Where the Supreme Court of the Territory of Oklahoma reversed
the judgment of the trial court, the reviewing power of this Court
is limited to determining whether there was evidence supporting the
findings and whether the facts found were adequate to sustain the
legal conclusions.
In this case, the Supreme Court of the territory having found
that a lease, being made to further an unlawful enterprise, was
void as an unreasonable restraint of trade and as against public
policy, this Court sustains the judgment, there being proof
supporting the conclusions to the effect that the lessor company
agreed to go out of the field of competition, not to enter that
field again, and to render every assistance to prevent others from
entering it, other acts in aid of a scheme of monopoly also being
proved.
It is not necessary to determine whether the supreme court of
the territory based its judgment holding such a lease void, on the
common law, on the Sherman law, or on the statutes of the
territory; the restraint placed upon the lessor was greater than
the protection of the lessee required.
17 Okl. 231 affirmed.
This suit was brought in the District Court of the County of
Pottawatomie, Territory of Oklahoma, by appellees as stockholders
of the Shawnee Compress Company against appellants to cancel a
lease made by the Shawnee Compress Company to the Gulf Compress
Company.
The original petition alleged that the compress companies were,
respectively, corporations of Oklahoma and the State of Alabama;
that the plaintiffs, appellees here, were minority stockholders of
the Shawnee Company; that certain of the stockholders of the
Shawnee Company, claiming to be its officers,
"conceived the idea of leasing the entire property and business
of said company, together with its goodwill and the right to the
business thereof to said defendant, Gulf Compress Company, a
foreign corporation;"
that subsequently the
Page 209 U. S. 424
same stockholders, claiming to be the directors of the
corporation, in certain meetings and by certain resolutions,
executed the purpose. These meetings were alleged to be invalid as
not being in conformity with the bylaws, and that the proceedings
therein were "wholly illegal and beyond the powers and authority of
the said stockholders and directors of said corporation;" that the
corporation was organized to construct and operate a cotton
compress in the City of Shawnee, and that its officers and
stockholders were not authorized to execute a lease for a period of
years, vesting in another and foreign corporation the rights,
duties, and business of the company, and that the lease was void as
against the rights of plaintiffs, being minority stockholders of
the company. A copy of the lease was attached to the petition.
The petition was amended, making the allegations somewhat
fuller, and alleged that appellants Stubbs and Beatty, who assumed
to act, respectively, as president and secretary of the company,
and certain other stockholders who joined with them in the
negotiation of the lease, were induced thereto by certain
advantages personal to themselves, and not by the interest of the
company. It was also alleged that the "exigencies of the business"
of the company did not demand or justify the lease, and that its
revenues for the season 1904-1905, over and above taxes and
insurance, notwithstanding negligent and incompetent management,
were $7,485.89, and, plaintiffs expressed the belief, could be made
greater for the years covered by the lease. It was alleged that the
Gulf Compress Company was in the business of leasing and operating
competing compresses for the purpose of monopolizing, as far as
possible, the business of compressing cotton in a large portion, if
not all, the cotton-raising districts of the United States, and
that the lease was procured from the Shawnee Company in pursuance
of said scheme, and other leases of other compresses were also
secured for like purposes, and that the Gulf Company is, in its
operation and method of conducting business, a trust, combine, and
conspiracy, in restraint of trade
Page 209 U. S. 425
and commerce, in violation of the federal antitrust law and the
antitrust law of the Territory of Oklahoma, and that it is the
design of the Gulf Compress Company to increase the charge of
compressing cotton, and that it will be able to enforce such
charges by reason of the fact that it will control all of the
compresses in the territory.
There was a demurrer to the petition, which was overruled. An
answer was then filed which in detail asserted the validity of the
proceedings preceding the execution of the lease; that the company
was indebted in the sum of $17,250 -- $6,000 to the Shawnee
National Bank and $11,250 to the Webb Press Company, Limited, which
was past due; that its creditors were pressing for payment, and
that the lease was necessary in order to procure money by which to
pay the Shawnee Bank and to secure the extension of time on the
indebtedness due the Webb Press Company, and that, for these
reasons, the negotiations for the lease were entered into and the
lease finally made. And it is alleged that the consideration paid
was fair and reasonable, and for the best interest of the
stockholders of the Shawnee Company; that defendants could procure
said second mortgage money in no other way, and that the property
of the Shawnee Company would have been sold at a great sacrifice
unless the lease had been made.
It is alleged that appellees are firms of cotton buyers, and, in
order to obtain an unfair advantage over other buyers, have
conspired together for the purpose of forming a monopoly of all the
compresses in the territory and destroying competition in
compressing, and, in order to carry out the conspiracy, have for
more than six months endeavored to obtain a majority of the stock
of the Shawnee Company, and, knowing that Beatty and Stubbs were
involved and in need of money, have in all ways oppressed said
Beatty and Stubbs to compel them to sell their stock to appellants
for an inadequate consideration and conspired to compel the Shawnee
Company, knowing it was involved and its demands pressing, to sell
and convey its property to them for the inadequate consideration of
$25,000.
Page 209 U. S. 426
And it is alleged that the lease was made to defeat such
conspiracy. Other plans of the appellees to harass the Shawnee
Company are averred.
The case went to trial on the issues thus formed, and resulted
in a judgment for defendants (appellants here). The judgment
recited that
"the court having heard all the evidence offered . . . , and,
being fully advised in the premises, finds for the defendants and
against the plaintiffs that the allegations of the petition of
plaintiffs are not supported by the law and the evidence."
A motion for a new trial was denied, and the case was then taken
to the supreme court of the territory, which court reversed the
judgment of the court below, and the case was remanded to the
district court with instructions to that court to render judgment
for plaintiffs in the case (appellees here) in accordance with the
opinion of the supreme court, and the prayer of the amended
petition.
Page 209 U. S. 429
MR. JUSTICE McKENNA, after making the foregoing statement,
delivered the opinion of the Court.
The supreme court of the territory, in its opinion, discussed
only two of the questions urged upon its consideration, to-wit, (1)
the legal power of the Shawnee Compress Company to execute the
lease, and (2) the purpose in its execution to secure a monopoly of
the business of compressing cotton and to unlawfully restrict
competition. Of the first, the court said:
"We find no express authority to lease set out in the articles
of incorporation, but we are nevertheless of the opinion the weight
of authority is that, when a strictly private corporation finds it
cannot profitably continue operations, it may lawfully make a lease
of its entire property for a term of years. "
Page 209 U. S. 430
The court cited cases, and continued: "It is only when such
exigencies exist as necessitate or render appropriate such or
similar action that the right can be exercised." And it was
observed that, while there was no special finding of fact
"in that regard by the trial court, yet this feature must
necessarily have been considered in the light of the evidence
introduced at the trial and the judgment based thereon."
The court further said that it found "ample authority in the
record for the action," and, following the rule "often reiterated,"
the court further said: "We must hold that, where the record
contains some evidence to support the finding of the trial court,"
the judgment will not be disturbed.
The ruling sustaining the power of the Shawnee Company to
execute the lease is attacked by appellees, but we do not find it
necessary to express an opinion upon it on account of the view we
entertain of the second proposition.
In passing on the second proposition, the supreme court decided
adversely to the view taken by the trial court. The court therefore
must either have considered that there was not some evidence
supporting the conclusions of fact of the trial court or must have
deemed the principles of law which the trial court upheld were not
sustained by its conclusion of fact. As our review, in the nature
of things, is confined to determining whether the court below
erred, it follows that our reviewing power under the circumstances
is coincident with the authority to review possessed by the court
below, and therefore we are confined, as was the court below, to
determining whether there was some evidence supporting the
findings, and whether the facts found were adequate to sustain the
legal conclusions.
Southern Pine Lumber Co. v. Ward,
208 U. S. 126.
The court, in its opinion, gives a summary of the pleadings and
states the salient points of the lease to be that it conveys all of
the property of the Shawnee Company to the Gulf Company, that the
Shawnee Company covenants that it will not, "directly or
indirectly, engage in the compressing of cotton
Page 209 U. S. 431
within fifty miles of any plant operated by the" Gulf Company,
and that the Shawnee Company "agrees and pledges" to the Gulf
Company
"its goodwill, moral, and real support, and that it,
individually and collectively, will render the . . . [Gulf Company]
every assistance in discouraging unreasonable and unnecessary
competition."
And from the evidence, the court deduces the following
conclusions (p. 236):
"It further appears from the evidence at the trial that C.C.
Hanson is the president of both the Atlanta Compress Company and
the Gulf Compress Company, being a stockholder in each, and is the
one who negotiated the lease in question. That the Atlanta Compress
Company operates in the states of Alabama, Georgia, and Florida,
and was organized and is owned and controlled solely by the
carriers, for their benefit. That the board of directors and
stockholders of said corporation are composed entirely of railroad
officials. That the Atlanta Company controls the operation of
twenty-five plants. That the Gulf Compress Company is a close
corporation, chartered in Mobile, Alabama, and operating in the
States of Alabama, Mississippi, Tennessee, Louisiana, Arkansas,
Indian Territory, and Oklahoma, and controlling the operation of
twenty-seven compresses in those states, located at various points
therein. That none of the Gulf Compress Company's plants and the
Atlanta Compress Company's compresses are operated at the same
points."
"It is further disclosed by the evidence that the capital stock
of the Gulf Company, as originally incorporated, was $25,000, but
that it has, within the past year, been increased to $1,000,000, of
which $600,000 is treasury stock. That its field of operation has
been rapidly extended from Alabama to all the cotton-growing
territory; that it is at the present time engaged in the purchase
or leasing of compresses at various points, and, as testified to by
its president, is 'prepared to buy or lease, whichever proposition
suits us best.' It appears from the evidence that negotiations
conducted by Mr. Hanson with Stubbs and Beatty for the lease of the
Shawnee
Page 209 U. S. 432
plant were in pursuance of an effort to avoid, 'directly or
indirectly, the possibility, if not probability, of unnecessary and
unreasonable competition.'"
"It is further disclosed by the testimony that the carrier pays
for the compression of cotton, incorporating the cost thereof in
its tariff. That tariffs for the hauling of cotton are established
by the railroad as well as hauling districts or territories, within
which the haul of cotton must be one way, or otherwise the higher
rate, denominated the terminal rate, applies, rendering it
unprofitable to ship to other than the established point in the
hauling district."
And the court says that from these facts and others referred to
supporting them, it cannot be doubted that the object of the Gulf
Company and its allied corporation, the Atlanta Compress Company,
"is to prevent competition in compression of cotton throughout the
cotton-producing states." The court declared it to be its judgment
that
"not only is the enterprise in which the Gulf Compress Company
is engaged an unlawful one as now conducted, but the contract in
question in this case, being made to further its objects and
purposes, in void on the ground that it is in unreasonable
restraint of trade and against public policy."
This conclusion is the direct antithesis of that drawn by the
trial court, and we are brought to the inquiry, is it
justified?
The evidence cannot be given in detail, and we may say at the
outset that there is no question as to its weight -- we are not
confronted with conflicting testimonies. This branch of the case is
constituted of the lease, principally of the testimony of one
witness, the president of the Gulf Company, and of facts which are
not disputed. The other testimony, a great deal of which is
documentary, is mostly directed to the financial condition of the
Shawnee Company as the inducement of the lease and to the
proceedings taken to authorize its execution. There is also
testimony directed against the purpose and motives of the
appellees, and some tending to show that one of the officers and
stockholders of the Shawnee Company
Page 209 U. S. 433
had been loaned money by the president of the Gulf Company
whereby control of the Shawnee Company might be obtained and the
lease authorized. This, however, we may put out of view.
It may be conceded that the evidence shows that the Shawnee
Company was financially embarrassed, and its condition might have
justified a lease of its property if that had been all it did. It
however covenanted for its assistance in discouraging competition
against its tenant, and bound itself not to "directly or indirectly
engage in the compressing of cotton within fifty miles of any plant
operated by the tenant." So far it covenanted to aid in the
restraint of trade. It went out of the field of competition; it
covenanted not to enter into that field again, and it pledged
itself to render every assistance to prevent others from entering
it. And it could not misunderstand the purpose for which its lease
was solicited. It was told by the president of the Gulf Compress
Company. In a letter dated April 18, 1905, addressed to it by the
president of that company, among other inducements, the following
was expressed:
"Our getting together on a lease proposed means the avoiding for
each other, directly or indirectly, of the possibility, if not
probability, of unnecessary competition."
And what was the condition to which the Shawnee Company
contributed? It appears from the letter just mentioned that the
writer was president of two companies which operated "forty-odd
compresses." Twenty-seven of them, it appears from the testimony,
were operated by the Gulf Company, six only of which it owned. Most
of the latter were acquired in the summer preceding the lease, and
the president of the Gulf Company testified that "we are prepared
to buy or lease, whichever proposition suits us best." To what
object was the assembling in one ownership or management so many
compresses, and keeping the means and declaring the purpose of
acquiring more? The answer would seem to be obvious. The first
effect would necessarily be the cessation of competition. If there
was left a possibility of other compresses' being constructed,
Page 209 U. S. 434
it was made less by the power that could be opposed to them. The
Gulf Company was a close corporation which, starting in Alabama,
rapidly extended from Alabama to all the cotton-growing territory.
These are some of the points of the testimony which, taken in
connection with other testimony and with the terms of the lease and
the restriction upon the Shawnee Company, support the conclusions
of the supreme court of the territory. This case presents something
more than the lease of property by the Shawnee Company, induced or
made necessary by financial embarrassment. It presents something
more than the acquisition by the Gulf Company of another compress
-- of a mere addition to its business. It presents acts in aid of a
scheme of monopoly.
Swift & Co. v. United States,
196 U. S. 375.
It does not appear whether the supreme court based its judgment
upon the common law, the Sherman law, or the statutes of Oklahoma.
The appellees insist that the law applicable to the case comes from
all three sources. The Sherman law provides that
"Every contract, combination in form of trust or otherwise, or
conspiracy, in restraint of trade or commerce in any territory of
the United States or of the District of Columbia . . . is hereby
declared illegal."
And it has been decided that not only unreasonable, but all
direct restraints of trade are prohibited, the law being thereby
distinguished from the common law. But it is contended that it was
held in
United States v. Trans-Missouri Freight
Association, 166 U. S. 290, and
in
United States v. Joint Traffic Association,
171 U. S. 505,
that the sale of the goodwill of a business with an accompanying
agreement not to engage in a similar business was not a restraint
of trade within the meaning of the Sherman act.
Counsel has discussed with an affluent citation of cases the
principle which regulates such contracts and insists that the lease
by the Shawnee Company conforms to such principle. The principle is
well understood. The restraint upon one of the parties must not be
greater than protection to the other
Page 209 U. S. 435
party requires, and it needs no further explanation than is
given in
Gibbs v. Baltimore Gas Company, 130 U.
S. 396. The supreme court of the territory recognized
the principle, but said:
"Tested by the general principles applicable to contracts of
this character, this agreement is far more extensive in its outlook
and more onerous in its intent than is necessary to afford a fair
protection to the lessee."
And in this conclusion the statute of the territory may have had
its influence. That statute makes void every contract by which
anyone is restrained from exercising a lawful profession, trade, or
business, except, however, that one who sells the goodwill of a
business may agree with the buyer to refrain from carrying on a
similar business within a specified county, city, or part thereof.
Wilson's Statutes,. §§ 819, 820. It is clear that the
lease of the Shawnee Company to the Gulf Company does not literally
comply with this requirement. Whether it can be limited by
construction, as it is contended by appellants it can be, we need
not decide. As written, it was, no doubt, considered with other
considerations by the court in concluding that
"the real, the veritable, purpose actuating the officers of the
Gulf Compress Company, as disclosed by its plan of organization and
mode of operation, and as manifested by the circumstances
surrounding the conduct of its business and the results of its
management by them is, beyond reasonable question, to place within
their power the control of the compress industry by purchasing or
leasing those plants which are advantageously located in each of
the hauling districts or territories established by the carriers
[railroads] in their cotton tariffs. Within certain boundaries, the
haul must be one certain way, and when the Gulf Company seizes the
strategic point under its leases, competition within that district
is annihilated."
Decree affirmed.
