Case ID: ohio-cc_6/html/0615-01.html
Source: Caselaw Access Project
Author: {"author": "Shauck, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

(Second Circuit — Greene Co., 0., Circuit Court
    October Term, 1892.)
    Before Shearer, Stewart and Shauck, J.J.
    The Field Cordage Company v. The National Cordage Company.
    1. Public Policy. — A contract, though in form a lease oí machinery, is contrary to public policy and void, if the parties execute it for the purp of restraining trade and creating a monopoly.
    
      2. Evidence. — In the trial of an action founded upon such contract, the inquiry and judgment are not confined to the issues joined, and the court may admit such evidence of the contemporaneous dealings of the parties with strangers to the contract and of their conduct toward each other touching the subject of the contract, as tends to show that the real object of the transaction was the creation of a monopoly.
    3. jPractice. — When a cause is tried to the court, and its finding is supported by competent evidence, the judgment will not be reversed for the admission of incompetent evidence whose exclusion could not have changed the result of the trial.
    Error t® the Court of Common Pleas of Greene County.
    The plaintiff in error filed its petition in the court of common pleas, alleging that it is a manufacturing corporation formed under the laws of Ohio, and located at Xenia ; that the defendant is a manufacturing corporation organized under the laws of New Jersey, to do business in New York and elsewhere; that on the 20th of January, 1890, in the city of New York, the plaintiff leased to the defendant a large part of its machinery in its factory at Xenia, Ohio, for a period of five years for a stipulated yearly rental, payable in stated equal installments in advance; that an installment of $11,250.00 became due under said contract April 1, 1891, payment whereof has been demanded by the plaintiff and refused by the defendant.
    The defendant, for a first defense, admitting the execution of the covenant to pay rent, and its refusal to pay the installment sued for, set out the other provisions of the lease, and alleged that the only consideration to the defendant for said lease was a limitation upon the production of binder twine in the United States, and the control by it of the marked price thereof; that at the time of its execution it was the understanding of the parties that it should be a “ dead lease,” that is, that the defendant should not take possession or control of said machinery, but that the same should remain in possession and control of the plaintiff; that it has in fact remained at all times in the control of the plaintiff; that to promote said purpose the plaintiff agreed that it would not anywhere manufacture binder twine in excess of the capacity of another mill owned by it except to complete its contracts existing at the time of the execution of said lease; that the defendant has manufactured binder twine in excess of the capacity of said remaining mill, and has thereby,'defeated the object of said contract by preventing the limitation of the amount of said product and the control of the price thereof by the defendant, wherefore it alleges that said lease is without any lawful or other consideration. The second and third defenses set out in the answer seem to have been abandoned upon the trial. At least, they are not material to the present controversy.
    The reply admits that by the terms of said contract the plaintiff had the right to use its remaining mill, but not to manufacture binder twine in excess of its capacity at the time; that it had the right, on failure of the defendant for ten days to pay rent according to its covenants, to take possession of the property leased, and that it did take possession thereof on such failure. All other averments of the answer are denied.
    Upon the'trial the following contract containing the covenant sued on was put in evidence: “ Memorandum of an agreement between the Field Cordage Co., of Xenia, Ohio, the first party, and the National Cordage Co., of New Jersey, the second party.
    
      “ Said first party in consideration of the covenants and promises hereinafter made, hereby leases, remises and to farm-lets to said second party for and during the period of five years from and after January 1, 1890, the spindles, spreaders,, drawing frames and rope machines which are now in, or that may hereafter during said period be placed in the mill of said first party, known as their Main or East Mill, at Xenia, Ohio, which said machinery has been or may be used or employed for the manufacture of binder twine or rope, out of the fibres following: Manilla, sisal, mauritius and New Zealand hemps, and any other analogous fibre or fibres that may during said period be developed for such.products, or of which such fibres form part, together with the good will of the business of said first party as respects the manufacture of such twine and rope.
    “ And said first party agrees not to engage in the manufacture of said class and character of twines and rope during said period, except to complete the existing contracts (a statement of which is attached), the right to do which is by said first party reserved.
    “ Provided nothing herein is to be construed to prevent said first party from using said machinery, or any part thereof, for any other purpose than the manufacture of said character of twines and rope, while or whenever, during said term, the same shall not be in the actual use or possession of said second party ; or from using its machinery in its mill, known as its Hemp or West Mill, for any purpose whatever ; but it is not during said period to manufacture therein, or elsewhere, binder twine in excess of the present capacity of said West mill.
    “In consideration whereof, said second party agrees and binds itself to pay to said first party, or its assigns, the sum of Forty-five Thousand Dollars per annum during said period, in equal quarterly installments in advance, to-wit: Eleven
    Thousand Two Hundred and Fifty Dollars in hand, and the like sum on the first of each April, July, October and January following, during said period. Also to take its stock of raw material of such fibers on hand and not needed to complete present contracts at the figures and prices following :
    
      * * ‡ # * ‡ #
    “ It is further agreed that if said second party shall fail in any instance, for the period of ten days after the same shall become due, to pay any installment as aforesaid, said first party shall have the right, at its option, to resume the possession and use of all or any part of said machinery, for all purposes whatsoever, without impairing the obligation of said second party to pay the rental aforesaid during said entire period ; but in such case whatever net earnings of said first party there may be on account of such use at the time of any settlement, or bringing of any suit, less costs and expenses of collection, if any, shall be credited upon such rental up to but not beyond the amount unpaid by the second party hereunder.
    “ In case said first party shall engage in the manufacturer of rope or twine in violation of its agreement herein, then and in such event it agrees to pay to said second party, upon demand, the sum of One Thousand Dollars as agreed and liquidated damages for such violation.
    “ It is agreed that said second party shall not in any way be-responsible for the care, supervision and maintenance of said leased machinery, whenever, during said period, it may not be in the possession and use of said second party.
    “At the conclusion of this lease, said second party shall return such property to said first-party in good repair and condition, ordinary wear and tear and damage by fire and the elements excepted. The destruction or injury of said machinery, or any part of it, by fire or other casualty, shall not release said second party, or impair its obligations to pay rental as aforesaid hereunder.
    “ For the purpose of this agreement, all said leased property shall be regarded as personalty, although a part thereof may be attached to the building, and the same shall be listed, and the taxes thereon paid by the party in actual possession at the date when taxes attach and become a lien.
    “ The waste on hand when the contracts herein referred to' shall be filled, may be worked up by said first party, using the needed amount of good fibre for the purpose.
    “ No agreement or arrangement, by letter or otherwise, respecting the use or disposition of said property, or any of it, shall have the effect of annulling or modifying this agreement in any respeGt, except expressly stated in writing as intended to have such effect and signed by the respective par-’ ties.”
    ■ Executed by the parties January 20, 1890.
    The existing contracts, stated in the schedule attached, amount to nine hundred and thirty-one tons.
    The record contains parol evidence showing the circumstances under which the contract was executed, the condition, situation and value of the machinery, and the correspondence of the parties immediately after the execution of the contract to show how they practically interpreted it.
    The court of common pleas, a jury being waived, found for the defendant below, and rendered judgment in its favor. This petition in error is prosecuted to reverse that judgment, because it is contrary to the evidence, and because there was error in the admission of evidence offered by the prevailing party to show the circumstances of the parties and the purpose in view at the time of the execution of the contract.
   Shauck, J.

On behalf of the plaintiff in error it is contended that its comprehensive stipulation to abstain everywhere from the manufacture of twine and rope of the character named in the contract is not an unreasonable restraint of trade, because it had used the leased machinery in the manufacture of binder twine to be sold in all the markets of the country, and that there could be no effective transfer of the good will of the business to the lessee, without a stipulation of this character. For this reason, it is insisted, the contract is not within the condemnation of Lange v. Werk, 2 Ohio St. 520; and that the stipulation being co-extensive with the interest to be protected, the contract is valid when tested by the doctrines of The Diamond Match Co. v. Roeber, 106 N. Y. 473 ; Hubbard v. Miller, 27 Mich. 15; Oregon Navigation Co. v. Windsor, 20 Wall. 64, and other cases of similar import.

But in these cases, as well as in Lange v. Werk, the stipulations held to be valid, because the restraints which they placed upontrade werereasonablein view ofthe circumstances andpurposes of their execution, were parts of contracts for the actual sale and transfer of property. The restraint was an incident to a transfer of property which, notwithstanding the transfer, was to be used for the purposes of trade and commerce. While this distinction may not be clearly stated, nor always observed, the principles of decision and the conclusion reached in the numerous cases to which our attention has been directed, warrant the conclusion that every contract is void whose only purpose is to place a restraint upon trade, however narrow may be the field of its operation. A contract in restraint of trade is always void if nothing more appears.” Morris Run Coal Co. v. Barclay Coal Co., 68 Pa. St. 173; Carroll v. Giles, 9 S. E. R. 422. That which must appear to impart validity to the stipulation which is prima facie void, is that in the transaction he, in whose favor the stipulation is made, has acquired an interest in the property or business, to which the restraint is such a reasonable incident that it ought to supersede the public interest to which it is inimical.

Therefore, in view of the allegations of the answer, the first question in logical order is: Was this contract not to manufacture anywhere, incident to a transfer of the machinery for the term indicated, or was that restraint the only purpose which the partiees had in view? In other words, is the covenant upon which the petition counts, really a covenant to pay rent, or to pay to the plaintiff the price for which it was agreed that it should cease to manufacture twine and rope of the character described?

Looking to the terms of the contract, the words employed by the plaintiff are appropriate to the leasing of property, and in a later provision the machinery described is referred to as said leased property.” The covenant upon which the petition counts is not to pay the $45,000 per annum as rent, but in later stipulations it is referred to as “ rental.” But the form of the contract is less important than its substance. That the parties did not intend that the machinery should pass into the control of the defendant is strongly suggested by the careful provision for its use by the plaintiff during the term for any purpose other than the manufacture of binder twine and rope of the character described, if the defendant should not be actually operating said machinery. That a lessee should pay so large a sum for the probable enjoyment of property by the lessor is not according to the usual course of dealing as -we- have observed it. The provision that the property-should be listed and the taxes thereon paid by the party in actual possession at the date when taxes attach and become a lien ” shows that the continued possession of the plaintiff was within the contemplation of the parties. Machinery which the plaintiff might subsequently purchase was as clearly subject to the lease as that which it then had. After reading the stipulation that the destruction of the machinery should not impair the defendant’s obligation to make the quarterly payments, it is difficult to believe that the use of the machinery was the sole or chief inducement to the covenant to pay; and that difficulty increases when one reads in the same connection that the defendant was not to be responsible for the care of the machinery when, during the term, it should be in possession of the plaintiff.

To the operation of the machinery, a building and power were necessary. The building was not leased, nor did the plaintiff undertake to furnish power. There was no provision for the removal of the machinery from the building, though a part of it was attached thereto. Nor was there any provision that, if the machinery should be removed, the plaintiff should have the use of the building and power elsewhere. It cannot be that the parties contemplated the joint or alternate use of the machinery, since the defendant could not operate it in the plaintiff’s building, and the plaintiff could not operate it elsewhere. Nor can it be that they contemplated its exclusive use by the defendant, since many of the stipulations look to its-use by the plaintiff. Nor does the contract fix any date at which the defendant may take possession. The plaintiff was to remain in possession until it had completed the orders described, within such time as it might choose, the only stipulation being that it should not manufacture in excess of those orders. A careful examination of the contract satifies us that the parties did not intend that the machinery should pass to the possession of the defendant, and the sole purpose was to-remove the plaintiff from the field of competition, and, so far-.as it was concerned, to enable the defendant to limit the production and control the prices of binder twine and rope of the character described. . .

This conclusion is strongly confirmed by other evidence in the reeord. Among the facts which it establishes are some of much significance. At the time of the execution of this contract the defendant was the owner of a large number of mills engaged in the manufacture of the product described, and it was then engaged in a comprehensive scheme to get rid of its competitors. The contract was executed in the City of New York, and, within knowledge of the plaintiff's principal representative, there were then or near that time present in that city representatives of five Ohio mill's engaged • in the same production; one at Dayton, one at Miamisburg, two at Xenia, .and one at Zanesville; and one of the plaintiff's representatives assisted the defendant in the “ purchase of the spindles, drawing frames, spreaders, etc.,'' of a mill engaged in manufacturing the same product at Peru, Indiana. It resulted from these negotiations that these and two other Ohio mills entered into contracts with the' defendant; that the defendant did not in fact take possession of the machinery of any of said mills, but all of them ceased ‘to manufacture this product. Beginning three days after the execution of the contract, there was a voluminous correspondence between the plaintiff and the defendant, which related wholly to maintaining prices and closing the plaintiff's mill, the defendant insisting that it should be closed under the contract, and the plaintiff promising that it should be closed at the completion of the orders which, in the contract, it had reserved the right to fill: Possession of the machinery was not demanded by the defendant, nor mentioned by the plaintiff.

The machinery for which, according to the form of this contract, the defendant agreed to pay $45,000 per annum, would not, if new, have cost more than $65,000.

Other facts of less significance are shown, but there is nothing in the record, except the form of the contract, and the terms therein employed, to suggest that it was contemplated by the parties, or either of them, that the possession of the machinery was to pass to the defendant as lessee. To the contrary, it is entirely clear, that the purpose of the contract was to destroy natural competition, to the great injury of the consumers of the product, and to create a monopoly to whose power other producers would be compelled to submit. That such an agreement is contrary to public policy’ and therefore void, is settled by numerous authoritative and well considered cases. Among them are The Morris Run Coal Co. v. Barclay Coal Co. 68 Pa. St. 173; Keeler v. Taylor, 3 P. F. Smith, 468; Arnot v. Pittston & Elmira Coal Co. 68 N. Y. 558 Craft v. McConoughy, 79 Ill. 346; Richardson v. Buhl, 77 Mich. 632; Santa Clara M. & L. Co. v. Hayes et al., 18 Pac. R. 391; Central Salt Co. v. Cuthrie, 35 Ohio St. 666; Emery et al. v. The Ohio Candle Co., 47 Ohio St. 320. The wisdom of these and many other like decisions is vividly illustrated in the public history of the times.

The legal character of this contract perhaps accounts for the allegations in which the defendant charges the plaintiff with its violation. Those allegations are wholly unsupported by the evidence. They are affectations of virtue, such as are frequently observed in the testimony of those who turn state’s evidence.”

Counsel for the plaintiff in error also insist that the trial court erred in overruling their objections to the evidence by which the defendant showed the negotiations between the parties, the execution of contemporaneous agreements between the defendant and other mill owners, and the subsequent correspondence and conduct of the parties touching the machinery and the business of the plaintiff. The. trial court was not concerned in ascertaining the rights and duties of parties arising out of a contract confessedly valid as against every consideration of public policy. It was chiefly concerned in ascertaining whether the contract had been entered into for purposes which a due regard to the interests of the public forbid. In its inquiry and judgment it was not even restricted to tbe issues joined between the parties, for it was its duty to refuse to enforce the contract even though its validity was not challenged by either party. The materiality of the facts which this evidence tended to establish, is shown by the cases cited, and the competency of the evidence is thus made to appear.

Little & Spencer, for plaintiff.

Judson Harmon, for defendant.

But if in the mass of evidence admitted upon the trial there be some that is incompetent, it affords no sufficient ground for reversing the judgment. The case was tried to the court without the intervention of a jury, and its conclusion is justified by evidence whose competency cannot be seriously doubted. The record contains no evidence of questionable competency whose exclusion could have changed the result of the trial. Thayer v. Luce et al., 22 Ohio St. 62 ; Black v. Hill, 32 Ohio St. 313 ; Kilbourne v. Fury, 26 Ohio St. 153; Cook v. Penna. State Co., 36 Ohio St. 135.

The judgment will be affirmed.