Stanton v. Allen , 5 Denio 434 ( 1848 )

By the Court, McKissock, J.

The plaintiff was not the holder of the note and bill in question for value, and the defen dant had a right to go into the question of consideration.

It is to be settled, therefore, whether the articles of association produced by the defendant, were illegal and void as against public policy. The association was formidable and imposing, consisting as it did of the members of all the transportation lines on the Erie and Oswego canals at the time. Its professed object and purpose was the establishment of fair and uniform rates of freight, and to equalize the business among the members. These rates were to be determined by a committee and to extend to the transportation of both freight and passengers. While the introductory terms of the agreement proposed nothing apparently objectionable, the ultimate object is very manifest and is of a different character. It is nothing less than the attainment of an exemption of the standard of freights, and the facilities and accommodations to be rendered to the public from the wholesome influence of rivalry and competition. To produce that end more completely, each member binds himself not only to run all his present boats according to the agreement and turn their earnings into the common stock, at the rates agreed upon and at which rate he is to be charged in the final distribution, though he may have received or charged less, but he is also prohibited, under severe penalties, from employing on any other terms boats subsequently acquired. Besides, as much as possible to secure the exclusion of others from their fair share of business, each party is bound, if he shall have more freight than he can carry, to offer it .to some of the associates; and if they do not take it, he is then authorized to procure its transportation without limitation as to rate, and after taking out the freight and certain charges for risk and trouble, to turn in the balance to the common stock. The association being thus secured against internal defection and external encroachments, and the members having thrown their concerns into stock, to derive an income in proportion to the number of shares they hold, and not according to their merit and activity in business, and safe against the reduction of compensation that would otherwise follow mean accommodations .and want of skill and attention, the public interest must necessarily suffer grievous loss. Indeed the consequence of such a state of things would shortly be, that freighters and passengers would be ill served, just in proportion as the carriers were well paid.

As these canals are the property of the state, constructed at great, expense, as facilities to trade and commerce, and to foster and encourage agriculture, and are at the same time a munificent source of revenue, whatever concerns their employment and usefulness deeply involves the interests of the whole state. If then, in addition to the evils already pointed out, as incident to this confederacy, a diminution of the revenue of the state would follow, of which there can be no doubt, as our canals have rivals by no means impotent, in the great inland carrying trade of the north and west, the question whether the association can be upheld, becomes one of momentous import. Though the branch of the law relating to public policy is liable to be misunderstood and extended beyond its proper dimensions, still it must not on that account be neglected or disparaged. The rule that contracts and agreements are void when contrary to public policy, when properly understood and applied, is one of the great preservative principles of a state. Sound morality is the corner stone of the social edifice. Whatever, therefore, disturbs that, is condemned under that fundamental rule. So marriage being the only guaranty of a numerous and sound population, whatever imposes restraint or dishonor on it receives no countenance from the law. Upon no other reasonable ground than that the interest of the state requires it, can a contract with an alien enemy, otherwise innocent, be held entirely void. (Potts v. Bell, 8 T. R. 548 ; Furtado v. Rodgers, 3 B. & P. 200.) So of agreements not to compete at auctions and to divide the profits. (Doolen v. Ward, 6 John. 194; Wilbur v. How, 8 id. 444.) If we ascend to the artificial institutions of the government of a state, we find that contracts are held void if they interfere with their healthful operation. Hence, when wagers were generally lawful, a bet on the result of an election was illegal. And agreements in consideration of the withdrawal of opposition to a proposed statute, have been held void. (Pengry v. Washburn, 1 Aik. Vt. Rep. 264.) So of an agreement to pay money in consideration of forbearance to make proposals to the postmaster general for a mail contract. (Gulick v. Ward, 5 Halst. 87.)

The counsel for the plaintiff referred to Richardson v. Mellish, (2 Bing. 229,) to show that the doctrine respecting public policy as a defence,, was not to be encouraged or extended. There is no .doubt that it ought not to have been extended to that case. If, in examining what was there said by the judges, we confine ourselves to what was pertinent to the case, it will not be found in conflict with the doctrine to which I have referred.

It was also urged that the association was a partnership, and that the uniformity of freights was but an incident to its formation. But the parties in their agreement expressly protest against its constituting a partnership. But whether it is of that character or not is not material. No one can be deceived by any supposed analogy between the principle of uniformity of price among the members of an ordinary business firm, and the same thing in a confederacy, formed for no other purpose or use than to bring it about. It was also said that the dealers in a particular article in a city or place might and did have an understanding from day to day as to its price. That is true, and it is not necessary to inquire whether such a system might not be carried so far, and be accompanied with such circumstances and regulations as to render it unlawful. But the comparison of the two cases totally fails, unless it be supposed that the city or place was built, owned and governed by the state as a great commercial mart for the benefit of the whole people, where the revenue of the state and the advantages to the community depend on open, free and fair competition. Finally,.! conclude that the association in question had a manifest and necessary tendency to diminish the revenue of the state, impair the utility of a great public work intimately connected with"the interests of the whole people, and that it must be eminently injurious to trade. The articles of association, therefore, in our judgment, unquestionably contravene public policy, and are manifestly injurious to the interest of the state. Hence they are void at the common law.

It has heretofore been decided by this court that an association among carriers on the Erie canal, with provisions in its articles very similar to the present, though of far less extent, was a conspiracy to commit an act injurious to trade, contrary to 2 JR. S. 691, § 8, and was therefore utterly void. (Hooker v. Vandewater, 4 Denio, 349.) That decision being conclusive on the main point in the present case, I might have rested upon that authority alone, if I had not supposed that the occasion called for an opinion as to the legality of such an association upon the principles of the common law.

It is urged by the plaintiff’s counsel, that if the articles of association were really void, the question should have been submitted to the jury whether the note and bill arose out of the business of the association. I think the judge was correct. Their connection with the association was so obvious that there was nothing to leave to the jury. The note, on its face, stated that it was for “per centage” on tolls for the season of 1843, and it was indorsed, Asa C. Tefft, agent. The defendant was a member of the association. Tefft was its agent, and he held that relation to no other company. The note was proved to have been discounted for the benefit of the association, and co have been taken up with the funds of the association. The words “per centage of toll” are explained by one of the provisions. in the articles, and nothing else can explain them. It is stated in the draft that it was on account of the association. Besides, there does not appear to have been any dispute as to that question of fact after the testimony was closed. The bill and note having arisen out of a transaction which was contrary to law, no action could be maintained upon them. The non-suit was therefore properly ordered.

' New trial denied.