Chapter XX: Section 1: Be it enacted by the Senate and House of Representatives (4)

JOHN D. ROCKEFELLER; S. V. HARKNESS; H. M. FLAGLER, _Trustee_; S.
ANDREWS; J. D. ROCKEFELLER, _Agent_; J. D. ROCKEFELLER, _Trustee_;
O. H. PAYNE; B. BREWSTER, by J. D. ROCKEFELLER, _his Attorney_; T.
P. HANDY, by J. D. ROCKEFELLER, _his Attorney_; O. B. JENNINGS, by
J. D. ROCKEFELLER, _his Attorney_; WM. ROCKEFELLER, by J. D.
ROCKEFELLER, _his Attorney_; JAS. STANLEY, by O. H. PAYNE, _his
Attorney_; A. M. MCGREGOR, by J. D. ROCKEFELLER, _his Attorney_; W.
C. ANDREWS; A. J. POUCH, by J. D. ROCKEFELLER, _his Attorney_; F. A.
ARTER, by J. D. ROCKEFELLER, _his Attorney_; P. H. WATSON, by H. M.
FLAGLER, _his Attorney_; J. A. BOSTWICK, by J. D. ROCKEFELLER, _his
Attorney_; J. HUNTINGTON, by O. H. PAYNE, _his Attorney_; D. M.
HARKNESS, by H. M. FLAGLER, _his Attorney_; JOSIAH MACY, by J. D.
ROCKEFELLER, _his Attorney_; W. H. MACY, by J. D. ROCKEFELLER, _his
Attorney_; W. G. WARDWELL, by H. M. FLAGLER, _his Attorney_; D. P.
EELLS, by J. D. ROCKEFELLER, _his Attorney_; S. F. BARGER, by J. D.
ROCKEFELLER, _his Attorney_; W. H. VANDERBILT, by J. D. ROCKEFELLER,
_his Attorney_; H. W. PAYNE, by O. H. PAYNE, _his Attorney_; J. J.
VANDERGRIFT, by O. H. PAYNE, _his Attorney_; JOHN PITCAIRN, JR., by
O. H. PAYNE, _his Attorney_; L. G. HARKNESS, by H. M. FLAGLER, _his
Attorney_.

And afterwards said meeting was duly adjourned.

H. M. FLAGLER,
_Secretary_.

CLEVELAND, March 10, 1875.

And we further certify that the whole amount of such increase of
capital stock has been paid to said company in money, that no note,
bill, bond, or other security has been taken for the same or any
part thereof, and that the credit of the company has not been used
directly or indirectly to raise funds to pay the same or any part
thereof.

_In Witness Whereof_, we hereunto set our names at Cleveland, this
tenth day of March, A.D. 1875.

JOHN D. ROCKEFELLER,
HENRY M. FLAGLER,
SAMUEL ANDREWS,
OLIVER H. PAYNE,
STEPHEN V. HARKNESS.

NUMBER 25 (See page 1148)
HENRY M. FLAGLER’S TESTIMONY ON THE UNION OF THE STANDARD OIL COMPANY
WITH OUTSIDE REFINERS IN 1874

[Proceedings in Relation to Trusts, House of Representatives, 1888.
Report Number 3112, page 291 and page 770.]

_A._ ... The original Standard Oil Company was organised in the
early part of 1870. The increased capacity and the acquisition of
the Cleveland refineries was, as I remember it, in 1872. It remained
at that until 1875 or 1876,[85] according to the best of my
recollection. Then was consummated a negotiation which had been
pending for some two years, perhaps, with certain parties in
Pittsburg, Philadelphia and New York, by which a value was agreed
upon, and their refinery property was purchased and the capital of
the company was increased a still further sum of a million, and they
were paid for these properties, and money which they contributed, in
the stock of the Standard Oil Company of Ohio.

By Mr. Gowen.

_Q._ When did the Standard Oil 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 co-partnership.

_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.

NUMBER 26 (See page 1153)
GEORGE H. BLANCHARD’S TESTIMONY ON THE BREAKING UP OF THE PIPE POOL OF
1874

[Report of the Special Committee on Railroads, New York Assembly,
1879. Volume III, pages 3445–3447 and 3449–3451.]

The contract with the Standard Company of April 17, 1874, as I have
said, contained nothing inconsistent with our obligations to the
Pennsylvania and New York Central Railroads, and the New York
Central, under their later contract, and our company, convinced the
Pennsylvania Railroad of that fact during the discussions both as to
rates and each and every other detail agreed to, but President
Jewett thought it better to rely upon the arrangements between the
railway companies alone, and decided to avail himself of the ninth
clause of the agreement with the Standard Oil Company of April 17,
1874, which provided that either party might terminate it by six
months’ written notice, but that notice might be given by the
Standard Company within thirty days after the election of a new
board of directors of the Erie or Atlantic and Great Western
Company. This trunk line oil pool of October 1 being in operation,
President Jewett gave notice of the termination of the Standard
agreement of April 1, 1874, on October 31, 1874, which would have
terminated in six months. It was the thirty-first of the following
May, but an election having in the meantime taken place upon the
Atlantic and Great Western Railroad, the Standard Oil Company gave
the thirty days’ notice it had the right to do on January 13, 1875,
which, therefore, terminated the agreement upon February 13, 1875,
about three months and a half before President Jewett’s notice
could, under the contract, take effect.

The trunk line agreement of October 1, 1874, continued in force, and
pool settlements were made thereunder for but five months, namely,
until the close of February, 1875, during which time the Erie
Company paid $31,019.05 and received $6,570.55.

Notice of the abandonment of that contract was given by the Erie
Company, April 1, 1875, although no statements or moneys were
exchanged for March, and dissatisfaction with its operations had
been expressed by us prior to that time, the reasons therefor being
as follows:

The higher rates of the pipe pool had stimulated new pipe-lines, and
the Hunter and Cummings Line and other small pipes had been
completed, or did not maintain the agreed rates of pipage. The
Columbia Conduit Company had also been completed to Pittsburg, in
the interest of the Baltimore and Ohio Company, and either acting
upon the then policy or advice of that company, or with a desire to
be bought out, declined to charge equal rates of pipage or agree to
any fixed rates, a fact which threatened the diversion of oil
largely to Baltimore, the Baltimore and Ohio Railroad not being in
the trunk line oil pool of October 1, 1874, and publicly and
frequently announcing its endeavour to divert the oil trade to
Baltimore.

We also believed that large drawbacks or commissions were paid by
the Pennsylvania Railroad to the Empire Line in addition to those
provided in our joint pool contract; and our belief has since been
confirmed by later knowledge of the fact that the Pennsylvania
Railroad paid to the Empire Line about 30 per cent., including the
use of cars; and the mileage, being about ten (10) per cent. at
current rates of car service, left the commission equal to about 20
per cent., an advantage not possessed by any other shipper or
company over any of the northern lines.

It was clear that, as the Empire Line added to its already large
resources, not only this commission upon the oil business excepting
Pittsburg, but the added profits upon its pipe-lines, that its
combined operation and profit united to control an increasing share
of the entire trade and put it in strong financial shape for a
control which it subsequently entered upon to absorb also a large
refining interest.

As the northern trunk lines made no similar arrangements, allowances
or commissions to any forwarder or receiver, and derived no profit
from any pipe-lines, it was clearly unfair to concede them to the
Empire Line, and the agreement which gave it these growing
advantages was very properly annulled.

We also desired the actual transportation of the oil rather than to
receive money from others, as we had done during the pool, as their
increased business might finally result in a demand for larger
percentages if the pool continued.

I directed careful examination of our records up to date of the
abandonment of this oil pool contract; and upon the authority of
General Freight Agent Vilas, state that the net rates charged to the
Standard Company during this period to through points were uniform
with the rates charged by our lines to other shippers, taking into
account, as before stated, the transportation of the crude
equivalent to their refineries.... The preliminary discussions and
general conclusions relating to those (new) contracts were all with
President Jewett, although many of their details were subsequently
discussed and suggested by me; and the reasons influencing him to
make them have been stated by him in his testimony; I was directed
to carry them out, and have from time to time attended meetings at
which the rates thereunder were advanced or reduced. I believe those
contracts were not concluded until the latter part of April or early
in May, and were then dated back to the disruption of the trunk line
oil pool, in order to secure our guaranteed proportion of oil
shipments from that earlier date and without interruption. The
transportation contract continued to guarantee us 50 per cent. of
the business of the Standard Oil Company, which 50 per cent. should
not be less than the percentage we had received in the year 1874 of
the total arrivals at the seaboard; and at this time, for that
reason, the Standard Oil Company had no transportation arrangements
with the Pennsylvania Railroad, and this fact and guaranty induced
us to disregard the question as to whether or not the Standard
Company had similar or other contracts with the New York Central or
its connections, our only interest in the question being as to
whether rates were equal and if we received our guaranteed share of
the oil.

There was no understanding or agreement by the Erie Company to my
knowledge that the New York Central Company or Pennsylvania
Railroad, or either of them, had or had not similar or other
contracts with the Standard Oil Company.

They were shipping by the New York Central route, and we assumed
from their large business, terminal arrangements, etc., that some
defined understanding probably regulated such large interests, but
we were not consulted as to the terms or conditions of its contracts
with other companies if it had any, because we relied upon their
responsible guaranty to give us our proportion of the total arrivals
of oil at the seaboard and at rates equal to those of other
companies, as ample protection to our interests.

At the time this transportation contract was made by the Erie
Company, other considerations than relief from risks and the
equalisation of the arrivals at the seaboard bore upon the contracts
for an allowance of 10 per cent. It continued to be our belief,
since fully confirmed by Mr. Cassatt’s testimony, that other
shippers _via_ the Empire Line over the Pennsylvania Railroad had at
least similar rates and arrangements, to which, on the part of the
Erie Company, no objection was offered; it also continued to be the
fact that the Empire Line continued to receive in addition to its
probable pipe profits, the same or about the same, large commission
as before, from the Pennsylvania Railroad, and it was believed by
the officers of the Erie in making this contract with the Standard
Company that the allowance to it of 10 per cent. was not much more
than one-half the allowance then being made by the Pennsylvania
Railroad to the Empire Line.

In addition thereto, we secured the actual transportation of our
full share of the oil, at the agreed rates, without delays or
disputes in adjustments, or the preparation or exchange of the pool
statements.

It maintained the business to New York and provided against any
increase to our rival railways or ports, no matter how the territory
of oil production might shift or vary, and while under the trunk
line pool we could not influence the various shippers to send them
oil over our railway or to this city, unless their varying and
dissimilar interests all agreed (as they did not), and no matter how
much one company might be in deficit, the Standard Company is
compelled to send it over our line. The loading and unloading, and
taking the risks, were also important items to us as has before been
detailed, and relieved us from a class of claims we had paid prior
to that time.

It was also important to us that by this contract we were explicitly
released from large losses when the great fire consumed the
Weehawken docks in July, 1874.

The ninth section of the contract has also been of much value to us.
In the delivery of oil to vessels or exporters, the Standard Company
assumes all the risks and expenses of delays to ships, and their
demurrage, even if it be the fault of the railway by nondelivery,
and I have known of cases where this amounted to a large sum.

In 1877 when the general and extended railway strikes occurred, this
clause also released us beyond doubt from large claims that might
otherwise have been urged.

The freight rates provided by the railway pool of October 1, 1874,
were not changed until October 1, 1875; and my recollection is that
it was not until the discussion upon that change that anything was
definitely known by any of the trunk lines of the arrangements of
the others with the Standard Oil Company. At that meeting the 10 per
cent. reduction to be allowed the Standard was distinctly understood
as due upon its shipments _via_ all the trunk lines in consideration
of the facts stated, and it then first came to my knowledge that
Warden, Frew and Company, of Philadelphia, represented the Standard
Oil Company, as Charles Pratt and Company represented their crude
interests at New York _via_ our line.

NUMBER 27 (See page 1196)
MR. FLAGLER’S EXPLANATION OF THE COMMISSION OF 10 PER CENT. ALLOWED THE
STANDARD OIL COMPANY IN 1877

[Proceedings in Relation to Trusts, House of Representatives, 1888.
Report Number 3112, pages 774–775.]

I would like the privilege of explaining about that 10 per cent.
commission. The railroad companies, as perhaps Mr. Gowen will
remember, he at that time having been head of the Reading Railroad,
tried and did agree among themselves for divisions of the oil
business. I know that they agreed among themselves that a certain
percentage of it the New York Central should take; a certain other
percentage the Erie should take; a certain other percentage the
Pennsylvania Railroad should take; and a certain other percentage
the Baltimore and Ohio should take. We were only anxious that
uniform rates should be maintained by these roads. All these roads,
and each one of the roads, found it impossible to secure the
divisions of the business as they had agreed upon. Notwithstanding,
we co-operated with them, for we were heartily in favour of its
being done and were only seeking for a uniformity of rates by the
different roads. But as any gentleman connected with railroad
interests well knows there always is that desire to get more than
belongs to the line. That desire kept cropping out in the practical
shape of cutting under rates for the sake of getting a little more,
each road feeling that it was not getting enough to insure it its
percentage. The Standard Oil Company at that time owned a very large
percentage of the entire oil traffic. It was possible for it to do a
service for the roads that the roads were unable to do for
themselves. That service, however, involved a good many hardships.

The practical working of it was this, that at the end of each month
after the arrangement had been made, each of these railroad
companies, they first having agreed how they would divide among
themselves and not seek to go beyond that certain percentage—at the
end of each month each railroad company sent to us a statement of
the number of barrels of oil they had transported during the month.
It was incumbent upon us during the succeeding month to ship over
the road or roads which had received less than its percentage an
amount during that following month sufficient to bring up the
deficit of the previous month. Undertaking to do that meant, as I
well knew at the time, a responsibility imposed upon us, and an
obligation to run refineries at certain localities which perhaps at
the time it was unprofitable for us to run. It meant a steady
continuance of a large volume of business at periods of time when it
might not be profitable to run them; and if the gentlemen of the
committee will bear with me just a moment you will see the
difficulties. It was not only the three trunk lines—the New York
Central, terminating at Buffalo, the Pennsylvania, terminating at
Pittsburg, and the Baltimore and Ohio, I don’t know where—but there
came in their Western connections. I remember well the New York
Central had two; the Lake Shore was its connection west of Buffalo
to Cleveland, and the Dunkirk and Allegheny Valley was its western
division to the Oil Region. It was not an easy matter, for we had
not only to regard the percentage delivered at the seaboard, but we
had to try to keep the Lake Shore satisfied with its proportion, the
New York Central’s proportion, and the Dunkirk and Allegheny
Valley’s proportion. As I say, it was no light task, and realising
that, I said to these gentlemen, “We will undertake to do this
business for you, to secure to each one of you the percentage which
we may have agreed upon, upon condition that we are paid for that
service a sum which shall be equal to 10 per cent. of the rate you
receive for doing the business.” There were, however, to be added to
what I have already stated as an inducement for the railroad
companies to pay that commission, other agreements, one of which was
that we assumed the risk of loss by fire in transportation. That may
seem to be to the gentlemen of the committee a cheap thing to do,
but Mr. Gowen understands, as well as I do, that a railroad company
cannot divest itself of the obligations by the common law imposed
upon it as a common carrier without a special agreement to that
effect. We took that risk, and did not collect from the railroad
companies, any of them, any losses sustained by fire in transit. We
furnished terminal facilities at the seaboard free of charge to the
railroad companies, and for all this service the Pennsylvania
Railroad agreed to pay us a commission of 10 per cent. We carried
out our part of the contract faithfully, and secured to the roads
such a division of the traffic as kept them in a state of accord and
peace, so far as quantity was concerned, and yet the Pennsylvania
Railroad paid to other shippers than ourselves a rebate or a
drawback, or whatever you choose to call it, on their shipments,
which were exactly equal to the 10 per cent. they agreed to pay us.
So that in that respect we were not favoured at all.

NUMBER 28 (See page 1196)
CORRESPONDENCE BETWEEN WILLIAM ROCKEFELLER AND MR. SCOTT IN OCTOBER,
1877

[Commonwealth of Pennsylvania _vs._ Pennsylvania Railroad Company,
United Pipe Lines, etc., Testimony. Appendix, pages 734–736.]

PHILADELPHIA, October 17, 1877.

THOMAS A. SCOTT,
President Pennsylvania Railroad Company.

_Dear Sir_: In consideration of the covenants by your company to be
performed as hereinafter mentioned, we will agree as follows:

_First._—It having been agreed by the trunk lines that of all the
oil shipped by the trunk lines to the cities of New York,
Philadelphia, and Baltimore, 63 per cent. shall be considered as the
proportion which would naturally go to the City of New York, and it
having been further agreed that of this percentage one-third shall
be transported over each of the trunk lines having termini in New
York, viz.: The New York Central, Erie, and Pennsylvania, we agree,
unless the aforesaid division shall be changed by mutual consent of
said trunk lines, to ship such quantities of oil over your lines,
from time to time, as will, when added to the quantities shipped by
parties other than ourselves, give your line one-third of the
shipments to New York by the said trunk lines, or 21 per cent. of
the whole amount shipped to the three cities above named by the said
trunk lines; it being understood that in stating the number of
barrels for the purpose of making this division or for carrying out
any of the other stipulations herein contained, the barrel of
forty-five gallons of crude shall be the unit, and that each barrel
of the usual size of refined oil shall be counted as equal to one
and three-tenths barrels of crude.

_Second._—It having been agreed, as we are informed, between your
company and the Baltimore and Ohio Railroad Company, that of the
remaining 37 per cent. of the total shipments aforesaid you should
be entitled to transport by lines owned and controlled by your
company to Philadelphia and Baltimore, 26 per cent., and the
Baltimore and Ohio Railroad Company to Baltimore by its lines 11 per
cent., we agree, until these proportions are changed by mutual
consent, to ship such quantities to Philadelphia and Baltimore by
lines owned and controlled by your company as will, when added to
shipments of parties other than ourselves, give for transportation
by your lines to Philadelphia and Baltimore, 26 per cent. of the
total shipments by the four trunk lines to the three seaboard cities
above named.

_Third._—We further agree that the quantity of oil which we will
ourselves ship over your line shall not in any calendar year be less
than two million barrels, based upon an average production of not
less than thirty thousand barrels per day. If we should fail to give
you traffic herein named, we will pay to you a sum equal to the
profits which you would have realised upon the quantity in
deficit—provided, however, that you will at all times furnish us
with transportation, as we may reasonably require it.

_Fourth._—We will, of the proportion of oil going to Philadelphia,
refine as much as is practicable in Philadelphia, as we understand
that you desire to see the refining capacity of Philadelphia fully
employed, and, if needful, increased. And in shipping by your lines,
whether to Philadelphia, Baltimore, or New York, we will endeavour
to deliver the oil to you at points from which you will have short
hauls; and to the extent that we can, we will make the proportion of
crude shipped as large as possible, as we understand its
transportation to be more profitable to you than that of refined
oil.

_Fifth._—We ask, in consideration of the above named guarantee of
business, upon which it is understood we shall pay such rates as may
be fixed from time to time by the four trunk lines (which rates it
is understood shall be so fixed by the trunk lines as to place us on
a parity as to cost of transportation with shippers by competing
lines), that you shall furnish us promptly all the transportation we
may reasonably require; and that you shall allow to, and pay us,
weekly, such commission on our own shipments and the shipments which
we may control, as may be agreed to by your company and the other
trunk lines from time to time; this commission, it is understood,
has for the present been fixed at 10 per cent. upon the rate, and
shall not be fixed at a less percentage, except by mutual agreement
of your company and ours—provided, that no other shipper of oil by
your line shall pay less than the rate fixed for us before such
commission is deducted; and no commission shall be allowed any other
shipper unless he shall guarantee and furnish you such quantity of
oil for shipment as will, after deduction of commission allowed him,
realise to you the same amount of profit you realise from our trade;
that is, you will not allow any other shipper of oil any part of
such commission, unless after such allowance you realise from the
total of his business the same total amount of profit you realise
from the total of our business, except so far as your company may be
compelled to fill certain contracts for transportation made by the
Empire Line with refiners and producers, which contracts terminate
on or before May 1, 1878, a statement of which shall accompany your
reply to this letter—such contracts to be fulfilled. We agree that
all the stipulations herein contained shall be carried out by us for
the period of five years from the date hereof, unless sooner changed
or terminated by mutual consent, provided that you advise us in
writing within ten days that your company accept, and will carry
out, its part of the arrangement for the like term. In entering into
this agreement we desire to put ourselves on record as expressing
our wish and intention of making our business relations with your
company such that not only your main lines but the connecting lines
controlled by you, especially the Allegheny Valley Railroad, shall
secure the best possible results from the oil traffic consistent
with our existing obligations to other transportation interests. We
feel that the location of our refineries—all of which can be reached
by your lines—should naturally create a close alliance between your
company and ours, and that the best results from this important
traffic can only be secured to yourselves and ourselves, and, we
might add, to the entire petroleum interests of the country, by the
establishment of friendly and mutually satisfactory arrangements
between us.

Yours truly,
STANDARD OIL COMPANY,
By WILLIAM ROCKEFELLER,
_Vice-President_.

OFFICE OF THE PENNSYLVANIA RAILROAD COMPANY,
PHILADELPHIA, October 17, 1877.

WILLIAM ROCKEFELLER,
Vice-President Standard Oil Company.

_My Dear Sir_: I am in receipt of your letter of this date, reciting
the understanding and agreement to exist between the Pennsylvania
Railroad Company and your company for a period of five years.

I beg leave to say that the same covers the whole basis of the
arrangements, and is satisfactory to this company—the provisions of
which will be duly carried out by it.

Very respectfully yours,
THOMAS A. SCOTT,
_President_.

NUMBER 29 (See page 1197)
CORRESPONDENCE BETWEEN MR. O’DAY AND MR. CASSATT

[Commonwealth of Pennsylvania _vs._ Pennsylvania Railroad Company,
United Pipe Lines, etc., Testimony. Appendix, pages 732–733.]

OFFICE OF THE AMERICAN TRANSFER COMPANY,
OIL CITY, PENNSYLVANIA, February 15, 1878.

A. J. CASSATT,
Third Vice-President, Philadelphia.

_Dear Sir_: Referring to the conversation I had with you in January,
I wish to submit the following facts: That our company has at large
expense (involving the payment of several hundred thousand dollars),
purchased and created certain pipe-lines to Pittsburg, through which
we are able not only to protect the Allegheny Valley road in a
paying rate of freight for the oil it carries, but also to secure to
that company (by agreement with it) its full proportion of the oil
traffic going to Pittsburg.

You are acquainted with the efforts we have put forth in other
directions during the last months in which we have acted in thorough
accord with the trunk line interests, and I believe I may say
without egotism, we have, to the extent of our ability, effectually
protected their interests in such action. I here repeat what I once
stated to you and which I asked you to receive and treat as strictly
confidential, that we have, been for many months receiving from the
New York Central and Erie Railroads certain sums of money, in no
instance less than twenty cents per barrel on every barrel of crude
oil carried by each of those roads.

Co-operating, as we are doing, with the Standard Oil Company and the
trunk lines in every effort to secure for the railroads paying rates
of freight on the oil they carry, I am constrained to say to you
that, in justice to the interest I represent, we should receive from
your company at least twenty cents on each barrel of crude oil you
transport.

The fruit of co-operation referred to has been fully evidenced in
the fact that since last fall your company has received fifty to
sixty cents per barrel more freight than was obtained by it prior to
our co-operation.

In submitting this proposition I feel I should ask you to let this
date from the first of November, 1877, but I am willing to accept as
a compromise (which is to be regarded as strictly a private one
between your company and ours) the payment by you of twenty cents
per barrel on all crude oil shipments commencing with February 1,
1878.

I make this proposition with the full expectation that it will be
acceptable to your company, but with the understanding on my part
that in so doing, I am not asking as much of the Pennsylvania road
and its connections as I have been and am receiving from the other
trunk lines.

You are doubtless aware that during the last two years a large
amount of oil has been shipped to Richmond _via_ the Chesapeake and
Ohio road, and that since the purchase of the Pittsburg lines by us
not one barrel has been permitted to go in that direction.

During the season of 1877, and so long as the Columbia Conduit
Company afforded the Baltimore and Ohio road access to the Oil
Regions, that company, I understood, refused to accept from the
other trunk lines (for its proportion of the oil traffic) less than
20 per cent., but after the purchase by us of the Columbia Conduit
you succeeded in arranging with the Baltimore and Ohio for about
half as much as they previously claimed.

I may add that the Baltimore and Ohio road are wholly dependent upon
us for any oil they may carry.

Yours truly,
(Signed) DANIEL O’DAY,
_General Manager_.

PHILADELPHIA, May 15, 1878.

R. W. DOWNING, Comptroller.

_Dear Sir_: I enclose herewith copy of letter from Daniel O’Day,
general manager of the American Transfer Company, which refers to a
conversation I had with him in January last in reference to allowing
the American Transfer Company a commission of twenty cents per
barrel on all crude oil transported over this company’s lines to New
York, Philadelphia and Baltimore.

I agreed to allow this commission from and after February 1, until
further notice, after having seen receipted bills showing that the
New York Central Railroad allowed them a commission of thirty-five
cents per barrel and that the Erie Railway allowed them a commission
of twenty cents per barrel on Bradford oil, and thirty cents per
barrel on all other oil, and that they had been doing so
continuously since the 17th of October last.

Of this, however, you saw the evidence yourself in the bills which I
submitted to you last week. Please, therefore, prepare vouchers in
favour of the American Transfer Company per Daniel O’Day, for this
commission of twenty cents on shipments during February, March and
April, and hereafter make settlements with that company monthly.

Yours truly,
(Signed) A. J. CASSATT,
_Third Vice-President_.

NUMBER 30 (See page 1197)
HENRY M. FLAGLER’S TESTIMONY ON THE REBATE PAID TO THE AMERICAN TRANSFER
COMPANY

[Proceedings in Relation to Trusts, House of Representatives, 1888.
Report Number 3112, pages 777–778.]

_Q._ Mr. Cassatt testified and offered in evidence the
correspondence which showed that his company agreed to the payment
of that 22½ cents to the American Transfer Company on every barrel
of crude oil passing over their line in consequence of the fact that
the writer of the first letter on behalf of the American Transfer
Company had asserted that the New York Central and the New York and
Lake Erie roads paid the same amount. You know that to be a fact, do
you not?

_A._ May I explain that now?

_Q._ You are entitled to make any explanation you wish.

_A._ The American Transfer Company was built originally for, really,
the New York Central road. The New York Central had no means of
getting south of Titusville with its cars. The American Transfer
Company’s lines were built really in the interest of the New York
Central road. In those days the pipe-lines purchased the oil and
oftentimes sold it at just what they paid for it, and sometimes
less. They got more when they could. The New York Central, as I
said, paid the American Transfer Company a price, which I presume
was the figures named in Mr. Cassatt’s testimony, for collecting oil
in the lower country and delivering it to the Dunkirk and Allegheny
Valley, which is the New York Central’s connection. As that
pipe-line increased its business the Erie road did the same thing.
Later the Pennsylvania Railroad wanted the service of that pipe-line
in collecting oil. Mr. O’Day did what I suppose any manager would
do. He said to Mr. Cassatt, if you do the same thing for me that the
other roads are doing, I have no objection to making the same
arrangement with you. The payment made by the Pennsylvania, the
Erie, and the New York Central roads constituted the gross income of
the American Transfer Company, out of which it paid its expenses of
doing its business and its losses, if it made any, in the purchase
and sale of oil. It acted as a factor for those northern roads, and,
as I said, was originally built in order that oils might be reached
by the New York Central.

_Q._ But in addition to the sum of 22½ cents, or whatever it may
have been, which these trunk lines paid to the American Transfer
Company, that company as a transporter of oil through its own pipe
got this pipage charge besides?

_A._ I never so understood it. As I remember the facts in the case,
while there was a nominal pipage—there might have been; I do not say
there was; I do not remember.

_Q._ You do not say there was?

_A._ I do not remember. But while there might have been a nominal
pipage, that nominal pipage might have been absorbed in the crude
oil. In other words, it threw away its nominal pipage and relied——

_Q._ I am speaking now solely of the relations of the American
Transfer Company to the railroads. The former received 22½ cents on
every barrel of oil passing over the Pennsylvania road and the other
roads. But the American Transfer Company was a transporter of oil
itself, and to the extent it transported oil through its pipes it
made charge for that service also?

_A._ That is a point where I say I want to correct you. While it may
have made a nominal charge, about which my memory fails me, I say it
threw away that nominal charge by paying to the owner or the
producer of the oil the value of the oil at the wells, plus what
that pipage might have been, and that twenty odd cents paid by the
Pennsylvania constituted its gross revenue.

NUMBER 31 (See page 1199)
LETTER TO PRESIDENT SCOTT OF THE PENNSYLVANIA RAILROAD FROM B. B.
CAMPBELL AND E. G. PATTERSON

[Proceedings in Relation to Trusts, House of Representatives, 1888.
Report Number 3112, pages 363–365.]

TO THE PRESIDENT AND DIRECTORS PENNSYLVANIA RAILROAD COMPANY.

_Gentlemen_: About July 1 last the undersigned were of a delegation
from the Oil Region of our state, asking of your road an assurance
that its course during the preceding two months, in giving to all
producers and shippers of petroleum equal facilities and impartial
rates, might be formally made its permanent policy.

In an interview with your president at that time, that assurance was
given, coupled with the requisition that such support should be
given it by the producers and shippers as would repay it for the
exertion it must make in defending that policy, and guaranteeing
that such support should be continuous and permanent.

The people of the Oil Region were only too glad to enter into such
an agreement, and steps were immediately taken of a practical nature
to carry it out.

It was understood that it could not be _immediately_ done.

After the formal abandonment by the trunk lines of the South
Improvement Company in 1872, your road for some months faithfully
adhered, as we believe, to the pledge then given by all the trunk
lines, that no discrimination should thenceforth be permitted. We
believe also that it stood alone among the roads in adhering to it,
for gradually the persons constituting the South Improvement Company
were placed by the roads in as favourable a position as to rates and
facilities as had been stipulated in the original contract with that
company. At this time the line of your road in Western Pennsylvania,
including that under your influence and control, was dotted with
refineries capable of producing a large proportion of the refined
oil needed by the world. The policy of the Standard Oil Company, the
successor in everything but name of the South Improvement Company,
has resulted in the dismantling and abandonment of every one of
those refineries (as soon as they fell into their possession) which
could not be reached by some other and a rival road to yours, and
now there are in the Oil Region proper but few refineries and those
universally owned by the Standard Oil Company, those in Pittsburg
being owned or controlled by that combination or by the Conduit or
Empire lines. The use and export of crude oil is but a small
proportion of the consumption, and time and money were required to
re-establish this great product upon its former basis, and these
people were glad to furnish all needed means to accomplish this end,
as are also capitalists at other points not strictly within the Oil
Region, yet upon your lines.

We are met in the midst of this preparation by assertion of agents
of the combination, and as accepted news by the press, that such a
combination is entered into, or under consideration by your road and
the Empire Transportation Company, the Erie, Central, Lake Shore,
and Baltimore roads of the one part, and the Standard Oil Company of
the other, as would preclude your road from carrying out the policy
announced by your president at the interview heretofore referred to.

We believe there is danger that such a result may be reached, and we
in behalf of these whom we represent, in making our efforts to
prevent its accomplishment, or if accomplished to defeat it, as the
first step, address this communication to you, desiring to present
its aspect as affecting your road from our stand-point.

So far as we, and the general public are affected, you will not
question that the present scheme is but the repetition of the South
Improvement scheme, never abandoned by its authors, and seeking the
sole and absolute control of all petroleum produced, purchased,
refined, and shipped within the states of Pennsylvania, New York,
Ohio, or West Virginia.

The over-production of 1873, 1874, 1875, and the consequent almost
entire destruction of petroleum values, gave the Standard Oil
Company, with its organisation and capital, almost the desired
monopoly. The equalisation of consumption and production of
1876–1877 brought that combination to the same point that they were
in 1872—utterly unable by reason of geographical position, if for no
other, to monopolise this product without the co-operation of _all_
the transportation, and then only under a contract similar to that
of the South Improvement Company, and including all of its dangerous
and extraordinary features. None other can serve them, and so they
stand to-day, and we believe that your road can enter into no
compromise, treaty, or arrangement which will serve the ends of the
monopoly, under any less stringent stipulations and devoid of the
liabilities thereof.

Under such an arrangement it is probable that the Central and Erie
have transported its oil, during nearly all of this year. It is now
an open secret in the producing region, that no charges follow the
shipments over at least one of these roads, and crude oil is
delivered in New York, on shipping order, at prices which barely
repay the cost of packages and contents, with little or no remainder
for transportation charges. This aid to the scheme of the
combination is possibly given in view of the high tariff and
consequent large revenue promised to be derived hereafter, when the
scheme has been made a success, and all opposition in trade and
transportation extinguished.

Suppose your opposition to be withdrawn, and you join the alliance,
when does your profit come in? We are entitled to impartiality. As
we are advised, the law, common and statute, provides for it; it
pronounces those participating in such a scheme conspirators against
the public weal, and there is no court upon your line but what will
enforce by mandamus and injunction the impartiality that we ask. The
combination will promise you an immediate increase of revenue. If we
are well advised, will you realise upon that promise? Can you make a
contract with them that if we do not succeed in destroying, it will
be their interest to keep? You will not have a refinery left; and
they are now completing pipe-lines from Pittsburg to Oil City, and
can deliver the oil received by all their pipe-lines, independent of
your road and its branches. In case of a contract with them executed
but afterwards broken, from what source will you derive your oil
traffic and what court will enforce the broken contract in your
favour? We urge that you cannot enter into any arrangement with the
monopoly that can be permanently useful to it and to you, and doubt
if it can be made temporarily so.

Suppose that you decline to enter into such a treaty, or any such
scheme, but announce and adhere to the opposite policy? There is no
law, not even that of necessity, to compel you to serve the ends of
the Standard Oil Company.

If Messrs. Vanderbilt and Jewett believe that their aid alone is
insufficient to the establishment of the monopoly, for how long will
they carry its oil as at present for nothing, when they could have
full rates, by uniting the railroad interest, and leaving the
Standard Oil Company to do its business in common with all others?

If the Pennsylvania Railroad, having the geographical position in
its favour, will announce and adhere to the policy of impartial and
competitive rates, in three or six months, it can have all the
facilities and extent of business which the Standard Oil Company can
give the competitive roads, and by men who have all to gain by so
doing.

We ask consideration of our views and of our assurance of good
results from their favourable consideration.

If you choose to place the matter in the light of an experiment, its
trial can cost you nothing but the failure to realise upon the
immediate fulfillment of the promises of the common enemy, and that
realisation we believe will not be permitted.

Very respectfully,
B. B. CAMPBELL, of Pittsburg,
E. G. PATTERSON, of Titusville.

PHILADELPHIA, September 11, 1877.

NUMBER 32 (See page 1225)
PRODUCERS’ APPEAL OF 1878 TO GOVERNOR JOHN F. HARTRANFT, OF PENNSYLVANIA

[Proceedings in Relation to Trusts, House of Representatives, 1888.
Report Number 3112, pages 351–356.]

_Sir_: The undersigned, members of a committee appointed by the
General Council of the Petroleum Producers’ Union for that purpose,
address to you, as the official head of the Commonwealth, a plain
statement of facts, to a great extent known to be true from personal
knowledge, and all material parts of which are susceptible of proof
by competent evidence.

We address you, not only as individuals whose personal interests
have been affected, whose property has been rendered comparatively
valueless, and whose capital and labour are bound against their
consent, to increasing the gains of grasping corporations, but as
citizens of the great Commonwealth of Pennsylvania, apparently
prostrate and powerless to control one of its greatest products, and
the immense business that annually flows from it.

The petroleum production of Pennsylvania is confined geographically
to the Northwestern portion of the state, extending from its border
upon New York State nearly to Pittsburg, and is the chief interest
in the counties of McKean, Warren, Forest, Crawford, Venango,
Clarion, Butler and Armstrong.

The amount of money invested in well property, constantly to be
renewed and kept good, represents at least twenty millions of
dollars, and while the value of the lands upon which the wells are
located is not easily determined, it represents many times the value
of the well property.

Petroleum should yield at the wells, with its transportation and
sale unfettered, twenty-five to thirty-five million dollars
annually, while as an article of export, it ranks third among the
products of the nation, and as first among its manufactured exports.

For transportation outlets, it has the Pennsylvania Railroad to the
seaboard at an average distance therefrom of less than 400 miles.
The New York Central and Lake Shore Railroads reach Oil City by way
of Cleveland, Ohio, 764 miles from the seaboard, and Titusville, by
way of Dunkirk, New York, 571 miles to the seaboard, and the New
York, Lake Erie and Western, and Atlantic and Great Western Railways
reach Oil City by way of Meadville, 550 miles to the seaboard.

CONDITION OF THE TRADE IN 1871

At that time the lines of the Pennsylvania Railroad in the Oil
Region were dotted with refineries located at Tidioute, Henry’s
Bend, Oleopolis, Oil City, Corry, Titusville, Miller Farm,
Rouseville, and other points on the Oil Creek Railroad, at various
points on the Philadelphia and Erie Railroad, and on the Allegheny
Valley Railroad, these roads being tributaries of and controlled by
the Pennsylvania Railroad, while upon its main line extensive
refineries were located at Pittsburg and Philadelphia. The
refineries at Cleveland, Ohio, confined themselves in a measure to
the Western domestic trade, and those of Portland, Boston and New
York had generally specialties in the trade.

The markets were filled with buyers of crude and refined;
information as to stocks, production and consumption was open and
obtainable, and values were regulated by the law of supply and
demand.

In its relation to this trade, Western Pennsylvania almost
exclusively possessing this product, with ample refineries in its
midst, with its great state railroad penetrating the producing
region, and by it, having the shortest route to the seaboard, with
the Allegheny River as an additional means of transportation to
Pittsburg, the Western terminus of the Pennsylvania Railroad, and
with Philadelphia, its Eastern terminus as an exporting point,
Pennsylvania had, and was entitled to, the control of the refining
and transportation of its own product.

CONDITION OF THE TRADE IN 1877–1878

Now, this is all changed! The refineries on the lines of the
Pennsylvania Railroad have been demolished, excepting where reached
by rival railroads, and this business has been transferred to
Cleveland and New York, the refineries remaining in this state
having passed into the ownership and control of a foreign
organisation, as has also the local transportation from the wells,
by means of pipe-lines to the lines of the railways.

The transportation of every nature is subject to its dictation; it
possesses every avenue of information; it affixes its own value to
the crude product when purchasing and the refined products when
selling; it establishes its own rates of compensation to be paid the
railways, and the laws of commerce which govern values in other
products are in this a part of the history of the past. So far as
the petroleum trade is concerned an enterprise or investment therein
is only a wager as to what step the Standard Oil combination will
next take. With the world consuming double the amount of our
petroleum that it did in 1871, the thirty millions which should be
received from the crude product has dwindled to its half; the
fifteen millions which should be the profit of Pennsylvania
refineries has been transferred to Ohio and New York, and the twenty
millions which should have swelled the earnings of the railways have
gone—no one dare say where—but the colossal fortunes acquired since
1872 by every member (so far as its members are known) of this now
world-renowned organisation, are proofs of the success attendant
upon a scheme, no less unlawful than gigantic, and which has all the
outward and visible signs of inward and spiritual corruption. To-day
a foreign corporation is the absolute master of the production and
its value, of transportation by pipe-lines, transportation by
railroad and the compensation therefor, of storage and refining, and
the profit thereof, and dictates prices through the world of the
first, or among the first, of the products of Pennsylvania, and of
the United States, and this to the impoverishment of thousands of
citizens, and the destruction of each of these interests within the
state. That this has been accomplished through and by means of the
co-operation of the Pennsylvania Railroad, its management and
influence, is matter of record.

THE FIRST ATTEMPT TO MONOPOLISE THE TRADE

was initiated by the conveyance, by R. D. Barclay, Thomas A. Scott’s
private secretary, and S. S. Moon, the legislative agent of the
Pennsylvania Railroad, to a party composed principally of Cleveland
and New York men, headed by an agent of the New York Central and
Erie Railways, of a charter granted by the Legislature of
Pennsylvania for a different purpose, under which they organised for
the seizure of the petroleum trade, retaining the charter title of

“THE SOUTH IMPROVEMENT COMPANY,”

the then managers thereof being the managers of the organisation now
known as the Standard Oil Company.

With the South Improvement Company, not a member of which lived in
the Oil Region, or was an owner of oil wells or oil lands, the
Pennsylvania Railroad hastened to execute a contract (January 18,
1872), giving it the sole and exclusive control of all petroleum
shipments thereon, regardless of ownership, and securing this by the
payment by the railroad of a rebate or drawback to the South
Improvement Company of such a sum as would have inevitably driven
all others out of the trade, and lest there might be doubt as to the
intent to so do, it was expressly stipulated in the fourth article
thereof that that was the result aimed at, and the Pennsylvania
Railroad therein bound itself, so far as it legally might, to aid in
accomplishing it.

The action of the Legislature and of Congress, and the uprising of
the people against this unparalleled iniquity, destroyed the
combination for the time being, the railroads having pledged
themselves to never attempt a similar outrage.

The local transportation of crude petroleum had been gradually
changing from movement by barrels to carriage in

PIPE-LINES

from the wells to tankage located on the lines of railway, the
principal of which pipe-lines, at this time known as the
Pennsylvania Transportation Company (formerly Allegheny
Transportation Company), was under special charters of the
Legislature and owned and controlled by Messrs. Scott, of the
Pennsylvania, and Fisk and Gould, of the Erie Railways. The
Legislature had been petitioned at various times since 1866 to pass
a Free Pipe Law, but the various bills introduced for that purpose
could never overcome the opposition of the Pennsylvania Railroad in
the Legislature. During the excitement attendant upon the rise and
fall of the South Improvement Company scheme, the effort was
renewed, and the Legislature enacted a law, restricted to the eight
oil-producing counties, but the Pennsylvania Railroad influence was
strong enough to exclude Allegheny County from the operation of the
Act, thus shutting out Western Pennsylvania from Pittsburg, the
terminus of the Pennsylvania Railroad, the natural outlet of the Oil
Region, and the natural refining point of the United States.