APPENDIX (continued 2)

1302

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.

1303Q. 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 1304the 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; 1305that 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?

1306A. 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?

1307A. 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 1308in 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?

1309

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.

1310Q. 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?

1311A. 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 1312Company 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?

1313A. 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 1314South 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:

1315To 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.

I then explained to you certain important business which I had postponed to await the organisation of the South Improvement Company. That business I have been engaged upon for the last ten days. As soon as I get through with it, which I hope will be in a few days, I should like to meet a committee of the principal producers to arrange the details of the plan of co-operation of which we spoke. I therefore request you to have such a committee appointed by the meeting noticed for to-morrow on the newspaper slip sent to me, and if possible have a plan prepared by which, among 1316other things, we could extend to you large facilities of tankage and capital to take care of the surplus oil until the present production can be checked.

P. H. Watson.

New York, March 5, 1872.

To F. W. Mitchell,

Franklin, Pennsylvania.

Just received another batch of newspaper slips giving proceedings of Oil City meeting.

The meeting acted in ignorance and under a radical misconception of the actual facts, and with far more earnestness and zeal than judgment.

If you will take the trouble to appoint a committee of producers to investigate, we will show that the contracts with the railroads are as favourable to the producing as to any other interests; that the much-denounced rebate will enhance the price of oil at the wells, and that our entire plan in operation and effect will promote every legitimate American interest in the oil trade.

You patiently test a well before deciding upon its merits, like rational men. You examine other subjects before acting upon them. Is not this a subject of sufficient importance to be worthy of rational investigation?

P. H. Watson.

New York, March 6, 1872.

To F. W. Mitchell,

Franklin, Pennsylvania.

Your telegrams received.

My telegrams were not addressed to the mass-meeting, but to you as a friend, as is also this, to be read at your discretion to some of the principal producers attending the meeting, simply to induce them to investigate the subject about which they are excited before acting upon it.

A mass-meeting is not a deliberative body; it always acts under the feeling of impulse or passions, and meets for predetermined purposes, one of which in this case, as appears in the articles of the newspapers calling the meeting, was to denounce and show its scorn for anything and everything connected with the South Improvement Company. Hence it required no prophet to tell beforehand in what spirit my telegrams to you would be listened to. You ask me to go to Franklin to consult my true friends. I will most gladly meet you and your friends at any place favourable to calm investigation and deliberation, and therefore outside of the atmosphere of excitement by which you are surrounded, say at Albany or New York.

I can well understand that, however, the excited people of your region may misjudge, they have no other purpose than to promote the public interest, and knowing that you deservedly enjoy their confidence, I am strongly convinced that a free and frank interchange of views at the conference suggested would result in satisfying you and 1317the people that there exists no cause for regarding us as enemies. I therefore hope you will name an early day for the meeting.

P. H. Watson.

Mr. Gilfillan.

I would like to suggest a question that would throw a little light upon this subject, and which I know Mr. Watson will be entirely satisfied to answer. I wish the chairman would ask if the objects of the South Improvement Company, in connection with railroads, were presented to the public through any statement in writing or by telegraph to the public, explaining the objects.

The Chairman.—I am coming to that, but first I want to know of the witness, whether he received any replies to these despatches?

A. Yes, sir, to one of them.

Q. Have you a copy of that?

A. I have not, but I have stated the purport of the answer. To the first I did not receive any answer; there was not time to receive any, and I did not expect it. I sent the second shortly after, and the answer was to the first and second together. To the third I received no telegraphic answer.

Q. You say you have no copy of these answers you received?

A. I have not. I gave the purport of the answer I received at the last meeting.

Q. Were there any other letters or statements published by your authority to the public or to parties in interest among the producers?

A. These were not published by my authority.

Q. Was there any other matter published by your authority, giving explanation to the people?

A. I made similar statements to a great many of the producers.

Q. I mean documentary evidence; was there anything published over your signature?

A. Oh, I did not publish any document at all; I did not publish this.

Q. Did you authorise it?

A. I neither published it nor authorised it, because I considered it useless; the people were so excited that they could not be reasoned with at all. Every one who informed me about it said so.

Q. Did you offer to any of the producers, or any parties in interest to show them these contracts?

A. Yes, I wanted that committee appointed for that purpose; I told them so substantially in my despatch.

Q. Did you make the offer otherwise?

A. I told them that I would, if that can be considered as an offer. I said I would, and I should have done it if they had come to meet us; but they were afraid.

1318Q. Would you have published it, do you mean?

A. I should have been perfectly willing to publish the contract; I should have been glad to have published everything in connection with the matter.

Q. If you would have been glad to have published it, why did you not? You had the power.

A. I would have been very glad to have done it, with the assent of these men.

Q. With the assent of what men?

A. The producers. I said to some of the producers that if they would go and examine the whole plan, and after they had examined into it they were not satisfied that it was for their interest, I would be perfectly willing to abandon the whole thing. That was the feeling we had in regard to the matter.

Q. What producers did you say that to?

A. Several of them.

Q. Mention their names.

A. Men with whom I had been in correspondence with on this subject, and whose lives and property I believe would not be safe if I were to mention their names, because they have told me so. I have promised not to expose them, and I feel in honour bound not to give their names.

Q. You have so promised in regard to all of them?

A. Most of those with whom I have had correspondence.

Q. Was there any opportunity offered to explain this matter, to show the contracts and let them know what were the objects of your company? Are there no names you can mention in that connection?

A. I shall have to look over the letters in order to see if there are any not marked confidential. I should like to give you the names if I am at liberty to do so.

Mr. Gilfillan.

I should like to make a suggestion which would throw a little light on this subject. If the chairman will allow me, I will ask the witness if he saw the proceedings of the meeting at Franklin, to which he refers, and if so, whether a resolution was not passed at that meeting asking for the production of these contracts that the public might know what the objects of this company were?

A. I have seen no such resolution; I do not think I have seen the published proceedings of that meeting; I only saw such parts as were sent to me in slips. There was certainly no such resolution as that which came to me. Mr. Mitchell telegraphed to me that my telegrams were received with scorn; that they did not want to know anything about the matter.

Q. Do you remember whether, about the first of March, the railroad companies, with which you made these contracts, or some of them, raised their rates of transportation?

1319A. I think about that time they did.

Q. Was it for a short time raised to that amount, and a printed schedule published?

A. I never saw the published schedule; I understood that through a mistake between William Vanderbilt, vice-president of the New York Central Railroad Company and freight agent of the Lake Shore road, it was supposed by the freight agent of the Lake Shore road that the rate had been raised by an agreement among the railroads to the maximum rates mentioned in their contracts with the South Improvement Company. A day or two after that mistake, being in Mr. Vanderbilt’s office, a telegram came in respect to it, and Mr. Vanderbilt at once directed the correction to be made. Mr. Devereux, the general manager of the Lake Shore Railroad, happened to come in at the time, and he also gave directions to the officers of his road to have the correction promptly made.

Q. Were you present?

A. Yes, sir, I was present. When I said “being in Mr. Vanderbilt’s office,” I meant that I myself was present.

Q. Was the correction made at your instance, or request, or suggestion?

A. It was not.

By Mr. Hambleton.

Q. Why was it made?

A. Because it was a mistake, a misapprehension, a misunderstanding, as I understood. I had not heard anything of it before that moment, and it was accidental, as I said, that I heard it.

By the Chairman.

Q. Then the rates were raised by the freight agents of the roads to correspond with the rates mentioned in these contracts?

A. I do not know the facts any further than having heard it as I have stated.

Q. And you think they were raised to correspond with these contracts by mistake?

A. I stated I so understood at the time.

Q. You stated the circumstances so minutely as to its being a mistake between Mr. Vanderbilt and the Lake Shore agent, that I inferred you knew the facts?

A. I only know it was so represented at the time.

Q. Did you take any part in that conversation by which the error you speak of was corrected?

A. Only in this sense: Mr. Vanderbilt mentioned the fact to me that a mistake of that kind had been made, that he had just received a despatch in relation to it, and he was about to correct it, and he asked me, I think, if I knew whether Mr. Devereux had given any orders respecting the matter. I told him I did not know anything about it.

1320Q. If I understand you, the time had not come for raising the freights under these contracts then?

A. I do not know anything about the time; I did not intend to make any such statement.

By Mr. Hambleton.

Q. At that time, as president of the South Improvement Company, was it not the understanding, and was it not your expectation, that the rates would go up at that time as they did go up to the maximum rates named in these contracts?

A. I do not know that as president I had any knowledge of the matter; and as an individual I took no part in the transaction.

Q. The president is an officer supposed to know more about such details than any of the directors or members of the company; and as president of that company I ask you if it was not the general understanding that the rates would go up about that time?

A. I answer distinctly that it was not, and that as president of that company I had nothing to do with the rates then, because the South Improvement Company’s contracts had not gone into operation, and neither the South Improvement Company nor any of its officers had any control of the question in any way.

Q. Had not the contracts at that time been signed?

A. The contracts had been signed, but they were held by me personally in escrow and they had not gone into effect.

Q. They had been signed?

A. Yes, but had not gone into effect.

Q. Were not these contracts so signed and held by you as president of the South Improvement Company, and did you not expect that the rates would advance to the maximum named therein at that time?

A. Certainly I did not; and in regard to the premises stated in the first part of your question I do not want to admit the statements you made. I do not suppose the object was to entrap me into an admission of a statement that is not true.

Mr. Hambleton.—I do not wish to entrap you into anything.

Witness.—I say that when you remark that I hold these contracts as president of the South Improvement Company, you mistake; they were not in my hands as president.

Q. I supposed that as president they passed into your hands?

A. They were passed into my hands as a person, and as such, in execution of the trust, I should hold them as much against the South Improvement Company as against anybody else.

Q. You answer my question then that you did not expect them to raise these rates?

A. Certainly I did not; I had no such idea at all.

Q. State how that mistake, or misunderstanding, or error, happened to occur, and what was the cause of it?

1321A. I really do not know; it was suggested at the time by Mr. Devereux that Mr. Hills, the freight agent of the Lake Shore Railroad, had a son on his death-bed, that he had to leave the office in charge of subordinates, and that he had not his wits about him as usual, because his mind was so pre-occupied with the sickness of his son, who was a favourite son.

Q. If he had not his wits about him, had he the contracts?

A. I do not wish to use that expression in any offensive sense; I mean he had not the full use of his mind. I do not know whether he had the contracts or not. I think it is probable from the conversation there that all the freight agents had the rates mentioned in these contracts; I have no doubt that the officers of the roads had consulted him; indeed some of them stated that they had been consulted, and that the freight agents knew what rates were provided for in these contracts.

Q. I want an answer to my question. By your contracts with the railroad companies you were to purchase all the refineries in the main cities of this country. You had it in your power to furnish more transportation than anybody else?

A. The refineries were not purchased; they have not been purchased.

Q. Was not that contemplated?

A. The company contemplated purchasing if it had gone into operation.

Q. I am getting at the point now; if your scheme had been successful do you suppose anybody in the world could have furnished an equal amount of transportation with your company?

A. If our plan had been carried out it included everybody; there would have been nobody left, and no hostile interest.

Q. You would have had the matter perfectly under your control?

A. Yes, because there would have been nobody left.

Q. Then I am correct in saying that nobody else could have shipped oil under any circumstances, because you were to have an additional rebate in case any rebate was allowed to any other person?

A. But if all interest was drawn into the plan, there would have been no hostile party and no injustice done to anybody.

Q. That is a different matter; now we agree that your advantages of rebate from the leading roads gave you the power of paying larger prices to the oil producers than anybody else?

A. It was expected that these rebates would enable the refiners and producers to maintain a fair price for crude oil at the wells.

Q. Will you answer my question? Could you not have purchased oil and shipped it with these rebates, on terms that nobody else could compete with?

A. If everything had been successful, if the South Improvement Company had 1322gone into successful operation, combining all these various interests, of course we could have paid a higher price than anybody else.

Q. Do you not see then that you had the producers of the Oil Regions absolutely in your control?

A. No, sir.

Mr. Sheldon.—I do.

Witness.—I do not, and will tell you why; you asked me a question that is a good deal like attempting to make the Bible prove that it says itself “that there is no God.”

The Chairman.—All our time is being expended in this way. Will you answer the direct question put to you?

Witness.—I want to answer it truly. It is an essential part of this contract that the producers should be joined in it; therefore it was not hostile to the producers in any of its intents or purposes; it never would have gone into effect unless the producers had joined.

By Mr. Sheldon.

Q. That may be the fact, but if the producers had refused to join, could you not have forced them into the arrangement on your own terms?

A. No, sir; because the South Improvement Company had no contract.

Q. You have a contract?

A. No, sir; it has no contract.

Q. Did it never have?

A. No, sir; they are placed in escrow with me. It has never had any, that is, there is not to-day and has not at any time been a contract in existence, in activity, or in force between the railroads and the South Improvement Company.

By Mr. Hambleton.

Q. Is not that entirely due to the excitement produced in consequence of the contracts having been entered into?

A. If the purchasers had entered into the contract which was contemplated by the South Improvement Company, it would have been entirely satisfactory to all parties, and both contracts would have gone into operation.

Q. And if a party of the producers had joined, you could have forced the balance to have gone into the arrangement?

A. Two-thirds were required.

Q. You could have forced the balance to have gone in?

A. The majority rules in most kinds of business; unless two-thirds had joined, no arrangement would have been made.

Q. Let us see whether you have not power to force the producers; by your contract with the railroads you had the advantage of forty cents a barrel to Cleveland and Pittsburg, and $1.06 to New York, Philadelphia, Baltimore or Boston on crude petroleum; while on refined petroleum you had the advantage to these cities of fifty cents a barrel, 1323and from any other point to New York, Philadelphia, Baltimore and Boston of thirty-two cents a barrel; it seems to me at that advantage you could have compelled the producers to do exactly what you wanted them to do?

A. The South Improvement Company never could have had that advantage, because the condition on which the main contract with the railroads was to be enforced was that the producers should join with them and participate in the benefits.

Q. Is that embodied in the different contracts?

A. The condition is not embodied upon the face of the contract; it is a condition upon which I held the contracts.

Q. Now Mr. Watson, as a lawyer, if you are such, are verbal conditions made with a third party to change the terms of a written contract executed in all respects?

A. Let me give you an illustration within my experience that is exactly parallel to this: I had a note executed, sealed, and complete in every way, put into my possession to be delivered upon the production of a deed.

The Chairman.—Wait a moment, there must be some kind of order in this proceeding. I wish you to answer the question which has been asked you, whether as a lawyer the conditions stated would change the terms of a written contract. If you are able to give an answer to that legal question you may do so.

Witness.—Let me hear the question and I will endeavour to answer it fully, if you will allow me to answer it in my own way.

By Mr. Sheldon.

Q. The question is, whether a verbal understanding to be performed by other parties not embraced in the written contract can be made effective to modify the terms of that contract as between the parties to it.

A. An agreement between the parties to a contract, whether verbal or written, fixing the terms upon which the contract shall go into effect, is perfectly competent and would be binding.

Q. That is your opinion as a lawyer?

A. That is my opinion.

Q. Now, sir, these contracts contemplated a considerable increase in the freight charges, both upon crude and refined petroleum?

A. They contemplate an increase almost up to the price for coal and lumber, as they are ordinarily carried, amounting to about 1½ cents a pound.

Q. Did it contemplate an increase upon both crude petroleum and refined oil?

A. Certainly; the railroads had been carrying these articles at a loss of nearly a million dollars; they carried for less than cost, and one object of these contracts was to increase the price of freight to the railroads.

The Chairman.—Let me suggest the propriety of first answering the question and then giving your explanation. That is the regular course, and I am sorry to say that during your whole examination there has not been a direct answer given to a question.

1324Witness.—Well, sir, where a question is such that it would give a false impression unless answered fully and fairly, I do not want to convey that false impression by my testimony.

Mr. Sheldon.

Q. Very well, I am satisfied with your explanation; now could not these railroad companies have raised the price of freight without the intervention of the South Improvement Company?

A. There were a good many difficulties in the way.

Q. Could they not have done it, and had they not the power to do it?

A. The laws of the State of New York forbid the Erie and New York Central Railroads from combining to raise the rates of freight; whether they could have done it I do not know. They tried very hard to agree to raise the freights but did not succeed.

Q. If that is the law of New York, is there an exception to that law so that they could combine with the South Improvement Company?

A. I think it was the opinion of lawyers that this arrangement was perfectly legal and proper; they could not combine, but they could make an independent agreement.

Q. They could raise the rates in your behalf, but they could not in the behalf of anybody else?

A. Not in behalf of anybody, but they could make this transaction. For two or three years they had been cutting under for the purpose of drawing the business away from each other.

Q. What effect would this increase of freight have upon the consumers of oil?

A. I think it would not be to the prejudice of the consumers in this country at all.

Q. Would it not have increased the price?

A. I think it would not have increased the price to the retail consumers in this country. If there had been no countervailing advantage to the retail consumers, of course it would have increased the price.

Q. You mean to say that there was such a margin upon the traffic of oil that to increase the freight charges fifty or 100 per cent. would not affect the retail price?

A. No, sir; I do not mean to say that is the reason.

Q. Is that not the effect of your answer?

A. No, sir, I think not. My explanation of it is this: that the oil trade, unless it is steadied by some artificial process, is subject to violent and rapid fluctuation. The retailers are very quick to note a rise in price, as I explained the other day, but very slow to notice a fall, so that the average price of a retail purchaser is very much above the average wholesale price. Now it was expected that the price under this arrangement would be a steady price, and that with a steady, regular price it would not cause the retailer to raise the price at which he sold at all.

Q. Do you know what profit is made on a barrel of oil sold by retailers to consumers in Northern Ohio?

1325A. It varies.

Q. Does it ever reach over $1.75 a barrel?

A. I can answer your question with a little calculation. (After computation.) I have known it to be sold at as low a profit as forty cents a barrel. About six or eight cents a gallon is a fair profit.

Q. We gentlemen are supposed to be acting for the public good; will you tell us what public interest you are advancing, or thought you were advancing in making the arrangements that are foreshadowed in these contracts?

A. We were advancing the interests of the railroads, the transporting interest, the interest of the producers, those who mine oil, the interest of the refiners, those who manufacture it, and the interests of the American trade and business generally, for five-sixths of the oil produced is exported, and an increase in the price of crude oil at the mines is essential to the payment of a fair business profit to the refiners; it is essential to the payment of a fair rate of transportation, because without a higher price of transportation more profit to the refiners could not be paid long and allow the producer pay for his labour at the average price of oil last year.

Q. Do you not think the interests of trade in this country are better promoted by leaving everybody to attend to their own matters and protect their own rights rather than by forming a combination as you did?

A. It is essential in many cases beyond individual means to form combinations. Railroads cannot be built without the co-operation of a great many individuals. There are a great many other operations that cannot be managed successfully without co-operation, and this is one of them.

Q. Did the producers ask you to go into this operation?

A. The most intelligent producers did, and to-day, my judgment is, that they are all satisfied that something of that kind is necessary for the protection of American industry.

Q. Did the consumers ask you to go into it?

A. Not any considerable number of consumers; we ourselves are all consumers. The body of them did not.

Q. How much money would the railroad companies have made under these contracts if they had shipped oil at these advanced rates?

A. They would have made about the same profits on that business that they do on coal and lumber, even if the maximum rates had been paid without any rebate; not so much if the net rates only had been charged.

By the Chairman.

Q. State whether in your judgment it was necessary, in order to make provision for these people for the South Improvement Company to receive this million dollars a year for the benefit of American interest, as you have suggested.

A. There was no such provision made, as I understand it.

1326Q. The testimony is that about six million barrels a year are shipped; the provisions of this contract are that a rebate to that company, supposing the maximum to have been charged, should be over a dollar a barrel.

A. No such thing as charging maximum rates was ever contemplated. The contract on its face says it is a cardinal principle that the gross rates shall be kept as near the net rates as possible.

Q. Suppose it had been kept at the gross rates, your company would then have received over six million?

A. That would be altogether different from the principles on which the contract was based.

Q. If the gross rates which the contract allows had been paid, however, the South Improvement Company would have received a rebate of over six million dollars?

A. Certainly, supposing such an absurdity.

Q. Why did you put such an absurdity in the contract?

A. It is not in the contract, as I stated.

By Mr. Hambleton.

Q. It is in the contract as a maximum?

A. But it is also expressly stated that the rates shall be kept as near to net rates as possible.

1327

NUMBER 13 (See page 1093) CONTRACT OF MARCH 25, 1872

[From “A History of the Rise and Fall of the South Improvement Company,” pages 27–28.]

I. That all arrangements for the transportation of oil after this date shall be upon a basis of perfect equality to all shippers, producers and refiners, and that no rebates, drawbacks, or other arrangements of any character, shall be made or allowed that will give any party the slightest difference in rates or discrimination of any character whatever.

II. That the present rates from Oil City, Union, Corry, Irvineton, Pittsburg, Cleveland and other competing points, shall be and remain in full force at following rates:

ON REFINED OIL, BENZINE, ETC.

Per barrel

From Oil City, Union, Corry and Irvineton to Boston $1.65

From Oil City, Union, Corry and Irvineton to New York 1.50

From Oil City, Union, Corry and Irvineton to Philadelphia 1.35

From Oil City, Union, Corry and Irvineton to Baltimore 1.35

From Cleveland to Boston 1.65

From Cleveland to New York 1.50

From Cleveland to Philadelphia 1.35

From Cleveland to Baltimore 1.35

From Pittsburg to New York 1.50

From Pittsburg to Philadelphia 1.35

From Pittsburg to Baltimore 1.35

ON CRUDE OIL

From Oil City, Union, Corry and Irvineton to Boston $1.50

From Oil City, Union, Corry and Irvineton to New York 1.35

From Oil City, Union, Corry and Irvineton to Philadelphia 1.20

From Oil City, Union, Corry and Irvineton to Baltimore 1.20

From Oil City, Union, Corry and Irvineton to Cleveland .50

From Oil City, Union, Corry and Irvineton to Pittsburg .50

And said rates shall not be liable to any change either for increase or decrease without first giving to William Hasson, president of the Producers’ Union at Oil City, at least ninety days’ notice in writing of such contemplated change.

1328III. In the distribution of cars for shipments, it shall be done without discrimination.

IV. On the basis as hereinbefore stated, the parties respectively agree to carry out the arrangements in good faith and work for the mutual interests of each other.

In witness whereof the parties have hereunto affixed their signatures, this twenty-fifth day of March, A.D. 1872:

For the Lake Shore and Michigan Southern Railroad Company: H. F. Clark, President.

For the Erie Railway Company: O. H. P. Archer, Vice-President.

For the New York Central and Hudson River Railroad Company: William H. Vanderbilt, Vice-President.

For the Atlantic and Great Western Railroad Company: George B. McClellan, President.

For the Pennsylvania Railroad Company: Thomas A. Scott, Vice-President.

On behalf of the Producers and Refiners: G. Shamburg, E. G. Patterson, William Hasson, Henry Byrom, William Parker, John J. Fisher, Oil Creek Producers and Refiners.

J. J. Vandergrift, A. P. Bennett, William M. Irish, William T. Scheide, Oil City Producers and Refiners.

Henry H. Rogers, F. C. Fleming, Josiah Lombard, Jr., New York Refiners.

B. Vaughan, Boston Refiners.

1329

NUMBER 14 (See page 1100) TESTIMONY OF HENRY M. FLAGLER

[Before a committee appointed by the Legislature of Ohio, March, 1879.]

Henry M. Flagler; residence, Cleveland, Ohio; occupation, secretary Standard Oil Company; sworn and examined.

By Mr. Norton.

Q. Mr. Flagler, I suppose you understand that this investigation is brought under what is known as House Resolution Number 162?

A. I understand that it is.

Q. How long have you been secretary of the Standard Oil Company?

A. Since its organisation, some time in January, 1870.

Q. Are the articles manufactured or the oil refined by your company shipped over the line of any railroad in the State of Ohio, and if so, state whether or not any rate of freight is contracted for by you or whether your company pays the freight?

A. To the first question, yes, sir; more or less of the product of our refineries is shipped over the railroads of the state. As a rule all of the freight contracts have been made by me.

Q. Please state as near as you can what proportion of your product is shipped out of the state?

A. Well, I should say from sixty-five to seventy per cent.

Q. Now, has your corporation any contracts, written or verbal, with any of the railroads of the State of Ohio for carrying your freight?

A. Yes, sir.

Q. You may state whether these contracts are written or verbal.

A. They are written.

Q. Have you heretofore, prior to this time, any contracts written or verbal?

A. We have.

Q. You may state, Mr. Flagler, whether by virtue of these contracts it has been agreed or allowed by the railroad companies to pay you any drawbacks or rebates on freights.

A. No, sir, it has not.

Q. You may state whether or not you are allowed special rates, or what is known as special privileges.

1330A. I can’t answer that question from the fact that I do not know what other people get, so I do not know whether they are special rates or general.

Q. I believe, Mr. Flagler, that in your subpœna it was requested of you that if any such contracts were in existence relative to freight matters, you would bring them before the committee. Did you do so?

A. I have never seen the subpœna, so I do not know what the demand was. I have, however, contracts made with our company as far back as the first one ever made.

Q. Can you produce these contracts before this committee?

A. Yes, sir, I can; I am willing to do so, provided they may be used by the committee—if it is proper to ask, to be used in the nature of a confidential communication. None of these contracts provides for any discrimination whatever, but they may contain some business secret of the Standard Oil Company, whose interests I am bound to protect. I do not see how the submission of those contracts as evidence in this case will do other than bear out the statement I have made under oath. I do not see how they will do anything more than sustain the statements I have made. I would be very glad to have our company set right before the public in these matters, but I do not care enough about it, however, to have our business contracts made public. I should be very glad to submit them to you under such circumstances.

Q. Mr. Flagler, do you know anything about the rates of freight from the Southern portions of the state, well, say from Marietta and from Wheeling to the City of Columbus?

A. I do not.

Q. Did you have anything to do, or has the Standard Oil Company anything to do with the making of the rates of freight for the company known as the Camden Consolidated?

A. None whatever.

Q. Have you anything to do with the making of the rate, or the arranging of the freights for the company known as the Marietta Oil Refining Company?

A. None whatever.

Q. Testimony introduced here shows, I think, Mr. Flagler, that about one year ago the rates of freight were raised nearly one-half from the points I have mentioned and from Parkersburg and other places to points in this direction. Had the Standard Oil Company any understanding by and between the railroad companies in regard to this rise in the rates of freight?

A. I should say, to my own knowledge, positively no; I never heard of it before. I do not know what the rates were and I did not know that the raise had been made.

Q. Do you in your capacity, or does the Standard Oil Company through its agents, control the rates of freight or make the rates of any of the oil companies in Cleveland, outside of your own corporation?

A. No, sir.

1331Q. Mr. Flagler, what is your rate of freight from the seaboard, or to the seaboard from Cleveland?

A. At the present time?

Q. Yes, sir, at the present time.

A. Do you mean per carload or by the barrel?

Q. Well, we’ll put it by the barrel, as there is some testimony before the committee relating to that.

A. I do not know that I could answer the question and I do not know but that I would be betraying the business interests of other people. The custom for several years, in fact, for more than five years, has been that the rates of freight on shipments to the seaboard and export oil have been made by what is called trunk lines, the New York Central, the Erie, now New York, Lake Erie and Western, the Pennsylvania, and Baltimore and Ohio. The general freight agents are the officers who make those rates, and their Western connections share in them. I do not know how the freight which is paid for services rendered is divided between their Western connections, having no means of knowing that at all. We do not make any contracts with the Lake Shore for the rates of freight, and the same is equally true of the Atlantic and Great Western. These are the only two roads we ever ship by—I may be wrong; we ship some by way of Pittsburg, over the Cleveland and Pittsburg or over the Baltimore and Ohio.

Q. Do you know what the open rate, the published rate is to the seaboard by the barrel?

A. To Boston and New York, $1.54½; to Philadelphia and Baltimore, $1.29½.

Q. Now, Mr. Flagler, you have used your pencil to arrive at that conclusion, why was it necessary to figure out that matter if there is a published rate?

A. Simply because I do not keep that thing in my mind and had to call upon my memory for the way the thing is got at. I got at that by deducting what is called the crude rebate. Nobody pays the crude rebate which is 45½ cents. Whether that form is kept up by the railroad companies I do not know, but my impression is it is not.

Q. It is a fact, isn’t it, that you do get a lower rate and pay less freight than the published rate? I believe it is in evidence that the open rate of freight to the seaboard will average about $1.65.

A. I have never seen the freight tariff, if you mean that which is known as the schedule rate published for the public. I have not seen anything of the kind and do not know anything about it.

Q. What inducement does your company offer to the railroads or what propositions are made by the railroads to your company? Now, I refer to the testimony given by Mr. Hills in regard to the carrying of oils, etc., what inducements do the railroad companies give whereby they lower your rate of freight?

A. They do not give us lower rates of freight for any consideration of that kind. 1332They pay us for the use of our property, if we furnish them with terminal facilities, cars in which to haul the goods, they pay us a compensation for the use of the property. Perhaps I can give it so you can understand it; we keep a separate account with each refinery and if we spend $50,000, or $100,000 to create what we term terminal facilities, warehouses, loading places, etc., we make an arrangement whereby they pay us a fair compensation for the property that is created by our money. That consideration is credited to that investment and has nothing whatever to do with the freight. The refinery making the oil is charged with the rate of freight just as anybody else pays, and the compensation for the use of tank cars and terminal facilities at the shipping and receiving ends of the line is given for the use of these ends. I will say that in the contracts we have made, the railroad companies have expressly reserved the right to give to other parties the same privileges if they furnish the same conveniences.

Q. Does the Standard Oil Company own and control the Camden Consolidated Company at Parkersburg?

A. Well, I would like to ask a question in reply, and that is, whether that question and answer comes within the scope of this resolution?

Q. I will give you my reason for asking the question. It has been charged here by witnesses that there is a collusion by and between the railroads in the Southern part of the state and the Camden Consolidated Oil Company or the Standard Oil Company, as they term it, for discriminations in the rates of freight. Now, to find out whether or not there is anything for which to blame the Standard Oil Company, I ask this question.

A. Well, it is a business secret of our company, but considering the circumstance, I will answer the question. The Standard Oil Company doesn’t own or control the Camden Oil Company, and I would say to every man explicitly and fully that the Standard Oil Company doesn’t own a share of stock in the Camden Consolidated Company. I say this so I may be understood and I hope I have done so. I do not own a share in it myself.

Q. Coming back to this question of the contracts, have you any of the written contracts that have been or are now in force, that you can give this committee; contracts between the railroad companies traversing this state and your company?

A. Yes, sir. (Contracts produced.) The price for the shipment of oil per barrel as given in the first contract for the year 1870 was as follows: From the first of February to the first of June, 1870, $1.40; from the first of June to the first of November, 1870, $1.20; this was during the season of navigation. From the first of November until the expiration of the contract, April 1, $1.60.

Q. Is there a line or clause in that contract whereby there is an agreement for rebates or drawbacks?

A. None whatever.

Second contract read: In this contract the rates were as follows: From the first 1333of April until the middle of November, 1872, about seven months, $1.25. For the remainder of November, December, January, February and March of 1873, $1.40. These were rates per barrel.

Q. Were there no rebates, drawbacks, or special privileges given outside of what is written in the contract?

A. None whatever. (Third contract introduced.)

Mr. Flagler: I want to say something of this matter and I want to tell the whole truth. Our business was at the time about 4,000 barrels a day and we had contracted this oil for delivery at once, and we had to pay from $50 to $150 gold per day if we kept it an hour longer than the time specified in the contract, so it was very important for us that the railroads put these on board as rapidly as possible.

Q. Mr. Flagler, from the reading of that contract I see that you might, instead of being benefited, sustain damages by the failure on the part of the railroad company to get your oil in there. Did you ever have to pay any demurrage to them?

A. Yes, sir, we had to pay some years as high as $30,000.

Q. Have you ever received any benefits by reason of these contracts that any other shipper might not have received?

A. No, sir. Not in the slightest. All the way through these contracts you will observe that we have undertaken those risks which the law imposes on the common carrier and which no railroad can divest itself of except by written agreement. The handling of these quantities of oil was a very serious matter; there was a constant tendency on the part of the railroad companies to put cars used in this trade to some other purpose, whenever it would pay them better. They used a rack car, such as they could carry cattle in and we have had a great deal of trouble with these roads in the use of those cars, because if they could get cattle to haul from Chicago to St. Louis for something more than they were getting from us they would do it. I want to say what the facts are under the contract just read. You will remember that during seven months of the year we were to give them 4,000 barrels of oil per day or 100,000 barrels a month, and the smallest of the shipments in those months was 108,000. We gave them during the rest of the time more oil and paid them the contract on it when we could have shipped by canal for forty cents less. On the first day of December, a competing line of railway lowered the rate to $1.05 per barrel. I went to Mr. Vanderbilt and told him that the rate should be maintained at the agreed price or else we would not have made the contract with him. I said to Mr. Vanderbilt that if he insisted in the fulfillment of the contract basis and exacted the payment of the contract price, it would result in our being compelled to close our refineries, for we could not afford to pay $1.25, when other people were only paying $1.05. I called his attention to the fact that during the season of canal navigation we had given the maximum shipments of oil, 180,000 barrels a month, and some in excess of it, and paid $1.25. I said, if you will reduce these rates to the rate made by the Pennsylvania Company, 1334in my judgment thirty days will not elapse before they will be willing to restore their rates, and all we ask is to be put on a parity with other shippers. After a moment’s hesitation he asked if I thought he ought to stand all of this twenty cents. I told him if he should stand any part of it he should stand it all. I said, it is a transportation fight and not a fight of the manufacturers. When it comes to competition of the manufacturers we would take care of ourselves. I said that we would not have made this contract except on their assurance that the contract price of $1.25 was to be maintained. He said: “I will make your rate $1.05,” and this was after we had done more than we had agreed to do under the contract. The next day we sold between 50,000 and 60,000 on the basis of $1.05 per barrel. Mr. Vanderbilt allowed that rate of payment for one month and then said he would exact the contract price, $1.25. I said all right, and we shall ship just the amount of oil we are compelled to ship to fulfill our contract and then we shall stop. We paid him $1.25 for all over the month and then we did not run a barrel of oil from the City of Cleveland more than that until the expiration of this contract for three months. That is the good that the contract worked on us. You might consider it a baby act to plead the equities of the case, but we could not place our oil on the market and compete with other refineries.

(Fourth contract introduced.)

Q. This is the only contract you have now in existence whereby you carry your freight?

A. Yes, sir.

Q. Do you know anything of the suits brought by Teagle and Company against the Lake Shore road for discriminations in freight?

A. Nothing whatever.

Q. Have you had since the organisation of your company any understanding outside of these contracts whereby discriminations are made in favour of your company as against any of the smaller refineries of the state?

A. No, sir.

Q. Has your company or corporation in conjunction with the railroads ever operated so to “squeeze out” as they term it, or injure any other refining company of the state, outside of the Standard Oil Company?

A. No, sir, never. I would like to enlarge upon that question. I suppose it would be fair to the mind of every member of this committee present. A very large business with other mechanical contrivances and an experience which grows up with and comes along with business and always doing a very large business, in the nature and order of things should make its presence felt by the parties doing a comparatively small business. In 1873 and 1874, when we stipulated for those 4,000 per day, if anybody has followed the progress of the Standard Oil Company they would know and I feel justified in saying that we have done a very large business, and aimed to do it with 1335economy and give the purchaser the very best oil manufactured, consistent with a good and safe kind of oil—to manufacture at one point under the eye of one man. With an aggregation of capital and a business experience, and hold upon the channels of trade such as we have, it is idle to say that the small manufacturer can compete with us, and, although it is an offensive term, “squeezing out,” yet it has never been done by the conjunction of any railroads with us or by the carrying out of freights.

1336

NUMBER 15 (See page 1106) THE PITTSBURG PLAN

[From the Oil City Derrick, May 17, 1872.]

1. Refiners to lease to the company for five years their superstructure with sufficient real estate to carry on the business of the works.

2. That the rental be eight per cent. per annum on the appraised value of the superstructure, and the company to assume all risks and pay all ordinary taxes.

3. Lessors to pay into the treasury of the company for a working capital one-half of the appraised value of the superstructure in cash or the equivalent in refiner’s stock.

4. Said lessors to receive for money paid in as above the bonds of the company, in amount equal to cash paid in, and stocks of the company for an equal amount; said bonds payable in five years or at the option of the company after one year, said bonds to be denominational coupon bonds to bear interest at the rate of eight per cent. per annum, payable semi-annually.

5. The company shall not pay annually more than ten per cent. on the stock as dividends until the said bonds are redeemed.

6. After the bonds are paid, then the company shall have the right and shall be obliged to purchase all said superstructure at the full appraised value first made, and shall give in exchange for the same stock of the company for the full amount.

7. Each district shall appoint a local committee of three persons to make appraisals, and when any appraisements are being made, the chairman of each local committee shall be required to be present to take part in the appraisement.

There shall be a board of appeal which shall be composed of the chairman of each local committee. All presidents of the company shall be presidents ex officio of the board.

The committee shall place a cash valuation on the superstructure and shall be instructed as to the manner in which the valuation shall be obtained.

1337

NUMBER 16 (See page 1117) “THE AGENCY”

[From the Oil City Derrick.]

I. There shall be established, under the auspices of the Council of the Petroleum Producers’ Association of Pennsylvania, an organisation under sanction of the laws of Pennsylvania, which shall be known as “THE PETROLEUM PRODUCERS’ AGENCY.”

II. The capital stock shall be not less than one million dollars, and shall be divided into shares of one hundred dollars each, which shall be subscribed only by members of the Petroleum Producers’ Association, or by such other persons as may be approved by the Council.

III. No transfers of the shares of the capital stock shall be made on the books of the Agency, except upon such conditions as the directors may prescribe, subject to the approval of the Council.

IV. The business of the Agency shall be managed by a board of thirteen directors, who shall be elected annually by the stockholders.

V. There shall be an advisory board to consist of one member elected by each local association and approved by the Council. The members of the advisory board shall be admitted to the meetings of the board of directors and shall be entitled to all the privileges of directors, except that of voting. Any member of the advisory board may be removed for any abuse of his trust, or for official misconduct, by a vote of three-fourths of the Council at a regular meeting.

VI. The local associations may appoint committees to solicit and receive subscriptions to the capital stock; they may also appoint responsible trustees to receive payments on account of such subscriptions, to whom the subscribers shall pay at least ten per cent. upon their subscriptions at the time of subscribing. The committees of the local associations shall advise the president of the Council, from day to day, of the amount of subscriptions received by them, and whenever the sum of at least one million dollars shall have been subscribed in good faith, and approved by the Council, and the organisation of the Agency legally completed, subscribers shall be notified to hold an election of directors. The directors shall, as soon as practicable after their election, proceed to elect a president, secretary and treasurer. The trustees, appointed by the local 1338associations to receive subscriptions, shall thereupon be required to pay over to the Agency the amounts received by them on account of subscriptions to the capital stock. The Agency shall not be responsible for any subscriptions paid to the trustees appointed by the local associations until the same shall have been paid over to the Agency or its authorised representatives.

Subscriptions to the capital stock may be received, payable in oil at five dollars per barrel, delivered on the cars or in the tanks of the Agency at any sub-agency on the line of the railways; provided, however, that no certificate of stock shall be issued in any case in which payment is made in pipe-line receipts until the oil shall have actually been received upon the order by the Agency or its agents. But a special guaranty of the order shall be required from the subscriber with an agreement that the stock shall be retained as security for the delivery of the oil on demand, and the demand shall be made within thirty days after the order for the oil is received by the Agency.

VII. Members of the Petroleum Producers’ Association shall sell their oil only to the Agency. The Agency shall purchase all the oil offered by members of the Association and shall pay therefor at least five dollars per barrel for oil of standard grade, and for the heavy oil of the fifth district. Payment for oil purchased shall be made as follows: If the market will take the entire supply as fast as offered, the full market price shall be paid in cash on delivery; but if the board of directors, or the Council, shall determine that the oil daily offered to the Agency is in excess of the demand, the Agency shall pay three dollars in cash and give the seller a certificate entitling him to the net proceeds of the oil when sold, less the amount advanced thereon.

VIII. The Agency shall sell no oil for a less price than five dollars in cash, on delivery per barrel without the consent of the Council of the Petroleum Producers’ Association.

IX. To the redemption of the certificates, on and after the tenth of the month succeeding that in which they were issued, shall be applied the proceeds of all the oil sold and delivered during that month, less the amount advanced and the amount required to tank the surplus oil. For the unpaid balance of the certificate the holder shall, upon the surrender of the same, be entitled to a tank receipt representing his interest in the amount of surplus oil in store and tankage.

X. The Agency shall be entitled to receive for buying and selling the oil such commissions per barrel as the Council may allow, applicable first to the payment of expenses, second to the payment of dividends on the capital stock, which shall be six per cent. semi-annually, free of taxes.

XI. All the net proceeds of surplus oil sold shall be applied specifically to the redemption of the tank receipts at their value, the surrender of which shall be at the option of the holder.

XII. The Agency shall establish sub-agencies at such points within the oil-producing district for the receipt, storage, and shipment of oil as may be necessary to facilitate 1339the convenient and economical transaction of the business of the region, subject to the approval of the Council.

XIII. The Agency shall provide all storage necessary to hold the oil on sale and the surplus oil in store.

XIV. The price on the cars of oil of the standard grade shall be uniform at all the sub-agencies on the line of the railways within the oil-producing district, provided it be practicable to so arrange with the railroads.

XV. A barrel shall be uniformly forty-two gallons.

XVI. Whenever the production of petroleum shall be permanently in excess of the demand the Council of the Petroleum Producers’ Association shall determine at what time the production shall be restrained and shall take such measures as may be practicable, necessary, and lawful to prevent the drilling of oil wells, but it shall confine its orders, so far as practicable to preventing the starting of new wells, allowing those already in process of drilling to be completed.