Court Opinion

ID: 5502444
Source: CourtListenerOpinion
Date Created: 2022-01-10 03:02:40.553733+00
Date Added: 2024-06-11T08:33:58.314105
License: Public Domain

Smith, J.
I cannot find, as is claimed by the plaintiffs, any stipulation on? the part of the defendant corporation to grant the license mentioned in Exhibit D within three weeks from November 10th. The licenses were to be granted when the sample harrows were all in. It was understood by the parties that the time would be short when these samples would be before the executive committee, and the question of license could be passed upon. I have no doubt that a specified time was there mentioned, but it was not, in my judgment, a part of the contract; and the committee, having met upon the same day that the last sample harrow was received, have acted within a reasonable time, which fulfills the requirement of the law. Upon December 16th, after the commencement of this action, the committee did meet, and assume to license the plaintiffs in accordance with the memorandum Exhibit D. The license delivered to them, strictly construed, is not, in my judgment, such a license as is required by the contract. But the plaintiffs had theretofore notified the defendant that they would not abide by the contract. The defendant corporation here asserts that it is willing and anxious to fulfill the terms of the contract, and grant such license as is therein required. A resolution to that effect was by the executive committee passed December 16th. The defendant should not, therefore, be foreclosed, by reason of the mistake of its attorney in preparing the form of the license, but the decree should provide, if these contracts are valid, that they be operative upon the making out of the proper license under the contract.
The plaintiffs’ claim that the contract was induced by duress is not within the pleadings. Nor can the court grant the plaintiffs relief upon the ground • that the corporation is not a legal corporation, because organized for a purpose not within the statute. It is a serious question whether a corporation can organize under the manufacturing act, for a purpose within that act, as incidental only to the main purpose of its organization. But, even if that question could be raised by the plaintiffs in such an action as this, it is a claim of which the defendant has had no notice by plaintiffs’ complaint, and is therefore not before the court for consideration.
Nor can the plaintiffs sustain this action because defendant corpora- ■ tian has acted beyond its powers, or has -made contracts with other corporations which were without power to enter into such contracts. These plaintiffs can have no better right than could a subscriber for the stock of a corporation in an action upon such subscription. In such an action it is settled law that the subscriber cannot defend on the ground of the misuse or abuse by the corporation of its corporate powers. Mor. Priv. Corp. (1st Ed.) §§ 312, 313, and cases cited in notes. The contract of plaintiffs was with the defendant corporation. These other corporations are not parties to the contract sought here to be annulled; nor are their contracts with defendant any part of the legal consideration of plaintiffs’ contract. It does not lie with plaintiffs, therefore, to say that, because the corporate authorities have made-void contracts with other corporations, plaintiffs can refuse to perform their contract. There is grave doubt if the plaintiffs’ contract with defendant could be in any way affected by the Michigan statutes. The decisions of the supreme court of the United States would seem to go far to hold that the plaintiffs might sell their harrows in the state of Michigan, unaffected by the Michigan statute. What effect the statute would have upon contracts between the defendant and Michigan corporations, I have held, was not a matter of concern to the plaintiffs in this action. These plaintiffs, therefore, have no cause of complaint, unless the contract made is an illegal contract, as *232hostile to the public good. I need hardly cite authorities to the effect that the court will relieve a repentant party from an illegal contract that has not been executed. It would be strangely inconsistent for the court to refuse to relieve a party from a contract for the execution of which it would punish him. This case is clearly distinguishable from that of a party asking relief from the court based upon an illegal contract executed in whole or in part. The single question remains, therefore, of the legality of the proposed contract.
It appears from the evidence that for the purposes for which harrows are used the float spring tooth harrow has practically monopolized the market. By reason of its superiority it has driven from the field nearly all of its competitors. It appears, further, that the defendant corporation has made contracts, similar to the one set forth in Exhibits A, B, and C, with 19 other firms and corporations, which, with the plaintiffs, comprised all of the manufacturers of float spring tooth harrows in the year 1890 within the United States. By the contracts these manufacturers assumed to sell to the defendant corporation “their business, the good-will of the business, all patents now owned or which may hereafter be owned, all licenses and rights under patents relating to the manufacture and sale of float spring tooth harrows.” They took back from the defendant corporation the exclusive right to manufacture the style of harrow they were manufacturing at the time of entering into such contracts. The defendant’s rights, therefore, under such contracts, are only to manufacture under patents which have been by the manufacturers discarded. The firm of G. B. Olin & Co. have assigned its patents to the defendant for cash value, without taking back such a license as is provided for in the other contracts. I do not understand that under the purchase from Olin & Co. the defendant gets the right to manufacture any harrow under any valuable patent to wdiich it has not given the exclusive right to manufacture to other licensees. It was assumed and stated upon the trial that the incorporators and trustees of this national Harrow Company are all persons who are represented in the various manufacturing firms thus contracting with the defendant. It is apparent, therefore, that it is not one of its purposes itself to manufacture harrows for sale upon the market. It is claimed further that it has an ultimate object to manufacture materials for harrows for use by its licensees. But such an object is manifestly an incidental one only, if it exist at all, and is evidently a purpose entertained to avoid the objection that the purchase by corporate licensees of stock in the defendant corporation is void, as beyond, their corporate powers. The purposes of this incorporation are only important in this case as they bear upon the ends sought to be accomplished by these contracts.
All manufacturers, then, of float spring tooth harrows in the United States have agreed, by the papers executed, not to be directly or indirectly interested in the manufacture or sale of float spring tooth harrows, or allow them to be manufactured or sold in any building controlled by them, or either of them, in the United States, or any territory thereof, except Montana, for 50 years, and except as agents and licensees of the National Harrow Company. They have transferred to the defendant company all the patents owned by them, or which may hereafter be owned by them. They have agreed that for 50 years they will not manufacture or sell any harrow except such as they are now manufacturing. By this contract, for 50 years they are not permitted to avail themselves of any devices under patents other than those under which they now manufacture, even after the expiration of such patents. This limitation which they have assumed is not for tile protection of the defendant company, to which they have sold their patents. The defendant has covenanted for 50 years not to manufacture under all that is valuable of the present patents, to-wit,.those patents under which their licensees are now manufacturing. Nor are these manufacturers permitted to utilize any new in*233ventions which they may make, or any new patents of which they may acquire control. Not only have they crippled themselves, but they have agreed not to allow to be manufactured in any building controlled by them, or either -of them, in the United States, except Montana, any harrows except those that they shall manufacture. And it is further stipulated that these manufacturers shall comply with all of the requirements of the board of directors of the National Harrow Company with reference to their sales, which requirement shall be uniform with all agents and licensees. The contract can receive no other construction. The defendant itself has so construed it. Under this stipulation this defendant has assumed to fix the prices and terms for 'the sale of harrows by these manufacturers, as set forth in Exhibit E. These prices are not based upon the cost of manufacture, but are to be uniform with all manufacturers upon a certain style of harrow. But this stipulation is a very broad one. As practically construed by the defendant, it gives the defendant absolute power to regulate the prices at which these harrows shall be •sold; to raise or lower them at pleasure. It may fairly be construed to give to this defendant the absolute power to control the manufacture, as well as the sale, of the harrows; to regulate the production, subject only to the condition that the requirements of the defendant’s board shall be uniform with all manufacturers. It is claimed by the defendant that the price fixed is less than the price at which harrows had been theretofore sold. It is true that it is less than the price at which the majority of harrows had been theretofore sold. It is considerably in excess, however, of the price at which others were sold, and in excess of the price which the plaintiffs received for their harrows. But there is nothing to prevent this defendant at any time from raising this price at its will. It is hard to conceive how a monopoly could be more firmly intrenched, or how competition could be more effectively strangled. People v. Refining Co., (Sup.) 7 N. Y. Supp. 406. “The mischief of a monopoly is not necessarily in the fact that the prices are raised, but that they have the power to control and raise the prices.” Dolph v. Machinery Co., 28 Fed. Rep. 553; Butchers' Union Slaughter-House Co. v. Crescent City Live-Stock Landing Co., 111 U. S. 755, 4 Sup. Ct. Rep. 652. In Hoffman v. Brooks, 11 Wkly. Law Bull. 258, 259, it is said: “It is not averred that the prices fixed are extortionate, but it is enough that they are absolutely removed beyond the operation of their natural cause of fluctuation.” See Carbon Co. v. McMillin, (Sup.) 6 N. Y. Supp. 433, 119 N. Y. 46, 23 N. E. Rep. 530; Hooker v. Vandewater, 4 Denio, 349; Stanton v. Allen, 5 Denio, 434; Morris Run Coal Co. v. Barclay Coal Co., 68 Pa. St. 186; Salt Co. v. Guthrie, 35 Ohio St., 672; Craft v. McConoughy, 79 Ill. 346; Arnot v. Coal Co., 68 N. Y. 558; and cases cited in the opinion of Mr. Justice Daniels in People v. Refining Co., supra, p. 412.
It is claimed that the courts have modified the rule as to contracts in restraint of trade. I find that that is true where an individual sells his business and contracts not to engage therein within a territory as large even as •the United States. The courts now enforce such contracts. Our own court of appeals has gone far, in the Diamond Match Co. Case, 106 N. Y. 473, 13 N. E. Rep. 419, in relaxing the severity of the ancient rule in condemnation of such contracts as in restraint of trade; but I am cited to no case where the courts have relaxed the rule where there was a general combination to engross the market, control prices, and prevent competition. This was a conspiracy indictable at common law. It is made criminal by our own statutes. The contract is not made to protect any purchase made by the parties thereto. Unless the policy of the common law has so far changed as to authorize any monopoly for the restraint of trade, this combination must clearly come within its condemnation. The defendant further contends that the purpose of the ■contract made is to prevent disastrous litigation. Such purpose is lawful. But the combination effected has gone much further than such a purpose re*234quired. An unlawful combination cannot be cloaked by a lawful purpose, when that is associated with others which the lay/ condemns. Hor can this defendant shield itself under its corporate rights. When the fact appears that the forms of law are being used to accomplish a legal wrong, a court of equity is potent to relieve a suitor, and, if necessary, to rend assunder the legal veil which covers the iniquity. The contracts, as interpreted by the court, however, are clearly beyond the powers of the defendant corporation as a legal entity, and it is not necessary here to adjudge the corporation illegal in order to annul a contract in excess of corporate power. Ñor is the defendant’s contention that the monopoly formed is authorized by the federal statute a justification of these contracts. If these contracts were limited to the life-time of these patents, the argument should not be dismissed without a, serious consideration. But when the parties have assumed to contract for 50 years beyond the possible life-time of any of these patents, it is clear that the federal law has given no right to such monopoly. It follows, therefore, that the plaintiffs are entitled to the relief asked in the complaint, and that the injunction allowed the defendant upon its counter-claim must be vacated and set aside, and the defendant’s prayer for relief denied.