Morris Run Coal Co. versus The Barclay Coal Co., 68 Pa. 173 (Pa. 1871)

The opinion of the court was delivered,

by Agnew, J.

This was an action on a bill drawn upon one party in favor of another party to a contract between five coal companies, for a sum found due in the equalization of prices under the contract. It raises a question of great importance to the citizens of this state and the state of New York, where the contract was made, and was in part to be executed, to wit: whether the contract was illegal, as being contrary to the statute of New York, or at common law, or against public policy. The instrument bears date the loth day of February 1866. The parties are five

coal companies, incorporated under the laws of Pennsylvania, to wit: The Fall Brook Coal Company and Morris Run Coal Company, of the Blossburg coal region; and the Barclay Coal Company, Fall Creek Bituminous Coal Company, and Towanda Coal Company, of the Barclay coal region. By the agreement the market for the bituminous coal from these two regions is divided among these parties in certain proportions. A committee of three is appointed to take charge and control of the business of all these companies, to decide all questions by a certain vote, and to appoint a general sales agent to be stationed at Watkins, New York. Provision is made for the mining and delivery of coal, their kinds, and for its sale 'through the agent, subject, however, to this important restriction, that each party shall, at its own costs and expense, deliver its proportion of the different kinds of coal in the different markets at such times and to such parties as the committee shall from time to time direct. The committee is' authorized to adjust the prices of coal in the different markets and the rates of freight, and also to enter into such an agreement with the anthracite coal companies as will promote the interest of these parties. Then comes an important provision that the companies may sell their coal themselves, but only to the extent of their proportion, and only at the prices adjusted by the committee. It is also provided that the general sales agent shall direct a suspension of shipment or deliveries of coal by any party making sales or deliveries beyond its proportion, and thereupon such party shall suspend shipments until the committee shall direct a resumption. Detailed reports of the business are to be made by the companies to the general sales agent at fixed and short intervals, and settlements are'to be made by the committee monthly, prices averaged, and payments made by the companies in excess to those in arrear; and finally, each party binds itself not to cause or permit any coal to be shipped or sold otherwise than as the same has been agreed upon, and that all rules and regulations by the executive committee in relation to the business shall be faithfully carried out.

In ¿regard to the relation these companies hold to the public, the field of their mining operations, the markets they supply, the extent of their coal-fields, and the general supply of coal, the distinguished referee, Judge Elwell, finds as follows: “The Barclay and Blossburg coal-mines are the only coal-mines furnishing the kind of coal mined and shipped by these companies, except the Cumberland coal, which latter, in order to reach the same markets, north, would have to be shipped by tidewater. There was some of the same kind of coal mined in McKean and Elk counties, in this state, but in quantities so small as that it was not considered by these companies as coming into competition with them. The coal of the Blossburg and Barclay regions is adapted

to mechanical purposes and for generating steam. Wherever sold it comes into competition with anthracite coal, and also with the Cumberland coal sent by tidewater to Troy, New York, to which point both kinds of bituminous coal are shipped.”

During the season of 1866 these companies made sales of coal at Oswego and Buffalo to parties who shipped to Chicago, Milwaukie and other western cities. It there came into competition to some extent with Pittsburg coal. The latter is used for making gas, but the coal.of these companies cannot be used for that purpose.

The referee found that the statute of New York is, “if two or more persons shall conspire,” first, “to commit any offence;” second, “ to commit any act injurious to the public health, to public morals, or to trade or commerce, they shall be deemed guilty of a misdemeanor.”

The referee found, as his conclusion upon the whole case, that the contract was void by the statute, and void at common law, as against public policy. The restraint of the contract upon trade and its injury to the public is thus clearly set forth by the referee: “ These corporations (he says) represented almost the entire body of bituminous coal in the northern part of the state. By combination between themselves they had the power to control the entire market in that district. And they did control it by a contract not to ship and sell coal otherwise than as therein provided. And in order to destroy competition they provided for an arrangement with dealers and shippers of anthracite coal. They were thereby prohibited from selling under prices to be fixed by a committee representing each company. And they were obliged to suspend shipments upon notice from an agent that their allotted share of the market had been forwarded or sold. Instead of regulating the business by the natural laws of trade, to wit, those of demand and supply, these companies entered into a league, by which they could limit the supply below the demand in order to enhance the price. Or if the supply was greater than the demand, they could nevertheless compel the payment of the price arbitrarily fixed by the joint committee. The restraint on the trade in bituminous coal was by this contract as wide and extensive as the market for the article. It already embraced the state of New York, and was intended and no doubt did affect the market in the Western States. It is expressly stipulated that the parties to this contract shall not be considered as partners. The agreement was not entered into for the purpose of 'aggregating the capital of the several companies, nor for greater facilities for the transaction of their business, nor for the protection of themselves by a reasonable restraint, as to a limited time and space, upon others who might interfere with their business.”

The plaintiff in error’s reply to this vigorous statement of the

purpose of the contract and its effect upon the public interest, alleges that its true object was to lessen expenses, to advance the quality of the coal, and to deliver it in the markets it was to supply, in the best order, to the consumer. This is denied by the defendants; hut it seems to us it is immaterial whether these positions are sustained or not. Admitting their correctness, it does not follow that these advantages redeem the contract from the obnoxious effects so strikingly presented by the referee. The important fact is that these companies control this immense coalfield ; that it is the great source of supply of bituminous coal to the state of New York and large territories westward; that by this contract they control the price of coal in this extensive market, and make it bring sums it would not command if left to the natural laws of trade; that it concerns an article of prime necessity for many uses; that its operation is general in this large region, and affects all who use coal as a fuel; and this is accomplished by a combination of all the companies engaged in this branch of business in the large region where they operate. The combination is wide in scope, general in its influence, and injurious in effects. These being its features, the contract is against public policy, illegal, and therefore void.

The illegality of contracts affecting public trade appears in the books under many forms. The most frequent is that of contracts between individuals to restrain one of them from performing a business or employment. The subject was elaborately discussed in the leading case of Mitchell v. Reynolds, 1 Peere Williams 181, to be found also in 1 Smith’s Lead. Cases 172. The distinction is there taken which now marks the current of judicial decision everywhere; that a restraint upon a trade or employment which is general, is void, being contrary to public interest, really beneficial to neither party, and oppressive at least to one. “ General restraints (says Parker, J.) are all void, whether by bond, covenant or promise, with or without consideration, and whether it be of the party’s own trade or not;” citing Croke Jam. 596 ; 2 Buis. 186; Allen 67. To obtain, he says, the sole exercise of any known trade throughout England, is a complete monopoly, and against the policy of the law. A reason given is “ the great abuses these voluntary restraints are liable to, as, for instance, from corporations, who were perpetually laboring for exclusive advantages in trade, and to reduce it into as few hands as possible.” In reference to a contract not to trade in any part of England, it is said, there is something more than a presumption against it, because it never can be useful to any man to restrain another from trading in all places, though it may be to restrain him from trading in some, unless he intends a monopoly, which is a crime. These principles have been sustained in many cases which need not be cited, as most of them will be found in Mr. Smith’s note to the

leading case. The result of those in which particular restraints upon trade have been held to be valid between individuals is, that the restraint must be partial only, the consideration adequate and not colorable, and the restriction reasonable. Upon the last requisite, Tindal, C. J., remarks in Horner v. Graves, 7 Bing. 743:— “We do not see how a better test can be applied to the question whether reasonable or not than by considering whether the restraint is such only as to, afford a fair protection as to the interests of the party in favor of whom it is given, and not so large as to interfere with the interests of the public. Whatsoever restraint is larger than the necessary protection of the party can be of no benefit to either; it can only be oppressive, and if oppressive, it is in the eye of the law unreasonable. What is injurious to the public interest is void on the ground of public policy.”

Many cases have been decided as to what is a reasonable restriction and what is not, and is therefore void, but two only may be referred to as illustrations. In Mallan v. May, 11 M. & W. 653, a covenant not to practise as a dentist in London, or in any of the places in England or Scotland, where the plaintiff might have been practising before the expiration of the term of service with them was held to be reasonable as to the limit of London, but unreasonable and void as to the remainder of the restriction. So in Green v. Price, 13 M. & W. 695, a covenant not to follow the perfumery business in the cities of London and Westminster, or within the distance of 600 miles therefrom, was good as to the cities and void as to the limit of 600 miles. See also Pierce v. Fuller, 8 Mass. 223, and Chappel v. Brockway, 21 Wend. 158. An important principle stated in these cases is that as to contracts for a limited restraint the courts start with a presumption that they are illegal unless shown to have been made upon adequate consideration, and upon circumstances both reasonable and useful. This presumption is a necessary consequence of the general principle, that the public interest is superior to private, and that all restraints on trade are injurious to the public in some degree. The general rule (said Woodward, O. J.) is that all restraints of trade, if nothing more appear, are had: Keeler v. Taylor, 3 P. F. Smith 468. That ease may be instanced as a strong illustration of the rule as to what is not a reasonable restriction; and the principles I have been stating are recognised iri the opinion. Keeler agreed to instruct Taylor in the art of making platform scales, and to employ him in that business at $1.75 per day. Taylor engaged to pay Keeler or his legal representatives $50 for each and every scale he should thereafter make for any other person than Keeler, or which should be made by imparting his information to others. This was held to be an. unreasonable restriction upon Taylor’s labor, and therefore void, as in restraint of trade. Testing the present contracts by these principles, the

restrictions laid upon the production and price of coal cannot be sanctioned as reasonable, in view of their intimate relation to the public interests. The field of operation is too wide and the influence too general.

The effects produced on the public interests lead to the consideration of another feature of great weight in determining the illegality of the contract, to wit: the combination resorted to by these five companies. Singly each might have suspended deliveries and sales of coal to suit its own interests, and might have raised the price, even though'this might have been detrimental to the public interest. There is a certain freedom which must be allowed to every one in the management of his own affairs. When competition is left free, individual error or folly will generally find a correction in the conduct of others. But here is a combination of all the companies operating in the Blossburg and Barclay mining regions, and controlling their entire productions. They have combined together, to govern the supply and the price of coal in all the markets from the Hudson to the Mississippi rivers, and from Pennsylvania to the lakes. This combination has a power in its confederated form which no individual action can confer. The public interest must succumb to it, for it has left-no competition free to correct its baleful influence. When the supply of coal is suspended, the demand for it becomes importunate, and prices .must rise. Or if the supply goes forward, the price fixed by the confederates must accompany it. The domestic hearth, the furnaces of the iron master, and the fires of the manufacturer, all feel the restraint, while many dependent hands are paralyzed, and hungry mouths are stinted. The influence of a lack of supply or a rise in the price of an article of such prime necessity, cannot be measured. It permeates the entire mass of community, and leaves few of its members untouched by its withering blight. Such a combination is more than a contract, it is an offence. “ I take it,” said Gibson, J., “ a combination is criminal whenever the act to he done has a necessary tendency to prejudice the public or to oppress individuals, by unjustly subjecting them to the power of the confederates, and giving effect to the purpose of the latter, whether of extortion or of mischief Commonwealth v. Carlisle, Brightly’s Rep. 40. In all such combinations where the purpose is injurious or unlawful, the gist of the offence is the conspiracy. Men can often do by the combination of many, what severally no one could accomplish, and even what when done by one would be innocent. It was held, in The Commonwealth v. Eberle, 3 S. & R. 9, that it was an indictable conspiracy for a portion of a German Lutheran congregation to combine and agree together to prevent another portion of the congregation, by force of arms, from using the English language in the worship of God among the congregation. So a confederacy to assist a female

infant to escape from her father’s control with a view to marry her against his will, is indictable as a conspiracy at common law, while it would have been no criminal offence if one alone had induced her to elope with and marry him : Mifflin v. Commonwealth, 5 W. & S. 461. One man or many may hiss an actor; but if they conspire to do it they may he punished: per Gibson, C. J., Hood v. Palm, 8 Barr 238; 2 Russel on Crimes 556. And an action for a conspiracy to defame will be supported though the words he not actionable, if spoken by one: Hood v. Palm, supra. “Defamation by the outcry of numbers,” says Gibson, C. J., “is as resistless as defamation by the written act of an individual.” And says Coulter, J., “ The concentrated energy of several combined wills, operating simultaneously and by concert upon one individual, is dangerous even to the cautious and circumspect, but when brought to bear upon the unwary and unsuspecting, it is fatal:” Twitchell v. Commonwealth, 9 Barr 211, There is a potency in numbers when combined, which the law cannot overlook, where injury is the consequence. If the conspiracy be to commit a crime or an unlawful act, it is easy to determine its indictable character. It is more difficult when the act to be done or purpose to be accomplished is innocent in itself.' Then the offence takes its hue from the motives, the means or the consequences. If the motives'of the confederates be to oppress, the •means they use unlawful, or the consequences to others injurious, their confederation will become a conspiracy. Instances are given in The Commonwealth v. Carlisle, Bright. R. 40. Among those mentioned as Criminal is a combination of employers to depress the wages of journeymen below what they would be, if there were no resort to artificial means; and a combination of the bakers of a town to hold up the article of bread, and by means of the scarcity thus produced to extort an exorbitant price for it. The latter instance is precisely parallel with the present case. It is the effect of the act .upon the public which gives that case and this its evil aspect as the result of confederation; for any baker might choose to hold up his own bread, or coal operator his coal, rather than to sell at ruling prices; but when he destroys competition by a combination with others, the public can buy of no one.

In Rex v. De Berenquetal, 3 M. & S. 67, it was held to he a conspiracy to combine to raise the public funds on a particular day by false rumors. The purpose itself, said Lord Ellenborough, is mischievous — it strikes at the price of a valuable commodity in the market, and if it gives a fictitious price by means of false rumors, it is a fraud levelled against the public, for it is against all such as may possibly have anything to do with the funds on that particular day. Every “ corner,” in the language of the day, whether it be to affect the price of articles of commerce, such as breadstuff's, or the price of vendible stocks, when accom

plished by confederation to raise or depress the price and operate on the markets, is a conspiracy. The ruin often spread abroad by these heartless conspiracies is .indescribable, frequently filling the land with starvation, poverty and woe.. Every association is criminal whose object is to raise or depress the price of labor beyond what it would bring if it were left without artificial aid or stimulus: Rex v. Byerdike, 1 M. & S. 179. In the case of such associations the illegality consists most frequently in the means employed to carry out the object. To fix a standard of prices among men in the same employment, as a fee bill, is not in itself criminal, but may become so when the parties resort to coercion, restraint or penalties upon the employed or employers, or what is worse, to force of arms. If the means be unlawful the combination is indictable: Commonwealth v. Hunt, 4 Metc. 111. A conspiracy of journeymen of any trade or handicraft to raise the wages by entering into combination to coerce journeymen and master workmen employed in the same branch of industry to conform to rules adopted by such combination for the purpose of regulating the price of labor, and carrying such, rules into effect by overt acts, is indictable as a misdemeanor: 3 Whart. C. L., citing The People v. Fishbee, 14 Wend. 9. Without multiplying examples, these are sufficient to illustrate the true aspect of the case before us, and to show that a combination such as these companies entered into to control the supply and price of the Blossburg and Barclay regions is illegal, and the contract therefore void.

A second question is, whether the bill drawn' in this case by the general sales agent on the Barclay Coal Company in favor of the Morris Coal Company to equalize prices upon a settlement under the contract, is such an independent cause of action as will support the suit. When a bill, note or bond is but an instrument to execute an illegal contract, it is tainted by the illegality and cannot be recovered. The illegal consideration enters directly into the instrument, and is followed up because the law will not permit itself to be violated by mere indirection. This is the principle mentioned in the cases of Stears v. Lashley, 6 Term Rep. 61; Swan v. Scott, 11 S. & R. 164; Stanton v. Allen, 5 Denio 434; Fisher v. Bridges, 3 E. & B. 642 ; Lestapies v. Ingraham, 5 Barr 82. In the last case, Gibson, O. J., says: “ The solemnity of.the security would riot preclude an inquiry into the consideration of it had it been illegal;” and in Swan v. Scott, Duncan, J., said of a bond, the consideration of which grew out of an illegal transaction, “ there the illegal consideration is the sole basis of the bond, and there can be no recovery.” In the present case the bill itself refers directly to the equalization account, and was given in immediate execution of the contract. This being the case, it is distinguishable from Eackney v. Reynous, 4 Burrows 2065;

Petrie v. Hannay, 3 Term R. 418; Warner v. Russell, 1 Bos. & Pul. 295; Lestapies v. Ingraham, supra; Thomas v. Bracey, 10 Barr 164 — cases where the action was not upon the illegal contract, or upon ' an instrument in execution of it, hut was founded upon a new consideration. The distinction is well stated by Judge Washington, in Toler v. Armstrong, 3 Wash. C. C. R. 297, affirmed in the Supreme Court U. S., 11 Wheat. 258. The present case is free of difficulty, the money represented by the bill arising directly upon the contract to be paid by one party to another party to the contract in execution of its terms. The bill itself is therefore tainted by the illegality, and no recovery can be had upon it.

The judgment is therefore affirmed.