Respondents Brief — Continental Wall Paper Co. v. Louis Voight & Sons Co.

Supreme Court brief1909

Ask Donna

What actually matters in this document.

Text

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1907.

CONTINENTAL WALL PAPER COMPANY,

Petitioner,

No. 212. vs.

THE LEWIS VOIGHT & SONS COMPANY,

Respondent.

Brief for Respondent.

The petitioner, by these proceedings, seeks to reverse a

judgment entered in the Circuit Court of the United States,

Southern District of Ohio (Ree., p. 439), recently affirmed

by the United States Circuit Court of Appeals for the

Sixth Cireuit (Ree., p. 447), which judgment dismissed

the »ectition of the plaintiff below, who is the petitioner

here, at its costs. This action in the Circuit Court

followed the overruling of the demurrer of the plain-

tiff to the third defense in defendant's amended an-

swer, and was based upon the election of the plaintiff not

to plead further. The demurrer and the action of the

plaintiff in electing not to plead further, are confessions

pf the truth of the facts alleged in said third defense.

This third defense to the amended answer (Rec., pp.

7887-399) sets forth various facts showing the formation in

1898 of a trust or unlawful combination in the wall paper

usiness in the United States, to which ninety-eight per

Scent. of the manufacturers of wall paper, the plaintiff,

ll the manufacturers of wall paper machinery, and all

the wholesalers, jobbers and quantity buyers, including

he defendant, were parties under various agreements and

ontracts, which agreements and contracts were contrary

o public policy and void:

(a) At common law;

> (b) Under the laws of the state of New York where

3 the agreements were entered into and the contracts

ysigned ;

were to be carried out in part and the goods delivered,

and thereafter to be sold for delivery in various states ;

* (d) And under the act of Congress commonly known

as the “Sherman Act”;

And further that the suit in form on an account set

forth in the petition as amended was an attempt to en-

7) force said illegal trust agreements.

A reading of the third defense is necessary to an under

standing of the position of the defendant.

In brief the facts alleged in this third defense and ad-

mitted by the plaintiff to be true and which show the

® existence of this illegal combination are these:

Prior to 1898 there were in existence in the United

States some thirty-five factories manufacturing wall

paper, controlling upwards of ninety-eight per cent. of

the business of the country in that commodity ( Ree., p.

389). Seventeen of them were owned by the National

Wall Paper Company and eighteen by independent firms,

individuals or corporations. They were located in seven

states: New York, Pennsylvania, Massachusetts, New Jer-

sey, Maryland, Delaware and Ohio. They were in free

and unrestricted competition with each other, and al’

were engaged in interstate commerce throughout the

United States. There were two manufacturers of wal’

paper machinery: one located in New Jersey, the other in

Wisconsin (Ree., p. 394). There were wholesale dealers

like the defendant, and retail dealers scattered all over

the country. The defendant was such a jobber or whole-

sale dealer, at Cincinnati, who bought goods from th«

manufacturers in other states (Rec., pp. 387, 388), and

sold goods through Ohio, Kentucky, Indiana and Illinois

and other states and territories (Ree., p. 396).

In July, 1898, the scheme was devised to unite all the

manufacturers and wholesalers and jobbers of wall paper

and manufacturers of wall paper machinery in a com-

bination to control this business. The retailers and con-

sumers were alone left out.

The manufacturers agreed with one another that, while

they should retain the ownership of their several plants

and businesses and preserve their separate indentities and

operate said several manufactories and businesses as he-

fore, the control of said several businesses in all matters

relating to and affecting the production of said establish-

nents and the prices and sale of wall paper and the clas-

sification of dealers should be placed under the control of

a committee, which would adopt regulations and rules

governing the manner of conducting the business of all

the said manufacturers, including the fixing of prices and

the division of the profits (Rec., pp. 389-390).

In carrying this agreement into effect, the following

plan was devised (Rec., pp. 389, 390): The plaintiff cor-

poration was to be organized under the laws of New York,

with a capital stock of $200,000, divided into 16,000 shares

of $12.50 each, for the ostensible purpose of taking the

entire output of wall paper to be manufactured. The

stock was to be divided among the manufacturers in pro-

portion to the number of rolls of paper manufactured by

them the preceding year. It was to be paid for in cash and

immediately endorsed in blank and deposited with the

plaintiff (Ree., pp. 390, 394, 406, 409). As the National

Wall Paper Company controlled about one-half of th

business, it was to name three so-called directors of th:

company and the other manufacturers another three, and

these six were to choose a seventh, a sort of umpire (Ree.,

p. 390), who would together in reality constitute the afore-

said committee (Rec., p. 295). Then a contract (Ex. 1—

Ree., p. 406) was to be entered into between each of the

manufacturers and the corporation so organized, viz., the

plaintiff. Another contract (Ex. 2—Rec., p. 419) was to

be entered into between the plaintiff and each jobber, of

which three classes, known as “First,” “Second” and

“Third” Class Jobbers were to be formed (Rec., p. 395).

The plaintiff under the terms of the written agreement

was to sell the goods to the jobber. A third contract (Ex.

3—Rec., p. 483) was to be entered into between each man-

ufacturer and any other purchaser of wall paper in iarge

quantities, known as a “quantity buyer” (Rec., p. 396).

The manufacturers, under the terms of said written

agreement, were to sell the wall paper to the “quantity

buyers” for the account of the plaintiff. All other pur-

chasers of wall paper were to buy their goods at certain

fixed prices, known as “list prices,” and all the manufac-

turers, jobbers and “quantity buyers” were to agree with

the plaintiff not to sell any wall paper to any one at less

than such “list prices.” These list prices were embodied

in and made part of the contracts and are the same in each

(See Exhibits 1, 2, 3—Ree., pp. 412, 415, 416, 421, 427,

433).

All wholesalers and jobbers were also to be compelled

to agree to buy from no one but the manufacturers of wall

paper who were parties to the scheme, which agreement

was to be in some form that would disguise the real nature

of the transaction (Ree., p. 391).

In order to secure the faithful performance of these

agreements and to prevent their violation by any member

of the combination, whether in his capacity as manufac-

turer, jobber or quantity buyer, the following devices

were adopted:

“Good faith” was to be secured on the part of the manu-

facturers by their furnishing statements and invoices of

sales to the company and permitting the latter to audit

their books (Rec., pp. 392, 393, 408), and further by their

paying into the treasury of the plaintiff $200,000 as sub-

scriptions for stock and at the same time depositing their

stock with the company to be taken as liquidated dam-

ages in case of any violation of their contracts (Ree., pp.

394, 406, 409). Since the contracts were illegal, neither

party to them could ever recover upon them, and the

manufacturers could neither get back their stock nor

their money if they violated the terms of their contract.

Again, “good faith” was further to be secured on the part

of the manufacturers by removing all temptation to vio-

late the agreement, because of the tying up of the whole-

sale trade by agreements compelling them to buy only

from those in the combination. A manufacturer, violat-

ing the terms of his agreement, would find no market for

his product.

The same “good faith” was to be secured on the part of

the jobbers and quantity buyers by refusing to let them

have any paper from practically the only sources in the

country whence it could be procured, if they bought paper

from any one else or sold what they bought at any time

at less than list prices (Ree., pp. 391, 394, 395, 419, 433).

To make sure that no other persons could manufacture

wall paper, all makers of wall paper machinery agreed

not to sell such machinery to any one but the plaintiff and

the manufacturers who were in the combination (Rec.,

p. 394); and to prevent the manufacturers from increas-

ing their capacity, and thus exposing themselves to the

temptation of selling their product at less than list prices,

they agreed not to run their factories longer than ten

hours a day and to put in no machinery except to replace

old machines which were discarded (Rec., pp. 393, 408,

409). Competition and cutting of prices in the United

States by Canadian members of the trade were also pre-

vented by appropriate agreements (Rec., p. 396).

Nominally the plaintiff was to buy the entire product

of all the factories at prices which were the estimated cost

of the manufacture and incidental expenses (Ree., pp.

391, 406). All contracts with and collections from job-

bers were to be in the plaintiff's hame, but the contracts

with and collections from quantity buyers and other pur-

chasers were to be attended to by the manufacturers

(Rec, pp. 391, 392, 106, 407).

In reality the agreement was, and so the business was

‘arried on, that the manufacturers should maintain sam-

ple rooms and selling agents and solicit and receive

orders

from all Wholesalers, whether jobbers: or quantity buy-

ers; that the entire business should be done by the manu-

facturers, but payments should be made by the jobbers to

the so-called company, the plaintiff (which was desig.

hated in the written agreement as “selling agent,” Ree.,

p. 406), and by wholesalers, other than jobbers, directly

to the manufacturers (Rec., pp. 392, 397).

Blank forms of contract for the different members were

prepared and agreed upon and the prices fixed ( Ree., pp.

390, 395, 396, 407). The combination Was to last one

Year, with privilege of two renewals for one year each

under certain conditions (Ree., pp. 394, 406, 407).

The plaintiff was to have general supervision of the

business of each manufacturer, with the right to examine

its books and establish a general system of accounting

(Ree., pp. 393, 408). All invoices of sales were to be fur-

nished and accounted for to the plaintiff (Ree., p. 392).

The profits of the manufacturers were to be divided in

the form of dividends on the stock based upon capacity

and without reference to actual sales made by any manu-

facturer (Rec. p. 391). The profits of the jobbers were

the difference between the list prices and the discounts

allowed.

The foregoing scheme was completely carried out. Pur-

suant to said agreement, the defendant and every other

jobber and wholesaler of wall paper in the United States,

and all persons engaged in commerce in the wall paper

trade, were compelled to, and did, sign the agreements

contemplated as aforesaid, copies of which are attached to

the answer as Exhibits 2 and 3, by which means com-

petition between the manufacturers and the vendors of

wali paper and between jobbers and wholesalers was

stifled, and the price of wall paper unduly enhanced,

making it 50 per cent. higher than it would otherwise

have been (Rec., pp. 396, 397; Exhibit 2—Ree., p. 419;

Ex. 3—Rec., p. 433).

The prices charged for merchandise in the exhibits at-

tached to the amended petition are the prices fixed and

determined in pursuance of and by the combination or

trust agreement, and are at least one-half more than they

would otherwise have been. All of said business was

transacted in pursuance of said trust agreement (Rec.,

pp. 398, 399). The manufacturers in the combination

used the plaintiff only as a cloak. They themselves, as

before, maintained sample rooms and selling agents, and

solicited and received orders (Ree., p. 392). The item-

ized accounts which plaintiff was compelled to furnish by

way of amendment to its petition, are accounts of manu-

facturers, and not of the plaintiff with the defendant

(Ree., pp. 41-350 ine.).

The suit by plaintiff on an account is an attempt to

enforce the illegal agreement.

II.

TuHls Case Dogs nor INVOLVE THE CLAIM THAT A THIRD

PERSON PURCHASING FROM AN ILLEGAL Trust Can,

BECAUSE OF THAT ILLEGALITY, Escape PAYMENT FOR

ARTICLES PURCHASED,

The plaintiff in error wil] doubtless insist here, as be-

low, that this defense involves a contention upon the part

of the defendant that a third person outside of a trust

buying goods from the trust can set up in defense to an

action for the purchase price of the goods, that the plaint-

iff is an illegal combination or trust. No such conten-

tion is made upon behalf of the defendant and it is con-

ceded that no such defense would be effective. Were there

ever any doubt of the proposition, such doubt has been re-

moved by the decision of this court in Connolly vy. Union

Sewer Pipe Co, 184 U, S., 540, 545.

This case adopted the principle announced in many nisi

prius cases prior thereto,

Edison Elec, Lt. Co, y. Sawyer-Mann Elec, Co.,

53 F. R., 592, 598,

Amer, Soda Fount. Co, y. fircen, 69 FP, R., 333.

Empire Dis, Co, y. MecNulta, 77 F. R., 700.

Olmstead v. Dis. & Cattic Feed Co., 7% F. R., 44.

Dennehy v. MeNulta, 86 F. R., 825.

Brown Saddle Co, y. Trorel, 98 F. R., 620.

Nat'l Folding Box & Pa. Co, y. Robertson, 99 F.

R., 985.

Otis Elev. Co, vy. Geiger, 107 F. R., 181.

Harrison v. Glucose Sug. Ref. Co., 116 F. R., 304,

p. 308.

Combinations in restraint of trade and commerce are

illegal and have been made by statute criminal, but they

are hot outlawed. Had the scheme been confined to the

agreements actually made between the manufacturers and

the plaintiff (Exhibit 1 to answer) there would have been

a solid basis for the argument that the defendant could

not set up the illegal character of those contracts either

at common law or under the statutes to defeat a suit for

the purchase price of goods sold to defendant.

The scheme and the agreements entered into to carry

it into effect were not, however, confined to the plaintiff

and the manufacturers. The defendant and every whole-

sale dealer in wall paper in the United States were par-

ties to the scheme, and, in pursuance of the plan adopted,

entered into contracts with the plaintiff containing pro-

visions adapted to the purpose of carrying out the illegal

objects of the trust and intended so to do, that is, to en-

hance and fix prices, to stifle competition and to restrain

trade between the states (Rec., p. 397; Exhibits 2 and 3

attached to answer at Ree., pp. 419, 433). Plaintiff is

now sning upon one of the contracts, though in the short

form, on an account permitted by the Ohio code.

This position is more fully presented hereafter in the

brief but is now noted at the outset, because much of

the brief of the other side is based on the assumption that

the Connolly case controls,

ITT.

THE COMBINATION IS ONE IN RESTRAINT OF TRADE OR Com-

MERCE AMONG THE SEVERAL STATES AND AN ATTEMPT

TO MONOPOLIZE THE WALL PArer TRADE OR COMMERCE

AMONG THE STATES.

The question is not, as treated by counsel for plaintiff

in error, simply one as to whether or not the plaintiff com-

AOS ~

pany is a trust or unlawful combination. It is that and

much more, for the plaintiff company is but an incident

in the general scheme Which embodies a combination be-

tween the manufacturers and wholesale dealers through-

out the country. Plaintiff's corporate organization can

not be used as a cloak to cover the illegal contracts be-

tween the parties to the scheme, nor does it make legal

that scheme which Without it would be clearly illegal.

Northern Securities Co, v. UL S., 193 U. S., 197.

Distilling Co. y. People, 156 Tll., 448,

Harding v. Glucose C'o., 182 Il., 551.

Richardson y, Buhl, 77 Mich., 632, 656 et seq.

The court will look through it for the intent of the

real parties to the agreements forming the scheme, and

will not be stopped by its nominal capitalization, which

is less than a year’s purchases of wall paper by the de-

fendant alone ( Ree., pp. 3, 398, 399), and only 1-190 part

of the capitalization of the National Wall Paper Co., one

of its constituent companies (Ree, pp, 352, 353). The

court will see, as is alleged and admitted, that the agree-

ments with and sales to the defendant were in fact made

by the manufacturers, parties to the scheme (Ree., pp.

389, 390, 392, 399 ), and that the plaintiff is but a nominal

party to them all.

The language of Judge Minshall in State y. Standard

Oil Co., 49 O. S., 179, is applicable although used of the

converse of the proposition:

“Now, so long as a proper use is made of the

fiction, that a corporation is an entity apart from

its shareholders, it is harmless, and, because con-

venient, should not be called in question, but

ia: tS Sn eet PEGE

where it is-urged to an end subversive of its pol-

icy, or such is the issue, the fiction must be ig-

nored, and the question determined, whether the

act in question, though done by shareholders, that

is to say, by the persons united in one body, was

done simply as individuals, and with respect to

their individual interests as shareholders, or was

done ostensibly as such, but, as a matter of fact,

to control the corporation and affect the trans-

action of its business, in the same manner as if

the act had been ciothed with all the formalities

of a corporate act. This must be so, because the

stockholders having a dual capacity, and capable

of acting in either, and a possible interest to con-

ceal their character when acting in their cor-

porate capacity, the absence of the formal evi-

dence of the character of the act, can not preclude

judicial inquiry on the subject. If it were other-

wise, then in one department of the law, fraud

would enjoy an immunity awarded to it in no

other.”

The scheme was not confined to the manufacturers

alone, as in U.N. v. Anight, 156 U. S., 1.

Though limiting, controlling and regulating production,

its general object and scope was to control the manufae-

turing, buying, selling and dealing in wall paper, to be

transported anvong the several states from a time anterior

to its manufacture, until it reached, through the manu-

facturers, the plaintiff, and through the plaintiff, the

wholesalers, through the wholesalers, like the defendant,

the retail dealers and consumers, in Ohio, New York and

other states,

Different functions in accomplishing this purpose were

alloted to different members. To the plaintiff was al-

lotted the task of keeping the manufacturers to their bar-

gains as to prices, ete., and making contracts in its name

With the jobbers and Seeing that these contracts were ob-

served ; to the manufacturers was allotted the

ufacuring the goods and selling

jobbers, at the pri

task of man-

to all purchasers, except

ces named, and not producing more wall

paper than a fixed amount, viz., the then capacity of their

mills; to the jobbers and quantity buyers, such as the

defendant, was allotted the

task of buying only from the

plaintiff and the manufac

turers, and selling only at prices

which the manufacturers, the plaintiff and the whole.

salers and the jobbers had agreed upon. Each party to

the scheme and every contract in reference to it was an

integral and necessary part to make effective the purposes

of crushing out competition, enhancing and fixing the

prices, and monopolizing the wall paper industry of the

United States,

To the retailers of wall paper and consumers was allot-

ted the task of paying the bills.

There could have been no other object than the enhance-

ment and control of prices and the restraint of trade for

the purpose of enhancing prices. It is so alleged and the

demurrer admits such to be the fact. All the factories (s0-

called vendors) in the combination mainta’ned sample

rooms and seiling agents, and solicited and received or-

ders, just as before the combination (Ree., p. 402, par. 3).

The Continental Wall ’aper Company did not, therefore,

work an economy of expenses for the several factories in

the combination by combining, and therefore decreasing

the aggregate sales expense, but on the contrary, increased

expenses, for the factories in the combination were ecom-

pelled to send duplicate bills to the Continental Wall

Paper Company every time they made a sale to a customer

and the Continental Wall Paper Company was obliged to

maintain bookkeepers to properly enter these duplicate

accounts, to pay dividends, maintain an organization, ete.

The combination was not, therefore, formed for the pur-

pose of economizing expense, but its sole and only purpose

and object was to enhance prices and restrict competition.

After the combination was made complete (embracing

more than 98 per cent. of all wall paper manufacturers

and ali manufacturers of wall paper machinery) and the

agreements had been signed by the several factories, and

by their creature, the Continental Wall Paper Company,

and the wholesalers had been compelled to sign the agree-

ments, Exhibits 2 and 3, it was thereafter impossible.

1. For any manufacturer of wall paper to sell, except

at trust prices.

2. For any jobber of wall paper to buy, except at trust

prices.

3. For any jobber to buy wall paper at any price, un-

less assenting to the combination’s exactions, and becom-

ing a party to the scheme and entering into the illegal

agreement.

4. For any retail dealer in wall paper to buy of any

jobber, except at trust prices.

5. For any individual consumer of wall paper to buy

from any retailer, except at prices exacted as a result of

the combination.

6. And finally, by reason of the control of all concerns

manufacturing wall paper machinery in this country and

Canada, no person or persons, firm or corporation could

start up an independent factory.

A MORE COMPLETE AND EFFECTIVE COMBINATION TO RE-

STRICT COMPETITION AND ENHANCE PRICES COULD NOT

BE IMAGINED.

Thus treating the matter, as it must be treated, as one

general scheme, all one agreement, it is too plain for ar-

gument that it comes within the common law inhibition

against contracts in restraint of trade, as well as the stat-

utes. It is a method of treatment which plaintiff avoids.

It would like to take up one part of the scheme and treat

# contract in reference to that part as the only fact to be

considered. That, however, will not answer. As said by

Mr. Justice Peckham in Addyston Pipe & Steel Co. v. The

United States, 175 U. S., 211, at page 245:

“All the facts and circumstances are, how-

ever, to be considered in order to determine the

fundamental question—whether the nec essary ef-

fect of the combination is to restrain interstate

commerce.”

Mr. Justice Holmes, in Swift & Co. y. U. S., 196 U. s.,

375, 396, said:

“The scheme, as a whole, seems to us to be

within reach of the law. The constituent ele-

ments, 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 suffic iently

as elements of the scheme. It is suggested that

the several acts charged are lawful, and that in-

tent 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. Wis-

consin, 195 U. S., 194, 206.”

rast

It was also said by Mr. Justice Peckham, in Vontugue v.

Lowry, 193 U. 8., 38, 45, in arriving at the conclusion

that the scheme therein considered related to interstate

commerce, and, therefore, within the prohibition of the

Sherman Act:

“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 con-

strued 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 manu-

facturers is connected with and a part of the

scheme, which includes the enhancement of the

price of the unset tiles by the San Francisco deal-

ers. The whole thing is se ound together that

when looked at as a whole, the sale of unset tiles

ceases to be a mere transaction ‘n the state of

California, and becomes part of a purpose which,

when carried out, amounts to, and is, a contract

or combination in restraint of interstate trade or

commerce.”

Mr. Chief Justice Fuller has, within a few months, used

similar language in reference to treating the scheme or

combination as a whole, in Loewe v. Lawlor, 208 U.S

274, 28 Supreme Court Reporter, 301, at p. 309.

The scheme now in question in this case was so treated

and held, as an entirety, by Judge Wing in the Northern

District of Ohio, in a case between the Continental Wall

Paper Company and William H. Findlay et al, involving

precisely this defense in a precisely similar case, on pre-

cisely similar facts. He said:

“By the third defense, it appears that the con-

tract of sale, upon which is founded the claim of

the plaintiff, if any it have, was one to which the

plaintiff and many manufacturers of wall paper

and the defendants were parties. In this con-

tract, which is Exhibit 3, attached to the answer,

is found the following clause: ‘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 com-

pany hereunder, at lower prices, or upon better

or more favorable terms than those shown in

Schedule B; the intent hereof being to insure the

company against the use by the jobber of this

agreement to undersell the company.’ This is

clearly a contract in restraint of trade. The pro-

vision quoted inures to the benefit of the plaintiff

and of a great number of manufacturers of wall

paper located in various states of the Union. The

business of the defendants, in the sale of wall

paper, was carried on, as jobbers, in several

states of the Union. The effect, therefore, of this

provision of the contract, was to restrain com-

merce among the several states. It appears from

this defense that it will be necessary for the

plaintiff, in establishing its right to recover from

the defendants, to rely upon this illegal contract.

It is the undisputed law that, in such a situation,

the court will refuse, not only to enforce such

contract, but any alleged rights directly spring-

ing from it. Therefore, the demurrer to the third

defense is overruled.”

‘

Ditton neces niall tate aorleasiiabai

IV.

THIs COMBINATION WAS AN ILLEGAL TRUST, AND AN UN-

LAWFUL COMBINATION WITHIN THE MEANING OF THE

STATUTES.

It is hardly necessary to discuss the proposition that

this combination was not an illegal trust or unlawful

combination within the meaning of the state or federal

statutes,

If there are any cases to the contrary, they have been

effectually disposed of in the case of The United States y.

The Addyston Pipe & Steel Company, 85 F. R., 271, as

affirmed by this court 175 U. S., 211, 244, and in its later

decisions.

It is only necessary to refer to the following decisions,

some of which have arisen under the Sherman Act, and

some without reference to statutes, but all of which have

involved the direct consideration of the illegal agreement

or combination :

U.S. v. Trans, Mo, Frat. Assn., 166 0. 8., 290.

U.S. v. Joint Traf. Assn:, 171 U. 8., 505.

Montague vy. Lowry, 193 U. S., 38.

Northern Securities Co. v. U. 8S., 193 U. S., 197.

Swift & Co, v. UL S., 196 UL S., 375.

National Cotton Oil Co. v. Ter., 197 U. 8., 115,

129.

U.S. v. Jellico C. & C. Co., 46 F. R., 432.

Amer, Bis. Mfg. Co. vy. Kiotz, 44 F. R., 721.

Oliver v. Gilmore, 52 F. R., 562.

C., M. é St. P. R. Co. v. Wab.. 8. L. &d E.R. Co.,

61 F. R., 993, 997.

Nat'l Harrow Co. v. Hench, 83 F. R., 36, 38.

Nat'l Harrow Co. v. Hench, 84 F. R., 226.

U. 8. v. Coal Dealers’ Asan., 85 F. R., 252.

Cravens vy. CarterCrume ( '0., 92 F. R., 479, 485.

Lowry vy. Tile & G. Assn,, 98 F. R., 817, 826.

Lowry v. Tile & G. Assn., 106 F. R., 38.

Montague vy. Lowry, 115 F. R., 27.

U.S. v. C2 & O. Fuel ¢ 0., 105 F. R., 93.

C. & O. Fuel Co, v. U.S. 115 F. R., 610.

City of Atlanta y. Chat., F. & P. Co., 101 F. R.,

900.

The cases which apparently hold the contrary, such as—

Olmstead vy. The D. & C.F. (0, 77 F. R., 265;

In re Green, 52 F. R., 104;

Deuber Watch Co, vy. EB. Howard W. & C, Co., 66

I. R., 637;

Continental Ins, Co. y. Bd. of Und., 67 F. R., 310,

are based on The Mogul Steamship Co, vy. McGregor, L. R.

(1892), Appeal Cases, 25, or are overruled, as pointed out

in The Addyston Pipe Case, 85 Fed., 286, 300, or are dis-

tinguished in that case.

The cases, federal and state, also establish the further

proposition, that a contract in restraint of trade, though

on its face not unreasonable, and hence not void at com-

mon law, may become such if it is simply a part of a gen-

eral scheme or one step towards the accomplishment of

the purpose to restrain competition and establish a mo-

nopoly,

U.S. v. Addyston P. & S. ('0., 85 BF. R., 271, 285,

291, and cases cited.

Cravens vy, Carter-Crume Co, 92 F. R., 479, 485.

Detroit Salt Co, v. Nat'l Salt Co., 134 Mich., 103.

120.

Pacific Fac, Co, y. Adler, 90 Cal., 110.

Finck vy. Granite Co., 187 Mo., 244, 2d syl. and

opin., p. 269.

Of course parties to such a combination can not plead

an honest intent in forming the combination, or the rea-

sonableness of the restraint; under statutes forbidding

such combination or agreement, such defenses are imma-

terial.

U.S. v. Joint Traf, Assn., 171 U. S., 505, 565.

Addyston P. & 8, Co. vy. UL 8., 175 U. 8., 211.

U.S. v. C. & O. Fuel Co., 105 F. R., 93.

C. & O. Fuel Co. vy. U. 8., 115 F. R., 610, 619.

U.S. v. Hopkins, 82 F. R., 529.

U.S. v. Coal Deal. Assn., 85 F. R., 252, 262, 264.

U.S. v. Addyston P. & 8. Co, 85 F. 1R., 271, 27s,

291.

Contracts and conspiracies which prevent free and un-

restricted competition in interstate commerce are within

the condemnation of the federal statute.

Montague v. Lowry, 193 U. S., 38.

Northern Securities Co, v. UL S., 193 U. 8., 197.

Loewe v. Lairlor, 208 UL S., 274, 28 Supreme Court

Reporter, 301.

Since the decision of the Circuit Court of Appeals in

this case reported in 148 Federal Reporter, p. 939, the

Circuit Court of Appeals of the 3rd Circuit has decided

two cases involving trusts or combinations and its de-

cisions therein are in accord with this line of authori-

ties:

Jayne vy. Loder, 149 Fed. R., 21, a case of a combination

between manufacturers, jobbers and retailers.

Wheeler-Stenzel Co. vy. National Window Glass Jobbers

Assn., 152 Fed. R., 864, a case involving a combination

of jobbers worked out through a corporation formed for

the purposes of negotating sales of goods to them.

The Circuit Court of Appeals in the 5th Cireuit had

decided a case in which was cited with approval the

decision of the Circuit Court of Appeals in the 6th Cir-

cuit in this case:

McConneg v. Camors-McConnell Co,., 152 Fed.

R., 321.

The Circuit Court of Appeals of the 6th Circuit has also

re-examined the questions in this case and extended the

application of the principles involved in this case in Park

& Sons Co., v. Hartman, 153 Fed. R., 24.

The state courts have with great unanimity held com-

binations like that under discussion to be illegal. We se-

lect a few with provisions in the agreement which bear

resemblance to those of the wall paper trust for citation

here. Many others will be found at pages 20 to 23 in the

brief for the defendants in error before the Circuit Cour

of Appeals in this case, which is attached and made part

of the answer to the petition for certiorari, and now on

file in this case,

Finck vy. Granite Co., 187 Mo., 244.

Pocahontas Coke Co. ¥. Powhatan Coal & Coke

Co., 60 W. Va., 508; 56S, E. R., 264.

Hastings Industrial Co. vy. Barter, 102 8. W.

Rep., 1075.

American Handle Co, y. Standard Handle Co.,

59S. W., 709 (Tenn.).

Cumming v. Union Blue Stone Co., 164 N. Y.,

401, 404-6.

Cohen v. Berlin & Jones En relope Co., 166 N. Y.,

292, 300-304.

Wheeler-Stenzel_ Co. vy. National Window Cilass

Jobbers’ Assn., 152 Fed. R., 864 (C. C. A.

3d Cir.).

The above are instances where those in the combination

retain control of their own business but form a corpora-

tion to, or through which sales are made, or through which

purchases are made of all the product made by or merchan-

lise dealt in by the conspirators. There are also cases

like the above where the control is exercised by a corpora-

tion owning the stock of the corporations taken into the

combination, Among these may be mentioned :

Northern Securities Co, vy. U. 8., 193 U. 8., 197.

Burrows v. Luterborough Metropolitan Co., 6

F. R., 389.

Southern Electric Securities Co, vy, State, 44 Bo,

Rep., 7385 ( Miss., 1907).

Other cases holding illegal a combination effected

through a corporation formed for the purpose of taking

over, owning and operating or closing down competing

plants, are the following:

Distilling Co,y, People, 156 UL, 448.

Harding ¥. FL ona 182 ITIL, 551,

Richardson vy. Buhl, 77 Mich., 6382, 656 et seq.

Detroit Salt Co, y. National Salt Co., 134 Mich.,

103,

Other illustrative and leading cases are the following:

Straus v. American Publishers’ Assn., 177 N. Y.,

473.

Nester vy. Brewing Co., 161 Pa, St., 473.

Vulcan Powder Co, vy, Powder Co., 0 Cal, 510.

Beechley v. Mulville, 102 lows, 602.

Bailey vy. Master Plumbers, 103 Tenn., 99.

Klingel vy. Sharp, WA Md,, 218.

Vv.

Tae Contract Berween PLantivr AND DEFENDANT,

Uxper WuHicu ARises THE ACCOUNT SUED ON, IS A

Past or ANv DinectLy Connecrep Wirn THE ILLEGAL

COMBINATION, AND HENce, UNENFORCEABLE, AND NOT

MERELY A COLLATERAL OR INDEPENDENT CONTRACT.

A consideration of the allegations of the third defense

demonstrates that the contract, Exhibit 2 (Ree., p. 419),

which was made between the plaintiff and the defendant,

and also as a part of the same scheme between the plaint-

iff and every other jobber in the United States (Ree., pp.

306-397) was not collateral to the scheme or combination,

or independent of it. The purposes of the combination

were at least two-fold, namely, to effect a monopoly of

both the manufacturers of and the trade in wall paper,

und second, to enhance prices, Exhibit 2, in the light of

the facts pleaded, when made, as it was, between the

plaintiff and every other jobber and wholesaler in the

country, was intended and calculated to effect both of

these objects, The jobber undertook to buy all of his pa-

per up to a certain amount, which amount was more than

double what he had ever used, or was likely to use,

from the plaintiff alone, and he also agreed not to sell

at prices lower than those fixed by the plaintiff and to

Which every other jobber agreed, and the performance

of these undertakings was a condition on which alone he

could continue to receive goods from the plaintiff or its

constituent companies representing the manufacturers of

upwards of 98 per cent. of the wall paper manufactured

in this country. The first of the above mentioned under-

takings was equivalent to an agreement by the jobber or

wholesaler not to buy from any other person than the

manufacturer. When made, as it was, by all the jobbers

and wholesalers it assured the vendors in the combination

a monopoly of the market. It prevented any of those

within the combination from dropping out, for they would

find no market outside.

The second agreement when likewise, as it was, entered

into by all the jobbers and wholesalers, prevented com-

petition among the jobbers and wholesalers, just as the

execution of Exhibit 1 by all the vendors precluded com-

petition among the latter. The fact that all wholesalers

did enter into such agreements was all that made it possi-

ble for them to buy at the combination’s advanced prices

with the hope of a profit. It was the sugar coating that

went with the compulsory threats set out in the answer, to

the effect that unless such agreements were signed by all

the jobbers they would be driven out of business from sheer

inability to get goods,

These provisions of the contract, therefore, constituted

the means by which the wholesale trade was brought into

and made a part of the combination, carrying most effect-

ually the iniquities of the combination, restraining and

monopolizing the wall paper trade and commerce among

the states, clear down to the ranks of the retailers and

consumers,

It is clear that this is not a mere case of a sale by a

monopoly or a trust to a third person and that the ob-

jection raised by the defendant is not the same as that

which would be raised by an outsider purchasing from a

trust.

So much is made in argument of the case of Connolly

v. Union Sewer Pipe Company, 184 U. 8., 540, as well as

of the cases decided upon the same principle, that it ix

proper to say a word or two further in connection with

that case,

It merely decides that the objection that a corporation

is a trust or monopoly arising and existing ip violation

of law, can not be urged by one who has voluntarily en-

tered inte a contract with it which is independent of and

has no relation to its unlawful purposes, for the sake of

avoiding such contract,

The converse, however, of the proposition is equally

true, namely: that if the contract entered into is not in

dependent of but is made in execution of and in further

ance of the unlawful purposes sought to be accomplished

und as part of the scheme, no suit can be maintained by

either party upon such a contract,

The case of Connolly vy. Union Sewer Pipe Company,

Ist U. S., pp. 348 and 549, brings out this distinction

clearly, In that case Connolly defended solely upon the

ground that the plaintiff company was a trust and his

defense was overruled. He did not, as does the defendant

in this case, allege or rely upon the fact that his contract

with the Union Sewer Pipe Company was in itself illegal,

or a part of the general plan to enhance prices and stifle

competition, Had he done so his defense might have been

successful, because the record shows that the contract ac-

tually made by Connolly with the Union Sewer Pipe Com-

pany had in it elements of illegality entirely independent

of the illegal character of the plaintiff company. As

pointed out by Mr. Justice Holmes, speaking for the court,

in the recent case of Chattanooga Foundry & Pipe Works

v. City of Atlanta, 203 U. 8., 390, 397:

“

“The sale” (to Connolly as presented to this

court) “was not so connected in its terms with the

unlawful combination as to be unlawful.”

He, however, based his defense solely upon the fact that

the Union Sewer Pipe Company was a trust and sought

to avoid the payment of the purchase-price of the goods on

that ground alone. He largely relied upon the Tlinois

statute which recognized such defense but which was held

unconstitutional.

All the other cases cited by plaintiff are founded upon

well recognized distinctions which differentiate them

from the case at bar. They fall under various classes,

as follows, and must be distinguished from the case at

bar:

Ist. We must distinguish a sale made under and in

pursuance of, and in carrying out, a contract void, be-

cause forbidden by statutes and the law prohibiting trusts

and trust agreements, restraint of trade, enhancing prices,

ete., and a sale made entirely outside as to a person who

is not a member of the trust.

21. We must distinguish between contracts unenforce-

able under the common law and cases arising where

a statute has made contracts in restraint of trade or com-

petition void; have forbidden them under penalty and

have made them criminal.

3d. We must distinguish cases where the contract itself

is legal, but the time or manner of making the contract

alone is forbidden.

4th. We must distinguish cases arising under statutes

enacted for a particular class of persons where the en-

forcement of the prohibition would frustrate the purpose

ef the statute.

Sth. We must distinguish cases where, by agreement

of the parties to the illegal transaction, the illegal trans-

action has been ended and money delivered by one person

to a mere agent to be delivered to a third person, the de-

livery to the agent vesting title to the money or property

in the other party.

6th. We must distinguish cases where the agreement

which would be otherwise unlawful is held valid for the

reason that the agreement is but a method upon the part

of the owner of a legal monopoly of dividing up or dealing

with that monopoly, as for instance, an agreement respect-

ing patented or copyrighted articles.

Every case cited by the plaintiff comes within one or

the other of these classes,

The fact that the consideration has all been executed

on one side can not alter the matter. There have been

many cases holding that there can be no recovery for

goods sold and delivered under trust contracts, or other

contract creating an illegal monopoly in restraint of trade.

Among these are

Detroit Salt Co, vy. National Salt Co., 134 Mich.,

103.

Arnot v. Pittston & Elmira Coal Co., 68 N. Y.,

558.

Unckles y, Colgate, 148 N. Y., 529, 538.

Clancy v. Onondaga Fine Salt Mfg. Co., 62 Barb.,

395, 405-7.

Houck vy. Brew, Assn., 88 Tex., 184.

Fuqua vy. Pabst Brew, Co., 90 Tex., 298.

Teras Brew, Co. vy. Templeman, 90 Tex., 277.

Carriage Co. vy. Hatch, 19 Tex. Civ. App., 120.

Other cases of executed consideration for which recov-

ery was denied by reason of the contract being illegal be-

"EPR

cause tending to create a monopoly, or in restraint of trade,

are

Cravens vy. Carter-Crume Co., 92 F. R., 479 (C.

C. A., 6th Cir.).

Bishop v. Palmer, 146 Mass., 469.

All the statutes relied on in this case expressly forbid

the making of the contracts of which the one between the

plaintiff and defendant, set out in the third defense, was

a material step; expressly declare the contracts void; and

expressly impose a penalty upon the making of them and

expressly make them criminal.

Under these statutes such transactions and such con-

tracts are just as illegal as gambling; as contracts to as-

sist in the smuggling of goods; as contracts to deal in fu-

tures; as contracts to make and circulate counterfeit

money; as the sale of liquor in violation of law; as con-

tracts to assist in prostitution; or in any other way to

violate criminal statutes, or in furtherance of such objects.

The cases in which recovery has been denied either of

the contract price when suing on the contract or on the

common counts ignoring the contract, are numerous. Some

of the English cases at common law may be instanced.

If a contract of sale is illegal, there can be no recovery

of goods sold in an action for goods seld and delivered.

Per Ashhurst and Buller, JJ.

Alerander v. Owen, 1 T. R., 225.

A person who packs goods in a certain way to enable

the buyer to smuggle them, can not recover in an action

for goods sold and delivered.

Biggs v. Lawrence, 3 T. R., 454.

NWaymell v. Reed, 5 T. R., 599.

No recovery can be had by an innkeeper for provisions

furnished to voters for a candidate, in violation of law.

Ribbans vy. Crickett, 1 B. & P., 264, 266.

Nor by a printer for labor and materials in printing a

book to which he does not affix his aame, as required by

statute, under a penalty.

Bensley vy. Bignold, 5 B. & Ald., 335.

Marchant vy. Evans, 2a J. B Moore, 14.

No recovery can be had by the seler for the value of

bricks sold and delivered where the satute requires them

to be of a certain size under a penalty.

Law vy. Hodson, 11 East., 30).

So there can be no recovery by aa unlicensed broker

for work and labor.

Cope v. Rowlands, 2 M. & W. 149.

So no recovery can be had for use aid occupation, after

the lessor knows that the premises am used for purposes

of prostitution.

Jennings v. Throgmorton, Run & M., 251.

Nor can recovery be had for the we of a conveyance

hired to a prostitute to enable her to cary on her vocation,

Pearce v. Brooks, L. R., 1 Ex. 213.

So no recovery can be had for the wlue of butter sold

by a farmer in firkins not branded as required by law

under a penalty.

Foster v. Taylor, 3d Nev. & Man., 244; s. ¢. 5 B.

& Ad., 887.

Tee

No recovery can be had on an implied contract to pay

for coal sold and delivered without a ticket, as required

by law, under a penalty.

Cundell v. Dawson, 4 C. B., 376, 397, 400.

Little v. Poole, 9 B. & C., 192, 199-203.

In America the cases are to the same effect.

A recovery can not be had by one privy to the unlawful

design for services rendered in procuring execution of an

illegal contract. See especially what is said in VeMullen

v. Hoffman, 174 U. S., 639, bottom of page 655.

Gibbs v. Gas Co., 130 U. S., 396, 412.

Irwin vy, Williar, 110 U. S., 499.

McMullen vy. Hoffman, 174 U. 8., 639.

Embry v. Jemison, 131 U. 8., 336, 348.

Miller v. Ammon, 145 U. S., 421, 427.

One who has actively participated in an attempt to

violate the law or public policy can not recover for the

price of articles sold.

Hanauer v. Doane, 12 Wall., 342.

Sprott v. U. S., 20 Wall., 459.

Kohn v. Melcher, 43 Fed., 641.

The state decisions are to the same effect.

In an action of assumpsit on the common counts for

work and labor performed under an illegal contract after

it had been rescinded it was held that no recovery could

be had for value parted with under the illegal contract.

Peck v. Burr, 10 N. Y., 294, 297-300.

Johnston v. Dahlgren, 166 N. Y., 355, 358.

Brinkman y. Eisler, 40 N. Y. St., 865, 866.

Peck vy. Burr contains a clear cut statement of the law.

If the contract be illegal there can be no recovery under

an implied contract,

Berka vy. Woodward, 125 Cal., 119, 120, 121.

Smith vy. Albany, 61 N. Y., 444.

Finn v. Donohue, 35 Conn., 216, 217, 218.

In a case already cited of Bishop v. The American Pre-

serving Co., 157 TIL, 284, 311-315, 320, an illustration is

given of how far courts will go in leaving parties to a

‘rust agreement where they find them. Bishop sold his

stock and plant to the American Preservers Company,

Which was a trust, and gave it a bill of sale, receiving in

return certificates for 331 shares of stock. It put him

in charge of its plant as agent. He attempted to rescind

and the company sued in replevin. It was held that the

Whole thing was illegal and the court would leave the

parties where it found them. The maxim in pari delicto

applied between the immediate parties to an illegal con-

tract.

No recovery can be had on the common counts if the

contract be illegal although fully executed.

Pike v. King, 16 Iowa, 49, 52.

Meader v. White, 66 Me., 90, 92.

Dodson y. Harris, 10 Ala., 566, 569. ;

Troewert vy, Decker, 51 Wis., 46, 47.

Simpson vy. Nicholls, 3 M. & W., 240, 243-4.

Stewart v. Thayer, 170 Mass., 560, 562-3.

Many other cases to the same effect are to be found at

pages 31 to 34 of the brief in the Circuit Court of Appeals

filed in this case with the answer to the petition for writ

of certiorari.

~ SCARE

These cases show that wherever and in whatever form

the question has arisen, whether for goods sold and deliv-

ered, for money loaned, services rendered, the decisions

have been uniform, that no recovery can be made on an

implied contract where the express contract is illegal and

the goods sold, the money loaned, or the services performed

under and in pursuance of and in furtherance of an illegal

contract.

Some of the cases, including Connolly v. Union Sewer

Pipe Company, use language to the effect that a recovery

may be had where the plaintiff is not obliged as part of

his own ease to disclose the illegal contract. While that

may be, and undoubtedly is in some cases a good guide

for determining whether the contract sued on is collateral

or incidental to or a part of the illegal contract or not,

it is not the only test nor is it so held to be where the

question has arisen. While many cases might be cited to

this effect the decisions of the Supreme Court of the United

States are controlling.

As said in Coppell vy. Hall, 7 Wall, 542, at page 558:

“Whenever the illegality appears, whether the

evidence comes from one side or the other, the dis-

closure is fatal to the case. No consent of the

defendant can neutralize its effect.”

See also VcMullen v. Hoffman, 174 U. 8S. 639, at p. 665,

and the leading case of Armstrong v. Toler, 11 Wheat.,

258, at p. 274.

VI.

A DIRECT PROCEEDING BY THE STATE OR FEDERAL AUTHORI-

TIES TO HAVE THE PLAINTIFF DECLARED A TRUST oR

COMBINATION WITHIN THE MEANING OF THE ANTI:

Trust Law Is Not NECESSARY BEFORE A VALID Deg-

FENSE TO A SUIT ON THE ILLEGAL CONTRACT CAN BE

Sev Up.

In the courts below it was argued upon behalf of piaint-

iff that whether the plaintiff was a trust or not must be

determined in a direct proceeding and not collaterally

in an action by it for the price of merchandise sold. The

argument was based upon the erroneous assumption of

counsel that the defense was one based solely upon the fact

that the plaintiff was a trust, and reliance for this branch

of the argument was had by counsel upon the decision of

Judge Kohlsaat in Lafayette Bridge Co, v. City of Strea-

tor, 105 F. R., 729. This case is not really applicable be-

cause it applies only to provisions in statutes by which

persons outside the trust and whose contract with the

trust is not tainted with any illegality may defend against

any action brought by a trust, upon the ground that the

plaintiff is a trust. It has no application where, as in

the case at bar, the defense is not interposed by a third

person but by the party who entered into an illegal con-

tract, and the suit is on such contract.

As has been stated, this action is not apparently on the

contract which is a trust agreement, but under the short

form allowed by the code on an account for goods sold

and delivered, But from the defense under consideration

it appears and is admitted that, the prices charged in the

account are the prices fixed in the agreements including

the agreement for the sale of the wall paper, that the

account arises under these agreements and that these

agreements are void. This being so, the action is not

one to recover the price of goods seld to third persons by

a trust under a contract for the purchase and sale of

goods, but to recover from a person who was a party to

the illegal agreement by force of the illegal agreement.

It is, therefore, clear that the facts stated in the third

defense constitute a valid defense to an action for the

contract price.

In the recent case of Bement v. National Harrow Com-

pany, 186 U. S., p. 70, Mr. Justice Peckham said, in refer-

ence to a similar contention, pp. 87-88:

“Plaintiff contends in the first place that only

the Attorney-General of the United States can

bring an action under the statute (Sherman

Act), excepting that by Section 7 of the act any

person injured in his business or property, as

provided for therein, may himself sue in any Cir-

cuit Court of the United States, in the district

in which the defendant resides or is found. As-

suming that the plaintiff is right so far as regards

any suit brought under that act, we are neverthe-

less of opinion that any one 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 misdemeanor, and on conviction is to

Judge Kohlsaat’s decision even applied to such actions

as were then in contemplation by him seems contrary 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 shewn to the court. The act pro-

vides for the prevention of violations thereof, and

makes it the duty of the several district attor-

neys, under the direction of the Attorney-General,

to institute proceedings in equity to prevent and

restrain such violations, and it gives to any per-

son injured in his business or property the right

to sue, but that does not prevent a private indi-

vidual 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 to any claim made under a contract thus

denounced as illegal.”

the weight of authority.

Ford v. Chi. Milk Ship. Assn., 155 IIL. 166.

Nat'l Lead Co, vy. Grote Paint Store Co., 80 Mo.

Apps., 247, 265.

VII.

THE CONTRACT BETWEEN THE PLAINTIFF AND THE DEFEND-

ANT, EVEN WHEN CONSIDERED SEPARATELY FROM THE

AGREEMENTS BETWEEN THE MANUFACTURERS AND

PLAINTIFF, WAS ONE IN RESTRAINT OF TRADE, SO AS TO

DEBAR THE PLAINTIFF FROM RECOVERING FOR Goops

SOLD AND DELIVERED UNDER IT TO THE DEFENDANT.

Counsel for the plaintiff insist on contending that the

gravamen of the third defense is, that the defendant was

the victim of the plaintiff or trust and was not a party

to the illegal agreement or combination. We beg to point

out, however, that while the defendant apologizes for

entering into the illegal combination on the ground that

it was forced to do so, as probably many of the manufac-

turers were who certainly were parties to the trust, never-

theless, as has been shown, the contracts, which were en-

tered into between the manufacturers and the plaintiff,

between the jobbers and the plaintiff, and between the

quantity buyers and manufacturers, were parts of one

general scheme to restrain trade, prevent competition, en-

hance prices, to fix a standard of price to the publie or

consumer, ete., in violation of the Sherman Act, the New

York Statutes and the Ohio Statute, commonly known

as the Valentine Act, above referred to.

While the defendant admittedly was not one of the

original conspirators, yet by entering, with all the other

jobbers in the country, into the contracts which the orig:

inal conspirators outlined for them to make, containing

the express agreements with respect to prices and with

respect to dealing elsewhere, it thereby became itself a

part of the conspiracy.

The answer distinctly states, after setting forth in sub-

stance the various contracts entered into between the dif-

ferent parties, including the plaintiff and the defendant,

and the plaintiff and every other jobber, and the means

adopted to bring about such results, and objects sought

to be accomplished thereby, the following:

“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 socalled road or quantity buyers, are

each and all contrary to the provisions of the

statutes of the state of New York,” etc. (Ree.,

p. 399),

In view of these allegations and those which precede

it, it is difficult to see how the plaintiff on demurrer can

deny that the defendant was a party to the illegal com-

bination. Certainly the pleader intended to make it

appear so and certainly it was. Yet ignoring the alle-

gations of the third defense of the answer which the de-

murrer admits; ignoring the allegation that an agreement

identical with Exhibit 2 was entered into by the plaintiff

with every other jobber of the first, second, and third class

in the United States, and that an agreement identical

with Exhibit 3 was entered into by the manufacturers on

every sale to every other wholesaler or “quantity buyer”

who were not classed as jobbers, and that these agreements

were expressly contemplated and provided for in the agree-

ments between the manufacturers and plaintiff, and ignor-

ing the allegations that the schedule of “list prices” and

discounts attached to Exhibits 2 and 3 allowed all jobbers,

wholesalers and quantity buyers, , the identical sched-

ules fixed upon between the inanufacturers and the plaint-

iff in their agreements (Exhibit 1), as well as all provi-

sions as to equalizing of freights, conditions and the forms

the contracts were to assume—ignoring all these most ma-

terial facts—counsel for plaintiff take up Exhibit 2 as if

it stood alone, was the only contract made and was a

simple agreement between a vendor of wall paper and a

vendee, as to the sale of a year’s supply of goods.

Having thus taken the contract, and isolated it from

everything else, they proceed to argue first, that its re-

strictions were reasonable at common law in the case of

a sale of goods to be imposed by a vendor on a vendee;

second, that being reasonable at common law it was not

a restraint on commerce between the states and otherwise

within the terms of the state and United States statutes

prohibiting such restrictions, that the statutes are not

supposed to cover such cases ; and third, that even if illegal

the illegal provisions are severable and do not prevent the

enforcement of the legal provisions.

Such an argument begs the whole question at issue.

The elements ignored are the elements which, conceding

ali that is claimed in reference to Exhibit 2, the contract

relied upon, if this stood by itself, render it illegal and un-

enforceable. This: is true, although the defendant be con- |

sidered as not a party to the general illegal scheme or

combinatien and only a party with the plaintiff and job-

bers to that feature of the scheme which involved the dis-

position of the merchandise to which plaintiff by its con-

tracts with the manufacturers had acquired title.

Treating the case in this narrow view, the illegality of

the contract fixing the price at which defendant sold the

goods, precludes a recovery from the defendant, a party

to such contract, and is enforcing an illegal agreement.

For, when taken in connection with the other contracts,

signed by all other jobbers, wholesalers and quantity

buyers—the stipulations as to prices, etc., at which they

were to dispose of the goods purchased were (1) unrea-

sonable even at common law; (2) whether reasonable or

unreasonable, were in violation of the Sherman Act and |

the state statutes; and (3) are not severable as one of |

two or more promises resting on a legal consideration;

but, by reason of the form they take, were conditions prece-

dent to any promise of the plaintiff and taint and render

illegal the entire consideration by virtue of which the

defendant agreed to pay any price for the goods,

The contracts which the defendant, in common with

every other wholesaler and jobber in the country, signed

(Exhibit 2, Rec., p. 419), bound the defendant and every

other jobber to buy exclusively from the plaintiff. This |

was disguised by the provisions that the jobber “will pur- |

chase the entire requirements of the jobber” up to a cer.

tain amount; but this amount is averred in the answer

to have been “at least double the entire amount purchased

hy the jobber during the preceding year,” and “more thai

by any possibility could be needed by such jobber” (Rec.,

p. 395).

In the second place, as to credit limitations, deliveries,

equalization of freight rates, discounts from list prices

terms of payment, settlements, dates of invoices, ete., they

impose and f9ltow the provisions of the contract between

the manufactv rers and the plaintiff (Exhibit 1). Then

follows (Exhibit 2, Rec, p. 419) this provision, likewise

in accordance with (Exhibit 1, Ree., p. 406, 407):

“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 con-

tract to dealers other than jobbers, and also a

statement of discounts allowed to such customers

other than jobbers for quantity purchases, to-

gether with the terms of credit and freight al-

lowance 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 pur-

chased from the company hereunder at lower

prices or upon better or more favorable terms

than those shown in Exhibit B, the intent hereof

being to assure the company against the use by

the jobber of this agreement to undersell the com-

pany.

“The prompt performance by the jobber of the

provision of this agreement as to payment and

otherwise is a condition precedent to exacting

the continuous performance of said agreeemnt by

the company” (Rec., p. 419-420).

Every jobber in the United States signed this contract

with plaintiff. No jobber could get goods at all from

anybody unless he did.

Every wholesaler who was not a jobber but was a “quan-

tity buyer” signed at the time he purchased any goods

from a manufacturer, who had agreed with the plaintiff

to sell said goods, a contract (Exhibit 3, Ree., p. 433),

containing a similar provision:

“In consideration of your having sold us wall

paper, ete., at list prices and at quantity dis-

counts as per following schedule (here follows

schedule) 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 or

lower than said list prices, and our faithful per-

formance of this agreement is condition precedent

to the filling of our order.

“The intent hereof is to protect you fully

against being undersold by us among customers

to whom you do not allow quantity discounts.”

In the face of these contracts and the allegations of the

auswer in reference thereto, how idle it is to treat this 3

as a case where a vendor, to protect his business, imposes |

a reasonable restraint on the vendee when he sells him

property, real or personal?

What does it avail to cite the contract between Connolly |

ilar provisions, when those provisions were not relied upo

any other purchaser signed a similar contract, no alle-

gation made that it was in pursuance of a plan to create |

a monopoly, fix prices, restrain trade, ete., and when the

Supreme Court in its opinion, not only does not mention

it, much less pass upon it?

Why quote part of the opinion in U. S. v. Addyston Pipe

& Steel Co., 85 F. R., 271, which refers to contracts at

common law which were reasonable, and ignore what

Judge Taft especially pointed out as a distinguishing

feature of such cases. In the foregoing cases, etc.,

“Where,” says he, page 290—

“Such relations exist between the parties, as

already stated, restraints are usually enforceable

if commensurate only with the reasonable pro-

tection of the covenantee in respect to the main

transactions affected by the contract. But, in

recent years, even the fact that the contract is one

for the sale of property or of business and good

will, or for the making of a partnership or a cor-

poration, has not saved it from invalidity if it

could be shown that it was only part of a plan

to acquire all the property used in a business by

one management with a view to establishing a

monopoly. Such cases go a step further than those

already considered. In them the actual intent to

monopolize must appear. It is not deemed

enough that the mere tendency of the provisions

of the contract should be to restrain competition.

In such case the restraint of competition ceases

to be ancillary, and becomes the main purpose

of the contract, and the transfer of property and

good will, or the partnership agreement, is merely

ancillary and subordinate to that purpose.” (Cit-

ing numerous cases. )

The case at bar is like the case of Cravens vy. Carter-

Crume Co., 92 F. R., 479. It appears from that case, p.

483, that—

“The trial judge held at the conclusion of the

evidence, that the contracts between the plaint-

iff, the National Mercantile Company and the

Carter-Crume Company were not standing by

themselves unlawful, but that when taken in con-

nection with the other facts which had been

shown, it appeared that they formed part of an

unlawful combination in restraint of trade; that

they were therefore contrary to public policy

and could not be enforced. He therefore directed

a verdict for defendant.”

This holding of the court below was affirmed by the

Circuit Court of Appeals, although the plaintiff had fully

executed the contract on his part.

Two cases in California fully bring out the distinction

sought to be enforced in this case.

Pacific Factor Co, v. Adler, 90 Cal., 110:

“A contract by the terms of which the defend-

ant agreed to give to the plaintiff the exclusive

sale of grain bags or burlaps, up to a specified

quantity, to be under the defendant’s control for

a specified period, and agreed to accept for them

the average price received by the plaintiff for all

grain bags or burlaps sold by him, and the plaint-

iff agreed to sell them for a specified commission

and to be bound to sell a specified quantity of

them, is not upon its face void as being in re-

straint of trade or against public policy; but if it

be shown that such contract formed part of a

scheme of the plaintiff to establish a monopoly

in grain bags, agreement is void.”

So held in action for damages for failure to defiver bags

as agreed.

Santa Clara Mill & Lumber Co, v. Hayes, 76 Cal., 387,

syllabus:

“The plaintiff and the defendants, who were

each manufacturers of lumber, entered into a con-

tract by the terms of which the defendants agreed

to make and deliver to the plaintiff during the

year 1881, two million feet of lumber at $11 per

thousand feet, and further agreed not to manu-

facture any lumber during such period for sale

Within a specified territory, except under the con-

tract and to pay the plaintiff $20 per thousand

feet for any lumber manufactured and sold to

parties other than the plaintiff. Similar con-

tracts were made by the plaintiff with other lum-

ber dealers, and its sole object and consideration

in entering into such contracts was to form a com-

bination for the purpose of increasing the price

of lumber, limiting the supply, and giving it the

control of the lumber market within the territory

specified.

“Held: That the contract was in restraint of

trade, it being indivisible was invalid in its en-

tirety.”

Page 392:

“Plaintiff had an undoubted right to purchase

any or all . * the lumber it chose, and to sell at

such pr’? 2s and places as it saw fit, but when as

a conditien ef purchase it bound its vendor not to

sell to others under a penalty, it transcended a

rule the adoption of which has been dicated by

the experience and wisdom of ages as essential to

the best interests of the country and as necessary

to the protection alike of individuals and legiti-

mate trade.”

Page 393:

“It is claimed by appellant that the contract

is divisible and the first part (i. ¢., to sell) can

stand though the latter be illegal. If the whole

vice of the contract was embodied in the promise

of the defendants not to sell lumber to other

persons, the illegality would lie in the promise

alone and it might be contended with great force

that this promise was divisible from the agree-

ment to sell. Under the findings of the court,

however, the illegality inheres in the consider-

ation.

“The very essence and main-spring of the agree-

ment, the illegal object, was to form a combina-

tion, etc. * * * The good can not be separated

from the bad or rather the bad enters into and

pormeates the whole contract so that none of it

ean be said to be good and, therefore, the sub-

ject of an action.”