Monongahela River Consolidated Coal & Coke Co. v. Jutte

Opinion by

Mb. Justice Dean,

In the year 1899 Finley and Whitney commenced taking options in writing from owners and operators of coal properties on or adjacent to the Monongahela river. The river was navigable for coal shipping about eighty miles southwest from its junction with the Allegheny river at Pittsburg, and for the greater part of this distance is in Pennsylvania. At the time the options were being taken a large number of persons, partnerships and companies were engaged in the business of mining and shipping coal down the river from the Monongahela territory to points on the Monongahela, Ohio and Mississippi rivers as far south as New Orleans, reaching points in all the states through which the rivers flowed. The object of the promoters was to take options from all the coal operators on the Monongahela from whom they could buy at a price to be agreed upon. Out of the whole number of operators, they agreed with and took an optional purchase from many of them, among these last this defendant and his partners in the coal business. The purchase from defendant and his partners included all the property of the latter then operated by them on the Monongahela river, coal mines, coal boats, towboats, steamers, shipping and landing wharves from Pittsburg to New Orleans. Finley and Whitney also took like options from all the coal operators with whom they could agree, and who were engaged in a like business to Jutte and his partners. It was not a conspiracy or combination between all of the selling companies who, along with defendant, gave options on their properties to plaintiff to purchase and then contracted not to enter into competition with plaintiff on that river for a fixed period, for, so far as appears, each vendor contracted for himself alone, without reference to any other; but as concerned results the consequences to interstate commerce were the same as if all the vendors had joined in one contract with plaintiff. To that extent traffic was stopped on their part the same as if a direct combination among them all had been made. A large number of mines, going operations on the Monongahela, they did not buy or obtain options for. There was also a large number of steamboats and other transportation property on which options were not taken.

On October 2, 1899, in pursuance of the optional agreements with defendant and his partners, for the consideration of over $1,000,000, which was paid, all the property was 'transferred to plaintiff. The other operators who had given options but had no connection with the defendant, about the same time transferred their properties to plaintiff. The plaintiff company was at the time of the- transfer and still is a Pennsylvania corporation. Within fifteen months after this transfer by Jutte and after he had received the consideration money, he joined with others and obtained from the state of New Jersey a charter for a coal company, purchased and opened large tracts of coal land upon the Monongahela, also boats for transportation, and is now actively engaged in the business of mining and transporting coal upon the Monongahela, Ohio and Mississippi.

There is no dispute as to the main facts; so far as a man can bind himself by a written stipulation not to do a particular thing, the defendant, after receiving the full consideration for his promisé, is openly and defiantly violating it. He justifies this violation on two grounds : (1) The contract with the others entered into between him and plaintiff constituted a monopoly and is therefore void because against public policy. (2) The contract is in violation of the act of congress of July 2, 1890, commonly known as the anti-trust or Sherman act, and is therefore void.

Each of the transfers directly to the plaintiff company embodies this stipulation :

“We severally and jointly stipulate, covenant and agree to and with the said the Monongahela River Consolidated Coal and Coke Company, not to engage directly or indirectly, individually or through partnership or partnerships, limited partnerships, ■ corporations (except in conjunction with the said the Monongahela River Consolidated Coal and Coke Company) in the business of mining, marketing or shipping of coal in the territory traversed by the Monongahela, Ohio and Mississippi rivers and their tributaries for the period of ten (10) years from the date hereof. ”

It may be argued, as is argued here, that it was the intention of these contracting parties to create a monopoly in the plaintiff of the coal mining business adjacent to the Monongahela river, but that is an inference from the circumstances dehors the agreement. So far as appears from the face of the agreement, except as to the restriction of defendant to time and place, it was simply a purchase at full price by one coal producer of another’s plant. To monopolize, according to the Century Dictionary, is “to obtain or engross the whole of; obtain exclusive possession of. ” Assume that the plaintiff bought in addition to defendant’s plant, forty-nine others and that it had a capital of $40,000,000 in stock and bonds ; then at the rate it paid for this property it could not have been far from the end of its resources. The evidence shows without contradiction, that there were eighteen mines in operation which the plaintiff did not buy, besides there were many thousands of acres of workable coal land accessible to the river which could have been bought had it desired to obtain or engross the whole. The defendant himself within a few months bought other coal lands and opened mines on the Monongahela ; he has also purchased and built boats and acquired all the means of transportation to successfully compete with plaintiff company. Whatever may have been the undisclosed intention of plaintiff at the date of its purchase, neither the agreement it made with defendant nor those it made with his covendors, nor any of the surrounding facts at the date of the agreement, unless it be the restriction before quoted, show any intention to obtain exclusive possession of either all coal or means of transportation in the Monongahela valley.

That stipulation does undoubtedly exclude the defendant and all others signing similar agreements from mining coal on the Monongahela, or shipping on that river, the Ohio and Mississippi or their tributaries and to that extent the stipulation constitutes a monopoly, that is, a monopoly in so far as it debars those particular individuals for a specified term of years from engaging in that particular business on certain rivers. Is that stipulation void because contrary to public policy? As we understand the public policy of this commonwealth, both as disclosed in the constitution of 1874 and as apparent in all the legislation since, it is to encourage and promote large aggregations of corporate capital for the development of all the commonwealth’s resources.

The last case in this state distinctly following the older rulings, is Morris Run Coal Co. v. Barclay Coal Co., 68 Pa. 173. That casejheld to the principle that all restraints on trade are injurious to the public, and, therefore, presumably illegal and void on the ground of public policy. In that case five coal companies had entered into an agreement to mine coal and then practically pool the product, each through a committee to equalize their respective shares in the fund according to the award of the committee, which committee was to determine and control the output of the mines so as not to lower the market price of coal. A draft drawn by one of the coal companies on the other to equalize the division between them, after acceptance, was protested for nonpayment. Suit was brought and the defense was made, that being based on the pooling agreement, that agreement was in restraint of trade and was void because against public policy. This court so decided and the plaintiff was not permitted to recover. That case was decided in 1871. While we have no doubt as to the soundness of the general principle laid down in that case, we doubt if today the court would hold on the particular facts developed, that the principle was applicable to those facts.

We think that perhaps at this day we would go further, and inquire whether in view of the purpose of the contract and the slight restraint it imposed on trade, it was unreasonable and therefore void, and not void solely because it to a certain extent monopolized the production of coal. For in a certain sense every coal corporation with a large capital engrosses the business to the exclusion of individuals of small means ; it is able to buy and develop a large acreage and open upon it many coal mines; then to supply itself at a heavy outlay with all the means of transportation to market. It buys up the stock of smaller corporations and the property of individuals and consolidates them in some form into one company under one management. Probably, at this day, if the five companies in the case cited desired to stop competition among themselves and cheapen production by cheapening the cost of management, they would, under our corporation act of 1874, and its supplements, adopt some scheme of consolidation under one charter and thus to a greater extent and far more effectually suppress competition than they did under their pooling agreement which was declared illegal because against public policy. The professed purpose in organizing these large corporations is not to kill competition, but to cheapen production in the interest of the public. Yet whatever the real purpose competition is stopped by an entirely lawful method. Prior to the adoption of our present constitution, to obtain authority to organize a coal corporation it was necessary in each instance to resort to the legislature for a special act. Compared with the number now in existence of such corporations but few were organized. But the present constitution prohibited all such special acts and declared in effect, that in the future all such corporations should be organized under the general laws to be adopted by the legislature. The legislature enacted the general corporation act of 1874, a most liberal act in its requirements. Very soon a host of coal corporations sprang into existence which with their large capital bought out, or by their cheaper production drove out, individual producers, so that to-day there is but little competition in the business with individuals. We have only to peruse our own constitution and the statutes adopted in pursuance of its mandate, to learn what has been the public policy in this regard in the commonwealth. If competition has been largely suppressed, if the courts more liberally interpret in their application the common-law rules on the subject of monopoly, it is only because a more rigorous interpretation would defeat the true intent and meaning of our constitutional and statutory legislation on the subject. Our decisions on this subject may not be in accord with those in some other states and possibly not in accord with those in the federal courts, but in so far as they affect matters only within the territorial jurisdiction of this commonwealth and do not conflict with the constitution of the United States or statutes adopted in pursuance thereof, we believe they are sound because in accord with the public policy of this state, and we shall adhere to them.

The opinion in the case cited is a very able one by the late Chief Justice Agnew in which most of the English authorities and those of our own states up to that day, 1871, are noticed. But since then both in England and this country the doctrine has been much relaxed as to all such contracts. A full review of the cases is found in Carter v. Alling, 43 Fed. Repr. 208, decided in 1890. In that case Blodgett, J., says :

“ The only defense seriously insisted upon in the case is that this contract is void as a contract in restraint of trade. ... In the earlier English doctrine upon the subject of contracts, it was held that they were contrary to public policy, and void; but as the later cases came before the court, this doctrine was much relaxed, and the first modification of the doctrine was the recognition of the validity of contracts of this nature where the restraint was limited as to space or time and reasonable in its nature. And the reported cases are abundant in which an undertaking by one person not to carry on a given business within a limited area and within a fixed period of time has been sustained. ... In later years a further relaxation of the old rule has- grown up in England and America and the courts have repeatedly recognized the validity of contracts in the restraint of trade throughout the entire country, where such restraint was not unreasonable in view of the nature and extent of the business of the covenantee.”

This is the general current of decision in this day. When a contract is,presented which in some degree restrains trade, we do not at dnce decide that it is void as against public policy, but we go further and inquire, is it limited as to space or time, and is it reasonable in its nature ? We are approaching nearer and nearer to the conclusion, although we have not yet reached it, that common honesty is the true public policy.

This contract is limited as to time, ten years; it is limited as to space, the immediate territory adjacent to three navigable rivers and their tributaries. This is its plain interpretation, although these words are not used; the boats purchased could reach no further than the landings and wharves thereon. Then is the restriction reasonable ? The time was not an indefinite period as in some of the cases; shipments could be made owing to the uncertainty of navigation but once or twice a year. The time and space covered by the restriction were each, considering the character and extent of the business, reasonable. The defendant also sold his good will in the-business. Considering the facts and that a full price was paid, even though the agreement restrained defendant, we think the restraint reasonable and therefore the contract was not a violation of the public policy of this state, and hence as concerns that point it ought to be enforced in equity.

The next question is, is it prohibited by the act of congress of July 2,1890, known as the anti-trust or Sherman act? That act is entitled: “ An act to protect trade and commerce against unlawful restraints and monopolies.” The first section of the act declares that: “ Every contract, combination in the form of trusts or otherwise or conspiracy in restraint of trade or commerce among the several states or with foreign nations is declared illegal.”

The leading facts in the Northern Securities case, as stated, by Justice Hablan who rendered the majority opinion of the court, are very briefly these: The Great Northern, and Northern Pacific Railway Companies, having in view the ultimate placing of their systems under a common control, purchased the capital stock of the Chicago, Burlington & Quincy Railway Company and exchanged therefor the joint bonds of the two purchasing roads, thus became the owners of $107,000,000 of the $112,000,000 of the whole capital stock of the purchased road, whose lines aggregated about 8,000 miles, main line and branches, and which after running through several states connected at the western end with the Northern Pacific, one of the purchasing roads. By this operation the purchasing roads obtained full control of the purchased road with its main line and branches. Then Hill and Morgan, holders of stock respectively in the two purchasing companies, with associate stockholders in each company respectively, entered into a combination to form under the laws of New Jersey a holding corporation to be called the Northern Securities Company with a capital stock of $400,000,000; to this company in exchange for its capital stock was to be turned over the capital stock, or a controlling interest in it, of each of the railways forming the combination, with power in the holding company to vote such stock and in all respects to act as the owner thereof. This, practically, would enable the holding company to pursue a policy which would benefit all the constituent companies at the expense of the public, take away all inducement to competition between them and be a virtual monopoly of interstate and foreign commerce, theretofore carried on by competitors. The organization was completed according to the terms proposed in the original combination. It was declared illegal by the supreme court of the United States. Justice Hablan speaking for the court says: “ In our judgment the evidence fully sustains the material allegations of the bill and shows a violation of the act of Congress, in so far as it declares illegal every combination or conspiracy in restraint of commerce among the several states and with foreign nations, and forbids attempts to monopolize such commerce or any part of it.”

The facts and the inferences from them in that case, popularly known as the Northern Securities Company case, are distinctly different from those in the case before us. As Justice Harlan says in the course of the opinion : “Necessarily also the constituent companies ceased under such a combination to be in active competition for trade and commerce along their respective lines, and have become practically one powerful consolidated corporation by the name of a holding corporation, the principal, if not the sole object for the formation of which, was to carry out the purpose of the original combination, under which competition between the constituent companies would cease.” The New Jersey charter of the holding company does not disclose, at least only very vaguely, the real purpose of the combination, but the case of the United States was supplemented by depositions, which left no doubt of its purpose; that purpose was, by agreement, to stifle all competition in freight and passenger business between what had theretofore been competing railroads engaged in interstate commerce, a commerce which had been conducted by rail, which could be conducted nowhere etóe than on the narrow way owned and under the complete control of the holding company. This in the very words of the first section of the anti-trust act, was a “ combination or conspiracy in restraint of trade ” between the states. It placed the entire control of the charges for interstate commerce on these railroads in the holding company, a New Jersey corporation, which could exercise its despotic control solely in the interest of its stockholders regardless of the interests of the people. But those are not the facts with reference to this plaintiff corporation. It carried nothing across the continent on a railroad of which it was in absolute control; its traffic was on a natural highway of which it had no control whatever, either as to rates or facilities for shipment. The contract between defendant and the other persons from whom plaintiff purchased was between them alone. Except in so far as the contract bound defendant to withdraw from a limited market for a limited period the public was in no way affected by that contract; everybody was as fre'e to navigate the three rivers and their tributaries as before; no one could place a contract obstruction in them for they are navigable waters of the United States as uncontrollable by artificial means as the tides of the sea.

But notwithstanding this freedom of the highway, does the contract constitute a combination or conspiracy under the antitrust act in restraint of trade or commerce? The United States enforces no public policy as a state policy, except so far as established by the United States constitution and the laws made in pursuance thereof. The opinion of Justice Harlan, already noticed, after citing the authoritative interpretations of the anti-trust act by that court asks this question: “ Do former adjudications determine the controlling questions raised by the pleadings and proofs ? ” (in the case before him). To this he answers: “ Although the act of congress known as the antitrust act has no reference to the mere manufacture and production of articles or commodities within the limits of the several states, it does embrace and declare to be illegal every contract, combination or conspiracy, in whatever form, of whatever nature and whoever may be parties to it, which directly or necessarily operates in restraint of trade or commerce among the several states or foreign nations; that the act is not limited to restraints of interstate and international trade or commerce that are unreasonable in their nature but embraces all direct restraints imposed by any combination, conspiracy or monopoly upon such trade or commerce.”

Although Justice Brewer, while concurring in the judgment did not concur in all the reasons therefor, and particularly the last clause of the preceding sentence of Justice Harlan, in which it is declared that the act of congress includes all direct restraints upon commerce without considering their reasonableness. As to that question he says: “ Instead of holding that the anti-trust act included all contracts reasonable or unreasonable in restraint of interstate trade, the ruling should have been, that the contracts there presented (the Northern Securities case) were unreasonable restraints of interstate trade and as such within the scope of the act.” While, if the decision had been based on the unreasonableness of the Northern Securities contract, this would have been a decision by a minority of the court, yet Justice Brewer., while not concurring in that reason, does concur in the announcement of Justice Harlan, that the contract in that case operated as a direct restraint upon interstate commerce. It is, therefore, the law, not only the statute itself but its interpretation by the highest federal court. In fact, that interpretation is not new, it only follows many older ones, not all on the same statute of course, for it was only passed in 1890, but on the power of congress to legislate on subjects, where that power has been expressly conferred upon it by the constitution of the United States.

We are of opinion that this contract is in direct restraint of interstate commerce, not only under the Northern Securites decision already cited, but under other decisions of the same court cited in the opinion in that case, not that we think, in view of the purpose of this contract and the limited territory and time covered by it, the restriction is unreasonable, but because the United States statute as interpreted by the United States court so declares.] If it were a Pennsylvania statute, reaching only Pennsylvania territory, then under common-law rules of interpretation we would decide differently, but the 2'estriction in this contract reaches into and restricts traffic in many states. It is no answer to say that the restriction as to time is short and as to territory comparatively very limited. That the neeessitjr of some protection to the purchaser is so manifest in view of the large price paid defendant, that at least, as to him, it is not unreasonable. These considerations have little or no weight with us when we are called upon to interpret a contract the stipulations1 of which clash with an act of congress regulating interstate commerce. In such case we must follow the United States courts. This, however, does not take away our jurisdiction over contracts made in Pennsylvania so far as they affect only Pennsylvania territory. Justice Jackson, then a circuit judge, afterwards justice of the supreme court of the United States, In re Greene, 52 Fed. Repr. 104, uses this language : “ But congress has not the power or authority under the commerce clause, or any other provision of the constitution to limit and restrict the right of corporations created by the states or the citizens of the states in the acquisition, control and disposition of property. ” The learned judge of the court below recognizing tbis as the law, and that this contract by its terms reached beyond the boundaries of this state, nevertheless held that the contract was divisible and that part of it which stipulated that defendant would not mine, market or ship coal on the Monongahela, being divisible from that part which restricted him from carrying on interstate traffic, the contract so far as confined to this state should be enforced. This is the latter part of the third conclusion of law:

“ It remains to consider whether or not the contract not to mine, market or ship coal on the Monongahela river is reasonable. The expression, ‘ mining coal on the Monongahela,’ we take to mean mining the coal adjacent to that river, which might be conveyed to and shipped upon the river within the limits above mentioned. The defendant was engaged at the time of selling out the business and good will of the companies with which he was connected, in mining generally in the Monongahela river district, which, as above stated, is a small and fairly well-defined district. We see nothing unreasonable in an agreement connected with the sale of the good will of the mining business in that district to remain out of the business of mining and shipping coal in such a district, although there were parts of the district in which the defendant did not actually operate mines or ship coal.”

This conclusion only bears directly on the reasonableness of the restriction, at the same time the limited territory in which it may be enforced is designated; but in tlie second conclusion of law the court says :

“ It is contended, however, by the defendant, that the stipulation is divisible, and that even if it is void as applied to the largest extent of territory described, it is not invalid as to parts of it. There is no question that such contracts are divisible, and that one part or stipulation thereof may be void while the other is not: Oregon Steam Navigation Co. v. Winsor, 87 U. S. 74. It seems to us that the contract in question may be fairly said to speak of six different districts, viz : each of the rivers, Monongahela, Ohio and Mississippi, and the district included by each of them and its tributaries ; and if any of the districts so designated shall appear to be not more than is reasonable for the protection of the purchaser of the defendant’s good will, the contract as to it would be valid.”

We consider these two conclusions together for they are somewhat interdependent. Both are earnestly attacked as error by appellant’s counsel. It is argued: “ That while a trade restriction may be reformed by striking out of it such part as is unreasonable, the general rule applies, that the reason for the severance must appear in the agreement itself, so that a new contract be not made for the parties.” It is argued, that the court itself must on a mere inspection of the agreement be able to separate the good from the bad. This, as the court below demonstrates, is not an exact statement of the rule nor the correct rule as held in Smith’s Appeal, 113 Pa. 579, and 1 Parsons on Contracts, 457: “ Where one gives a good consideration and thereupon another promises to do two things, one legal and the other illegal he shall be held, to do that which is legal unless the two cannot be separated.” The defendant, in consideration of the purchase money, covenanted not to engage directly or indirectly in the business of mining, marketing or shipping coal in the territory traversed by the Monongahela, Ohio and Mississippi rivers and their tributaries for the period of ten years. The anti-trust act does not apply to manufacturing, mining or other productive industries: United States v. Knight Co., 156 U. S. 1;^* ' United States v. Freight Association, 166 U. S. 290 ; ^† United States v. Joint-Traffic Association, 171 U. S. 505. ^‡ Hence, of itself the mining and shipping of coal as a mere productive industry, no matter how large may be the capital of the producing corporation, how many smaller operators or corporations it may have absorbed, as long as it does not directly repress competition, is not obnoxious to the anti-trust act. This contract so far as it restrained defendant from mining and shipping coal in Pennsylvania is good; so far as it tended to restrain him from carrying on interstate commerce it is bad and cannot be enforced. We have found no authority, nor has appellant pointed us to one, which! holds that if a contract be illegal and not on its face severable the whole contract is void. We think the true rule to be, that if any part of an illegal consideration be not divisible the contract falls. Here the consideration for defendant’s promise was $1,000,000 ; his covenant was not to mine and ship on these rivers ; the law steps in and severs the contract by declaring it is unlawful as concerns two of those rivers but lawful as to the third; why is not this a severance of the good part from the bad as much so as if he had specified that for a distinct part of the consideration he covenanted not to mine and ship on the Monongahela in Pennsylvania, and for another and distinct part of the consideration he covenanted not to mine and ship on tire Ohio and Mississippi ? And this divisibility of the contract was as clear the day it was executed as to-day, for that part agreeing not to ship on the Ohio and Mississippi was unlawful then and that part agreeing not to mine and ship on the Monongahela was good then. The defendant knew or ought to have known when he accepted the consideration, that part of his covenant was worthless and part good.

The Addystorr Pipe & Steel Co. v. United States, 175 U. S. 211,^* a case cited here by both parties, suggests such severance by judicial decree, though that was not the point decided. The defendants, six in number, entered into a combination by which there was to be no competition between them in thirty-six states and territories, in the sale of cast-iron pipe. The combination was declared illegal under the interstate commerce act, and all of defendants were enjoined by the court below. The contract was not on its face severable. Justice Peckham, who rendered the opinion affirming the judgment, said : “ In one aspect however that judgment (of the court below) is too broad in its terms—the injunction is too absolute in its directions—as it may bo construed as applying equally to commerce wholly within a state as well as to that interstate or international only. This was probably an inadvertence merely. Although the jurisdiction of congress over commerce among the states is full and complete it is not questioned that it had none over that wholly within the state and therefore none over combinations and agreements so far as they relate to a restraint of such trade or commerce. It does not acquire any jurisdiction over that part of a combination wholly within the state by reason of the fact that the agreement covers and relates to commerce which is interstate. . . . The combination herein described covers both commerce which is wholly within a state and also that which is interstate. In regard to such of these defendants as might reside and carry on business in the same state, where the pipe provided for in any particular contract was to be delivered. . . . The statute would not be applicable to them. ... To the extent that the present decree includes in its scope the enjoining of defendants thus situated from combining in regard to contracts for selling pipe in their own states it is modified and limited to that portion of the combination or agreement which is interstate in its character.” We cite these remarks of Justice Peokham only as showing that an agreement, which on its face bound all, yet as to some was bad under the interstate commerce law. Because they only carried out the combination between themselves, residents of the same state, the court severed them in framing its decree from their colleagues in the agreement who had violated the law. The able counsel for, appellant has advanced nq convincing reason in his argument why the court below shopld be convicted of error in treating part of this contract as lawful and part as unlawful as it clearly is.

We discover nothing in the specifications of error which warrants further discussion; they are all overruled and the decree is affirmed.

* Also reported 15 Sup. Ct. Repr. 249.

† “ “ 17 “ “ “ 540.

‡ “ “ 19 “ “ “ 25. Reporter.

* Also reported 20 Sup. Ct. Repr. 96. Reporter.