the various companies and pay them just as they had before. The documents showing the formal procedure in the case of Mr. Rockefeller's stocks are printed in the Appendix.
At the end of the first year, after the dissolution of the trust, 477,881 shares were uncancelled. At the end of the second year it was the same; at the end of the third, 477,881 were still out. At the end of the fourth, 477,881. The dissolution of the trust seemed to have come to a stand-still. Mr. Dodd was right; things were going on as they did before; dividends were issued exactly as before. Nor was there any indication of an inten​tion on the part of the liquidating trustees to change this state of things. If the monopolistic power of the Standard Oil Trust was to be broken, it was evidently not to be by any order of dissolution by the courts. Something more powerful than the courts was at work, however. The spirit of individualism was beginning to reassert itself in the oil industry—a new war for independence had been begun, was indeed well under way even before the state of Ohio made the dissolution of the trust necessary.
* ↑ See Appendix, Number 44.
* ↑ See Appendix, Number 51. Extracts from testimony of H. H. Rogers.
* ↑ See Appendix, Number 48.
* ↑ Report on Investigation Relative to Trusts, New York Senate, 1888 pages 419-420.
* ↑ Report on Investigation Relative to Trusts, New York Senate, 1888, pages 420-421.
* ↑ See Appendix, Number 52. The Trust Agreement of 1882.
* ↑ Report on Investigation Relative to Trusts, New York Senate, 1888, pages 9-10.
* ↑ Affidavit of Henry M. Flagler in the case of the Standard Oil Company vs. William C. Scofield et al., in the Court of Common Pleas, Cuyahoga County, Ohio, 1880.
* ↑ Proceedings in Relation to Trusts, House of Representatives, 1888. Report Number 3,112, page 770.
* ↑ The full style of the case was: The State of Ohio on the Relation of David K. Watson, Attorney-general, Plaintiff, against the Standard Oil Company, Defendant.
* ↑ See annual report of the attorney-general to the governor of the state of Ohio, 1899.
* ↑ History of Standard Oil Case in the Supreme Court of Ohio, 1897-1898. Part I, pages 27-28. Original opinion of the court.
* ↑ Proceedings of meeting dissolving trust. History of Standard Oil Case in the Supreme Court of Ohio, 1897-1898. Part I, pages 80-81.
* ↑ See Appendix, Number 53. List of constituent companies of the Standard Oil Trust, with assets and capitalisation in 1892.
* ↑ See Appendix, Number 54. Forms of Mr. Rockefeller's certificate of holdings in the Standard Oil Trust, with assignment of legal title which took its place in 1892.