Where a number of manufacturers situated in different states
engaged in manufacturing an article sold in different states,
organize a selling company through which their entire output is
sold, in accordance with an agreement between themselves, to such
persons only as enter into a purchasing agreement by which their
sales are restricted, the effect
Page 212 U. S. 228
is to restrain and monopolize interstate and foreign trade and
commerce, and is illegal under the Anti-Trust Act of July 2, 1890,
c. 647, 26 Stat. 209, and so held in regard to a combination of
wallpaper manufacturers.
While a voluntary purchaser of goods at stipulated prices under
a collateral, independent contract cannot avoid payment merely on
the ground that the vendor was an illegal combination,
Connolly
v. Union Sewer Pipe Co., 184 U. S. 54, a
vendee of goods purchased from an illegal combination in pursuance
of an illegal agreement can plead such illegality as a defense.
The Court cannot lend its aid in any way to a party seeking to
realize the fruit of an illegal contract, and, while this may at
times result in relieving a purchaser from paying for what he has
had, public policy demands that the court deny its aid to carry out
illegal contracts without regard to individual interests, or
knowledge of the parties.
The refusal of judicial aid to enforce illegal contract tends to
reduce such transactions.
In determining whether a contract amounts to a combination in
restraint of interstate trade in violation of the Act of July 2,
1890, all the facts and circumstances will be considered.
Addyston Pipe Co. v. United States, 175 U.
S. 211,
175 U. S.
247.
148 F. 939 affirmed.
The facts appear in the statement of MR. JUSTICE HARLAN.
Page 212 U. S. 233
The Continental Wall Paper Company, a corporation of New York,
brought this action against the Lewis Voight & Sons Company, a
corporation of Ohio, to recover the sum of $56,762.10 as the
alleged balance on an account for merchandise sold and delivered to
the defendant.
The petition and answer were both amended. The amended answer
contained six separate defenses, the last three of which were made
counterclaims and cross-petitions. The plaintiff demurred to the
second, third, fourth, and fifth defenses upon the ground that
neither of them stated facts sufficient to constitute a defense,
and it demurred to the first and second counterclaims and
cross-petitions upon the ground that they did not state facts
sufficient to constitute a cause of action against the plaintiff.
It also replied to the sixth defense and to the third
counterclaim.
The cause was submitted in the circuit court on the demurrers,
and the court sustained the demurrer to the second, fourth, and
fifth defenses and to the first and second counterclaims
Page 212 U. S. 234
and cross-petitions, but overruled the demurrer to the third
defense. The parties not desiring to plead further, it was adjudged
that, upon the allegations of the third defense, the defendant was
entitled to judgment (and judgment was entered) dismissing the
petition and amended petition, and was likewise entitled to
judgment (and judgment was entered) dismissing the first and second
counterclaims and cross-petitions. The case was carried by the
Continental Wall Paper Company to the circuit court of appeals,
where it was assigned for error that the circuit court erred in
overruling the demurrer to the third defense, and in dismissing the
suit. The circuit court of appeals affirmed the judgment, thereby
sustaining the sufficiency of that defense. The case is fully
reported in 148 F. 939.
If the facts stated in the third defense -- taking them to be
true, as upon demurrer we must do -- are sufficient to prevent any
recovery whatever by the plaintiff, it is not necessary to go
further and consider any other questions. In view of the peculiar
character of the case, it is deemed just to the parties, however
much it may lengthen or burden this opinion to do so, to set out
that defense fully and in the words of the answer.
The third defense -- the facts stated therein being admitted by
the demurrer -- gives the names of numerous companies and firms
(more than thirty in number) which formed a combination by the name
of the Continental Wall Paper Company, and also sets out the
various agreements under which, it was alleged, the combination was
organized to restrain and monopolize interstate commerce. The
defendant corporation alleged that, on the first day of July, 1898,
the National Wall Paper Company was the owner of factories for the
manufacture of wallpaper in certain cities in New York,
Pennsylvania, New Jersey, and Massachusetts, and that there were
like factories owned by persons and corporations in other states;
that
"all of said companies and firms were engaged in the manufacture
of wallpaper and in selling their product in the states where their
said manufactories were situated, and in all the
Page 212 U. S. 235
other states and territories of the United States and in foreign
countries, and were each and all engaged in commerce between the
states and territories and with foreign nations, and they produced
and sold upwards of ninety-eight (98) percent of all the wallpaper
manufactured and sold in the several states and territories of the
United States. Contriving and intending and conspiring with each
other to form a combination and trust by which to limit the
production of wallpaper in the United States, and also to enhance
the price thereof to the jobbers, the wholesalers, the retailers,
and the consumers of wallpaper, which is an article of commodity of
general necessity and use among the United States and foreign
countries, and, as such, was and is used and sold everywhere for
the preservation, protection, and decoration of buildings and
dwelling houses; and, contriving and intending and conspiring with
each other to unlawfully control and restrain trade and commerce
between the several states and territories of the United States,
and with foreign countries, the firms and corporations hereinbefore
mentioned agreed with each other that, while said corporations and
persons retain the ownership of their several plants and business,
and preserve and continue their separate identities, and operate
said several manufactories and business as before, the control of
said several businesses, and all matters relating to and affecting
the production of said establishments, and the prices and sale of
wallpaper manufactured thereby should be placed under the control
of a committee to be appointed by said several corporations and
firms, each to have a voice in such appointment, in proportion to
the capacity of the several factories owned by them respectively;
that said committee should adopt rules and regulations governing
the manner of conducting the business of all said persons, firms,
and corporations, the hours said factories, owned by them, should
be operated, the patterns of wallpaper to be manufactured by them,
the times when samples of the goods to be manufactured for the
ensuing season should be submitted to a pricing committee,
appointed by said committee, to enable it to classify and
Page 212 U. S. 236
fix the list prices thereof; to fix and determine list prices,
discounts, terms of sale, equalization of freight rates, and all
other matters affecting the production and regulation of prices,
and the classification of the dealers in wallpaper in the United
States, and the prices at which wallpaper should be sold to and by
such several classes, and the division of the profits thence
arising among said corporations and firms not in proportion to
their production and sales, but in proportion to their capacity;
and, further, that, to secure the faithful performance by each of
said persons and corporations of the provisions of said trust
agreement, they should each pay a sum into a common pool, in
proportion to the capacity of their respective manufactories, which
said sum should be forfeited by any of said manufacturers who
should break said agreement, compete with the other parties to said
agreement, or sell at other or different prices than those to be
fixed by said committee."
"
* * * *"
"The National Wall Paper Company, for itself and the members of
said combination, hereinbefore alleged to be represented by it,
should select three (3) so-called directors of said the Continental
Wall Paper Company, and said other firms and corporations should
select three (3) other so-called directors of said company, which
six (6) so-called directors should select a seventh (7th), who
should decide all disputed matters; that said corporation and
firms, calling itself, or themselves, respectively, the vendor,
should sign a printed contract or agreement with said the
Continental Wall Paper Company, calling itself the company, a copy
of which contract or agreement is attached hereto marked 'Exhibit
1' [which is given in the margin [
Footnote 1]], the said agreement being printed with blanks
for
Page 212 U. S. 237
the necessary signatures as well as numbers of shares allotted,
the sum to be paid therefor, and the name of the so-called vendor.
"
Page 212 U. S. 238
"For the purposes and with the intentions aforesaid, it was
further agreed that said the Continental Wall Paper Company should,
in some form so as to disguise the real nature of the transaction,
compel all dealers in wallpaper, whether
Page 212 U. S. 239
jobbers or wholesalers, to sign an agreement obligating the
jobbers or wholesalers to buy from no one but said members of said
combination and trust, and at the prices fixed in schedule B,
attached to said 'Exhibit 1,' and likewise an agreement
Page 212 U. S. 240
by such jobbers not to sell goods to dealers other than jobbers
at lower prices or upon better or more favorable terms than those
shown in schedule C, attached to said 'Exhibit 1,' under the
penalty that, if they refused so to do, no wallpaper should
Page 212 U. S. 241
be sold to such jobber by any of said corporations or firms, and
that, thereby, such jobbers should be driven out of business, and
that, in some form or other, so as to disguise the real nature of
the transaction, all wholesalers other than jobbers should be
compelled to make an agreement in writing, with said corporations
or firms, not to sell such goods, on terms better or more favorable
than those specified in schedule C, attached to said 'Exhibit 1,'
under penalty that, if such wholesaler refuse to sign and carry out
said agreement, no wallpaper would be sold to him by any of said
corporations or firms, and he should be driven out of business, and
that the profits made by such prevention of competition and
enhancement of price should be divided among said corporations and
firms nominally as dividends upon said stock, but in reality in
proportion to their respective holdings, as aforesaid, and that
said committee of said corporation and said firms, calling
themselves such directors, should regulate all the matters
hereinbefore averred, prevent competition between said corporations
and firms, limit production and enhance prices, and close all
channels by which the consumer or retailer could obtain wallpaper
from the producers thereof."
"In pursuance of said agreement, said plaintiff was nominally
incorporated with the stock aforesaid, divided into the
Page 212 U. S. 242
number of shares aforesaid, of the par value aforesaid, which
were divided among the parties to said agreement aforesaid, in the
manner aforesaid, and said contracts signed by said the National
Wall Paper Company and said persons and corporations being at once,
subscription for stock by said so-called vendors, the acceptance of
such subscription by said the Continental Wall Paper Company, and
by it, nominally, each so-called vendor sold unto the company, and
the latter agreed to purchase, the entire product of wallpaper
manufactured by each of said vendors for the period from July 20th,
A.D. 1898, to the first day of July, A.D. 1899."
"Said contract further fixed prices at which the merchandise
should be nominally sold to the company, said prices being the cost
of production with a slight profit added thereto sufficient to
cover incidental expenses merely. The prices at which said goods
were to be nominally sold by said so-called vendors to said company
are set forth in the schedule attached to said 'Exhibit 1' and
marked 'A.'"
"Said agreement further nominally provided that the goods
pretended to be acquired by the company from the so-called vendor,
which were to be sold by jobbers, should be so sold by the company,
and not by the vendor, for the account of the company, but that the
goods acquired by the company from the so-called vendor, which
should be sold to wholesalers other than jobbers, should be sold by
the so-called vendor for the account of the company."
"The schedule attached to said agreement contained a list of
prices for all commodities in the wallpaper line, which were called
'list' or 'road price,' and said contract provided that sales made
to jobbers should be made at discounts from said 'list' or 'road
prices' fixed in the schedule marked 'B,' annexed to said 'Exhibit
1,' but that, in all cases in which the goods were manufactured at
places other than the cities of New York or Philadelphia, and sold
to jobbers, the vendor should equalize the freights with either of
the said cities, out of the proceeds receivable for such goods.
"
Page 212 U. S. 243
"In reality, the agreement was, and so the business was carried
on, that the manufacturers should maintain sample rooms and selling
agents, and should solicit and receive the orders from all
wholesalers, whether jobbers or so-called 'road' or 'quantity
buyers;' that the entire business should be done by said so-called
vendors, but payments should be made by the jobbers to the
so-called company, and by the wholesalers, other than jobbers,
directly to the so-called vendors."
"Said contract further provided, in order to protect said
corporations and firms against competition from each other, and to
insure against violation of said agreement, or any of them, that,
from time to time, invoices should be supplied at once to the
customer and to the company, upon shipment and delivery of such
goods, specifying quantities and road prices; that each vendor
should furnish to the company at periods stated, just, true, and
sworn statements of all shipments and deliveries of merchandise
made by the vendors direct to the purchasers, which statements
should contain the names of the purchasers, the character of the
goods sold, and the prices at which they were sold, so that the
company might receive the difference between the prices at which
the goods were nominally billed to said company, and at which they
were sold to the purchaser, to the end that this difference, being
the net profits derived from such purchase and sale, should be
divided among such corporations and firms, in proportion to the
capacity of their respective businesses, determined as aforesaid,
without regards to the amount sold by each."
"The prices at which, and the terms upon which, goods were to be
sold by the vendors to all wholesalers other than jobbers, were
designated 'road' or 'list' prices, and were contained in the
schedule marked 'C,' annexed to said 'Exhibit 1,' and forming a
part thereof."
"For the further purpose of carrying out said agreement, and
ascertaining said net profits, and for further disguising the real
nature of the transaction, it was provided that the so-called
vendor should receive from sales made by it to so-called
Page 212 U. S. 244
'quantity buyers,' the difference between the discounts allowed
to those designated in the classification hereinbefore referred to
as 'second-class jobbers' and the discounts provided in said
agreement to be made to purchasers styled, in said schedules,
'quantity buyers' in which the vendor is allowed the quantity
discount, except that, where special and exclusive goods were sold,
there should be an allowance of thirty (30 percent) percent
discount to said vendor."
"Said agreement further stipulated that the prices of goods as
fixed by said schedules A and C might be altered from time to time,
but the discounts allowed to jobbers should not be altered at any
time during the term of the agreement."
"Said written contract further provided that the so-called
vendor should make collections of accounts for goods sold to
wholesalers other than the jobbers, but that the company should
collect the proceeds of sales to the jobbers, and that accounts
should be stated between the so-called vendors and the company at
stated periods, and the account accompanied by payment, by the
so-called vendor, to the so-called company, of the difference
between the prices at which the goods were to be billed to the
company and the prices at which the so-called vendors had agreed to
charge the 'quantity buyers.'"
"It was further stipulated in said agreement that monthly
divisions should be made by said company of at least thirty (30)
percent of the 'road prices' of goods shipped to jobbers by the
company."
"For the further purpose of protecting said corporations and
firms and individuals from each other, preventing and stifling
competition, and enforcing said combination, trust, and monopoly,
each of said corporations and vendors gave the company the right,
and made it the duty of the company, to audit the books of account
of said so-called vendors at such times and in such manner as the
company might, from time to time, deem necessary of proper. It was
further stipulated that this right to examine and audit the books
was of the essence of the agreement, and that a failure on the part
of the so-called vendor
Page 212 U. S. 245
to permit the same should operate as a breach of the contract,
entitling the company to abrogate the agreement, to recover such
damages as it might be able to establish, and to the forfeiture of
the stock held by said vendor in such company."
"It was further provided that said so-called company should
appoint an auditing committee from its directors, which should
establish such a system of bookkeeping as it thought
advisable."
"
* * * *"
"It was further a part of said agreements, though not reduced to
writing, save as it set forth in said exhibit that all jobbers and
other wholesalers of wallpaper should be forced to sign an
agreement, binding themselves to purchase their entire stock of
wallpaper, nominally either from plaintiff of from said
corporations of firms at prices fixed in said 'Exhibit 1,' and that
they should only sell at prices fixed in the schedules attached to
said 'Exhibit 1,' under the penalty, which the combination of all
of said corporations and firms enabled them to enforce, that such
jobbers or wholesalers, in case of refusal to accede to the terms
so imposed, or in case of violation thereof, should be unable to
buy wallpaper; should be driven out of business, and should
sacrifice the good will and capital therein invested."
"
* * * *"
"In the further carrying out of said purpose, said plaintiff and
other persons, natural or artificial, engaged in the manufacture
and sale of wallpaper in different states of the Union, and in
trade and commerce between the several states and foreign
countries, whose names and locations these defendants are unable to
state, entered into contracts substantially similar to 'Exhibit 1,'
except that, instead of such persons pledging stock in plaintiff as
security for the performance, by them, of the stipulations of said
contract, they gave other security, the nature of which these
defendants are unable to state, and which such other persons assume
obligations, and gave to said plaintiff rights and powers, and said
plaintiff exercised, as to them, such rights and powers, as were
created by said instrument
Page 212 U. S. 246
'Exhibit 1,' and were exercised by plaintiff and its officers
and directors in relation to the persons, natural or artificial,
who were theretofore members of such combination and trust."
"In the further carrying out of said scheme to stifle
competition, to restrain commerce between the states and
territories of the United States and with foreign countries, to
unduly and unreasonably enhance prices, it was further agreed
between the members of said combination and trust that the
so-called directors of plaintiff, being really a committee
appointed, as aforesaid, by said the members of said trust or
combination, should arbitrarily classify the wholesale dealers of
wallpaper in the United States and territories thereof, into two
(2) classes; namely, jobbers and 'road' or 'quantity buyers;' that
they should further arbitrarily classify the jobbers into 'first
class,' and 'second class' and 'third class' jobbers; that they
should further arbitrarily classify the other wholesalers into
'road' or 'quantity buyer,' and 'special buyers;' that, being thus
classified, they should all be compelled to sign written
agreements, nominally with said company, really with said members
of said combination or trust, obligating them to buy their entire
stock of merchandise from said company."
"A copy of said agreement, so to be signed by said jobbers, is
attached hereto, marked 'Exhibit 2' [which is in margin [
Footnote 2]] and
Page 212 U. S. 247
made part thereof, the same being printed forms with blanks for
names, dates, and amounts of purchases."
"To conceal the fact that it was an agreement to purchase from
no one but said company, and the members of said combination and
trust, the amount of purchases made by the buyer in the previous
year, from all the members of said combination or trust, being the
entire amount of purchases made by such
Page 212 U. S. 248
buyer during the preceding year, was ascertained, and an amount
at least double thereof, being an amount supposed to be, and which
was in fact more than, by any possibility, could be needed by such
buyer, was inserted in said blank as the amount to be purchased by
such buyer from the company."
"By said agreement, the prices to be paid by the jobber were
fixed according to the class in which he was arbitrarily placed at
prices enumerated in schedules B, attached to said 'Exhibit 1,' and
the prices at which, alone, said jobber could sell, were fixed as
shown by schedule C, attached to said 'Exhibit 1.'"
"
* * * *"
"Schedule A, attached to said 'Exhibit 2,' is the same, so far
as relates to jobbers of the class with whom the agreement is made,
as the corresponding provisions of schedule B, attached to said
'Exhibit 1' and schedule B, attached to 'Exhibit 2' is the same as
schedule C, attached to 'Exhibit 1.' The members of said
combination and trust, and said plaintiff, further to carry out
said agreement, compelled all other wholesale and quantity buyers
to sign agreements in the form attached to this answer, marked
'Exhibit 3' [which is in the margin [
Footnote 3]], and
Page 212 U. S. 249
filed herewith; the same being a printed form with blanks for
signatures, and having attached thereto the prices shown in
schedule C, attached to 'Exhibit 1,' which are the list prices
referred to in said agreement."
"All said agreements, 'Exhibits 1, 2, and 3' were drawn for the
purpose, and with the intent, of disguising the real nature of the
transaction and the real purpose, as herein set forth."
"In further carrying out said combination, and with said purpose
and intent, agreements were made by plaintiff and the members of
said combination and trust, and persons, natural and artificial, in
the Dominion of Canada, by which each agreed not to compete with
the other, nor cut prices, the Americans in Canada, the Canadians
in the United States."
"On, before, and after said first day of July, A.D. 1898, this
defendant had a large and profitable business of longstanding,
possessing a valuable goodwill, and in which they had a large
capital invested, being what is generally called the business of a
jobber or wholesaler of wallpaper in the State of Ohio and
throughout the states and territories of the United States."
"The defendant and all other persons engaged in the wholesale
wallpaper business at the beginning of each season, which commenced
in September and closed the first of July, following, according to
the custom of the trade, bought from the various persons engaged in
the manufacture and sale of wallpaper in the
United States,
being the persons, members of said combination and monopoly,
their stock of wallpaper to be sold by them during the ensuing
year, such stock to be manufactured for them from samples submitted
at the beginning of said season, in wholesale lots, and those for
defendant to be shipped to Cincinnati, Ohio, and there resold by
defendant, from time to time, to retail dealers throughout the
states of Ohio, Kentucky,
Page 212 U. S. 250
Indiana, Illinois, and other states and territories of the
United States."
"At said time, said members of said combination and trust
having, by the agreements and acts aforesaid, obtained the control
of the wallpaper trade throughout the United States, at once
greatly advanced the price of said wallpaper, and threatened
defendant that, unless it signed said agreement, 'Exhibit 2,' no
wallpaper would be sold to it; that said combination would make it
impossible for it to buy wallpaper, or to continue its business,
and would drive it out of its said business, and compel it to
sacrifice the goodwill owned by it as aforesaid, and the capital
invested by it in said business."
"Said combination or trust then, and from that time thereafter,
until the first day of July, A.D.1900, had the power, by means of
said combination and said agreements, and the will, to carry out
its said threats, and deprive these defendants or any person, firm,
or corporation engaged in the business of selling wallpaper in the
United States, of the power to obtain wallpaper for its or their
trade, and the will and the power to drive out of business any
person, firm, or corporation engaged in the business of selling
wallpaper; deprive them of their goodwill, and compel them to
sacrifice the capital invested in the business."
"In like Manner, by the same means, all other jobbers and
wholesalers of wallpaper in the United States, and all persons
engaged in commerce in the wallpaper trade between the several
states of the Union and foreign countries, were compelled to, and
did, sign the agreements attached to this answer, as 'Exhibits 2
and 3.'"
"The immediate, intended, and direct effect of the said
combination and agreements was the stifling of competition between
said manufacturers and vendors of wallpaper, and between the
jobbers and wholesalers thereof, and to unduly enhance the price of
wallpaper, making it one-half more than the price which it would be
had the same been left to free and unrestrained competition; to
compel said jobbers and wholesalers
Page 212 U. S. 251
to pay such unduly enhanced and unreasonable price to plaintiff
and to members of said combination, and to exact from others an
unduly enhanced price."
"After the making of said agreements, as before, the members of
such combination solicited and received orders from this defendant,
and all other wholesalers; filled their orders; charged the prices
fixed in said schedules attached to said 'Exhibit 1,' and directed
that payment for such merchandise should be made by the jobbers to
said plaintiff combination for said several members of said
combination and trust, to be divided in the manner aforesaid. Said
combination contrived, intended, and did prevent free and
unrestrained competition between the producers and between the
purchasers of wallpaper, and between the jobbers and wholesalers of
wallpaper throughout the United States."
"Defendant avers that said plaintiff and the members of said
combination as aforesaid, being more than two persons, firms,
corporations, partnerships, and associations, combined capital and
skill for each and all of the following purposes, to-wit: to create
restrictions in trade and commerce; to carry out restrictions in
trade and commerce; to limit the product of wallpaper; to reduce
the production of wallpaper; to increase the price of wallpaper; to
prevent competition in the manufacturing and making of wallpaper;
to prevent competition in the sale of wallpaper; to prevent
competition in the purchase of wallpaper; to fix a standard or
figure whereby its price to the public or consumer should be
controlled and established as to an article or commodity of
merchandise, to-wit: wallpaper intended for sale, use, and
consumption in the states of Ohio, Indiana, Kentucky, and Illinois;
to make and enter into contracts, obligations, and agreements by
which they bound themselves not to sell or dispose of wallpaper
below a common standard figure or fixed value; to carry out
contracts, obligations, and agreements by which they bound
themselves not to sell or dispose of wallpaper below a common
standard figure or fixed value; to make and enter into contracts,
obligations
Page 212 U. S. 252
and agreements by which they agreed to keep the price of
wallpaper at a fixed or graduated figure; to carry out contracts,
obligations, and agreements by which they agreed to keep the price
of wallpaper at a fixed or graduated figure; to make and enter into
contracts, obligations, and agreements by which they established
and settled the price of wallpaper between themselves and between
themselves and others, so as to both directly and indirectly
preclude a free and unrestricted competition among themselves, and
among themselves and purchasers, and among purchasers in the sale
of wallpaper; to carry out contracts, obligations, and agreements
by which they established and settled the price of wallpaper
between themselves and themselves and others, so as to both
directly and indirectly preclude a free and unrestricted
competition both between themselves and between themselves and
purchasers, and between purchasers in the sale of wallpaper; to
make and enter into contracts, obligations, and agreements by which
they agreed to pool, combine, and both directly and indirectly
unite the interests they had connected with the sale of wallpaper
so that its price might be affected; to carry out contracts,
obligations, and agreements by which they agreed to pool, combine,
and both directly and indirectly unite the interests that they had
connected with the sale of wallpaper so that its price might be
affected."
"Said contracts and agreements were each and all combinations
and conspiracies in restraint of trade and commerce among the
several states and with foreign nations, and had the intent and
effect of restraining trade and commerce between the several states
and with foreign nations, and were an attempt, by combinations and
conspiracy, between the members of said combination and trust, to
monopolize the trade and commerce in wallpaper among the several
states and with foreign nations, and, by said contracts, and the
acts done by members thereof, and by said plaintiff under and in
pursuance thereof, said plaintiff and the said members of said
combination or trust did monopolize and attempt to monopolize the
trade and
Page 212 U. S. 253
commerce in wallpaper among the several states and with foreign
nations."
"In further carrying out of said scheme and combination the
members thereof delivered to this defendant, in the year from
September, A.D. 1898, to September, A.D. 1899, wallpaper for which
this defendant paid to said plaintiff, for and per direction of the
members of said combination, the sum of one hundred and forty-four
thousand, eight hundred and fifty-four dollars and fourteen cents
($144,854.14)."
"These defendants aver that the prices charged in said Exhibit
attached to said amended petition [which are itemized accounts,
showing each article and the price therefor alleged to have been
sold and delivered to the defendant]
are the prices fixed and
determined in pursuance of and by the combination or trust
agreement, as above set forth, and are unreasonable, unjust, and
excessive, and at least one-half more than they would otherwise
have been. In transacting all business aforesaid at all said times,
said business was transacted under and in pursuance of said
combination or trust agreement, and for the purposes, and each of
them, above specified, and not otherwise."
"The allegations in said plaintiff's petition set forth as a
suit on account are an attempt to enforce, carry out, and recover
upon and by virtue of said unlawful combination, aforesaid,
the
prices fixed by such combination, and the prices therein sought to
be recovered for said merchandise are unreasonable, excessive, and
above the fair market price of such merchandise by more than the
amount so sought to be recovered."
"Each and all of the provisions of said contract and agreement
between said members of said combination and each other: between
said so-called vendors and said plaintiff; between said members of
said combination and said plaintiff and the so-called jobbers;
between the members of said combination and trust and said
plaintiff and the so-called 'road' or 'quantity buyers' -- are each
and all contrary to the provisions of the statutes of the State of
New York, where said plaintiff was organized; contrary to the
provisions of the laws of the
Page 212 U. S. 254
State of Ohio, where the merchandise was delivered; contrary to
the laws of the several states where each of the members of said
combinations did business; contrary to the laws of the United
States, and made criminal by the laws of each of said several
states and by the laws of the United States, and each and all of
said agreements aforesaid are contrary to public policy, and in
violation of the rights of the defendant, and injurious to the
interests of the consumer and of the public."
MR. JUSTICE HARLAN (after making the above statement) delivered
the opinion of the Court.
The Anti-Trust Act of 1890 declares illegal every contract,
combination in the form of a trust or otherwise, or conspiracy in
restraint of trade or commerce among the several states or with
foreign nations, and also declares it to be a misdemeanor,
punishable by fine or imprisonment, or both, for anyone to make any
such contract or to engage in any such combination or conspiracy.
§ 1. It is also made a misdemeanor, punishable by fine or
imprisonment, or both, for anyone to monopolize or attempt to
monopolize, or combine or conspire with any other person or persons
to monopolize, any part of the trade or commerce among the several
states or with foreign nations. § 2. Similar provisions were
made in reference to contracts, combinations in the form of trust
or otherwise, or conspiracies, in restraint of trade or commerce in
any territory of the United States or of the District of Columbia,
or between any such territory or another, or between any such
territory or territories and any state or states or the District of
Columbia or with foreign nations, or between the District of
Columbia and any state or states or foreign nations. § 3. The
act further provided that any person injured in his business or
property by any other person or corporation by reason of anything
forbidden or declared to be unlawful may sue therefor in the
circuit court of the United States in the district where the
defendant resides or is found, without regard to the amount
Page 212 U. S. 255
in controversy, and recover threefold the damages sustained by
him. § 3. 26 Stat. 209.
The defendant contends that, under the facts admitted by the
demurrer, it must be taken that the Continental Wall Paper Company
is the representative in this suit of a combination or trust formed
for the purpose of restraining and monopolizing trade and commerce
among the several states in the manufacturing, buying, selling, and
dealing in wallpaper; that this combination has the direct effect
to accomplish that purpose; that the defendant, engaged in buying
and selling wallpaper in Ohio and other states, was compelled to
become a party to the illegal combination or go out of business;
that the account in suit was made up, as to prices and terms of
sale, not upon the basis of an independent collateral contract for
goods sold and delivered, but with direct reference to, in
conformity with and for the object of enforcing the agreements that
constituted or out of which came the illegal combination whose
business is carried on under the name of the Continental Wall Paper
Company; that a judgment against the defendant upon the account in
suit will, in effect, legally and practically aid the combination
to reap the fruits of agreements that were illegal under the acts
of Congress, and the making of which was declared by that act a
crime; consequently, that the petition, upon the facts admitted,
was properly dismissed.
That the combination represented by the plaintiff company is
within the prohibitions of the above act of Congress is clear from
the facts admitted by the demurrer. We assume, therefore, without
discussion -- for discussion is unnecessary -- that there is a
combination, of which the Continental Wall Paper Company is the
representative, and that, in violation of that act, such
combination was formed with the intent, and will have the effect,
directly to restrain as well as monopolize trade and commerce among
the several states and with foreign nations as involved in the
manufacture, sale, and transportation of wallpaper among the
several states and with foreign nations. This part of the case is
forcibly presented by the circuit
Page 212 U. S. 256
court of appeals, which, in its opinion, delivered by Judge
Lurton, well said:
"The conspiring mills were situated in many states. The
consumers [of wallpaper] embraced the whole citizenship of the
United States. The jobbers and wholesalers, who were to be coerced
into contracts to buy their entire demands from the Continental
Wall Paper Company or be driven out of business, were in every
state. Before the combination, each of the combining companies was
engaged in both state and interstate commerce. The freedom of each,
with respect to prices and terms, was restrained by the agreement,
and interstate commerce directly affected thereby, as well as by
the enhancement of prices which resulted. A more complete monopoly
in an article of universal use has probably never been brought
about. It may be that the wit of man may yet devise a more complete
scheme to accomplish the stifling of competition. But none of the
shifts resorted to for suppressing freedom of commerce and securing
undue prices, shown by the reported cases, is half so complete in
its details. None of the schemes with which this may be compared is
more certain in results, more widespread in its operation, and more
evil in its purposes. It must fall within the definition of a
'restraint of trade,' whether we confine ourselves to the common
law interpretation of that term or apply that given to the term as
used in the federal act."
148 F. 939, 947.
But it is contended that, however illegal the combination
represented by the plaintiff may be and whatever may be the effect
of a judgment against the defendant, the plaintiff company is
entitled to a judgment under the principles announced in
Connolly v. Union Sewer Pipe Co., 184 U.
S. 540,
184 U. S. 545.
Let us see what that case was, and whether it may not be
distinguished from the one now before us.
The Union Sewer Pipe Company, a corporation of Ohio, doing
business in Illinois, brought suit against Connolly, a citizen of
Illinois, upon promissory notes given in Illinois on account of the
purchase by the defendant from that company, under contracts made
in that state, of sewer pipe known as
Page 212 U. S. 257
Akron pipe. It also brought suit against one Dee, a citizen of
Illinois, upon an open account for the value of similar sewer pipe
sold to him under a written contract, also made in that state. In
each case, the defendant disputed his liability for the value of
the goods obtained from the Sewer Pipe Company upon the ground
that, at the time of their respective purchases, that company was
in a combination with certain firms, corporations, and companies
engaged in the manufacture of Akron pipe, which combination, it was
alleged, was in illegal restraint of trade, and forbidden by the
principles of the common law, as recognized and enforced both in
Ohio and Illinois. The defense was also made that the Sewer Pipe
Company was a combination doing business throughout the United
States and between Ohio and Illinois in the form of a trust in
restraint of trade and commerce among the several states, contrary
not only to the antitrust act of Congress of July 2d 1890, c. 647,
but contrary to the Illinois Anti-Trust statute of January 1st,
1893, forbidding, under penalties, the combination of capital,
skill, or acts for certain specified purposes. 26 Stat. 209; Laws
Ill. 1893, p. 182; Hurd's Rev.Stat.Ill., 1899, p. 618, title
Criminal Code.
The defense based upon the principles of the common law was
overruled in the
Connolly case, the Court saying:
"Assuming, as defendants contend, that the alleged combination
was illegal if tested by the principles of the common law, still it
would not follow that they could at common law, refuse to pay for
pipe bought by them under special contracts with the plaintiff. The
illegality of such combination did not prevent the plaintiff
corporation from selling pipe that it obtained from its constituent
companies, or either of them. It could pass a title by a sale to
anyone desiring to buy, and the buyer could not justify a refusal
to pay for what he bought and received by proving that the seller
had previously, in the prosecution of its business, entered into an
illegal combination with others in reference, generally, to the
sale of Akron pipe."
Again, after referring to several cases establishing the
general
Page 212 U. S. 258
principle that a court will not lend assistance to carry out the
terms of an illegal contract, and that one purchasing and receiving
goods under a contract, expressed or implied, to pay for them,
cannot refuse to pay simply because of the illegal character of his
vendor, the Court proceeded:
"In the present [
Connolly] case, other considerations
must control. This is not an action to enforce or which involves
the enforcement of the alleged arrangement or combination between
the plaintiff corporation and other corporations, firms, and
companies in relation to the sale of Akron pipe. As already
suggested, the plaintiff, even if part of a combination illegal at
common law, was not, for that reason, forbidden to sell property it
acquired or held for sale. The purchases by the defendants had no
necessary or direct connection with the alleged illegal
combination; for the contracts between the defendants and the
plaintiff could have been proven without any reference to the
arrangement whereby the latter became an illegal combination. If,
according to the principles of the common law, the Union Sewer Pipe
Company could not have sold or passed title to any pipe it received
and held for sale, because of an illegal arrangement previously
made with other corporations, firms, or companies, a different
question would be presented. But we are aware of no decision to the
effect that a sale similar to that made by the present plaintiff to
the defendants respectively would, in itself, be illegal or void
under the principles of the common law. The contracts between the
plaintiff and the respective defendants were, in every sense,
collateral to the alleged agreement between the plaintiff and the
other corporations, firms, or associations whereby an illegal
combination was formed for the sale of sewer pipe."
Turning to the defense based on the antitrust act of Congress,
the Court, in the
Connolly case, said:
"Much of what has just been said in reference to the first
special defense based on the common law is applicable to this part
of the case. If the contract between the plaintiff corporation and
the other named corporations, persons, and companies, or the
combination
Page 212 U. S. 259
thereby formed, was illegal under the act of Congress, then all
those, whether persons, corporations, or associations, directly
connected therewith became subject to the penalties prescribed by
Congress. But the act does not declare illegal or void and sale
made by such combination, or by its agents, of property it acquired
or which came into its possession for the purpose of being sold --
such property not being at the time in the course of transportation
from one state to another or to a foreign country. The buyer could
not refuse to comply with his contract of purchase upon the ground
that the seller was an illegal combination which might be
restrained or suppressed in the mode prescribed by the act of
Congress, for Congress did not declare that a combination illegally
formed under the act of 1890 should not, in the conduct of its
business, become the owner of property which it might sell to
whomsoever wished to buy it. So that there is no necessary legal
connection here between the sale of pipe to the defendants by the
plaintiff corporation and the alleged arrangement made by it with
other corporations, companies, and firms. The contracts under which
the pipe in question was sold were, as already said, collateral to
the arrangement for the combination referred to, and this is not an
action to enforce the terms of such arrangement. That combination
may have been illegal, and yet the sale to the defendants was
valid."
Further:
"Nor can the defendants refuse to pay for what they bought upon
the ground that the seventh section of the Sherman act gives the
right to any person 'injured in his business or property by any
other person or corporation by reason of anything forbidden or
declared to be unlawful' by the act to sue and recover treble the
damage sustained by him. We shall not now attempt to declare the
full scope and meaning of that section of the act of Congress. It
is sufficient to say that the action which it authorizes must be a
direct one, and the damages claimed cannot be set off in these
actions based upon special contracts for the sale of pipe that have
no direct connection with the alleged arrangement or combination
between the plaintiff and
Page 212 U. S. 260
other corporations, firms, or companies. Such damages cannot be
said, as matter of law, to have directly grown out of that
arrangement or combination, and are, besides, unliquidated.
Besides, it is well settled in Illinois that 'unliquidated damages
arising out of covenants, contracts, or torts disconnected with
plaintiff's claim cannot be set off under the statute.'"
We need not here refer to that part of the
Connolly
case relating to the defense based on the Anti-Trust Act of
Illinois, for the Court adjudged that act to be void because of a
certain provision in it which, contrary to the Constitution of the
United States, denied the equal protection of the laws to all
persons within the jurisdiction of the state, except a named
favored class.
The present case is plainly distinguishable from the
Connolly case. In that case, the defendant, who sought to
avoid payment for the goods purchased by him under contract, had no
connection with the general business or operations of the alleged
illegal corporation that sold the goods. He had nothing whatever to
do with the formation of that corporation, and could not
participate in the profits of its business.
His contract
was to take certain goods at an agreed price, nothing more, and was
not, in itself, illegal,
nor part of nor in execution of any
general plan or scheme that the law condemned. The contract of
purchase was wholly collateral to and independent of the agreement
under which the combination had been previously formed by others in
Ohio. It was the case simply of a corporation that dealt with an
entire stranger to its management and operations and sold goods
that it owned to one who wished to buy them. In short, the defense
in the
Connolly case was that the plaintiff corporation,
although owning the pipe in question and having authority to sell
and pass title to the property, was precluded by reason
alone of its illegal character from having a judgment
against the purchaser. We held that that defense could not be
sustained either upon the principles of the common law or under the
Anti-Trust Act of Congress.
Page 212 U. S. 261
The case now before us is an entirely different one. The
Continental Wall Paper Company seeks, in legal effect, the aid of
the Court to enforce a contract for the sale and purchase of goods
which,
it is admitted by the demurrer, was in fact and was
intended by the parties to be based upon agreements that were and
are essential parts of an illegal scheme. We state the matter
in this way because the plaintiff, by its demurrer, admits, for the
purposes of this case, the truth of all the facts alleged in the
third defense. It is admitted by the demurrer to that defense that
the account sued on has been made up
in execution of the
agreements that constituted or out of which came the illegal
combination formed for the purpose and with effect of both
restraining and monopolizing trade and commerce among the several
states.
The present suit is not based upon an implied contract of the
defendant company to pay a reasonable price for goods that it
purchased, but upon agreements, to which both the plaintiff and the
defendant were parties, and pursuant to which the accounts sued on
were made out, and which had for their object, and which it is
admitted had directly the effect, to accomplish the illegal ends
for which the Continental Wall Paper Company was organized. If
judgment be given for the plaintiff, the result, beyond all
question, will be to give the aid of the court in making effective
the illegal agreements that constituted the forbidden combination.
These considerations make it evident that the present case is
different from the
Connolly case. In that case, the Court
regarded the record as presenting the question whether a voluntary
purchaser of goods at stipulated prices, under a collateral,
independent contract, can escape an obligation to pay for them upon
the ground
merely that the seller, which owned the goods,
was an illegal combination or trust. We held that he could not, and
nothing more touching that question was decided or intended to be
decided in the
Connolly case. The question here is whether
the plaintiff company can have judgment upon an account which, it
is admitted by demurrer, was made up, within the knowledge of
Page 212 U. S. 262
both seller and buyer, with direct reference to and in execution
of certain agreements under which an illegal combination,
represented by the seller, was organized. Stated shortly, the
present case is this: the plaintiff comes into court admitting that
it is an illegal combination whose operations restrain and
monopolize commerce and trade among the states, and asks a judgment
that will give effect, as far as it goes, to agreements that
constituted that combination, and by means of which the combination
proposes to accomplish forbidden ends. We hold that such a judgment
cannot be granted without departing from the statutory rule, long
established in the jurisprudence of both this country and England,
that a court will not lend its aid in any way to a party seeking to
realize the fruits of an agreement that appears to be tainted with
illegality, although the result of applying that rule may sometimes
be to shield one who has got something for which, as between man
and man, he ought, perhaps, to pay, but for which he is unwilling
to pay.
In such cases, the aid of the court is denied not for the
benefit of the defendant, but because public policy demands that it
should be denied without regard to the interests of individual
parties. It is of no consequence that the present defendant company
had knowledge of the alleged illegal combination and its plans, or
was directly or indirectly a party thereto. Its interests must be
put out of view altogether when it is sought to have the assistance
of the court in accomplishing ends forbidden by the law.
In
Hanauer v.
Doane, 12 Wall. 342,
79 U. S. 349, this
Court said:
"The whole doctrine of avoiding contracts for illegality and
immorality is founded on public policy. It is certainly contrary to
public policy to give the aid of the courts to a vendor who knew
that his goods were purchased, or to a lender who knew that his
money was borrowed, for the purpose of being employed in the
commission of a criminal act, injurious to society or to any of its
members."
In
McMullen v. Hoffman, 174 U.
S. 639,
174 U. S. 654,
174 U. S. 669,
where
Page 212 U. S. 263
the authorities are reviewed and the whole subject carefully
examined, the Court said:
"The authorities from the earliest time to the present
unanimously hold that no court will lend its assistance in any way
towards carrying out the terms of an illegal contract,"
citing many English and American cases.
"The Court refuses to enforce such a contract, and it permits
defendant to set up its illegality not out of any regard for the
defendant who sets it up, but only on account of the public
interest. It has been often stated in similar cases that the
defense is a very dishonest one, and it lies ill in the mouth of
the defendant to allege it, and it is only allowed for public
considerations and in order the better to secure the public against
dishonest transactions. To refuse to grant either party to an
illegal contract judicial aid for the enforcement of his alleged
rights under it tends strongly towards reducing the number of such
transactions to a minimum. The more plainly parties understand
that, when they enter into contracts of this nature, they place
themselves outside the protection of the law so far as that
protection consists in aiding them to enforce such contracts, the
less inclined will they be to enter into them. In that way, the
public secures the benefit of a rigid adherence to the law."
In that case, the principle announced in
Coppell v.
Hall, 7 Wall. 542,
74 U. S. 558,
was reaffirmed, namely:
"Whenever the illegality appears, whether the evidence comes
from one side or the other, the disclosure is fatal to the case. No
consent of the defendant can neutralize its effect. A stipulation
in the most solemn form to waive the objection would be tainted
with the vice of the original contract, and void for the same
reasons. Wherever the contamination reaches, it destroys. The
principle to be extracted from all the cases is, that the law will
not lend its support to a claim founded upon its violation."
In
Embrey v. Jemison, 131 U. S. 336,
131 U. S. 348,
where the defendant was sued upon promissory notes given in
execution of a previous verbal contract that was illegal, this
Court said that plaintiff could not
"be permitted to withdraw attention from this
Page 212 U. S. 264
feature of the transaction by the device of obtaining notes for
the amount claimed under that illegal agreement, for they are not
founded on any new or independent consideration, but are only
written promises to pay that which the obligor had verbally agreed
to pay. They do not in any just sense constitute a distinct or
collateral contract based upon a valid consideration. Nor do they
represent anything of value in the hands of the defendant which in
good conscience belongs to the plaintiff or to his firm. Although
the burden of proof is on the obligor to show the real
consideration, the execution of the notes could not obliterate the
substantive fact that they grew immediately out of and are directly
connected with a wagering contract. They must therefore be regarded
as tainted with the illegality of that contract, the benefits of
which the plaintiff seeks to obtain by this suit. That the
defendant executed the notes with full knowledge of all the facts
is of no moment. The defense he makes is not allowed for his sake,
but to maintain the policy of the law.
Coppell v. Hall,
supra."
In
Montague & Co. v. Lowry, 193 U. S.
38,
193 U. S. 45-46,
which involved, in part, the question whether a particular contract
made in California for the purchase of tiles related to interstate
commerce, and was illegal, the Court said:
"The provision as to this sale is but a part of the agreement,
and it is so united with the rest as to be incapable of separation
without at the same time, altering the general purpose of the
agreement. The whole agreement is to be construed as one piece, in
which the manufacturers are parties as well as the San Francisco
dealers, and the refusal to sell on the part of the manufacturers
is connected with and a part of the scheme which includes the
enhancement of the price of the unset tiles by the San Francisco
dealers. The whole thing is so bound together that, when looked at
as a whole, the sale of unset tiles ceases to be a mere transaction
in the State of California, and becomes a part of a purpose which,
when carried out, amounts to and is a contract or combination in
restraint of interstate trade or commerce.
Page 212 U. S. 265
So, in
Swift & Co. v. United States, 196 U. S.
375,
196 U. S. 396:"
"The scheme as a whole seems to us to be within reach of the
law. The constituent elements, as we have stated them, are enough
to give to the scheme a body, and, for all that we can say, to
accomplish it. Moreover, whatever we may think of them separately,
when we take them up as distinct charges, they are alleged
sufficiently as elements of the scheme. It is suggested that the
several acts charged are lawful, and that intent can make no
difference. But they are bound together as the parts of a single
plan. The plan may make the parts unlawful.
Aikens v.
Wisconsin, 195 U. S. 194,
195 U. S.
206."
In
Bement v. National Harrow Company, 186 U. S.
70,
186 U. S. 87-88,
the Court, after referring to that section of the act of Congress
relating to suits by the Attorney General and by persons injured in
their business or property, said:
"Assuming that the plaintiff is right so far as regards any suit
brought under that act, we are nevertheless of opinion that anyone
sued upon a contract may set up as a defense that it is a violation
of the act of Congress, and if found to be so, that fact will
constitute a good defense to the action. The first section of the
act provides that"
"every contract, combination in the form of trust, or otherwise,
or conspiracy, in restraint of trade or commerce among the several
states, or with foreign nations is hereby declared to be
illegal."
"Every person making such a contract is deemed guilty of a
misdemeanor, and on conviction is to be punished by fine or by
imprisonment, or both. As the statute makes the contract in itself
illegal, no recovery can be had upon it when the defense of
illegality is shown to the court. The act provides for the
prevention of violations thereof, and makes it the duty of the
several district attorneys, under the direction of the Attorney
General, to institute proceedings in equity to prevent and restrain
such violations, and it gives to any person injured in his business
or property the right to sue, but that does not prevent a private
individual, when sued upon a contract which is void as in violation
of the act, from setting it up as a defense, and we think, when
proved, it is a valid defense
Page 212 U. S. 266
to any claim made under a contract thus denounced as
illegal."
Again, in the recent case of
Loewe v.Lawlor,
208 U. S. 274,
208 U. S. 301,
which involved the inquiry whether certain acts could be regarded
as in restraint of interstate commerce, the Court said:
"So that, although some of the means whereby the interstate
traffic was to be destroyed were acts within a state, and some of
them were, in themselves, as a part of their obvious purpose and
effect, beyond the scope of federal authority, still, as we have
seen, the acts must be considered as a whole, and the plan is open
to condemnation notwithstanding a negligible amount of intrastate
business might be affected in carrying it out. If the purposes of
the combination were, as alleged, to prevent any interstate
transportation at all, the fact that the means operated at one end
before physical transportation commenced, and at the other end
after the physical transportation ended, was immaterial."
See also Gibbs v. Consolidated Gas Co., 130 U.
S. 396,
130 U. S. 412.
The adjudged cases all hold that, upon the question whether the
particular contract sought to be enforced arises out of an illegal
transaction, the court will not be restricted to a partial
statement of the facts, but will consider all the circumstances
connected with the transaction, so as to ascertain its real nature.
In
Addyston Pipe & Steel Co. v. United States,
175 U. S. 211,
175 U. S. 245,
the Court said that
"all the facts and circumstances are, however, to be considered
in order to determine the fundamental question whether the
necessary effect of the combination is to restrain interstate
commerce."
Upon the whole case, and without further citation of
authorities, we adjudge, upon the admitted facts, that the
combination represented by the plaintiff in this case was illegal
under the Anti-Trust Act of 1890; that it is to be taken as one
intended, and which will have the effect, directly to restrain and
monopolize trade and commerce among the several states and with
foreign states, and that the plaintiff cannot have a judgment for
the amount of the account sued on, because, for
Page 212 U. S. 267
the reasons we have stated, such a judgment would, in effect,
aid the execution of the agreements which constituted that illegal
combination. We consequently hold that the circuit court of appeals
properly sustained the third defense, and rightly dismissed the
suit. Its judgment must be affirmed.
It is so ordered.
[
Footnote 1]
"
EXHIBIT 1"
"An agreement, made this-day of _____ in the year one thousand
eight hundred and ninety-eight, by and between _____ _____ a
corporation organized under the laws of the State of _____
(hereinafter called the vendor), party of the first part, and the
Continental Wall Paper Company, organized under the laws of the
State of New York (hereinafter called the company), party of the
second part."
"Whereas, the vendor is engaged in the manufacture and sale of
wall paper, borders, and other articles usually produced and
handled in connection therewith, and the company is desirous of
action as its selling agent in handling the entire product of the
vendor; and"
"Whereas, the company has an authorized capital of $200,000,
divided into 16,000 shares, of the par value of $12.50 each;
and"
"Whereas, the vendor is desirous of acquiring shares of the
stock of said company at par, and to that end has offered to enter
into this agreement and to secure the performance thereof by the
deposit of said shares."
"Now therefore in consideration of the foregoing recitals, and
for other good and valuable considerations, it is agreed between
the parties hereto, as follows:"
"First. The vendor hereby agrees to sell unto the company, and
the latter agrees to purchase, the entire product of wall paper
that may be manufactured by the vendor for the period from July
20th, 1898, to the first day of July, 1899."
"The prices at which the merchandise shall be sold to the
company are set forth in a schedule hereto annexed, marked 'A,' and
hereby made part of this agreement."
"The vendor further grants unto the company the right to two
renewals of said contract of one year each, provided that, in the
event of the election of the company to avail itself of either of
said renewals, it shall so signify in writing to the vendor before
the first day of June next preceding the renewal term, and provided
further that such election to renew shall be accompanied by the
written consents of all the registered stockholders of the company,
including that of the vendor."
"Second. That the goods acquired by the company from the vendor
hereunder which are to be sold to jobbers, shall be so sold by the
company, and not by the vendor, for the account of the company.
Such sale shall be made by the company at discounts from road
prices fixed in the schedule hereto annexed, marked 'B,' which is
hereby made part of this agreement. The vendor will deliver such
goods upon the direction of the company at the risk and for the
account of the latter, f.o.b. at the place of manufacture,
provided, however, that, in all cases in which the goods are
manufactured at places other than the cities of New York or
Philadelphia, the vendor will equalize the freights with either of
said cities out of the proceeds receivable for such goods.
Memorandum invoices shall be supplied to the customers and to the
company immediately upon the shipment and delivery of such goods,
said invoices specifying quantities and road prices."
"Third. There shall be furnished by the vendor to the company,
on the 7th, 14th, 21st, and last days of each month (except when
those days fall on Sundays, and then on the next preceding day), a
just and true statement of all shipments and deliveries of
merchandise included in this contract which the vendor may make for
the account of the company, which statement shall contain the names
of the purchasers, the character of the goods sold, and the prices
at which they are sold, to the end that the company may make the
proper charges, and in order to entitled the vendor to be credited
with the agreed cost price for such goods."
"Each of such statements of shipment shall be accompanied by an
affidavit of one of the officers of the vendor and one of its
bookkeepers and of one of its shipping clerks, to the effect that
the information contained therein is true."
"Fourth. The vendor will, at the option of the company, sell for
the latter such of the goods manufactured by the vendor as are to
be disposed of to purchasers not classified as jobbers, which sales
shall be made at the cost and expense of the vendor, said vendor
hereby guaranteeing all credits connected with such sales. The
prices at which and the terms upon which such goods are to be sold
are designated in this agreement as the 'road prices,' and are
contained in a schedule hereto annexed, marked 'C,' which is hereby
made a part of this agreement."
"On the 7th, 14th, 21st, and last days of each month (except
when those days fall on Sundays, and then on the next succeeding
days), the vendor will furnish to the company a statement showing
all the shipments made on account of such sales, which statement
shall contain the names of the purchasers, the character of the
goods, and the prices at which they were sold, and such sales shall
be credited to the vendor by the company at the prices fixed in
schedule 'A,' and shall be charged against said vendor at the
prices at which they were sold, which shall in no event be less
than those designated in schedule 'C.'"
"The vendor is to receive for its services and expenses
connected with such sales and allowances discounts equal to those
who are designated in a classification made by the parties hereto
as 'second-class jobbers,' less the discounts made on sales to
purchasers designated in the accompanying schedules as 'quantity
purchasers' on which the vendor has allowed the quantity discount,
except that, where special and exclusive goods are sold there shall
be an allowance of 30 percent discount to the vendor."
"The prices of goods as fixed by schedule 'A' and 'C' may be
altered from time to time, but the discounts allowed to jobbers
shall not be altered at any time during the term of this
agreement."
"Fifth. The vendor will make collections of all accounts for
goods sold by it for the accounts of the company under the
provisions of the agreement, except for sales to jobbers (which
accounts the company is to collect), and will, on the 10th of each
and every month during the term of this agreement, account to the
company. Such accounts shall be accompanied by a payment by the
vendor to the company of the difference between the prices at which
the goods are agreed to be sold to the company, as embodied in
schedule 'A,' and the prices at which the vendor has agreed to
dispose of said goods as contained in schedule 'C.'"
"The purchases made by the company from the vendor hereunder
shall be upon the same credit and terms as those accorded to other
dealers, but the company shall have the right to anticipate the due
date of all such purchases, and will pay, on the 10th day of each
month, to the vendor, a sum on account of all shipments of the
preceding month equal to not less than 30 percent of the road
prices of goods shipped to the jobbers by the company."
"Sixth. The vendor hereby grants unto the company the right, and
it shall be the duty of the latter, through its officers selected
for that purpose, to audit the books of accounts of the vendor at
such times and in such manner as the company may, from time to
time, deem necessary or proper. This provision is of the essence of
the agreement, and a failure on the part of the vendor to
faithfully perform the same shall operate as a breach of the
contract, entitling the company to abrogate the agreement, and to
such damages as it may be able to establish in addition to the
absolute transfer and surrender to it of the stock to be pledged as
hereinafter provided."
"Seventh. There shall be a committee selected from the company,
to be known as an auditing committee, which shall be made up from
among the directors. Said committee shall have power to establish
such a system of bookkeeping as, in its judgment, may be
advisable."
"In order to conform as nearly as may be to the laws of the
various states in which the factories of the vendor are located, it
is understood that the vendor shall not be at liberty to require
from the company the acceptance of the product of more than ten
hours per day of any one of said factories."
"The product intended to be sold to the company hereunder and
which the latter undertakes to acquire, does not contemplate the
enlargement of the manufacturing facilities of the vendor, but
nothing herein contained shall be construed as affecting the right
of the vendor to substitute new machinery of the same capacity for
any now in use which may become useless through wear or through
destruction by fire or other casualty."
"The power to designate the parties who are to be classed as
jobbers, and the discounts to which they are entitled, is expressly
reserved by the company, and such designation is to be made through
its board of directors; but the vendor shall have the right to
select the jobbers through whom the goods manufactured by it are to
be distributed."
"All orders placed with the vendor by jobbers on behalf of the
company must at once be reported to the latter."
"Eighth. The company hereby agrees to sell, and the vendor
agrees to purchase, _____ shares of the common stock of the
company, for which stock the vendor agrees to pay the sum of _____
in cash as soon after the execution and delivery of this agreement
as the same may be demanded by the company, but only if and when
the entire share capital of the company shall have been fully
subscribed at not less than par."
"The vendor will, after paying for said shares of stock, indorse
the certificates representing the same and deliver the certificates
so indorsed in blank unto the company, upon the trust and agreement
that the company shall hold said certificates as security for the
performance by the vendor of each and all of the covenants and
conditions of this agreement and that, upon the refusal, neglect,
or omission of the vendor, its successors or assigns, to perform
this agreement, or any part thereof, the said shares of stock and
certificates represented thereby shall be immediately sold by the
company at public or private sale, without notice, upon such terms
and at such price as the company or its officers may deem
reasonable, and that the proceeds of the sale be paid into the
treasury of the company as agreed and liquidated damages to the
company for the breach of said agreement."
"The parties hereto have fixed upon the said stock, and the
proceeds thereof, as liquidated damages, because of the difficulty
in establishing, in a court of law, the actual damage that would be
suffered by the company in the event of the refusal, neglect, or
omission to perform this agreement, and in order to avoid the
difficulty of such proof."
"In witness whereof, the vendor and the company have
respectively caused this agreement to be executed by their
respective presidents and their respective corporate seals to be
hereto attached pursuant to resolutions of their respective boards
of directors, the day and year first above written."
[
Footnote 2]
"
EXHIBIT 2"
"An agreement made this ___ day of _____, in the year one
thousand eight hundred and ninety-eight, between the Continental
Wall Paper Company, a corporation organized under the laws of the
State of New York (hereinafter called the company), party of the
first part, and _____ _____, of _____ (hereinafter called the
jobber), party of the second part."
"In consideration of the sum of one dollar, paid by the jobber
unto the company for granting of this agreement, the receipt
whereof is hereby acknowledged, and other valuable considerations,
it is agreed between the parties hereto as follows:"
"First. That the company will sell, subject to such credit
limitation as it may impose, and the jobber will purchase, the
entire requirements of the jobber in his business of selling wall
paper for the business year ending July first, 1899, to the amount
of a gross value, without discounts, of _____, the jobber reserving
to himself the right to purchase such merchandise as he may need in
excess of _____ from others."
"The company is to deliver the goods without additional charge
f.o.b. at New York or Philadelphia, or to equalize freights from
the places at which it makes deliveries to either of said
cities."
"Second. The jobber shall be allowed discounts at the rates
shown in the accompanying schedule, marked 'A,' which is hereby
embodied in this agreement as a part thereof."
"The terms of payment to be as follows: four months from the
date of invoice, with discount at the rate of 1 percent per month
for anticipated payment; provided settlement be made within 30 days
from date of shipment, either by cash or note. Invoices for all
goods shipped between October 15th and March 1st to take the latter
date."
"Third. Attached hereto, marked 'B,' is a schedule of the road
prices at which the company sells its goods for the term embraced
in this contract to dealers other than jobbers, and also a
statement of discounts allowed to such customers other than jobbers
for quantity purchases, together with the terms of credit and
freight allowance to which such customers are entitled."
"It is an essential condition of this agreement that the jobber
will not, directly or indirectly, sell or offer for sale any of the
merchandise purchased from the company hereunder at lower prices or
upon better or more favorable terms than those shown in schedule
'B,' the intent hereof being to assure the company against the use
by the jobbers of this agreement to undersell the company."
"The prompt performance by the jobber of the provisions of this
agreement as to payment and otherwise is a condition precedent to
exacting the continuous performance of said agreement by the
company."
"In witness whereof, the company has caused this instrument to
be executed, and the jobber has hereunto set his hand, the day and
year first above written."
[
Footnote 3]
"
EXHIBIT 3."
"In consideration of your having sold us wall paper, etc. at
list prices and at quantity discounts as per following
schedule:"
Percent Percent
Up to 5 1/2c. inclusive . . . . 600 rolls, 5 1200 rolls, 10
6c. to 9c. inc. . . . . . . . . 300 rolls, 7 1/2 600 rolls, 12
1/2
10c. to 15c. inc. . . . . . . . 200 rolls, 10 400 rolls, 15
16c. and up . . . . . . . . . . 100 rolls, 10 200 rolls, 15
"Discount on borders and ceiling papers follow the discounts on
the hangings they match."
"Plain ingrains."
"Varnish tiles, 200 rolls or more, 10 percent"
"Ingrain borders, 26 rolls of a kind, 10 percent"
"Ingrain borders, 50 rolls or over, 15 percent"
"We hereby agree not to sell any of such goods to others on
terms better or more favorable than those specified in the above
schedule nor lower than said list prices, and our faithful
performance of this agreement is a condition precedent to the
filing of our order."
"The intent hereof is to protect you fully against being
undersold by us among customers to whom you do allow quantity
discounts."
MR. JUSTICE HOLMES, dissenting:
This action is for goods admitted to have been sold and
delivered by the plaintiff to the defendant, and the question
arises, as has been explained, on demurrer to the third defense.
The elements of that defense may be stated in a few words. Nearly
all the manufacturers of wallpaper in the United States formed a
combination which, under the present policy of the law, was an
illegal attempt to restrain and monopolize trade in and among the
several states. As a part of the scheme, the plaintiff corporation
was created, which, by the agreement, became the purchaser of the
products of the constituent companies, and was to sell the same,
although the constituent companies continued to manufacture and to
carry on the business of soliciting orders. The only material facts
about this agreement are that, under it, the plaintiff got title to
the goods, that it fixed prices at which goods were to be sold, and
that it contemplated compelling the jobbers and others who bought
to purchase at those prices, if they were to get any paper at all.
The conspirators threatened, and had the power, to drive any jobber
out of business who did not come in.
In pursuance of the combination and its purpose, the defendant,
a jobbing house, and all other jobbers, were compelled to sign a
contract which in effect bound them to buy all the wallpaper needed
in their business from the plaintiff at the above-mentioned prices,
and which made it an "essential condition of this agreement" that
they should not sell at lower prices
Page 212 U. S. 268
or upon better terms than those at which the plaintiff sold.
After these two contracts were made, the defendant ordered the
goods in question at the prices named. It is alleged that those
prices were unreasonable, and it is alleged, repeatedly and with
much detail, that all the arrangements were made and all the
business was done in furtherance of the plan set forth, contrary to
the law of the United States and of the states concerned, and in
violation of the defendant's rights, this suit being the final step
in the attempt to carry out the plan.
It seems to me that the foregoing facts show no defense. I will
consider them in their successive degrees of connection with the
affair, and, in the first place, will take up the terms of the
actual contracts in suit. These were ordinary parol sales made by
the owner of goods. The suit was not upon the general agreement
between the plaintiff and defendant. That by itself sold nothing,
and it may be questioned whether it purported absolutely to bind
the defendant to buy a roll of paper.
See Dennis v.
Slyfield, 117 F. 474;
Sterling Coal Co. v. Silver Spring
Bleaching & Dyeing Co., 162 F. 848, 850. The actual
contracts by which the plaintiff bound itself to deliver, and the
sales under which it did deliver, the specific goods for which it
seeks to recover the price, were made after the making of the
general agreement, as it is apparent on the face of that agreement
that they must have been, and as is alleged by the answer in so
many words. Each was a separate transaction. There is nothing
alleged concerning the terms of these parol sales that has any
element of illegality about it.
Next, as to the effect of the general agreement between the
plaintiff and defendant. It is alleged that, after it was made, the
members of the combination solicited, received, and filled orders
and charged the prices fixed in the original combination agreement.
It is not alleged that either agreement was referred to, even by
implication. The sales are left by the answer as so many distinct
transactions. But if, in order to help the defendant to escape, we
are to infer that the orders were given with implied reference to
the general contract, what effect
Page 212 U. S. 269
could such a reference have? Plainly only to fix the price, and
for this purpose it was simply a schedule, figures on a piece of
paper or in the memory of the parties, which were adopted by
pointing to them in some way, as if they had been written on a
blackboard. It did not matter whether the document pointed at was
lawful or unlawful, as the whole business was done by the later
contracts.
See Interstate Consolidated Street Ry. Co. v.
Massachusetts, 207 U. S. 79,
207 U. S.
84-85.
If the condition in the general agreement between the plaintiff
and defendant made it bad, still it went only to that agreement and
to the plaintiff's promise to sell at certain prices, not to any
subsequent sales, or to the defendant's title to goods got under
subsequent sales. If it had been incorporated in any way into the
specific sales, it would be necessary to consider the case of
Cincinnati, Portsmouth, Big Sandy & Pomeroy Packet
Co., 200 U. S. 179,
200 U. S. 185.
But no such incorporation is alleged or in any probability could
have been alleged. So I think that I may assume that the parol
sales were made no worse, on their face, by any reference to the
content of the general agreement. And I may add that the
unlawfulness of the general agreement would not make the sales bad
from the outside, so to speak, if that was all that there was
against them. A lawful purchase is not made unlawful merely by
being the fulfillment of an unlawful contract.
It has been suggested that the plaintiff was not the real
seller, and only got its standing from the general agreement with
the defendant, and that therefore it had to rely upon an illegal
contract to make out its case. But the defense does not deny that
the plaintiff became the owner of the goods, or that the
manufacturers sold in its name, as the original combination
provided. It is true that it says that the arrangements were made
with a view of disguising the real transaction and purpose, and
that really the business was to be done by the manufacturers, as I
have stated. But it adds that payments were to be made to the
plaintiff, and it nowhere suggests that the first contract set
forth did not operate, or that the plaintiff
Page 212 U. S. 270
did not get the title it professed to transfer. Its illegality
would not prevent the title's passing. If the defendant meant to
deny that it bought from the plaintiff goods which the plaintiff
owned, it was very easy to deny it and to leave the plaintiff to
set up the agreement if it did not join issue, as it naturally
would. As the defense stands, I think it means, as I have no doubt
is the fact, that the technical legal title to the goods was in the
plaintiff, and that the defendant purported to contract with it,
the manufacturers selling in its name.
I now pass to the mere remote considerations that are supposed
to have a greater effect. It is said that the specific sales, the
general agreement, and the original combination all are steps in
one illegal plan, and that the plan gives character to the whole.
But we must be more precise. The plaintiff alone was party to the
plan. The defendant represents itself as a victim, and says that
the plan was against its rights. On what ground, then, does the
illegal purpose of the plaintiff warrant the defendant in
professing to buy its goods and then refusing to pay for them?
The plaintiff's unlawful purpose did not make it unlawful to buy
the plaintiff's goods. It is decided, if decision is necessary,
that a purchaser cannot escape merely on the ground that the seller
is an unlawful trust.
Connolly v. Union Sewer Pipe Co.,
184 U. S. 540;
Chattanooga Foundry & Pipe Works v. Atlanta,
203 U. S. 390,
203 U. S. 397.
I repeat that it is not alleged that the defendant in any way
shared the plaintiff's intent, but to go further than I need, I
will assume that it may be taken to have made the general contract
with knowledge of that intent. But it cannot be contended that
therefore it was party to a transaction illegal for that reason.
Whenever a party knows that he is buying from an illegal trust, and
still more, when he buys at a price that he thinks unreasonable,
but is compelled to pay in order to get the goods he needs, he
knows that he is doing an act in furtherance of the unlawful
purpose of the trust, which always is to get the most it can for
its wares. But that knowledge makes no difference, because the
policy of not
Page 212 U. S. 271
furthering the purposes of the trust is less important than the
policy of preventing people from getting other people's property
for nothing when they purport to be buying it. And if knowledge of
the purchaser that he is furthering the purpose of the trust makes
no difference, it makes no difference whether he is glad or sorry
for the result. A man does not make conduct otherwise lawful
unlawful simply by yearning that it should be so. In this case,
however, the defendant was an unwilling accessory, exactly as Dee
was in the
Connolly case.
The effect of the defendant's knowledge of the plaintiff's
scheme is no greater because it signed the illegal general
contract. I think that I have shown that the illegality of that
contract, taken by itself, did not make the specific sale illegal,
and, from the point of view that all that was done was a carrying
out of the plaintiff's illegal scheme, it does not matter to the
legality of the sales whether a particular previous step was legal
or not. If knowledge that the plaintiff was attempting to
monopolize, and that it sold at prices fixed in aid of the intent,
would not exonerate the defendant when it yielded to its
necessities and bought, the same knowledge would have no greater
effect if the same necessities led it to agree beforehand to do
what it did.
Perhaps, in order to answer every aspect that this rambling
defense presents, I ought to say in conclusion that the allegations
that the price was unreasonable, and that the plaintiff threatened
and had power to drive jobbers out of business that did not come
into its arrangement are not stated in such form as to make a case
of duress. I think that that would have been the strongest ground
on which the defense could have been put. Courts and legislation
sometimes have recognized that the so-called freedom to contract or
not may be made illusory by the economic situation of one of the
parties.
Schlemmer v. Buffalo, Rochester & Pittsburg Ry.
Co., 205 U. S. 1,
205 U. S. 12. It
would be extending the recognition further than it yet has been
extended, so far as I am aware, to apply it to a case like this.
But I express no opinion upon its possible application,
Page 212 U. S. 272
because, as I have said, the allegations are not directed to
that end, and do not sufficiently show that the specific purchases
were induced by fear. Moreover, as such duress, like fraud, goes
only to motives,
The Eliza Lines, 199 U.
S. 119,
199 U. S. 131,
if the frightened or defrauded party would rescind, he must restore
the consideration, or at least be ready to pay the reasonable
price, of neither of which is there any hint.
I think that this decision must mean that
Connolly v. Union
Sewer Pipe Co. supra, ought to have been decided the other
way. There, as here, there was, or was assumed to be, an illegal
trust. In furtherance of the purposes of the trust, a general
agreement was made between the trust and the defendants, the
purchasers, which required defendants to buy from the plaintiff
alone at prices alleged to be unreasonable, they receiving a rebate
upon that consideration, and which fixed a price at which the
defendants would sell. There was just as much of a scheme and just
the same scheme in that case as in this. In both, the defendants
cooperated as victims to the monopoly in precisely the same way.
The facts spoke for themselves, and were the same. Nothing is added
to the case by calling the arrangements set forth a scheme, but
similar language was used in the former case, as appears from the
record. The contract will be found in the same record. It was
assigned as error and argued that the circuit court ruled that the
said contract, again set forth, was not void. For these reasons, I
feel compelled to dissent from the judgment of the Court. I am
authorized to say that MR. JUSTICE BREWER, MR. JUSTICE WHITE, and
MR. JUSTICE PECKHAM concur in this dissent.
MR. JUSTICE BREWER, dissenting:
Concurring in the views expressed by MR. JUSTICE HOLMES, it
seems to me another matter is worthy of consideration.
The transactions between the plaintiff and defendant were, as
held by the Court, in violation of the Anti-Trust Act, 26
Page 212 U. S. 273
Stat. 209, c. 647. That act defines the rights and liabilities
of the parties. The first three sections prohibit contracts and
combinations in restraint of trade and monopolies, declare a person
violating the provisions of these sections guilty of a misdemeanor,
and prescribe the punishment. Section 4 gives power to the circuit
courts of the United States to prevent and restrain violations of
the act. Section 6 provides for a forfeiture of property owned
under any contract or combination or pursuant to any conspiracy,
and seized while in course of transportation. Section 7 declares
that any person injured in his business or property by reason of
anything forbidden or declared to be unlawful in the act may sue
therefor in any circuit court of the United States in the district
in which the defendant resides or is found, without respect to the
amount in controversy, and shall recover threefold damages by him
sustained.
The present case comes within the proposition that,
"where a statute creates a new offense and denounces the
penalty, or gives a new right and declares the remedy, the
punishment or the remedy can be only that which the statute
prescribes."
Farmers' & Mechanics' National Bank v. Dearing,
91 U. S. 29,
91 U. S. 35;
Barnet v. National Bank, 98 U. S. 555. These
two cases arose under the National Banking Act of June 3, 1864, c.
106, 13 Stat. 99, and illustrate the doctrine referred to. That act
prescribed the rate of interest which might be taken by national
banks, and added that knowing and receiving a greater rate of
interest should forfeit the entire interest, or, if the interest
had been paid, that the person paying might recover in an action of
debt twice the amount of interest thus paid. These cases held that
relief for a violation of the statute was a forfeiture of the
interest due and not paid, or, in case the interest had been paid,
an action of debt to recover double the amount paid.
See also
Oates v. National Bank, 100 U. S. 239.
In
Stephens v. Monongahela Bank, 111 U.
S. 197, it was decided that the remedy prescribed by the
statute was exclusive. In
Driesbach v. National Bank,
104 U. S. 52, it
was held that usurious interest paid a national bank on renewing a
series of
Page 212 U. S. 274
notes could not, in an action by the bank on the last of them,
be applied in satisfaction of the principal of the debt.
Now the remedies given in the Anti-Trust Act are three in
number: first, a criminal prosecution, second, a forfeiture of
property, and third, an action by any person injured to recover
threefold the damages by him sustained. These, being the remedies
prescribed, are exclusive. The defendant sought none of these
remedies. It was not so anxious for the public welfare as to make
complaint and secure criminal proceedings. There was no property to
be forfeited. It did not seek to recover threefold the damage it
had sustained, but only to avoid paying for the property it had
purchased. The reason therefor is suggested in the opinion of the
circuit court of appeals, 148 F. 950:
"The averment that they paid 50 percent more for their gross
purchases in consequence of the illegal combination has little
merit in it, moral or otherwise. They doubtless sold again at the
great minimum profit they agreed to exact from retailers, and the
retailers later exacted the undue profit from the consuming
public."
Something of the same idea of the exclusiveness of a statutory
remedy finds expression in
Texas & Pacific Railway Company
v. Abilene Cotton Oil Company, 204 U.
S. 426, in which it was held that a shipper could not
maintain an action at common law for excessive and unreasonable
freight charges exacted on interstate shipments where the rates
charged were those which had been duly fixed by the carrier
according to the Interstate Commerce Act and had not been found to
be unreasonable by the Interstate Commerce Commission, and this
notwithstanding the provision in § 22 of the Act to Regulate
Interstate Commerce:
"Nothing in this act contained shall in any way abridge or alter
the remedies now existing at common law or by statute, but the
provisions of this act are in addition to such remedies."
