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

34 F.2d 655 (1929)

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

United States Court of Appeals for the Second Circuit
34 F.2d 655 (1929)

Facts

Mexican law prevented Island Oil & Transportation Corporation (Island) (defendant) from owning or operating oil-bearing land off the coast of Mexico. To get around the law, Island created multiple Mexican subsidiaries. The subsidiaries were staffed with Mexican officers, but those officers had no control over the companies. Island owned each subsidiary’s stock, and Island’s own directors directly managed each subsidiary. Although the subsidiaries were essentially shells for Island, there were books of account showing supposed transactions between the subsidiaries and Island. Such books of account were a requirement under Mexican law. As to one subsidiary, the books showed that Island owed the subsidiary a substantial debt for oil and had not paid the debt. Island had pledged its stock in all the subsidiaries under a mortgage that went into default. The stock was sold in foreclosure, and New York Trust Co. (New York Trust) (plaintiff) acquired ownership of the subsidiary to which Island supposedly owed the debt for oil. New York Trust sued Island for the outstanding balance reflected in the subsidiary’s books. A master dismissed the claim, deeming it not viable, and the district court agreed. New York Trust appealed.

Rule of Law

Issue

Holding and Reasoning (Hand, J.)

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