Rice v. Rockefeller

• Decision Date: 01 October 1892
• Citation: 134 N.Y. 174,31 N.E. 907
• Parties: RICE v. ROCKEFELLER et al.
• Court: New York Court of Appeals Court of Appeals

134 N.Y. 174

31 N.E. 907

RICE

v.ROCKEFELLER et al.

Court of Appeals of New York, Second Division.

Oct. 1, 1892.

Appeal from supreme court, general term, first department.

Action by George Rice against John D. Rockefeller and others, trustees of the Standard Oil Trust. From an order of the general term, (9 N. Y. Supp. 866,) reversing judgment entered on decision of the special term in favor of plaintiff, and granting a new trial, plaintiff appeals. Reversed.

Edward T. Bartlett, for appellant.

Joseph H. Choate, for respondents.

The other facts fully appear in the following statement by BRADLEY, J.:

The main purpose of the action was to require the defendants to transfer to the plaintiff upon their books six shares of stock in the Standard Oil Trust on the surrender of the certificates of such shares held by him. The Standard Oil Trust was created in January, 1882, by agreement in writing made or adopted by the stockholders and members of certain corporations and limited partnerships, and certain individuals therein named, or that might thereafter join in it at the request of the trustees. The stockholders and most of the other individuals making or adopting the agreement were interested as stockholders or otherwise in the mining, manufacturing, refining, and dealing in petroleum and its products, the materials used in the business, and the business in some manner relating thereto. The trustees, pursuant to the trust as provided for by such agreement, received from the parties making or adopting it certain bonds and stocks in trust, and issued to them therefor Standard Oil Trust certificates transferable on the books of the trustees. And by virtue of the agreement the parties so surrendering their bonds and stock for such certificates became the beneficiaries under the trust, as did also the transferees of such certificates. The par value of the certificates which have been so issued from time to time by the trustees exceeded $90,000,000. And they have a regular market value, and are dealt in in the open market in the city of New York, and were at the time of the commencement of this action held in considerable amounts by many persons who were transferees thereof, and not parties to such agreement. One of the objects of the agreement creating the trust was to secure to the trustees the general supervision, so far as practicable, of the affairs of the various corporations, limited partnerships, and manufactories coming within the adoption of the agreement. The above is a statement substantially of facts alleged in the complaint and admitted by the answer. It further appears by the evidence, and was also found by the court, that on or about October 14, 1886, the plaintiff purchased in the open market in the city of New York Standard Oil Trust certificate No. 1,987 for five shares of stock duly issued to one L. B. Mallaby by the trustees, and paid for it $190 per share in cash, and the certificate was thereupon transferred to him by Mallaby. The following is a copy of the certificate and of the transfer indorsed upon it, to wit: ‘Shares, $100 each. Standard Oil Trust. Number 1,987. Shares, 5. This is to certify that L. B. Mallaby is entitled to five shares in the equity to the property held by the trustees of the Standard Oil Trust, transferable only on the books of said trustees on surrender of this certificate. This certificate is issued upon condition that the holder or any transferee thereof shall be subject to all the provisions of the agreement creating said trust and the by-laws adopted in pursuance of said agreement, as fully as if he had signed the said trust agreement. Witness the hands of the president, secretary, and treasurer of the board of trustees, this 25th day of August A. D. 1885, at the city of New York. WM ROCKEFELLER, V. President. J. F. FREEMAN, A. Treasurer. H. M. FLAGLER, Secretary.’ Upon the back of it is the following, to wit: ‘For value received I hereby sell and transfer to George Rice, of Marietta, Ohio, five shares of the Standard Oil Trust, standing in my name on the books of said trust. And I hereby irrevocably appoint said George Rice my attorney to make the necessary transfer upon the books of said trust, in accordance with the regulations thereof, and upon the conditions expressed on the face of this certificate. Dated August 26th, 1885. L. B. MALLABY. In presence of C. F. STREIGHTOFF.’

After this purchase, and prior to June 20, 1887, a stock dividend was declared by the trustees amounting to one share of stock for every five shares oustanding, and certificate No. 3,057 for one share of the Standard Oil Trust stock was thereupon issued to Mallaby, who about June 20, 1887, transferred it to the plaintiff. This certificate and transfer indorsed upon it are in form the same as those above set forth. And on January 20, 1888, the plaintiff, at the office of the trustees in the city of New York, made a formal written demand for the transfer to him of such six shares upon surrender of the certificates, which, with the transfers thereon indorsed, he then exhibited. The following is a copy of the written demand. ‘To the Standard Oil Trust, No. 26 Broadway, New York, and its trustees, officers, and agents: You will take notice that I am the legal owner of certificate number 1,987 for five shares, and certificate number 3,057 for one share, in the equity to the property held by the said trustees of the said Standard Oil Trust, and that each of said certificates was issued to L. B. Mallaby and has been duly transferred by him to me, said original certificates and transfers being herewith exhibited to you. I hereby offer to surrender to you said certificates on receiving the new certificate hereinafter referred to, and do demand that you forthwith transfer said six shares to me on the books of said trustees of the Standard Oil Trust, and issue to me a new certificate therefor in my name. GEORGE RICE. Dated New York, January 20th, 1888.’ The transfer to the plaintiff on the books was refused, and this action followed. Further facts appear in opinion.

BRADLEY, J., ( after stating the facts.)

The defense is founded upon the propositions (1) that the plaintiff failed to prove that he was a beneficiary under the Standard Oil Trust agreement, or entitled to become such by means of transfer upon the books of the shares represented by the certificates held by him; and (2) that he is not seeking such relation in good faith, but for purposes hostile to the trust, and for that reason is not entitled to the aid of the equitable powers of the court in that behalf. The Standard Oil Trust represents a voluntary association. It was created by agreement of the stockholders of various corporations and others engaged or interested in a certain enterprise and the several branches of business connected with and incidental to it. The effect of its creation is the concentration of supervisory power in nine trustees, whose certificates of the trust are taken in place of the stock and bonds of the several corporations. The characteristic feature of it is in the voluntary surrender of the control and management of the business of those corporations, and in the fact that for its continuance it has the capacity of succession. The agreement constituted not a partnership, but a trust in behalf of the beneficiaries. And while it is not a corporation, it by the agreement took some of the attributes of a corporation, in so far that through its trustees certificates of shares in the equity to the property held by them were issued and were transferable in like manner, apparently, as are those of corporations. They are transferable on the books of the trustees, and until that is done it is said that the holder is not a beneficiary of the trust. And it is further urged that it does not appear that the plaintiff is entitled to that relation because the right to transfer upon the books depends upon the provisions of the agreement and by-laws and compliance with them in that respect, and, as they were not put in evidence, the conditions requisite for the purpose do not appear. It is true that the burden was with the plaintiff to show that he was entitled, within the meaning of the agreement and by-laws, to the relation of a transferee or beneficiary, and to have it perfected by transfer on the books. The fact that the shares were transferable and were for sale in the open market enabled the plaintiff to become the holder of those he did purchase. It may be observed that by the terms of the certificates the shares appear to have been ‘issued upon condition that the holder or any transferee thereof shall be subject to all the provisions of the agreement creating said trust and of the by-laws adopted in pursuance of said agreement, as fully as if he had signed the said agreement.’ This relation of holder was given the plaintiff when he became such by taking the transfer from Mallaby. It is said that this does not constitute him a transferee, and that transfer on the books was essential to that relation and to make him a beneficiary. By the terms of the certificate, the holder and transferee are alike subject to the provisions of the agreement upon which the trust is founded. But to give him the character of transferee for the purposes of recognition by the trust, the transfer on the books is requisite, inasmuch as the shares are transferable only upon them. This is for the benefit and protection of the trust. Bank v. Smalley, 2 Cow. 770. The holder, as between him and his assignor, having the title, would seem in some sense to be a beneficiary of the trust, since he is subject to all the provisions of the agreement on which it is founded and its by-laws.

The allegations in the complaint of what purport to be the nature, purpose, and effect of the agreement are by the defendants' answer admitted. The fact thus appears that the shares are transferable on the books of the trustees. From that arises the inference...