New York Trust Co. v. Island Oil & Transport Corporation

• Decision Date: 24 June 1929
• Docket Number: No. 273.,273.
• Citation: 34 F.2d 655
• Parties: NEW YORK TRUST CO. v. ISLAND OIL & TRANSPORT CORPORATION. Ex parte COMPANIA PETROLERA CAPUCHINAS.
• Court: U.S. Court of Appeals — Second Circuit

34 F.2d 655 (1929)

NEW YORK TRUST CO. v. ISLAND OIL & TRANSPORT CORPORATION Ex parte COMPANIA PETROLERA CAPUCHINAS.

No. 273.

Circuit Court of Appeals, Second Circuit.

June 24, 1929.

William M. Chadbourne, of New York City (Clinton De Witt Van Siclen, of New York City, on the brief), for appellant.

Carl J. Austrian, of New York City (Saul J. Lance, of New York City, on the brief), for appellees.

Before MANTON, L. HAND, and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

The Island Oil & Transportation Corporation, not being permitted under the Mexican law to own or operate oil-bearing lands within 50 kilometers of the coast, resorted to the device of organizing a number of Mexican companies, staffed with Mexican officers. It held all the shares of stock in these, except such as were necessary to qualify the directors, and conducted the business directly, either in New York or Tampico, by means of its own officers under the supervision of its directors. The Mexican officers of these companies had no voice whatever in its affairs, decided nothing, and were not consulted by the parent company. Nevertheless books of account were kept between the subsidiaries and the parent, showing apparent sales and payments, and in general a complete simulacrum of real transactions. The Mexican law required Mexican companies to keep books of account and records in Spanish, and prescribed their form. These accounts showed various balances, one way or the other, and in the case of the claimant a very large indebtedness for oil, which the parent had not paid. The shares of stock of all these subsidiaries having been pledged under a mortgage of the parent company, they were sold in foreclosure, and the subsidiary, then in new hands, filed a claim against the receivers of the parent for the balance thus shown due. This being referred to a master, he dismissed the claim as being without substance, and the District Judge confirmed his report.

We have very recently considered the liability of a parent company to third persons for acts, formally those of a subsidiary, and we held that the question turned upon whether the parent acted directly in the transaction, through its own officers, or only through its indirect power retained by virtue of its ownership of the subsidiary's shares. Costan v. Manila Electric Co., 24 F.(2d) 383; Kingston Dry Dock Co. v. Lake Champlain Transportation Co., 31 F.(2d) 265. If this were such a situation, so that those decisions applied, we should be content to rest upon them without further comment. It is not; the parent's liability to a third person depends on quite different considerations from that to a subsidiary; the second is a question of intent, like that in any other contract. Having for one reason or another adopted the form of independent companies for the conduct of their enterprises, each with a jural personality of its own, the associates could create whatever rights between themselves they wished, provided they gave the necessary expression to their intent.

However, the form of utterance chosen is never final; it is always possible to show that the parties did not intend to perform what they said they would, as, for example, that the transaction was a joke (Keller v. Holderman, 11 Mich. 248, 83 Am. Dec. 737; McClurg v. Terry, 21 N. J. Eq. 225); Theiss v. Weiss, 166 Pa. 9, 20, 31 A. 63, 45 Am. St. Rep. 638; Bruce v. Bishop, 43 Vt. 161); or that it arose in relations between the members of a family which forbade it (Earle...