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

34 F.2d 655 (2nd Cir. 1929)

• Island Oil had several Mexican subsidiaries, and owned all their stock.  They were in financial trouble and mortgaged their stock in the subsidiaries.
• At the same time, in order to fix it's books, Island had the subsidiary sell a large quantity of nonexistent oil to Island Oil, and then had Island Oil owe the subsidiary a lot of money.
• After they went bankrupt, a new owner took over one of the subsidiaries and sued Island Oil for the balance of what they had mortgaged from the subsidiary.
• The Trial Court found that the "contract" to sell the oil to Island was a sham, and no actual oil was sold.  Therefore the contract is void.
• The US Supreme Court upheld the lower courts' ruling.
• The understood that the contract was simply part of a plan to deceive third persons.