Case Name: HYER v. RICHMOND TRACTION CO. et al.
Court: United States Court of Appeals for the Fourth Circuit
Jurisdiction: United States
Decision Date: 1897-05-14
Citations: 80 F. 839
Docket Number: No. 198
Parties: HYER v. RICHMOND TRACTION CO. et al.
Judges: 
Reporter: Federal Reporter
Volume: 80
Pages: 839–848

Head Matter:
HYER v. RICHMOND TRACTION CO. et al.
(Circuit Court of Appeals, Fourth Circuit.
May 14, 1897.)
No. 198.
Contracts—Illegality—Public Policy.
An agreement between rival applicants for a street-railway franchise to combine in order to prevent competition between themselves or by others in procuring the franchise, and to avoid the imposition of conditions by the municipal authorities, is void as against public policy; and equity will not interfere to compel one of the parties to share with the others the fruits of their combination.
Brawley, District Judge, dissenting.
Appeal from the Circuit Court of the United States for the Eastern District of Virginia.
This case comes up on appeal from the circuit court of the United States for the Eastern district of Virginia. The cause was heard helow upon demurrer to the bill. The bill states, in substance, the following facts: The com-
plainant is a civil engineer, who has been engaged in promoting and constructing street railways in various cities of the United States.- His attention was attracted to the city of Richmond as a promising field for his enterprise, and, having secured the assurance of assistance from capitalists, he made application to the city council of that city for the franchise of a street railway through Broad street. He succeeded in obtaining an ordinance granting him this franchise for a company to be called the Richmond Conduit Railway Company. But the ordinance as it finally passed did not contain certain terms which lie had asked for, and had deemed essential. He therefore asked amendments and modifications of the ordinance, and received assurances from prominent officials that the desired amendments would be made, provided that a deposit of $10,000, as a guaranty of good faith, should be made in one of the banks of Richmond. This deposit was, in fact, made by him on 17th July, 1895, and shortly thereafter he went to New York to obtain from the capitalists who were at his back the financial assistance he required. While he was engaged in these efforts to secure his franchise and to amend the ordinance, he was aware that he had active competition from other parties, who sought the same franchise for the Richmond Traction Company. This competition was led by one P. B. Shield, a lawyer in Richmond. These competitors, however, had no communication with each other prior to the departure of complainant for New York, and, indeed, there was no personal acquaintance between them. The complainant regarded himself as having altogether the inside track, and appeared to himself to be master of the situation. Stewart & Co., of New York, were the capitalists on whose assistance complainant relied. When 'he left Richmond and went to New York, as above stated, he called at the office of Stewart & Co., to complete his negotiations with them, and found that P. B. Shield was at that moment in private conference with the head of the firm, S. H. G. Stewart. During the day Shield and the complainant separately had interviews with Mr. S. H. G. Stewart, and finally Mr. Stewart, after telling the complainant that Shield’s purpose was to get some recognition for the promoters of the Richmond Traction Company at the hands of the promoters of the Richmond Conduit Company, advised complainant to do so. He urged that the rivalry between the conduit company and your orator and his associates, on the one hand, and the traction people and the said P. B. Shield and his associates, on the other hand, and antagonism of this character, would probably result in the defeat of both their schemes, or the passage of the franchise in favor of one of the two competitors loaded .with such onerous and exacting conditions that no capitalist could be induced to put money in the enterprise; and he therefore urged complainant to shake hands with said Shield, to unite forces with him upon one of the two ordinances,—-the conduit ordinance or the traction ordinance,—and thus to secure and share the fruits of victory, instead of the disappointment and bitterness of defeat. The advice of Mr. Stewart was accepted. The late rivals became allies. They met in conference in New York, came to a full understanding, and, as its result, embodied their agreement in a letter to Mr. S. H. G. Stewart:
“New York, August 9th, 1895.
“S. H. G. Stewart, Esq., 40 Wall Street, City—Dear Sir: We, the undersigned, D. H. Hyer, of Washington, D. C., and Phil. B. Shield, of Richmond, Va., have this day entered into the following agreement: That both of us, being interested in the procuring of a franchise for and the construction of a street railway on Broad street, in the city of Richmond, Virginia, with collateral lines, have made the following agreement: That we hereby bind ourselves, in our own behalf and for our associates, mutually to co-operate one with the other in securing a franchise for said railway, and to divide equally between us and our associates whatever may be realized from the enterprise, first deducting from said amount whatever actual expenses may have been incurred by either side, such expenses to be paid out of the first money realized from said enterprise. It is further agreed between us that the deposit already made with the State Bank of Richmond, in Richmond, Virginia, by Mr. L. H. Hyer or his associates, is to stand and remain intact as it now is for the pur pose of securing the franchise aforesaid, subject to any conditions for the withdrawal thereof made by Mr. Hyer with the depositor after the seventeenth day of August, 1895; and, further, it is agreed that the application and franchise to be presented to the common council of the city of Richmond shall be that of the Richmond Traction Company, for the building of an overhead trolley railway or cable system. Among ourselves we will decide what names are proper to be used in the franchise, and the policy we will use in procuring the same.
“Yours, very respectfully, [Signed] L. H. Hyer.
“[Signed] Phil. B. Shield.”
The bill alleges that Shield was the agent of and acted for all the promoters of the Richmond Traction Company who were such at the date of this complaint; and that all persons who have come into the enterprise since that date, having received the benefit of the contract, are also bound by it. ' This contract having been made, all efforts to perfect the ordinance granting franchises to the Richmond Conduit Company ceased, the ordinance was withdrawn, and an ordinance was passed authorizing the construction and operation of a street railway within the limits of the city of Richmond by the Richmond Traction Company. Shield broke off all relations with the complainant after he had obtained this contract, and sold his interest in the enterprise to certain financiers in Richmond. The ordinance granted the franchise to the Richmond Traction Company, composed of John W. Middendorf, John L. Williams, John S. Williams, Everett Waddey, Reuben Shereffs, Philip B. Shield, Charles T. Child, and W. F. Jenkins. The ordinance was passed on 26th August, 1895. The complainant, on the afternoon of that day, caused to be published a notice in the Richmond State newspaper of the nature and character of his claim on the franchise of the traction company; that is to say, that he was entitled to one-half thereof when it was grantéd, in consideration of the fact that he had caused the withdrawal of the Richmond Conduit Company’s application for franchises in favor of the traction company. This notice, either because it was too late, or for some other reason, did not affect or stop the action of the Richmond council. He also gave notice to each of the persons named in the ordinance of his contract with Shield and his claim thereunder. Upon taking this franchise for the Richmond Traction Company, the persons named in the ordinance undertook to form a corporation and issue shares of stock with a capital of $300,000, with full notice or means of notice of complainant’s rights in the premises. That said corporation was not formed in accordance with the laws of Virginia in such case made and provided. That notwithstanding they selected a board of directors, all of whom but one—A. B. Addison—had notice of complainant’s rights and claims. And that the directors determined to execute, and did in fact execute, a mortgage to the Maryland Trust Company of all the franchise and property of said traction company to secure 500 bonds of $1,000 each, but that said mortgage itself is void as not executed by lawful authority, or in accord with the laws of Virginia in such ease made and provided.
The complainant, after filing his original bill, craved and obtained leave to file amended and supplemental bills. The prayer of the original bill is as follows: “That each and all of said parties defendant, their agents and servants, be enjoined and restrained from transferring or incumbering the franchise or property of the said Richmond Traction Company, or any part thereof, or any interest therein, or from issuing any stock or bonds of said company, or in any other way borrowing money for the use of said company upon its franchise or property; that your orator may be decreed by this honorable court to have valid right and claim to a full one-half interest in and under said contract of August 9th, and, upon the basis of said contract, to have such right and claim to a full one-half interest in the said Richmond Traction Company’s franchise, enterprise, property, and stock; that specific execution of said contract be decreed your orator, and enforced under the power and process of the court; that all parties defendant be required and compelled by the process of the court to do and perform every act which may be requisite and necessary to the vesting of your orator’s full rights in the premises.” The amended bill prays that this prayer of the original bill may be read, treated, and granted as if again fully repeated, and further prays that the so-called subscription to the capital stock of the Richmond Traction Company be declared illegal, null, and void; that the scrip issued be called in and canceled; that the organization • of the company based thereon be declared illegal, null and void, and vacated; that all transactions at any meetings of the so-called stockholders and directors be declared null and void, especially the authorization, execution, ■ and issue of the bonds and the mortgage to the Maryland Trust Company of Baltimore, ■and that all the bonds be called in and canceled; that all the stockholders and directors who participated in these matters, except Addison, be declared wrongdoers, conspiring to hinder, delay, and defraud complainant, and liable in damages to him for all losses he may suffer In the premises; that they be required ■to do whatever may be necessary to discharge the Richmond Traction Company and franchise from the consequences of the organization of the said com•pany, and from all contracts, debts, and liabilities contracted in the name of said company; that the Maryland Trust Company he enjoined from acting as trustee under the mortgage, and from authenticating any of the bonds, or issuing, delivering, or selling the same to any one, and from paying over to any one proceeds of sale of any bonds heretofore sold. And “that the said Richmond Traction Company, its officers, directors, „and all others acting, or purporting to act, in its name, may be enjoined and restrained from entering into any contract or incurring any debt or liability in the name of the said Richmond Traction Company, or exercising any of the rights, powers, functions, or privileges of the Richmond Traction Company; that a receiver may be appointed, •pending the determination of this cause, to take charge of all of the aforesaid bonds, of all the proceeds from the sale of such of them as may have been ■sold or otherwise disposed of, and of all the property and assets of the said Richmond Traction Company of every character and wherever situated; and ■that all proper inquiries may be made, accounts taken, and decrees entered. And your orator further prays that he may have and he granted such other, further, general, and complete relief as may be agreeable to equity and the nature of his case.” The defendants demurred to the bill, setting forth nine grounds of demurrer. The first and third go to the jurisdiction of a court of ■equity, in that complainant has a plain, adequate, and complete remedy at ‘law. The second denies the jurisdiction, because of the citizenship of the parties. These three grounds the court below overruled. The fourth ground is .as follows: “(4) That the contract and agreement set forth in said bill as the sole cause of action of said complainant is against public policy, and null and void, and no court of equity will enforce the same.” This ground of demurrer ■the court below sustained, and thereupon dismissed the bill, the remaining six grounds of demurrer assigned by the defendants not being considered, or determined by the court. Leave was granted to complainant to appeal, and the cause is here on assignments of error. The first assignment of error goes to the ruling- of the court below that the contract sued upon is void as contrary to public policy. Tbe second assignment of error asserts error in the court In not overruling all the grounds of demurrer filed by defendants, and in not granting the relief prayed. The third and fourth are too general and vague, and will not he regarded.
Robert Stiles and A. L. Holladay, for appellant.
W. Wirt Henry and George Whiteloclc, for appellees.
Before FULLER, Circuit Justice, SIMONTOH, Circuit Judge, and BRAWLEY, District Judge.

Opinion:
SIMONTON, Circuit Judge
(after stating the case as above). The question in this case is: Is the contract set forth in the bill as the sole cause of action such a contract as a court of equity will enforce? There were two competitors before the municipal authorities of Richmond, each seeldng for himself, upon the best terms he could, the grant of a street-railway franchise. Apparently both of them were promoters,—that is to say, were without sufficient capital themselves, depending upon securing the aid, co-operation, or purchase of capitalists. The competition evidently was bitter and hostile, for the competitors had no communication whatever with each other. The complainant was satisfied that he had "the inside track," and was "master of the situation." With this high hope and encouragement, he sought his capitalist in New York, to obtain the fruition of his efforts. There he unexpectedly meets his rival in close conference with the capitalist. Under the advice of this capitalist, he lays aside his rivalry, and the competitors become allies, and all competition between them ceases. The reasons which induced him were that the antagonism would probably result in the defeat of both, or that, before the franchise was obtained, it would be loaded with such onerous and exacting conditions that no capitalist could be induced to put money in the enterprise. The result of the advice was the contract in question. By this contract complainant and his rival joined hands, withdrew all competition, agreed to co-operate in securing a franchise for a street railway from the municipal authorities of Richmond, and to divide whatever was realized from the enterprise, first deducting expenses incurred by either side. They agreed to use, so far as it went, the advantage of complainant's deposit in a Richmond bank, and the franchise to be asked for was that of the Richmond Traction Company for the building of an overhead trolley railway or cable system. Adding these words: "Among ourselves, we will decide what names are proper to be used in the franchise, and the policy we will use in procuring the same." The effect of this reconciliation of interests was to prevent all competition between the rival promoters; to shut off, as far as they could, all possible competition from others, which might result in the defeat of both; and to avoid the imposition of conditions by the municipal authorities, which the promoters, and especially capitalists, might consider onerous and exacting. The circuit court which tried the case was of the opinion that the contract was against public policy.
A text writer (Greenhood) states the rule to be this:
"Any agreement which, in its object or nature, is calculated to dimmish competition for the obtainment of a public or quasi public contract to the detriment of the public or those awarding the contract is void." Greenh. Pub. Pol. p. 178, Rule 172.
In Pingry v. Washburn, 1 Aiken, 264, the court held that an agreement on the part of a corporation to grant to individuals certain privileges in consideration that they will withdraw their opposition to the passage of a legislative act touching the interests of the corporation is void as against public policy, and. prejudicial to correct ;and just legislation.
In Hunter v. Nolf, 71 Pa. St. 282, a contract between two candidates for the office of United States assessor that one should withdraw, and, if the other were appointed, they should divide profits, was recognized and treated as against public policy, and void. To the same effect is Meguire v. Corwine, 101 U. S. 108.
In Smith v. Applegate, 23 N. J. Law, 352, a note given to a person in consideration that he withdrew all opposition to the opening of a road was held void for the same reason.
The supreme court of Massachusetts in Gibbs v. Smith, 115 Mass. 592, clearly marks the line in an analogous case:
"An agreement between two or more persons that one shall bid for all upon property about to be sold at public auction, which they desire to purchase together, either because they intend to hold it together or afterwards to divide it into such parts as they individually wish to hold, neither desiring the whole, or for any similar honest or reasonable purpose, is legal in its character, and will be enforced. But such an agreement, if made for the purpose of preventing competition, and reducing the price of the property to be sold below its fair-price, is against public policy, and void."
A citation and examination of the very many cases on this fruitful subject would run this opinion, already too long, into an unreasonable length. Any effort which stifles competition, or prevents a fair and reasonable price for property, is against public policy. Especially is this the case when the property is a public or quasi public franchise. In the case at bar there were two bidders before the municipal authorities of Richmond for the franchise of a street rail-w-ay. Naturally and normally that competitor would receive the franchise who made the greatest concession for the public welfare.. The competition was active. Its tendency was to promote the public interest. It was withdrawn by the coming together of the parties, who agreed to abandon it for fear that they would neutralize-each other, and also for fear that the passage of the franchise in favor of one of the two competitors would be loaded with such onerous and exacting conditions that no capitalist could be induced to put his money in it. In other words, the competition would induce-great and extraordinary concessions for the public good. To prevent this, it was abandoned. Among themselves they would decide what names to be used in procuring the franchise, and the policy to be used in procuring it; that is to say, there being but one-contractor in the field, the promoters themselves could, in the absence of competition, decide to whom the contract should be awarded, and could, in some measure, dictate the terms and concessions to-be used in procuring the franchise. "The true inquiry is, is it the natural tendency of such an agreement to injuriously influence the public interests? The rule is that agreements which, in their necessary operation upon the action of the parties to them, tend to restrain their natural rivalry and competition, and thus to result in the disadvantage of the public or third parties, are against the principles of sound public policy, and are void." Atchesom v. Mallon, 48 N. Y. 147. The conclusion is not unreasonable that the contract was against public policy and void.
But it is contended that, if this be admitted, the complainant is-still protected by the doctrine laid down in Brooks v. Martin, 2 Wall. 80, recognized in Farley v. Hill, 150 U. S. 576, 14 Sup. Ct. 186, and in the dissenting opinion in Burck v. Taylor, 152 U. S. 668, 14 Sup. Ct. 696; Armstrong v. Bank, 133 U. S. 467, 10 Sup. Ct. 450. The principle decided in these cases is:
"When several persons enter into an illegal contract for their own benefit, and the illegal transaction has been consummated, and the proceeds of the enterprise have been actually received, and carried to the credit of one of such parties, so that he can maintain an action therefor without requiring the aid of the illegal transaction to establish his case, he may be entitled to relief."' McCrary, J., in Cook v. Sherman, 20 Fed. 170.
See, also, Jackson v. McLean, 36 Fed. 217.
This construction by Judge McCrary is sustained upon examining the case of McBlair v. Gibbes, 17 How. 233, which is the leading case on which this principle depends. In that case, and in all the quotations cited to support it, the cause of action was not the illegal transaction,—the void act,—but a subsequent independent contract which the law raised. The difference is between enforcing illegal contracts and asserting title to money derived from them. Tenant v. Elliott, 1 Bos. & P. 3; Farmer v. Russell, Id. 296; Thomson v. Thomson, 7 Ves. 473,—all cited and approved in McBlair v. Gibbes, supra. Sir William Grant, in the case in 7 Ves. 473, clearly states the principle. In that case there had been a sale of the command of an East India ship to the defendant. This was an illegal transaction. In consideration of the sale, he had agreed to pay an annuity of £200 to the previous commander, from whom he purchased, so long as he remained in command. Defendant, after remaining in command for some time, retired, and secured the retiring allowance of £3,540. The bill was filed to get a decree enforcing the contract, and investing so much of this as would produce £200 per annum. The objection was made that the contract providing for the annuity was illegal, and a court of equity would not enforce it. The distinguished master of the rolls held the contract illegal. He recognized the equity in the fund, if it could be reached by a legal agreement, but there was no claim on the money, except through the medium of an illegal agreement, which, according to the determinations, cannot be supported. "How, then," says he, "are you to get at it except through this agreement? There is nothing collateral, in respect of which, the agreement being out of the question, a collateral demand arises." In the case at bar the entire cause of action is on the agreement, which is void through public policy. The complainant depends altogether upon that agreement, and seeks to set aside everything that has been done, and to enforce the specific performance of that agreement. He asks the court "to enforce this illegal contract, and requires the aid of the illegal transaction to establish his case." It follows that the contract under consideration can neither be enforced nor made the basis of any relief in a court of equity. The maxim in pari delicto applies. The court will leave the parties to such a contract precisely where it finds them. "Courts cannot be made the handmaids of iniquity." Bank v. Owens, 2 Pet. 539.
It is urged, however, that the complainant, on the very afternoon of the day on which the city council gave the franchise, exposed his agreement with Shield in a public print. Assuming that this was seen by the members of the council, it cannot avail him. The wrong complained of is not that he concealed his contract, but that he made the contract; not that he pretended still to seek a franchise, but that he sold himself out, and, doing so, defeated competition, shut the city council in to but one bidder, deprived the public of that contention among bidders which would protect the public from loss, and secure the highest price for the sale of the franchise. This is not a case in which a court of equity should interfere, and the decree of the circuit court should be affirmed, without prejudice, however, to any right which complainant may have to seek relief, if any he be entitled to, in a court of law.
The CIRCUIT JUSTICE concurred in the result, on the ground that the remedy of the complainant, if any, was at law.
In this conclusion, also, SIMOHTOH, Circuit Judge, concurred.