Case ID: ny-super-ct_54/html/0032-01.html
Source: Caselaw Access Project
Author: {"author": "O’Gorman, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

THE LIVE STOCK ASSOCIATION OF NEW YORK (Limited), Respondent, v. DAVID LEVY, Appellant.
    
      Public policy—Restraint of trade—Contract betioeen two corporations— Collateral contract by stockholders with corporation—Ultra vires, what contracts are not—Estoppel against claiming that contracts are ultra vires.
    
    An agreement was made between a corporation, whose business was that of buying and selling sheep and lambs and buying and selling sheep and lambs on commission, and a corporation whose business was that of selling sheep and lambs on commission, that the stockholders of the former corporation (who were engaged in the business of butchering sheep and lambs for the New York market) should for the period of three years buy their sheep and lambs from members of the latter, and that the members of the latter should during the same period, sell sheep and lambs for the New York market to the stockholders of the former only; and a collateral agreement was made by the stockholders of the former corporation with it and with each other, that each of them should pay to the former corporation the sum of twenty-five dollars for each car load of sheep or lambs purchased by him from any individual or firm, member of the latter corporation after having been notified by the former corporation not to purchase. Eeld, that neither of said agreements were in themselves against public policy.
    It not appearing that the contracts made with the former corporation were directly or impliedly prohibited by the Act under which it was organized or by any statute of this state, or were beyond the powers ordinarily vested in corporations. Held, that they were not ultra vires.
    
    Defendant, one of the stockholders of the former corporation, consented to, and approved of the contract between the two corporations, and joined in the contract made between it and its stockholders, and between the stockholders themselves, had participated in the profits derived from a previous similar arrangement, and by consenting to the contract in question between the two corporations, and by joining in the contract in question between the former corporation and its stockholders and between the Stockholders themselves, had entitled himself to like advantage thereunder. Held, that he was estopped from claiming that the agreements were ultra vires.
    
    Before Sedgwick, Ch. J., O’Gorman, and Ingraham, JJ.
    
      Decided November 8, 1886.
    Appeal from an order made at special term granting plaintiff’s motion for judgment on the answer as frivolous.
    The facts appear in the opinion.
    
      Michael J. Kelly, attorney and of counsel for appellant, argued:
    I. The contracts set forth in the complaint were in restraint of trade. The contract between plaintiff and the sheep brokers, limited the defendant, to buying his sheep and lambs from such sheep brokers, but there is no obligation on the part of the sheep brokers to sell a single sheep or lamb to the defendant; and no remedy is given against them if they refuse to do so.
    The contract between the plaintiff and defendant prohibited him from buying sheep or lambs from any of the sheep brokers, whom the plaintiff should notify him not to purchase from. There is nothing to prevent the plaintiff from notifying the defendant not to purchase from any of the sheep brokers, and thus drive him out of business. The contracts are therefore void (Story’s Equity Juris. 292 et seq.; 2 Parsons’ Contr: 253 to 260; Chappel v. Brockway, 21 Wend. 157; Ross v. Sadgbeer, 21 Ib. 166 ; Hooker v. Vandewater, 4 Den. 
      434; Stanton v. Allen, 5 Ib. 434; Dunlop v. Gregory, 10 N. Y., 241; Arnot v. Pittston & Elmira Coal Co. 68 Ib. 558; Mackinnon Pen Co. v. Fountain Ink Co. 16 J. & S. 442; Weller v. Hersee, 10 Hun, 431).
    II. The plaintiff was incorporated “ for the purpose of buying sheep and lambs, and buying and selling sheep and lambs on commission,” and had no power to make the contracts (which are still executory), referred to in the complaint (Morawetz Private Corporations, §§ 87, 209).
    
      Joseph C. Wolff attorney, and John E. Parsons of counsel for respondent, argued:
    I. The contract is not ultra vires; if it was, the defendant having consented to, and approved of the contract between the plaintiff and the Sheep Brokers’ Association, and received the benefit of it, is estopped from setting up ultra vires (Kent v. Quicksilver Mining Co., 78 N. Y., 159; Sheldon H. B. Co. v. Eiekmeyer H. B. Co., 90 Id., 607; Cheever v. Gilbert Elev. R. R. Co., 11 J. & 8., 478).
    II. The contracts are not in restraint of trade. By the contract with the sheep brokers, they were only limited in selling for the New York market, to sell to the stockholders of the plaintiff; they could sell everywhere else. That contract was virtually that the sheep brokers would sell all their sheep and lambs for the New York market to the stockholders of the plaintiff, and the stockholders of the plaintiff would buy all their sheep and lambs from the sheep brokers. Such a contract is valid (Van Marten v. Babcock, 23 Barb. 633; Arnot v. Pittston Coal Co., 68 N. Y. 558).
    III. There is no restriction as to the quantity of sheep or lambs the stockholders of the plaintiff should purchase, nor where they were to sell them.
    IV. The contract between the defendant, the other stockholders and the plaintiff was reasonable and necessary ; it was the only way to compel the sheep brokers to keep that part of ther contract not to sell sheep and lambs for the New York market to others than the stockholders of the plaintiff. In an action against any of the sheep brokers for the breach of that stipulation, it would be very difficult, if not impossible, to prove damages. There is nothing to show that the defendant could not purchase all the sheep and lambs he desired from the other brokers, and at the same rates as of Dillenbeck & Dewey.
    Y. There is nothing to show that the contracts were not entered into for a reasonable and honest purpose, or that the combination was other than an honest cooperation (see Marsh v. Russell, 66 N. Y. 288, and Phippen v. Stickney, cited at p. 293). Restraint of trade is sometimes beneficial and valid (Story’s Eq. Juris. [10th edx] § 292). An agreement by a physician to send his prescription to a particular druggist, held valid (Ward v. Hogan, 11 Abb. N. C. 478).
    An agreement by a saloon keeper to buy all his beer from a particular brewer, held valid (Ebling v. Bauer, 17 Week. Dig. 497). An agreement restricting the amount of business, held valid (Standard Oil Co. v. Scofield, 16 Abb. N. C. 372; See also Walst v. Master Stevedores, 2 Daly, 1; Diamond Match Co. v. Roeber, 35 Hun 421; Ontario, &c. v. Merchants, &c., 18 Grant [ U. C.] 540; Bowen v. Matthewson, 14 Allen [Mass.] 499, approved 121 Mass. 115; Carew v. Rutherford, 106 Ib., 14; Haywood v. Tillotson, 46 Amer. R. 377; Wiggins, Ferry & Co. v. Chicago, &c. 43 Am. 518; Jones v. North L. R. 19 Eg. Cases 426, [Eng. Rep.]829
    
   O’Gorman, J.

The facts on which the contention arose are these:

The plaintiff is a corporation formed under the law of this state, for the purpose of buying and selling sheep and lambs. The defendant is one of the stockholders of the corporation. On January 8, 1884, the plaintiff corporation, with the consent and approval of its stockholders, of whom the defendant was one, entered into an agreement in writing with a corporation called, “ The New York & New Jersey Sheep Brokers Association,” that the stockholders of the plaintiff corporation, should, for a period of three years thereafter, buy their sheep and lambs from members of the said Sheep Brokers Association only; that the members of the Sheep Brokers Association should, during the same period, sell sheep and lambs for the New York market, to the stockholders of the plaintiff only.

This was a renewal of a similar agreement, the term of which had expired, and during the existence of which, the stockholders of the plaintiff corporation had derived annual dividends of about one hundred and forty (140) per cent, on their investments.

For the purpose of enforcing on the stockholders of the plaintiff corporation compliance with the terms of this agreement of January 8, 1884, the stockholders of the plaintiff corporation, including the defendant, entered, on January 25, 1884, into an agreement with each other and with that corporation, that each of them should pay to the plaintiff corporation the sum of twenty-five dollars for each car load of sheep and lambs purchased by him from any individual or firm, member of the said Sheep Brokers Association after having been notified by the plaintiff not to purchase.

The defendant did purchase from a firm member of the Sheep Brokers’ Association after having been notified not to do so, and this action is brought to recover seventy-five dollars due by him to the plaintiff under the last mentioned agreement.

These facts are admitted, and the defendant’s contention is that the contract of January 8, 1884, was void as being ultra vires, and also in restraint of trade.

It is not alleged in defendant’s answer that that agreement was made with any intent, fraudulent or unlawful, or that it had for its purpose or effect the limiting or circumscribing the energies or productiveness, or usefulness to the public of either of these corporations.

The force of the contract was confined as to duration to three years, and as to the sphere of its influence to the New York market.

It does not appear that this contract was directly or impliedly prohibited by the act under which the plaintiff corporation was organized, or by any statute of this state, or that it was beyond the limit of powers ordinarily vested in corporations for the necessary promotion of their business and fairly implied in the act of incorporation.

The defendant was one of the stockholders who executed it. He, in company with the other stockholders, shared in large pecuniary advantages derived from a similar contract, which had previously existed, and by executing the contract the legality of which he now impugns, entitled himself to like advantages.

As far then as the contract was between him and the plaintiff corporation, defendant is estopped now from setting up that it was ultra vires. (Kent v. Quicksilver, &c., Co., 78 N. Y., 159 ; Sheldon, &c., Co. v. Eickemeyer, &c., Co., 90 Ib., 607 ; Whitney Arms Co. v. Barlow, 63 Ib., 69.)

It should be remarked also, that here the defendant contracted not only with the defendant corporation but with the other stockholders, and that contract was mutually binding. The objection then that the contract was not binding on defendant, as being beyond the power of the corporation to execute, is without merit.

Neither was the contract of January 8, 1884, void as being in unlawful restraint of trade. It cannot be successfully contended that that contract involves any restraint of trade on the part of either of the corporations.

As I have before stated, the contract is limited as to its duration, and its effective operation is confined to the city of New York.

There is no violation of law or of public policy in an agreement between two traders, that one should sell to the other all its commodities and the other buy from the former corporation alone (Chitty on Contracts [11th Am. Ed.], 982-3 and notes). A contract to sell exclusively to a particular person for a limited time is not invalid (Van Harter v. Babcock, 23 Barb., 633); nor a contract not to engage in a special business for a certain period (Curtis v. Gokey, 68 N. Y., 304).

The law will not presume an agreement to be void, as against public policy, when it is capable of a construction which would make it valid.

The order appealed from is affirmed, with costs.

Ingraham, J., concurred in the result; Sedgwick, Ch. J., not voting.