Case Name: Brundred et al. v. Rice
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1892-11-01
Citations: 49 Ohio St. 640
Docket Number: 
Parties: Brundred et al. v. Rice.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 49
Pages: 640–650

Head Matter:
Brundred et al. v. Rice.
Railroad companies — Discrimination in freight rates, by — When illegal— When money paid by shipper, may be recovered back — ■ Corporation— When formed to accomplish an illegal purpose, it is no defense that it was legally incorporated.
1. A railroad company is not warranted in making a contract whereby it binds itself to carry for one shipper crude petroleum, or other article, at half the rate it agrees to charge all others for the same service, at the same time, and as part of the agreement, binding itself to charge all others double the amount as a fixed open rate, and to pay such favored shipper one-half of it when collected, in consideration of his agreeing to establish and maintain a system of pipe lines to its road.
2. Money so paid by a shipper, in ignorance of the agreement, and received by the favored shipper, may be recovered back in an action for money had and received by the former against the latter.
3. Where the real purpose for which a corporation is formed is to use it as an instrumentality in the accomplishment of an illegal purpose, the fact of incorporation will not avail the promoters as a defense in a suit against them to recover money obtained from the plaintiff by such methods.
(Decided November 1, 1892.)
Error to the Circuit Court of Washington county.
In his suit below, George Rice recovered of the defendants $1,823.75, money claimed to have been unlawfully exacted of him as freight by The Cleveland & Marietta Railroad Company, on crude petroleum shipped by him over the road of the company from Macksburg to Marietta, Ohio. As his ground of recoverj'- against the defendants, he averred, that Macksburg, Ohio, was a large crude petroleum producing district in which he was interested as a producer and shipper, being also engaged in the business of refining the oil at Marietta, Ohio; and that the road of the company, an incorporation under the laws of Ohio, was the only means of shipment from Macksburg to the latter place. It is then averred that prior to January 1, 1884, “Said defendants William J. Brundred, Benjamin F. Brundred, Theodore D. Dale and Charles N. Royce and the said Cleveland & Marietta Railroad Company became parties to an agreement in writing, whereby among other things the said Cleveland 8. Marietta Railroad Company was to charge all shippers of such petroleum oil from said Macksburg to said Marietta, an open rate of thirty cents per barrel, freight thereon, and to collect such freight from all shippers and to pay over to said defendants one-half part of all of such freight so charged and collected as such open rate. That said contract was made and entered in the year 1888, and, by its terms, was to be in force for the term of twenty years from and after its date, and among its other stipulations therein made, said railroad company bound itself not to change said thirty cents rate during the running of said term without the consent of defendants or their assigns. The original parties to said contract were said Cleveland & Marietta Railroad Company of the first part, and said Wm. J. Brundred and Theodore D. Dale of the second part; and that before January 1, 1884, and after the making of said contract, said Benjamin F. Brundred and Charles N. Royce, became parties thereto by assignment from said original parties of the second part; thereafter, about May, 1884, The Ohio Transit Company — a corporation about that time organized under and by virtue of the laws of Ohio, and thenceforth to the present existing as such — became, by assignment, a party to said contract, thereby nominally acquiring all the rights of the parties of the second part, and their assigns, thereunder.
“The said-plaintiff further says that said defendants were the promoters of said Ohio Transit Company, caused it to be organized, and became, and have been ever since its organization, its principal stockholders and its managing officers; that they were producers, dealers in, and shippers of such petroleum oil from said Macksburg and vicinity, and in their operations handled and had the shipping of nearly all of the said oil shipped from said Macksburg and vicinity, aside from that shipped by plaintiff, at the time of their becoming parties to said contract, and causing the same to be performed, and up to the time of the organization of said Ohio Transit Company; that from the time said Ohio Transit Company became their assignee of said contract, it dealt in and controlled the shipment of the oils from said Macksburg and vicinity in the same manner, and about to the same extent as said defendants had before done,
. “And said plaintiff further says that said defendants, for the purpose of establishing and maintaining a monopoly in themselves of the handling of the oil production of said Macksburg and vicinity, and of getting the oils shipped by them from said latter locality to Marietta for fifteen cents per barrel, and of compelling all other shippers, and especially this plaintiff, to pay as freight on such oil thirty cents per barrel for. the same service, and of having paid as tribute to them fifteen cents per barrel of the said thirty cents, per barrel paid by such other shippers, without any consideration moving from said defendants to such other shippers therefor, did, in conspiracy and confederation with said Cleveland & Marietta Railroad Company to the ends aforesaid, cause the said contract to be entered into as aforesaid, and became parties thereto, and did also, upon its organization, cause the said Ohio Transit Company to become a party to said contract by assignment, and to enter into said conspiracy and confederation for the purposes aforesaid; and made use of said corporation, The Ohio Transit Company, ■ through their control of the same as its officers, to accomplish the purposes aforesaid.”
The shipments made by the plaintiff and the amount collected of him as freight, between January 1, 1884, and February, 1886, are then set forth, with an averment that the amount paid was excessive; that half of it was not freight, but was collected by the company for the defendants, and received by them in pursuance of the contract, of which the plaintiff at the- time was ignorant.
The defendants in their answer, among other things, set up that The Ohio Transit Company was a corporation duly organized under the laws of Ohio, and that they could not be charged with moneys received by it, on the ground set forth in the petition. But the court charged the jury that, “if you find by the greater weight of the evidence, that the assignment of the contract was a mere form; that the intention of the defendants in organizing this corporation was to make it a mere agency to receive this money, to be distributed to them under the contract; and according to their right in it as if there had been no assignment; the mere agent, I say, to hold the money for their benefit, why then, a payment to the corporation, under those circumstances, is a payment to them; and the plaintiff would have a right to recover as if it had been put in their hands.”
The agreement between .the company and the assignors of the defendants, was as follows:
“Article of agreement made and entered into this eleventh day of October, A. D. 1883, by and between The Cleveland & Marietta Railroad Company, party of the first part, and W. J. Brundred, of Oil City, Venango county, Penn., andT. D. Dale, of Marietta, Washington county and state of Ohio, party of the second part.
“Witnesseth: That, Whereas, the said first party is the owner of a line of railroad running through the oil fields of Ohio, and known as the Cleveland & Marietta railroad, and is desirous of securing for said railroad the transportation of the crude petroleum oil now produced, or which may hereafter be produced, along the line of said railroad, or which may hereafter be produced at such points in the state of Ohio as would be accessible to said road by pipe lines.
“And whereas said first party does not desire to incur the cost and expenses of constructing and furnishing the necessary system of pipe lines, pump, pumping stations, receiving and storage tanks, etc., necessary for conducting the business, and the further cost and expense of maintaining the necessary labor organization for collecting and handling said oil, and the further cost and expense attending the purchase of oil at the wells in said oil fields. Now, therefore, be it known that for and in consideration of the valuable considerations to be kept and performed by the parties hereto, the said parties hereto do hereby mutually agree with each other exclusively for the term of twenty years from the date hereof as follows, to wit:
“First — Said second parties or their assigns agree to build and construct a system of pipe line, pump, pumping stations, storage and receiving tanks, loading racks, telegraph line, etc., for the collection of the oil production of said oil fields of Ohio, and the delivery of the same into cars on the line exclusively of said Cleveland & Marietta Railroad free of any cost and expense to said first party, it being undei'stood that the second party shall not be held responsible to the first party for failure to obtain the control of any of the product of said oil territory by reason oí competition beyond the control of said second party.
“Second— Said first party hereby agrees to build the necessary side tracks as needed from time to time free of any cost or expense to said second parties, and on which áaid second parties are to load into cars the oil collected through said system of pipe lines.
“ Third — In consideration of said second parties building and constructing said system of pipe lines as per first section of this agreement, and delivering oil into cars on the line of said Cleveland & Marietta Railroad free of any charge or expense to said first party, said first party hereby agrees to divide with the second party (in the proportion of fifty (50) percentage to said second, and fifty (50) percentage to the said first party), the open all-rail rate charged by said Cleveland & Marietta Railroad on all oil transported to Marietta or intermediate points from said oil fields of Ohio, and further agrees to divide with said second party (in the proportion of twenty-five percentage to said second party, and seventy-five percentage to said first party), of the all-rail rate charged by said Cleveland & Marietta Railroad and its connections, on all oil transported in a northerly direction from said oil fields, to the points named in article fourth or their equivalent.
“ Fourth — It is further mutually agreed and understood by and between the parties hereto, that the open all-rail rate from said oil fields to Marietta and intermediate points shall be thirty (30) cents per barrel of forty-five gallons, and to Cleveland, Columbus, Toledo, and such other points as require the oil to be- transported by said Cleveland & Marietta Railroad in a northerly direction from said oil fields, shall be the same as the all-rail rate from the oil fields of Pennsylvania, to said same points, and further that no change of oil rates shall be made by said first party during the term of the existence*,of this .agreement without the knowledge and consent of said second party or its assigns.
“Fifth — It is further mutually agreed by the parties hereto, that the freight charges on the oil transported as hereinbefore provided shall be collected by said first party, and said first party shall render monthly statements to said second party of the shipments of oil, and shall pay to said second party, on or before the tenth day of each mouth, the amount due on said second party as per this contract for the month preceding.
“And further that the employees of said second party oi its assigns, while engaged in conducting said business, shall be transported over sa,id Cleveland & Marietta Railroad free of charge; and further that all telegraph messages relating to said business and destined to points along the line of said railroad, shall be transmitted free of charge over the wires of said Cleveland & Marietta Railroad so far as its existing contracts with The Western Union Telegraph Company will permit.
“ Sixth — It is further mutually agreed that all materials used by said second parties or their assigns in constructing and operating said system of pipe lines herein referred to shall be transported by said first party over its railroad and branches at the rate of one cent per ton per mile.
“ Seventh — It is further mutually agreed that said second party shall furnish the tank cars needed for the transportation of said oil, and that the said first party shall pay to the ■owner or owners of such cars the usual car service, and be responsible to said car owners for all damages to said cars while on its road except ordinary wear and tear.
“ In witness whereof the said party has caused to be ■attached the signatures of its general manager and its secretary, and said second- parties have attached their hands and seals the day and year above written.
(Signed):
ThE CLEVELAND & MARIETTA R. R.
By M. D. Woodeoed, General Manager.
Witness: R. C. Cline, Secretary.
F. G. Jewett, W. J. Brundred,
E. B. DeVoe. T. D. Dale.”
The judgment was affirmed by the circuit court.
Nye & Oldham, for plaintiffs in error.
Whether defendants might have been liable to plaintiff in an action of tort for causing him to be charged excessive, or discriminating rates' is, perhaps, uncertain. Plaintiff has ■clearly elected, however, to sue them in assumpsit for money had and received. He sets forth in his petition what he claims to be the facts, and asks judgment against them not for damages but for a sum certain, collected from him and paid to them. While'-it is not always easy to determine under code pleading when an election is finally made between tort and contract, it is held that the prayer may be decisive of the question. Bliss Code Pleading, sec. 155; Corry v. Gaynor, 21 Ohio St., 280; Gillett v. Tuganza, 13 Wis., 472.
This being, then, an action against these defendants for money had and received, we submit that, if the wrong done plaintiff consisted only in discrimination against him, he has no right of action against the defendants. If the effect of defendants’ contract with the railroad company was simply to enable them to have their oil transported at a lower rate than that of plaintiff, he can not complain of them. In every case of discrimination the favored shipper receives a benefit at the expense of his competitors. Whether he is charged less in the first instance, or receives a rebate, or whatever may be the form of the discrimination, the effect is the same — he retains or receives money which has come directly, or indirectly, from those against whom the discrimination has been made. The injured shipper, who has paid not excessive rates but simply more than his competitor, has his remedy against the carrier, but we know of no authority or principle of law that permits him to recover in an action for money had and received against such competitor. Rothchild v. Wabash R. R. Co., 15 Mo. App., 242; Stewart v. Erie & JV. W. Trans. Co., 17 Minn., 372: The Eclipse Tow Boatsr. The Ponchatrian R. R. Co., 24 Ua. Ann., 1; The Oil Creek and Alleghany R. R. Co., v. Pa. Transportation Co., 83 Pa. St., 160; 1 Morawetz on Corp., sec. 376.
A great variety of practical, considerations, constantly changing, must enter into the making of freight rates by a railroad company. Evans v. The Oregon R. & N. Co., 1 Interstate Com. Rep., 641; Harding v. The SI. P. M. & O. R. R. Co., 1 Interstate Com. Rep., 375; Rice v. The L. & JV. R. R. Co., 1 Interstate Com. Rep., 734. ■
The validity of acts performed by a regularly constituted corporation can not be impeached by showing that its charter was obtained by fraud, or that the persons who obtained the charter or formed the corporation conspired to accomplish an unauthorized and illegal purpose. 2 Morawetz on Corporations, sec. 769; Stout v. Zulick, (N. J.) 7 Atl. Rep., 362; 4 Am. & Eng. Encye. of Raw, 198; Taylor on Corporations, secs. 145, 154; 2 Morawetz on Corps., sec. 781; 818.
A. D. Follett, 1 W. B. Loomis and E. B. Kinkead, for defendant in error.
Brief of Edgar B. Kinkead.
I. The contract entered into by the railroad company and parties to this suit was illegal and wholly void. It is well settled in Ohio that such discriminations are unlawful. ■Scofield v. Railway Company, 43 Ohio St., 671; State ex rel. v. The C. N. O. & T. P. Ry. Co., 47 Ohio St., 130.
It cannot be justified on the ground that it was a legitimate traffic arrangement between connecting carriers, ¡because such a rule would only apply to those who needed and received the services of both carriers, and this defendant in error did not, as he had his own pipe lines to convey his petroleum to the railroad. A railroad company has no right to impose a charge for the conveyance of goods to their station where such services are not required. Garton & Stone v. Bristol & Exeter Ry Co., 95 Eng. Com. Raw, 639.
Corporations engaged in carrying goods for hire, have no right to discriminate in freight rates in favor of one shipper, even when necessary to secure his custom, if the discriminating rate will tend to create a monoply by excluding from their proper markets the products of the competitors of the favored shipper. Beach on Priv. Corp. secs. 832, 833b; State ex rel v. C. W. & B. R. R. Co., 47 Ohio St., 130; Everett v. Penn. R. R. Co., 36 N. J. R., 407; Sayre v. Louisville Union Benevolent Association, 2 Duvall, 143; Handy v. Cleveland cf M. R. Co., 31 Fed.-Rep., 689.
II. The contention of plaintiff in error that no liability rests upon them, because they were incorporated, thus shielding them from personal liability, cannot avail them where the whole purpose of incorporation was a mere sham to protect them from personal liability. Illegal acts of a corporation may be inquired into when it is engaged in an unlawful business, or when it be organized as a mere form, and the promoters become individually.liable; but evidence must appear to warrant such a conclusion, and the jury must decide the matter. Chautauqua County Bank v. Risley, 19 N. Y., 369; Angelí & Ames on Corp. 96.
Where the purpose of a corporation, or the business carried on by persons in the name of a corporation, is illegal, those composing such company render themselves personally liable, and they cannot interpose the corporate privilege to protect them from liabilities such as the law would impose upon individuals in the transaction of a similar business. Beach on Priv. Corp. sec. 163c, 162b, note 7; Voren- denburg v. • Behan, 38 Ra. A.nn. 627; Medill v. Collier, IS Ohio St., 599; McGrew v. City Produce Exchange, 85 Term.,. 572; Lawler v. Walker, 18 Ohio, 151.
III. Rord Mansfield calls the action of assumpsit for money “a liberal action founded upon large principles of equity” and applicable whenever the defendant has received money winch he cannot conscientiously retain. It is an equitable remedy which lies in favor of one person against another, when that other person has received money from the plaintiff, under such circumstances, that in equity and good conscience he ought not retain the same, and which. ex aequo et bono belongs to the plaintiff. 4 Waits A. & D., 469, and cases cited. The railroad compány did not get the money in this case, but the competing shipper did, and under an illegal contract. The railroad company was merely an agent of these plaintiffs in error to receive and pay over the illegal charges according to the provisions of the contract. Where money has been tortiously received, assumpsit will lie. Therefore assumpsit was the proper remedy.. 7 Rawson’s Rights and Remedíesj p. 5738; see also McGi'ew v. City Produce Exchange, 85 Tenn., 572; Handy v. Cleveland & M. R. Co., 31 Fed. Rep., 689.

Opinion:
By the Court.
That the contract between Brun-dred and his associates was against public policy and void, will hardly admit of a question. As said by Baxter, J., in Handy v. Railroad Company, 31 Fed. Rep. 689. "Railroads, are constructed for the common and equal benefit of all persons wishing to avail themselves of the facilities which they afford. While the legal title thereof is in the corporation of individuals owning them, and to that extent private property, they are by the law and consent of the owners, dedicated to the public use. Except in the mode of using them, every citizen has the same right to demand the services of railroads, on equal terms, that they have to the use o.f a public highway, or the government mails." Whatever may have been the financial condition of the railroad company, it was not warranted in making a contract by which it bound itself to carry for one shipper at half' the rate it agreed to charge all others for the same service, in consideration of his agreeing to establish a system of pipe lines to its road; at the same time and for the same consideration binding itself to charge all others double the amount as a fixed open rate, and to pay to such favored shipper one-half of it when collected.
It seems equally clear that where, in pursuance of such unlawful agreement, a railroad company has charged and collected certain sums, as freight, of a shipper, ignorant of the agreement, and has paid them over to the other party, the shipper may, on discovering the fraud, maintain an action against such party for money had and received to his use: For the action lies in every instance where one has come into possession of money which should in good conscience be refunded to another.
It is claimed that the interposition of The Ohio Transit Company, an incorporation under the laws of Ohio, organized for the purpose of transporting petroleum through tubing and pipes, precludes a recovery against the defendants. If it had, in good faith, been organized for such purpose, there is no doubt but that the receipt of the money by it under the agreement, would constitute a defense to the action against the defendants. If, however, it was organized by the promoters,'the defendants, simply for the purpose of consumating the illegal agreement and shielding themselves from the consequences of receiving the illegal' exactions made under it, the act of incorporating can be of no avail to them as a defense. The court fairly submitted this question to the jury, and in finding their verdict for the plaintiff, must have found the facts to be as averred in the petition. It is a stern but just maxim of the law, that fraud vitiates everything into which it enters. Deeds and records made in the most solemn form are set aside and held for naught when shown to 'have been effectuated for the purpose of fraud; and there is nothing so sacred in a certificate of incorporation as to take it out of the reach of this maxim.
Judgment affirmed.