Chapter XVII: Section 1: Be it enacted by the Senate and House of Representatives (1)

of the Commonwealth of Pennsylvania in General Assembly met, and it
is hereby enacted by the authority of the same_, That Andrew Howard,
J. S. Swartz, G. B. Edwards, J. D. Welsto, and J. P. Malin, their
associates, successors, and assigns, or a majority of them, be and
they are hereby authorised to form and be a body corporate, to be
known as the Pennsylvania Company, and by that name, style, and
title shall have perpetual succession, and all the privileges,
franchises and immunities incident to a corporation; may sue and be
sued, implead and be impleaded, complain and defend in all courts of
law and equity, of record and otherwise; may purchase, receive,
hold, and enjoy, to them, their successors, and assigns, all such
lands, tenements, leasehold estates and hereditaments, goods and
chattels, securities and estates, real, personal and mixed, of what
kind and quality soever, as may be necessary to erect depots, engine
houses, tracks, shops, and other purposes of the said corporation,
as hereafter defined by the second section of this act, and the same
from time to time may sell, convey, mortgage, encumber, charge,
pledge, grant, lease, sub-lease, alien, and dispose of, and also
make and have a common seal, and the same to alter and renew at
pleasure, and ordain, establish, and put in execution such by-laws
or ordinances, rules, and regulations as may be necessary or
convenient for the government of the said corporation, not being
contrary to the constitution and laws of this commonwealth, and
generally may do all and singular the matters and things which to
them shall appertain to do for the well-being of the said
corporation, and the management and ordering of the affairs and
business of the same:

_Provided_, That nothing herein contained shall be so construed as
to give to the said corporation any banking privileges or
franchises, or the privilege of issuing their obligations as money.

SEC. 2. That the corporation hereby created shall have power to
contract with any person or persons, firms, corporations or any
other party, howsoever formed, existing or that may hereafter exist,
in any way that said parties or any of them may have authority to
do, to build, construct, maintain or manage any work or works,
public or private, which may tend or be designed to improve,
increase, facilitate, or develop trade, travel, or the
transportation and conveyance of freight, live stock, passengers,
and any other traffic, by land or water, from or to any part of the
United States or the territories thereof; and the said company shall
also have power and authority to supply or furnish all needful
material, labour, implements, instruments, and fixtures of any and
every kind whatsoever, on such terms and conditions as may be agreed
upon between the parties respectively; and also to purchase, erect,
construct, maintain, or conduct, in its own name and for its own
benefit, or otherwise, any such work, public or private, as they may
by law be authorised to do (including also herein lines for
telegraphic communication), and to aid, co-operate, and unite with
any other company, person or firm in so doing.

SEC. 3. The company hereby created shall also have the power to make
purchases and sales of or investments in the bonds and securities of
other companies, and to make advances of money and of credit to
other companies, and to aid in like manner contractors and
manufacturers; and to receive and hold, on deposit or as collateral,
or otherwise, any estate or property, real or personal, including
the notes, obligations, and accounts of individuals and companies,
and the same to purchase, collect, adjust, and settle, and also to
pledge, sell, and dispose thereof, on such terms as may be agreed on
between them and the parties contracting with them; and also to
indorse and guarantee the payment of the bonds and the performance
of the obligations of the other corporations, firms, and
individuals, and to assume, become responsible for, execute, and
carry out any contracts, leases, or sub-leases made by any company
to or with any other company or companies, individuals or firms
whatsoever.

SEC. 4. The company hereby created shall also have power to enter
upon and occupy the lands of individuals or of companies, on making
payment therefor or giving security according to law, for the
purpose of erecting, constructing, maintaining, or managing any
public work, such as is provided for or mentioned in the second
section of this act, and to construct and erect such works thereon,
and also such buildings, improvements, structures, roads, or
fixtures as may be necessary or convenient for the purposes of the
said company, under the powers herein granted; and to purchase,
make, use, and maintain any works or improvements connecting or
intended to be connected with the works of the said company; and to
merge or consolidate, or unite with the said company the
improvements, property, and franchises of any other company or
companies, on such terms and conditions as the said company may
agree upon; and to fix and regulate the tolls or charges to be
charged or demanded for any freight, property, or passengers
travelling or passing over any improvement erected, managed, or
owned by the said company, or on any merchandise or property
transported over any road whatever by the said company, and to make,
from time to time dividends from the profits made by said company;
the several railroads managed by said company shall continue
taxable, as heretofore, in proportion to their length within this
state respectively; and the said Pennsylvania Company shall be
taxable only on the proportion of dividends on its capital stock and
upon net earnings or income, only in proportion to the amount
actually carried by it within the state of Pennsylvania, and all its
earnings or income derived from its business beyond the limits of
this Commonwealth shall not be liable for taxation.

SEC. 5. The capital stock of said company shall consist of 2,000
shares, of the value of fifty dollars each, being $100,000, and with
the privilege of increasing the same by a vote of the holders of the
majority of the stock present at any annual or special meeting, to
such an amount as they may from time to time deem needful; and the
corporators, or a majority of them, named in the first section of
this act, shall have power to open books for subscriptions at such
times and places as they may deem expedient; and when not less than
1,000 shares shall have been subscribed, and twenty per cent.
thereon shall have been paid in, the shareholders may elect not less
than three nor more than nine directors to serve until the next
annual election, or until their successors shall be duly elected and
qualified; and the directors so elected may, and they are hereby
authorised and empowered to have and to exercise, in the name and in
behalf of the company, all the rights and privileges which are
intended to be hereby given, subject only to such liabilities as
other shareholders are subject to, which liabilities are no more
than for the payment to the company of the sums due or to become due
on the shares held by them; and should the capital stock at any time
be increased, the stockholders, at the time of such increase, shall
be entitled to a _pro rata_ share of such increase, upon the payment
of the instalments thereon duly called for; and whenever an increase
of capital stock is made, a certificate thereof, duly executed under
the corporate seal of the company, and signed by the president and
secretary, shall be filed with the auditor-general before the same
shall be deemed to be valid.

SEC. 6. The principal office of the said company shall be in the
City of Pittsburg, but the directors, under such rules and
regulations as they may prescribe, may establish branches or
agencies in other parts of the state, or elsewhere; all of the
directors of said company shall be citizens of the United States,
and reside therein.

SEC. 7. The directors shall be elected annually by the stockholders,
on the first Tuesday of June of each year; and they shall elect from
their number, at the first meeting of the board after their
election, a president, and shall also have power to elect from their
number, or otherwise, a vice-president, a treasurer, and secretary,
and such other officers, clerks, and agents as the business of the
company may require; all elections for directors shall be by ballot,
and every stockholder shall be entitled to one vote for each share
of stock held by him; but no person shall be eligible as director
who is not a stockholder to the amount of ten shares; at the annual
or special meetings a quorum shall consist of stockholders owning at
least one-half of the capital stock.

SEC. 8. Ten days’ notice shall be given, by publication, in two
newspapers published in the City of Pittsburg, of the time and place
of the annual election; which election shall be conducted by three
stockholders, one of whom shall act as judge, and the other two as
inspectors.

SEC. 9. The board of directors shall make all by-laws necessary for
conducting the business of the company; which by-laws shall at all
times be accessible to persons transacting business with them; the
said directors shall have power, by a vote of a majority of their
number at any meeting of the board, to change the name of the said
corporation; and by any new name, thus adopted, upon filing with the
secretary of the Commonwealth and the auditor-general a truly
certified certificate, the said company shall have, hold, and enjoy
all the rights, powers, privileges, and immunities hereby granted;
the directors shall have power to require payment of the amount
remaining unpaid on the stock of said company, at such times and in
such proportions as they shall think proper; the said assessment to
be made as the by-laws of said company shall direct.

ELISHA W. DAVIS,
_Speaker of the House of Representatives_.

CHARLES H. STINSON,
_Speaker of the Senate_.

Approved—The seventh day of April, Anno Domini, one thousand eight
hundred and seventy.

JOHN W. GEARY.

NUMBER 10 (See page 1080)
DRAFT OF CONTRACT BETWEEN THE SOUTH IMPROVEMENT COMPANY AND PRODUCERS OF
PETROLEUM IN THE VALLEY OF THE ALLEGHENY AND ITS TRIBUTARIES. DATED
JANUARY, 1872[84]

[From “A History of the Rise and Fall of the South Improvement
Company,” pages 121–122.]

Agreement made and entered into this day of January, A.D. 1872, by
and between the South Improvement Company, a corporation under the
laws of Pennsylvania, and embracing among its stockholders more than
two-thirds (reckoned by their refining capacity) of the refineries
of petroleum in the United States, parties hereto of the first part;
and the Associated Producers of Petroleum, a corporation also
organised under the laws of Pennsylvania, and embracing among its
stockholders more than two-thirds (reckoned by the actual production
of the crude petroleum at their wells) of the producers of petroleum
in the Valley of the Allegheny and its tributaries, party hereto of
the second part. WITNESSETH.

_That whereas_, The party of the first part has entered into certain
contracts, viz.: The _first_ with the Pennsylvania Railroad Company;
the _second_ with the Erie Railway Company; the _third_ with the
Atlantic and Great Western Railway Company; and the _fourth_ with
the New York Central and Hudson River Railroad, and the Lake Shore
and Michigan Southern Railway Company, which contracts secure
certain advantages in relation to the transportation of petroleum
and its products, which it is the purpose of the contracting parties
to use for the promotion of the common interests of the producers,
refiners, and transporters of petroleum.

To the end that the said object may be more fully attained the said
parties hereto have covenanted and agreed, each with the other, as
follows, viz.:

I. The party of the first part, that it will appoint five of its
members to form, with a like number of the party of the second part,
a joint executive committee, who shall choose some competent and
discreet person not of their number who shall serve as the chairman
and the eleventh member of the joint committee.

II. The party of the first part, that it will submit all questions,
arising under said railroad contracts, which affect the interests of
both producers and refiners, to the decision of the joint committee
provided for in Article I of the agreement.

III. The party of the second part, that it will appoint five of its
members to constitute, with the five members of the party of the
first part, the joint executive committee provided for in Article I
of this agreement; and will submit to said committee all the
questions mentioned in Article II.

IV. The said parties mutually, that the decisions of said joint
committee on all questions, affecting the joint interests of
producers and refiners, which shall be submitted to them, shall be
final and conclusive upon both the parties hereto. That upon the
questions which shall at all times be held to affect the joint
interests of both producers and refiners are the following, viz.:

1st. The rates of transportation of both crude and refined oil.

2nd. The price of crude oil at the wells and in the market.

3rd. The price of refined oil in the market.

4th. The amount of rebate and drawback which from time to time
it may be necessary for the interests of the trade to ask from
the railroads.

V. The said parties mutually, that the joint committee shall meet
once a month, and at any intermediate time, or times, at which a
meeting shall be called by the chairman, or by any four of its
members, to consider such questions as shall affect the joint
interests of the parties hereto.

VI. The party of the second part that it will agree to increase and
lessen the aggregate production of crude petroleum, as the said
joint committee shall direct, to adapt as nearly as practicable the
supply of the same to the capacity of the markets of the world to
absorb at a price remunerative to the producer, the refiner and the
transporter.

VII. The parties hereto mutually, that the said joint committee
shall, at the beginning of each year, fix the minimum average price
at which crude petroleum can be produced and delivered on board
railway cars, which price shall be called the minimum cost of
production—that at the same periods the said committee shall also
fix the minimum average price at which crude oil can be refined, put
up in packages and sold, which price shall be called the minimum
cost of manufacture.

VIII. The parties hereto mutually, that after paying the minimum
cost of production of crude petroleum, the minimum cost of its
manufacture, and the cost of transportation and storage, and
shipping also, in the case of exported oil, the profits shall be
apportioned between the producers and refiners, in the ratio of ...
per cent. to the former, and ... per cent. to the latter.

IX. The said parties, that in case of a temporary over-production of
crude petroleum, the excess shall as far as practicable be taken and
withheld from market, and an advance of three-fourths of the minimum
cost of production advanced thereon by the party of the first part
at eight per cent., intrust the party of the second part keeping the
tanked petroleum insured in good and responsible companies to the
full amount of the advance, one year’s interest added.

X. The said parties mutually, that the party of the first part shall
only be bound to pay the prices and make the advances aforesaid, in
case the producers shall in good faith obey the instructions of the
joint committee, to limit production by stopping the drilling of new
wells.

XI. The party of the second part that it will keep a register of the
date of the commencement of all new wells, the date at which the
same shall be finished, the character of the well and the monthly
production, and the date at which it may be abandoned, and that it
will make it a condition, precedent to the holding of stock in its
company, that the date aforesaid shall be finished by its
stockholders.

XII. Both parties, that it is the especial object of this agreement
to bring the producers and refiners of petroleum into harmony and
co-operation, by reciprocal, fair, and just dealing, for the
promotion of their mutual interests, and everything in this
agreement is to be construed liberally for the carrying into effect
of this object.

NUMBER 11 (See page 1082)
EXTRACTS FROM THE TESTIMONY OF W. G. WARDEN

[From “A History of the Rise and Fall of the South Improvement
Company,” pages 30–41.]

WASHINGTON, D. C., March 30, 1872.

William G. Warden affirmed and examined.

By Mr. C. Heydrick (Counsel).

_Q._ Are you an officer of the South Improvement Company?

_A._ Yes, sir; or rather, I was.

_Q._ What office did you hold?

_A._ I held the office of secretary during all the previous
meetings, and was a director of the company.

_Q._ When was the company organised?

_A._ Our minutes will show that, if you will allow me to refer to
them, and I desire to put them in as evidence. On referring to the
minutes I find that the corporators’ meeting was held January 2,
1872. As I understand that these minutes are to go in as a part of
the evidence, they will furnish you all the information you desire
in regard to the organisation and proceedings of the company.

[The chairman stated that the witness could refer to the minutes as
memoranda, and that the committee would determine hereafter as to
whether they should be received as evidence.]

By Mr. Heydrick.

_Q._ For what object or business was the company organised?

_A._ For refining oil.

_Q._ That meeting was under the charter which has been presented?

_A._ That was the first meeting held after we got the charter.

_Q._ The gentlemen who attended that meeting on the second of
January were those named in the act of the incorporation?

_A._ Yes, sir; they met and transferred the company under the
charter over to the stockholders.

_Q._ Did the incorporators named in the act transfer their interest
to the stockholders, as you have stated on that occasion?

_A._ Yes, sir.

_Q._ What refining capacity does this company possess? State the
amount of capital and stock subscribed and put in?

_A._ At that time 1,100 shares, at $100 per share, was subscribed,
and twenty per cent. thereon paid into the treasury.

* * * * *

_Q._ Where did that company intend to refine oil?

_A._ Their calculation was to get all the refineries in the country
into the company.

_Q._ Was it the design of the stockholders to include all the oil
refineries in this country?

_A._ Yes, sir; every one of them.

* * * * *

_Q._ Can you give us a list of the stockholders?

_A._ I can give you them from the minutes. They are as follows:

William Frew 10 shares
W. P. Logan 10 〃
John P. Logan 10 〃
Charles Lockhart 10 〃
Richard S. Waring 10 〃
W. G. Warden 475 〃
O. F. Waring 475 〃
P. H. Watson 100 〃
H. M. Flagler 180 〃
O. H. Payne 180 〃
William Rockefeller 180 〃
J. A. Bostwick 180 〃
John D. Rockefeller 180 〃
—————
2,000

By Mr. Sheldon.

_Q._ What was the idea of getting all the refineries of the country
into one organisation?

_A._ The idea when the company started was this: There is a large
number of refineries in the country—a great deal larger than is
required for the manufacture of the oil produced in the country, or
for the want of the consumers in Europe and America; the capacity of
the oil refineries in the country is, I think, 45,000 or 50,000
barrels a day; we completed our organisation, and when we met
together it was discovered that the parties present represented, in
one way or another, a large portion of the refining interest in the
country; of course all of us had our friends in the matter, who must
be taken care of if any arrangement at all was made; and after
discussing the matter at considerable length, it was decided to
include within our company every refinery we could possibly get into
it. We also had considerable discussion with the railroads in regard
to the matter of rebate on their charges for freight; they did not
want to give us a rebate unless it was with the understanding that
all the refineries should be brought into the arrangement and placed
upon the same level; there was no difference made as far as we were
concerned, in favour of or against any refinery; they were all to
come in alike; that was the understanding from the first to the
last.

_Q._ Where are the refineries situated?

_A._ Situated in New York, Philadelphia, Baltimore, Boston, on the
seaboard, and in the Oil Region, Pittsburg, and Cleveland.

_Q._ You say you made propositions to railroad companies, which they
agreed to accept upon the condition that you could include all the
refineries?

_A._ No, sir; I did not say that; I said that was the understanding
when we discussed this matter with them; it was no proposition on
our part; they discussed it not in the form of a proposition that
the refineries should be all taken in, but it was the intention and
resolution of the company from the first that that should be the
result; we never had any other purpose in the matter.

_Q._ In case you could take the refineries all in, the railroads
proposed to give you a rebate upon their freight charges?

_A._ No, sir; it was not put in that form; we were to put the
refineries all in, upon the same terms; it was the understanding
with the railroad companies that we were to have a rebate; there was
no rebate given in consideration of our putting the companies all
in, but we told them we would do it; the contract with the railroad
companies was with us.

_Q._ But if you did form a company composed of the proprietors of
all these refineries, you were to have a rebate upon your freight
charges?

_A._ No; we were to have the rebate anyhow; but were to give all the
refineries the privilege of coming in.

_Q._ You were to have the rebate whether they came in or not?

_A._ Yes, sir.

_Q._ Were you to have a rebate upon the same freight charges that
had been in existence before?

_A._ No; the whole object of the railroad authorities was to get
better freight prices.

* * * * *

_Q._ What effect was this arrangement to have upon the producer or
upon the refineries that did not go into your combination?

_A._ According to our opinion of it that is the way we have got into
this trouble; we have been misconstrued and misrepresented as to our
purposes all over the country; the whole object was, and our whole
talk was, as far as any of my friends came into the matter, or as
far as I myself was concerned, that the producers should receive a
better price for their oil; we calculated to get five or six dollars
a barrel for crude oil; that was from the beginning of our talk
until the end of it; we had not our company organised, or at least
the organisation was not completed, nor the contract signed, until
all these disturbances commenced to be gotten up; we thought the
matter would quiet down and we would get a chance to explain our
position and put ourselves right; we asked for the opportunity to do
so; we have evidence of that in the telegrams we sent, and I can
say, under oath, that they were sent in good faith; there was never
an idea in my mind that they were not.... I will state further that
this matter was discussed with Mr. Scott by myself, personally, and
in very great length, and also with Mr. Potts, who never has had any
interest and never any part in this contract, and who spoke of this
very matter from the start, expressing the opinion that it could not
succeed unless the producers were taken care of. That was understood
by us all from the start in every discussion we had, and by the
railroad people as far as I heard from them. I can only answer for
the railroad people from the conversation I had personally with Mr.
Scott and Mr. Potts, in which it was perfectly understood that we
could not succeed in carrying out these measures for our own benefit
and the benefit of the railroads without the co-operation of the
producers, and the only point we discussed was whether it should be
a combination or co-operation. I took the ground personally against
forming a combination inasmuch as the interests of the producers
were in one sense antagonistic to ours, one as the seller and the
other as the buyer. We held in argument that the producers were
abundantly able to take care of their own branch of the business if
they took care of the quantity produced. They were only liable to
depression from our production, therefore they had in their own
hands directly the power of holding the market at six or eight
dollars a barrel.

_Q._ You did not take into consideration the good of the consumers
of the country, which is by far the larger part of the population of
the country?

_A._ Yes, we did.

_Q._ You wanted to put up the price of oil?

_A._ In answer to that I will state that the producers and refiners
were both suffering under the depression that existed. The refiners
were not getting enough to pay their expenses. All we asked was a
fair refiner’s profit.

_Q._ What effect were these arrangements to have upon those who did
not come into the combination or co-operation, as you have termed
it, as to the price to be charged for transporting their oil, both
refiners and producers?

_A._ I do not think we ever took that question up.

_Q._ Were the railroad companies to charge the same increase of
freights to those who did not come into the combination that they
did to you without giving them a rebate?

_A._ Yes, sir.

_Q._ Now in case you could control the oil produced by these people
in any combination that you made, were you not to have a rebate upon
the oil?

_A._ We were not to have a rebate, we were to have a drawback.

_Q._ What is the difference between a rebate and a drawback?

_A._ There is not much difference in one sense. A rebate is made at
the time we pay our freight; a drawback is made afterward.

_Q._ That is a technical, rather than a real, difference, is it not?

_A._ I want to state it as you will find it in the contract.

_Q._ The effect was that those who did not go into the combination
could not get their oil as cheaply as you could?

_A._ No, sir; they could not; I want to explain in what relation
that occurred and why this arrangement was made. I may say that it
never entered into my head that the refineries would not all be
brought in; a fair manufacturer’s profit was all we wanted. They
were all to be brought in on equal terms, and the object of the
drawback was not to cover all the oil to be refined in this country,
but only the oil that was to be exported.

_Q._ If all had gone into the combination, then the result would not
have been to injure the producers and refiners, but to injure the
consumers of the country?

_A._ No, sir; the purpose was not to injure them.

_Q._ Would it not have been to increase the price of oil, if you had
increased the cost of freight?

_A._ Yes, sir.

* * * * *

_Q._ You say the railroad companies were going to increase the rate
of freight anyhow; they had the right to do that if they were
carrying too low, but would that justify them in increasing the
rates of freight to such an extent that they could afford to give
you a sum of money for it?

_A._ I will tell you how that was done. The men in our trade are a
very hard kind of men to hold. Those of us who deal in oil know that
when we have purchased a lot, they would deliver it in New York for
less than anybody could afford to deliver it. That has been the fact
almost continuously ever since 1869. Oil has been delivered in the
East for less money than was apparent from any rates known to the
market; less than even we who refined it could deliver it for. The
railroads were kept constantly besieged by one or another, and they
were continually cutting under other routes for New York or for
Cleveland, so that nobody knew what the rates were. They have been
paying rebates, more or less, for the last two years.

_Q._ And you contemplated an increase of rates for the simple
purpose of having the railroads divide with you?

_A._ There was no divide.

_Q._ A rebate is a divide to a certain extent, is it not? The
proposition was that there should be taken out of the producers and
consumers of this country a certain percentage of the freight for
you?

_A._ It was done to prevent this cutting of roads one under another,
and to prevent speculation.

_Q._ Was it not done for the purpose of oppressing the producers and
consumers of this country?

_A._ I can only deny that such was the object, or that such would
have been the effect.

* * * * *

_Q._ Has it been the practice of both the producer and refiner to
make combinations from time to time by storing oils, and by large
shipments abroad to affect the general price in the market?

_A._ The producers have made such combinations on the creek, and a
few of the refiners and merchants made two combinations in 1868,
which was known as the Deboe combination, and in 1869 and 1870 the
Bull Ring, as they called it; but there was no combination that I
knew of on the part of the producers, except among themselves; they
have several times combined among themselves.

_Q._ Have there not been combinations of producers, refiners, and
merchants to affect the price of oil?

_A._ There have been all kinds of combinations.

_Q._ Is there not at this time, if not invalidated by a change of
directors of the Erie Railroad Company, a combination between
officers of that road and certain parties in New York by which they
control the price of coal?

_A._ If I were allowed to say what I think, I should reply in the
affirmative and to say that one great reason why we went into this
arrangement was to stop that Erie combination, which was a great
source of difficulty; we could not get hold of the matter; we would
ship a cargo of oil at a fair price to-day, and would be compelled
to sell it to-morrow at a much less price; this arrangement did
break up that combination entirely, so that there is no combination
of that sort to-day.

By the Chairman.

_Q._ I understand that your larger combinations swallowed up the
Erie combination.

_A._ It destroyed it at the time.

_Q._ Yours was somewhat in the direction of the Erie combination,
but larger?

_A._ No, sir; it was not; the Erie was with some merchants, ours
embraces the whole refining interest in the country; that was
different; I will state that since I came into this Capitol I have
been told that the very men engaged in prosecuting this
investigation have a combination by which they intend to run up the
price of their oil; I hope they will; I do not care what means are
used, so that we can carry on our business, and pay just what others
have to pay.

* * * * *

_Q._ I understand you to say that under your arrangement the cost of
crude oil might be increased $1.25 a barrel, and that there is
produced about 18,000 barrels daily in the Oil Regions of
Pennsylvania, but not that on an average; can you state from memory
about the amount of annual production?

_A._ I have a circular here which gives the statement as 5,775,000
barrels.

_Q._ So that the production in round numbers for last year was
6,000,000 barrels; now, of this $1.25, how much were you to get as
your drawback if you had carried out your arrangement?

_A._ The maximum we would have been entitled to receive is one
dollar a barrel.

_Q._ Then on this production you would have received $6,000,000 a
year, and the railroad companies an additional sum of $1,500,000; in
other words, under your arrangement the public would have been put
to an additional expense of $7,500,000 a year.

_A._ What public do you refer to? They would have had to pay it in
Europe.

By Mr. Negley.

_Q._ Were there not at the same time combinations upon the part of
producers to affect the price of oil in the market?

_A._ There were not at the time we started this matter; I do not
know of any just at that moment; there have been over and over
again. I want to state that a large portion of our oil product goes
to Europe—of this very crude oil which Mr. Sheldon talks about; I
have here a circular to which I call the attention of the committee,
which bears out our position in this matter; I desire to put it in
evidence because it gives the general opinion of merchants connected
with the exportation of crude oil. It has been the impression of
everybody in the trade that the oil exported should pay us an
additional amount in this country, to be divided between those
interested in the handling of it and the producing of it, to the
extent of eight or ten millions a year; I have had that figured out
three, or four, or five successive years. We have shown over and
over again that that amount ought to be retained in this country. I
have been engaged for several years in the oil business, and I have
yet to sell one barrel to bear the market. I have always been upon
the bull side of the market; I believe there ought to be in this
country a better price for oil to every one engaged in it. In 1868,
1869, and 1870, there were movements in oil which brought to this
country millions of dollars; and if the producers had refrained from
sending forward their oil beyond the requirements of the market, the
price would have been sustained. That has been the trouble always in
making movements for a higher price. There is no man in this country
who would not quietly and calmly say that we ought to have a better
price for these goods.

By the Chairman.

_Q._ Do you mean a better price here, or a better price for that
exported?

_A._ You could not get a better price for that exported without
having a better price here.

_Q._ That is what the committee wants to know, whether it is
necessary, in order to keep up the price abroad, to keep up the
price at home?

NUMBER 12 (See page 1082)
EXTRACTS FROM THE TESTIMONY OF PETER H. WATSON

[From “A History of the Rise and Fall of the South Improvement
Company,” pages 76–96.]

WASHINGTON, D. C., April 5, 1872.

By Mr. Townsend.

_Q._ From such testimony as you have given this morning, am I
correct in understanding that this whole arrangement was suspended
before its completion and before anything was done under it?

_A._ Yes, sir.

_Q._ That no completion of contracts was consummated?

_A._ No, sir; the conditions of the original understanding about the
contracts, on which alone they were to go into effect, had not been
complied with.

_Q._ And a further arrangement was necessary to make it a complete
contract?

_A._ Yes, sir, the South Improvement Company had to enter into a
contract, such substantially as I have furnished a draft of here, to
give the producers the full benefit of everything connected with the
contract before the contract itself could go into effect.

_Q._ There are three principal interests connected with the oil
trade?

_A._ There are, the producers, refiners and transporters; no
injustice could be done to either interest without affecting,
injuriously, the others. The object of the railroads in this matter
was to promote the interests of the trade in order to promote their
own interests.

By the Chairman.

_Q._ You say there were three interests, producers, refiners and
shippers?

_A._ Yes, sir, connected with the trade.

_Q._ And that the object of all these arrangements was to protect
these three interests?

_A._ To protect these three interests and incidentally, of course,
protecting the general interest in doing that, for this is
peculiarly an American traffic.

_Q._ It was in the direction of increasing to each of these parties,
respectively the benefits and profits of the business?

_A._ Yes, sir, that each might receive a fair profit. The railroad
companies had not been receiving cost for transportation, and it was
to save them from loss, for they had been transporting at a loss
during the whole of the year 1871.

_Q._ Well, that is to increase profits, is it not?

_A._ Yes, to save from loss.

_Q._ Did it look to increasing in any way the benefits of cheapness
to the consumer?

_A._ Yes, sir.

_Q._ How?

_A._ By steadying the trade. You will notice what all those familiar
with this trade know, that there are very rapid and excessive
fluctuations in the oil market; that when these fluctuations take
place the retail dealers are always quick to note a rise in price,
but very slow to note a fall. Even if two dollars a barrel had been
added to the price of oil, under a steady trade, I think the price
of the retail purchaser would not have been increased. That
increased price would only amount to one cent a quart, and I think
the price would not have been increased to the retail dealer because
the fluctuation would have been avoided. That was one object to be
accomplished. Moreover, there is only one-sixth of the oil produced
here consumed in this country—a very small proportion of the
product. In discussing what compensating advantage would arise from
an increase of price, the railroad companies considered, in the
first place, that there was a very great compensation afforded by a
steady trade.

_Q._ Will you state to the committee how, with your mode of arriving
at these conclusions, that cheapness to the consumer is promoted by
stability in trade—how that arrangement which gave $1.50 a barrel to
the South Improvement Company benefited either the railroad company
or the producer?

_A._ Well, sir, in the agreement you will observe that the maximum
rebates and maximum rates are stated. These maximum rebates were
exceptions to the rule, which is a cardinal principle in the
contract. The actual rates were to be kept as near to net rates as
possible. Moreover, this was a contract which, before it was to go
into effect, would have been a contract with the producer as well as
the refiner.

_Q._ Does this contract show that?

_A._ The draft of a contract which I have presented to the
committee, and which was to have been entered into with the
producers before the contracts with the railroad companies went into
operation, shows that.

_Q._ Does this contract say that anything was to be done in behalf
of the producer before it was to go into operation?

_A._ Not on the face of the contract; it was only a condition on
which it was delivered to me.

_Q._ A written condition so that it would become a part of the
contract?

_A._ It was a part of the contract.

_Q._ I asked you whether there was anything in writing?

_A._ I said there was nothing in writing on the face of the
contract, but nevertheless it was an essential part of it.

_Q._ It seems to be essential now that it should be a part of the
contract?

_A._ It was all the time so considered from the beginning.

By Mr. Hambleton.

_Q._ Was this draft of a contract with the producers drawn prior to
the execution of the railroad contracts?

_A._ Yes, sir, the draft was drawn prior to that.

By the Chairman.

_Q._ What is the date of that pencilled draft of a contract?

_A._ I could not give you the date of it; it was written in the
office of the Lake Shore Railroad Company.

_Q._ At what place?

_A._ New York.

_Q._ State as near as you can the date?

_A._ I should say it was probably in December; either late in
December or in the beginning of January, probably in December;
indeed, I am very confident it was before I went home at Christmas.

_Q._ Has any copy of this ever been printed?

_A._ No, sir.

_Q._ This is all there was of it?

_A._ Yes, except discussion; we discussed the matter.

_Q._ I mean all there was committed to writing?

_A._ Yes, sir, all there was then committed to writing.

_Q._ Is it all there was as far as making out a contract is
concerned?

_A._ Yes, sir.

_Q._ Was this submitted to the producers as a body or individually?

_A._ We were very anxious to submit it to the producers, and I asked
them to appoint a committee that we might do it, but they had got up
such an excitement at the time that nothing was practicable.

_Q._ When was that?

_A._ Before the last of these contracts was signed.

_Q._ Can you give the dates at all?

_A._ I cannot give the dates, but the contract with the Lake Shore
road had not been signed at the time.

_Q._ What producers did you ask to call a meeting?

_A._ Among others I addressed a communication to be delivered to a
gentleman who was understood to be the chairman of a meeting about
to be held.

_Q._ What was his name?

_A._ Foster W. Mitchell, of Franklin.

_Q._ You addressed a communication to him, of what purport?

_A._ Asking him to appoint a committee to meet a committee of the
South Improvement Company, that they might know what the objects of
the South Improvement Company were. I proposed to submit these
contracts with the railroad companies to that committee and also the
form of contract which the railroad companies required the South
Improvement Company to enter into with the producers, before these
contracts went into effect.

_Q._ Have you a copy of that communication or letter?

_A._ It was a telegram.

_Q._ Have you a copy of it here?

_A._ I have not at present.

_Q._ Have you it in your possession, anywhere, and can you lay it
before the committee?

_A._ I may have it; am not sure.

_Q._ Did you receive a reply to that communication?

_A._ Yes, sir.

_Q._ Was it stated in your communication that you proposed to lay
before the committee the form of contract to be entered into with
the producers?

_A._ No, sir. I proposed to lay that before the committee if it
should be appointed.

_Q._ If you are not able to furnish a copy of that communication I
will ask you to state orally its contents.

_A._ I could not give you the words of it; it was in general terms
asking that they appoint a committee to confer with a committee of
the South Improvement Company.

_Q._ To confer in reference to what?

_A._ I do not know that I should be safe in undertaking to say; I
know what my object was in writing it.

_Q._ That you have stated. If you received a reply from Mr.
Mitchell, state whether it was by letter or telegram.

_A._ I received a reply by telegraph from Mr. Mitchell, stating that
the meeting of the producers received the communication with
scorn—as of course they would if read to them, as a mass-meeting is
always called for a specific object.

_Q._ That was not in his reply?

_A._ No, sir, it was not. I replied to him that I had intended the
communication to him to be for the purpose of laying it before a few
of the principal producers; that to lay the proposition before the
meeting was of course to insure its defeat, because the meeting had
convened for a predetermined purpose, which was to denounce and
treat with scorn the South Improvement Company, because the South
Improvement Company had been represented to them as hostile to their
interests. This last perhaps was not in the communication.

By Mr. Hambleton.

_Q._ Have you a copy of that paper which you addressed to Mr.
Mitchell?

_A._ I am not sure whether I have or not. It was a telegram.

_Q._ Did that substantially close the written communications between
you and the producers upon that subject?

_A._ No, sir. I had a great many communications with individual
producers; I think with more than half the producers, estimating
them by the quality of oil produced.

_Q._ State what occurred.

_A._ I have corresponded with them and in that correspondence they
have expressed their belief that the proposed plan of the South
Improvement Company would work greatly for the benefit of the
producing interest; that there was something greatly needed for the
producing interest, and that it could not thrive without something
of this kind, because it could not pay fair, living rates, for
transportation to the railroad companies at the price oil was
bringing, and that there was no likelihood of oil increasing in
price under the existing condition of things; that the railroad
could not always, of course, continue carrying at a loss.

* * * * *

_Q._ Will you give the names of the producers who proposed to join
the South Improvement Company, or who expressed themselves
favourable to the plan of that company, in addition to the name of
Mr. Mitchell?

_A._ I could give you the names of several of them, but I do not
think their lives and property would be safe. They requested me not
to mention their names because they thought it would be an imprudent
thing to do.

_Q._ You refuse, then, to give the names which you say you could
state?

_A._ I refuse to give the names for the reason I have stated.

_Q._ Are there any of them you are willing to mention?

_A._ I will look over the letters and see whether there are any of
them not marked confidential. If there are any not so marked, I will
give you the names.

_Q._ Why do you state to this committee that you are not willing to
give the names of the parties to whom you refer, when you state that
a great many producers were in favour of this plan, and were
consulted in regard to it?

_A._ I stated it because it was a fact.

By Mr. Sheldon.

_Q._ Did the danger to the lives of these parties arise from the
excitement in the Oil Regions in consequence of these proceedings?

_A._ Yes, sir, one of the presidents of one of the committees
representing the producers was in New York, a Mr. Patterson. He
stated, as I understood, to one of the railroad officers, that he
did not think my life would be safe if I were to go into the Oil
Region, although he himself would not take it. I had received a
number of threatening letters, but I did not attach any importance
to them until Mr. Patterson made that statement.

By the Chairman.

_Q._ What was the reason given why your life would not be safe?

_A._ I do not know that the reason given, I think by Mr. Patterson,
that there was such an unreasonable excitement among the people as
to the nature and object of the South Improvement Company, which was
represented to them to be a measure altogether hostile to them.

_Q._ Do you know what these misrepresentations were?

_A._ I only know by what I have seen stated in the papers and what
persons have mentioned to me.

_Q._ Did you make an effort to correct the false impressions?

_A._ I did; the papers called for the other day by the committee,
and which I have here to-day to produce, will show that.

_Q._ Were your efforts to correct these misrepresentations
successful?

_A._ No, sir, they were not. I will read the despatches which I sent
for the purpose of endeavouring to do that, and you will see from
them the nature of the efforts I made.

_Q._ Sent to whom?

_A._ I sent a despatch to F. W. Mitchell through S. P. McCalmont of
Franklin, which I have here.

_The Chairman._—We will not stop to read them.

_Witness._—It will answer your question in a great deal shorter
period than I could answer it verbally.

_The Chairman._—We will put the answers themselves in as testimony.

_Witness._—Then I will read this as my answer, if you please,
because it expresses as fully as I could express the facts you
desire to know.

_The Chairman._—Very well, you may hand the despatches to the
reporter, and they will go in as a part of your testimony, and save
the committee the time of reading them.

_Witness._—You can hardly comprehend the answer without hearing the
despatches. There were three despatches, showing the efforts I made
to have the producers understand that the whole arrangement was one
which looked as much to their interest as to any other.

_The Chairman._—Very well, you may furnish them to the committee; we
will not stop to read them now.

_Witness._—I then offer you first my despatch to S. P. McCalmont,
dated New York, March 4, 1872. I next offer another despatch from
myself to F. W. Mitchell, dated New York, March 5, 1872, and also a
despatch from myself to the same party, dated New York, March 6,
1872.

The despatches referred to are as follows:

NEW YORK, March 4, 1872.

S. P. MCCALMONT,
Franklin, Pennsylvania.

Your telegram received. Please deliver the following
communication to F. W. Mitchell, or, in his absence, to somebody
else who will make its contents known to the principal producers
attending the meeting to be held to-morrow at Franklin:

To F. W. MITCHELL:

Yesterday I received by mail from you or some other friend in
Franklin several newspaper slips, one of which threatened the
destruction of my oil at Franklin. At the same time I received an
anonymous letter threatening injury to the Jamestown and Franklin
Railroad. Disapproval of my connection with the South Improvement
Company is alleged as the reason of both threats. This morning the
telegraph informs me that the threat to destroy my oil has been
executed by tapping the tank and letting it run to waste. While
there may be some excuse for working up the present excitement to
induce people to subscribe their money to new railroad schemes,
there can be nothing but reprobation for the lawless destruction of
property. You have sufficient character and influence, and
sufficient information of the purposes of the company, to quell this
excitement by a word, and I think it your duty to say that word. It
seems to me that a great responsibility rests with somebody among
you for stimulating the present causeless excitement, and the
lawless destruction of property. On meeting you here on your return
from the South, I explained to you, very briefly, that the whole
plan of the South Improvement Company was founded upon the
expectation of co-operation with the oil producers to maintain a
good price for crude oil, as the only means of securing a fair
remuneration to either the transporter, the refiner, or the
merchant.

Unless the producers will co-operate with us, first, by limiting the
production or the capacity of the markets of the world to absorb
petroleum at a good price; and, secondly, by tanking a large part of
the production for the next two or three months, that it may be
withheld from the market until the present glut is exhausted and
production reduced, it will be impossible, I am convinced from
recent advices of the state of supply and demand in the principal
markets of the world, to keep the price of crude oil up to $3.50,
and of refined oil up to twenty-two cents, during the coming summer.

I stated to you in the strongest terms the desire of the South
Improvement Company to enter into an arrangement for a series of
years with the producers, whereby good prices for crude oil at the
wells and fair and reasonable rates of transportation would at all
times be assured. The desire still exists. You expressed to me your
concurrence in these views, as others among the leading producers
whom I have more recently seen have also done.