Case Name: Victor Patrizi v. L. L. McAninch
Court: Supreme Court of Texas
Jurisdiction: Texas
Decision Date: 1954-06-16
Citations: 153 Tex. 389
Docket Number: No. A-4305
Parties: Victor Patrizi v. L. L. McAninch
Judges: 
Reporter: Texas Reports
Volume: 153
Pages: 389–404

Head Matter:
Victor Patrizi v. L. L. McAninch
No. A-4305.
Decided June 16, 1954.
Rehearing overruled July 21, 1954.
(269 S.W. 2d Series 343)
Vinson, Elkins, Weems & Searls, Ben H. Rice III and Ben F. Weems, of Houston, and Granes, Dougherty <6 Gr'eenhill and Joe R. Greenhill, all of Austin, for petitioners.
!• Since the contract provision sued upon is void as an illegal attempt to impose the payment of royalties on the use of a chattel after an unqualified sale, and is in violation of the antitrust ■statutes, and since the legal and illegal portion of the contract are inseparable, the Court of. Civil Appeals erred in failing to hold the entire contract unenforeible. Texas Brewing Co. v. Templeman, 90 Texas 277, 38 S.W. 27; Texas & Pac. Coal Co. v. Lawson, 89 Texas 394, 32 S.W. 871; Segall v. McCall Co., 108 Texas 55, 184 S.W. 188.
Hart, Brown & Sparks, Powell, Wirtz <fe Rmihut and William •A. Brown, all of Austin, for respondent.
'In reply to petitioner’s contentions: cited Ford Motor Co. v. 'State, 142 Texas 5, 175 S.W. 2d 230; Coca Cola Co. v. State, 225 S.W. 791; Pioneer Mutual Compensation Co. v. Diaz, 142 Texas 184, 177 S.W. 2d 202.

Opinion:
Mr. Justice Calvert
delivered the opinion of the Court.
Respondent filed suit in a district court of Travis County against petitioner to recover certain royalty payments due under a written contract theretofore entered into whereby the respondent sold to petitioner a certain patented machine for making frozen custard. Petitioner answered, and defended upon the ground, among others, that the contract between the parties was illegal and void because it was in violation of the antitrust statutes of Texas (Arts. 7426, et seq., Vernon's Annotated Civil Statutes of Texas). Trial was to the court without a jury, and at the conclusion of the trial, judgment was entered by the court in favor of respondent, and against the petitioner. On appeal the Court of Civil Appeals entered judgment affirming the trial court's judgment. 258 S.W. 2d 949.
Petitioner assigns error to the holding of the Court of Civil Appeals that petitioner must pay the royalties sued for, on the ground that a substantial portion of the contract is in violation of the antitrust laws; and that the contract is not divisible so as to permit separation of the legal from the illegal provisions. The contract is set out in its entirety, less the signature paragraph, in the opinion of the Court of Civil Appeals. McAninch is designated therein as First Party and Patrizi as Second Party.
The paragraphs pertinent to a decision of this cause are copied below. The contract is on a printed form with blank spaces underlined by dotted lines. These blank spaces are filled in by' typewriting and the typewritten words and figures appear over the dotted lines exactly as copied.
"1. That First Party hereby sells and assigns to Second Party Zest-O-Mat machine bearing serial number . 1003 .
"2. That First Party agrees for a period of ten (8) years from date, not to sell or lease to any person, firm or corporation other than Second Party, or cause to be used in any other manner whatsoever, any like Zest-O-Mat machine in the above described territory.
"3. That First Party agrees that during the term of this agreement, Second Party shall use the name 'ZESTO' in the advertising and sale of products manufactured in the above mentioned machine, and that Second Party will use only uniformly high quality ingredients, according to the formula approved by the! Taylor Freezer Corporation. Second Party further agrees to use the name 'ZESTO' in the advertising and sale of such products during the term of this agreement.
"4. That in consideration of such sale, Second Party agrees to pay to First Party the sum of . . $3,000.00 . Said sum to be paid as follows:__________cash with order__________with order, and _ upon delivery; in addition thereto, Second Party agrees to pay to First Party a royalty of 20c per gallon of mix used in said Zest-O-Mat machine during the 8-year period from _1st July, 1948___________________-to 1st July, 1956, .*** Second Party further agrees that in no event shall the royalty paid be less than $500.00 per year, per machine, for each year following its purchase, for the ten-year period and agrees that if the monthly royalty payments for any such year do not total $500.00 or. more on each machine, Second Party will, on or before the tenth day of the month immediately following any such year, pay to First Party whatever sum might be necessary to constitute the $500.00 annual minimum royalty for each machine.
"5. That Second Party agrees for a period of ten (8) years from date not to sell, lend, lease or assign said Zest-O-Mat machine bearing serial number . 1003 . to anyone without the written permission or consent of the Taylor Freezer Corporation. Second Party further agrees for a period of ten (8) years from date not to use, operate or cause to be operated in any manner whatsoever said Zest-O-Mat machine bearing serial number . 1003, . at any location other than . 870 South 11th Street in the city of Beaumont, Texas . without the written consent of the Taylor Freezer Corporation.
' "12. Both parties hereby expressly agree and contract that it is the intention of neither party to violate public policy, statutory or common laws of the State of Texas, including the Texas Anti-Trust Statute. That if any sentence, paragraph, clause or combination of the same is in violation of the Anti-Trust law or any other-Texas, or Federal law, such paragraphs, clauses or sentences, or ' combination of the same shall be inoperative and the remainder of this contract shall remain binding upon the parties hereto; that in any event, these paragraphs concerning the cash consideration and royalty shall be binding upon the parties, and Second Party shall not be relieved of the obligation to pay for the machine and subsequent royalties as herein provided. -If is the intention of all parties hereto to make this contráct binding only tó the extent thát it may be lawfully done un-" der the existing laws of the State of Texas and the United States, ¡i '"14. This ' agreement shall be binding upon and inure to' the benefit. of : the ¡successors ¿nd assigns Of the First Party and the heirs, administrators, executors and assigns of the Second Party."
The territory in which First Party agreed not to sell or lease any like Zest-O-Mat machine to any other person, firm or corporation, and outside of which Second Party agreed not to use or operate the machine, was described in the preamble of the contract as "That area within the present City Limits of Beaumont, Texas that is within a one-mile radius of the location known as 870-South 11th, St." The Zest-O-Mat is a patented machine the use of which the patentee could control by lease and for the use of which he could exact royalties, but the parties aré agreed that the contract here was a contract of sale and not of lease and that by the sale the patentee's monopoly was exhausted and he no longer had a right to restrict the resale thereof in violation of our antitrust laws.
We hold the machine to be an article of merchandise and that the restrictive provisions of paragraphs 2 and 5 are violativé of our antitrust laws which prohibit agreements which "may tend to create or carry out restrictions in trade and commerce" and "preclude a free and unrestricted competition among themselves or others in the sale or transportation of any such article or commodity." Article 7426, Vernon's Annotated Civil Statutes; National Automatic Machine Co. v. Smith, Tex. Civ. App., 32 S.W. 2d 678, no writ history; Burpee Can Sealer Co. v. Henry McDonnell Co., Tex. Civ. App., 75 S.W. 2d 458, writ refused; Rogers v. Westinghouse Electric Supply Co., Tex. Civ. App., 116 S.W. 2d 886, writ refused; Fuqua v. Pabst Brewing Co., 90 Texas 298, 38 S.W. 29; 6 Texas Law Rev. 210, 35 L.R.A. 241. We do not interpret Coca-Cola Co. v. State, Tex. Civ. App., 225 S.W. 791, as holding to the contrary.
Respondent relies upon the provisions of paragraph 12 of the contract, quoted above, to authorize recovery of the royalties in spite of the illegal provisions. The substance of paragraph 12 is that even if illegal provisions are found in the contract and are stricken therefrom, the royalties provided for in the contract shall yet be payable just as though the illegal provisions had never been in it. In support of their position that the illegal provisions of the contract may be stricken and the remaining provisions thereof preserved, respondent cites Nevels v. Harris, 129 Texas 190, 102 S.W. 2d 1046, 109 A.L.R. 1464, and Ford Motor Co. v. State, 142 Texas 5, 175 S.W. 2d 230.
In Nevels v. Harris, suit on a note and to foreclose a deed of trust given to secure payment thereof was defended on the ground- that the note provided for usurious interest. Under one contingency the note, considered alone, could have been construed as usurious, but the court said that it "must treat the application (for the loan), principal note, interest notes, and deed of trust as constituting one contract," and finding in the deed of trust the stipulation " 'That the intention of the parties being to conform strictly to the Usury Laws now in force, any of said contracts for interest shall be held to be subject to reduction to thé amount allowed under the Usury Laws as now or hereafter construed by the courts having jurisdiction,' " held that the contract of the parties, considered as a whole, was not usurious. The court then proceeded in language we regard as particularly applicable to the facts of this case, and said: "Of course we do not mean to hold that a person may exact from a borrower a contract that is usurious under its terms, and then relieve himself of the pains and penalties visited by law upon such an act by merely writing into the contract a disclaimer of any intention to do that which under his contract he has plainly done."
Ford Motor Co. v. State was a suit by the State of Texas to recover statutory penalties and to enjoin violations of the state's antitrust laws. The question before this court was whether the state's petition stated a cause of action. The court held that while none of the provisions of Ford's contract with its dealers violated the antitrust laws, the petition did charge a course of conduct sufficient to raise a jury question of a violation of such laws. One of the provisions of the contract was an agreement by the dealer not to sell Ford's products at less than the retail prices established by Ford " 'in so far as it is lawful for the dealer to so agree .' " (142 Texas 5, 175 S.W. 2d 233.) It was held that this did not constitute an agreement to sell at fixed prices in violation of the antitrust laws.
It will be noted that in each of the cited cases it was held that the language of the contract did not permit any illegality to enter the contract. Not so here. On the very face of the instant contract the illegal provisions of paragraph 2 and 5 were a vital part thereof. It is true that paragraph 12 sought to make them inoperative if they were held to be illegal, but even then the same paragraph sought to retain any benefits that might accrue to First Party if it were held that the royalties were, in part, consideration for the illegal provisions, a matter to which we will next devote our attention. If a party may thus eliminate parts of an agreement which may well have been the vital and inducing cause for its execution by the other party, the while retaining the right to enforce the consideration for the eliminated parts, the antitrust laws will become a hollow symbol of a dead era.
But respondent argues that the royalties are properly severable from the illegal provisions of the contract because they are only a part of the purchase price of the machine. The plain Mhguage of the contract contradicts him.
By paragraph 1 respondent sold the machine to petitioner, and the opening sentence of paragraph 4 states in language plain and clear "That in consideration of such sale, Second Party agrees to pay to First Party the sum of $3,000.00." There the sentence ends; it is ended with a period. That is all of the consideration for the sale of the machine. It does not say that in consideration of such sale second party agrees to pay $3,000.00 and certain royalties; it just says that second party agrees to pay $3,000.00 for the machine. The printed form is prepared so that the parties may then fill in their agreement as to how "said sum" (the consideration for the sale of the machine) is to be paid, whether all in cash with the order, or partly in cash with the order and partly upon delivery. Here, the contract was filled in to show that all of the consideration for the machine was paid in cash with the order. There then follows the provision that "in addition" Second Party agrees to pay First Party a 20c per gallon "royalty" for a period of eight years, with a minimum payment of $500.00 for each of the years. "In addition" to what? The contract says the royalty payment is "in addition" to the "consideration of such sale" which is recited to be "$3000.00 cash with order." From the very language of these two sentences it would seem clear that the parties expressed the intention that the $3,000.00 cash payment should be the entire consideration for the sale of the machine. That such was their intention is clearly, expressed again in the very plain language of paragraph 12 wherein they provided "that in any event, these paragraphs concerning the cash consideration and royalty shall be binding upon the parties, and Second Party shall not be relieved of the obligation to pay for the machine and subsequent royalties as herein provided."
In our view there is no need for the use of rules of construction to arrive at the intention of the parties, but if we were to adopt the view of respondent that the royalties were a part of the consideration for the sale of the machine it would lead to the rather unusual result that the same machine would be sold 'to one party, selling but little of the product and therefore requiring the use of but little mix, for the minimum price of $7,000.00, whereas to one selling a large amount of the product and therefore requiring the use of, let us say, 5,000 gallons of. mix per year, the sale price of the machine would be $11,000.00.
If the machine itself was not the consideration of the agreement to pay royalties, then the only consideration for such agreement was the right to use the trade-name "Zesto" given in paragraph 3 of the contract and the agreement of respondent not to sell or lease a like machine in the restricted territory. These are the only undertakings of the respondent found in the contract. Respondent suggests, therefore, that the function of paragraph 12 is to allocate the royalty payments as consideration for the right to use the trade-name, a legal provision of the contract, rather than as consideration for a restricted territory, an illegal provision. Respondent concedes in his brief that "if any illegal provision is part of the contract and part of the consideration for petitioner's promise to pay 'royalties,' then the illegality of part of the consideration rendered the entire contract illegal."
It is our opinion that under the only reasonable construction of all the provisions of the contract, the royalty payments and the illegal restrictions contained in paragraphs 2 and 5 are so interdependent and indivisible that they cannot be separated and must fall together.
The record shows that there was no secret formula for making "Zesto"; that it was but a trade-name applied to a powdered mix used in the making of a frozen custard, available to anyone who cared to buy it. On the other hand, by obtaining a restricted territory in which no like machine could be sold or leased, petitioner freed himself of all competition. We are not prepared to say that petitioner would have agreed to pay the royalties for use of the trade-name if the illegal provisions for a restricted territory had been eliminated. Kissel Motor Co. v. Walker, (5th Cir.); 270 Fed. 492, 24 A.L.R. 782. It is worth noting that the agreement of respondent not to sell or lease a like machine in the restricted territory was to continue for eight years, the agreement of petitioner not to sell, lend, lease or assign the particular machine or to operate it outside of the restricted territory was to continue for eight years, and the agreement to pay royalties was to continue for eight years.
Having reached the conclusion that the provision for royalty payments and the illegal provisions are indivisible and inseparable, we are confronted with the oft-repeated rule: "That a prom ise made upon several considerations, one of which is unlawful, no matter whether the illegality be at common law or by statute, is void." Edwards County v. Jennings, 89 Texas 618, 35 S.W. 1053, 1054; W. T. Raleigh Co. v. Land, 115 Texas 319, 279 S.W. 810. We may say here as was said by the court in Wegner Bros. v. Biering & Co., 65 Texas 506, 509, 510, 512:
"It is obvious that there is ample valid consideration to support the promise sued on; yet, if, to the abundance of valid consideration, there has been added a leaven of what is illegal, the whole contract is tainted.
" The whole cannot be enforced, because the law will not compel what it prohibits, and the parts can not be separated. Illegality thus vitiates the entire instrument.
" The purpose of the law is to discountenance and discourage improper contracts; not to enforce them is adopted as the best means to this end, and is adopted in total disregard of the effect upon the parties to the prohibited transaction."
The judgments of both courts below are reversed and judgment is here rendered that plaintiff take nothing.
Opinion delivered June 16, 1954.
Associate Justice Smedley not sitting.