It is asserted by many, and several State courts have sustained the position, that a Trust is in America an illegal association, because it implies on the part of its constituent corporations a violation of the conditions under which they received the powers and privileges conferred in their charters by the government of the several States. Their illegality consists, it is held--
(1) In surrendering the power to manage and control their business to some persons other than those legally authorised.
(2) In engaging, through the Trust, in kinds of business not authorised by the charter.
§ 9. It is, however, the economic character and powers of the Trust, and not its legal position, which concern us here.
The following short history of the origin and _modus operandi_ of the Standard Oil Trust, the largest and in some respects the strongest of these organisations, will serve to give distinctiveness to the idea of the Trust:--
Petroleum began to be an article of extensive commerce about the year 1862. The wells from which the crude petroleum oil was drawn were in Pennsylvania, and the work of boring the wells with machinery and extracting the oil grew to be a considerable business. The crude oil was sold to various refiners, who set up factories in Cleveland (Ohio), in Pittsburg, and in several other cities. By 1865 these factories had become pretty numerous, and in that year a private refinery at Cleveland, owned by a few partners, obtained a charter forming it into a corporation entitled the Standard Oil Company, with a capital of $100,000. Until 1870 the progress of the company was comparatively slow. In order to increase their hold upon the sources of production in Pennsylvania, and to expand their trade, they began to purchase stock in corporations already existing in that State, and succeeded in establishing others, with which they worked in close alliance. A Standard Oil Company was organised at Pittsburg, the stock of which passed into the hands of the owners of the Cleveland Company. They then proceeded to establish agencies in other States, primarily for the sale of their goods, but when these businesses were firmly planted they obtained for them from the several States charters incorporating them as companies for refining oil. In 1872 the shareholders of the Standard Oil Companies at Cleveland, Pittsburg, and Philadelphia organised another corporation called the South Improvement Company, obtaining a charter from the State of Pennsylvania. This corporation, which was in fact though not in legal form the "Standard Oil Companies," then entered into contracts with the New York Central and Hudson River Railroad Company, the Erie Railway Company, and several other lines which traversed the oil-producing country, for the shipment of petroleum. The South Improvement Company agreed to ship over these railways all the petroleum products. In return the railway companies agreed to carry their goods, not upon the terms open to other customers, but with a system of rebates, paid not only upon the oil shipped by the company, but upon that shipped by any other competing companies. "In one locality the railroad companies were to charge oil shippers as freight not exceeding $1.50 per barrel, and pay a rebate to the South Improvement Company of $1.06 per barrel, whether it was the shipper of the oil or not, so that under these contracts the Standard Oil Company members would pay no more than 44 cents per barrel as freight to the carrier, while their competitors would pay $1.50, and of this last sum the railways were to pay back to the combination $1.06 per barrel."[131]