Chicago Sugar Co. v. American Sugar Refining Co.

• Citation: 176 F.2d 1
• Decision Date: 14 September 1949
• Docket Number: No. 9158,9159.,9158
• Parties: CHICAGO SUGAR CO. v. AMERICAN SUGAR REFINING CO. (two cases).
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

176 F.2d 1 (1949)

CHICAGO SUGAR CO. v. AMERICAN SUGAR REFINING CO. (two cases).

Nos. 9158, 9159.

United States Court of Appeals Seventh Circuit.

July 11, 1949.

Rehearing Denied September 14, 1949.

Leslie M. O'Connor, Chicago, Ill., for Chicago Sugar Co.

Kenneth F. Burgess, Howard Neitzert, Geo. A. Ranney, Jr., John R. Taylor and Sidley, Austin, Burgess & Harper, Chicago, Ill., for American Sugar Refining Co.

Before MAJOR, Chief Judge, and KERNER and DUFFY, Circuit Judges.

KERNER, Circuit Judge.

By the appeal in No. 9158 plaintiff challenges the propriety of a judgment dismissing its complaint after a trial upon the merits. In No. 9159 defendant appeals from that part of the same judgment which taxed to defendant one-half of the costs of the proceedings before a master.

The complaint contained three counts. The first two counts charged violation of the Clayton Act as amended by the Robinson-Patman Act, 15 U.S.C.A. § 13(a) and (e) and sought to recover three-fold damages. The third count sought damages for breach of contract. After defendant had filed its answer, the cause was referred to a master for hearing and to report his conclusions and recommendations. The master having heard the cause, filed his report. He made 79 findings of fact. He also made conclusions of law and recommended that the cause be dismissed. Exceptions to the report were filed and overruled, and the report of the master was approved. In the judgment order dismissing the cause, the court adopted the master's findings of fact and conclusions of law.

The issue is whether the acts of defendant were discriminatory within the meaning of § 2(a) and (e) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C.A. § 13(a) and (e). Under § 2(a) it is unlawful to discriminate in price between different purchasers of commodities of like grade and quality where the effect may be to substantially lessen competition or to injure, destroy or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination. And § 2(e) forbids preferential services or facilities connected with the sale of a commodity upon terms not accorded to all purchasers on proportionally equal terms.

Plaintiff, an Illinois corporation, is a distributor engaged in the business of buying and selling sugar, largely with industrial users. Defendant, a New Jersey corporation, is engaged in the business of buying and refining raw cane sugars and in selling domestic refined cane sugars and sugar products. In 1936 and 1937 there were 14 domestic cane refiners in the United States which, with the exception of those owned by Western Sugar Refinery and California & Hawaiian Sugar Refining Corporation (hereinafter referred to as "Pacific Coast Refiners") and located in San Francisco, California, were located along the Gulf and Atlantic coasts. Sugar is a standardized commodity, and the sugar business is extremely competitive. A customer will pay no more for one refiner's brand than for another; price and terms rather than brand control its sale and distribution, and no seller of sugar can continue in business unless he gives his customers the same privileges any other refiner gives. All domestic cane refiners sell their sugar through brokers on substantially the same terms. Two types of contracts are offered to the trade by refiners: (a) contracts containing specifications for the immediate sale and delivery of the sugar, and (b) contracts not containing specifications, referred to as 30-day contracts.

The 30-day contract form does not require contract bookings to be withdrawn within the guarantee period applicable to the contract. The guarantee period is not mentioned in the contract form, but, pursuant to announcement, contract prices may be guaranteed for 30 days, 42 days, or not guaranteed at all; yet, in all except in very unusual cases the delivery period as stated in the contract form is 30 days and delivery specifications are required of the purchaser within 15 days from the date of the contract. Many contracts do not carry a guarantee, yet the delivery period is determined in precisely the same manner as in the case of guaranteed contracts.

Most of the sugars sold by refiners are through the medium of 30-day contracts, entered on market moves. A market move develops when refiners announce an increase in their basis prices. Ordinarily a price increase is announced the day before a new and higher price becomes effective. In the interim between the announcement and the effective date of the new price, sugar buyers enter into 30-day contracts with refiners, booking such amount of sugar as the seller will accept or as the buyer may consider to his advantage. These 30-day contracts do not contain specifications as to the grade, kind, style of package, or quantities of sugar to be delivered, nor are the dates on which the sugars are to be delivered specified. They contain a provision that the buyer agrees to buy and the seller agrees to sell a designated number of 100-pound bags of refined cane sugar at a basis price per pound. When sugars booked on a 30-day contract form are delivered to the customer, the deliveries are made pursuant to delivery specifications furnished by the purchaser, stating the kinds of sugar and amounts desired, and the refiners make deliveries until they advise their customers to the contrary. While the contract forms used by the various refiners differ in their terms, all require the purchaser to buy and the seller to sell specified quantities of sugar at a firm price, the sugar to be delivered within 30 days of the contract unless otherwise indicated.

The provisions of the 30-day contract forms requiring purchasers to specify for delivery sugars booked under the contract within 15 days of the contract date and to accept delivery within 30 days of the contract were ignored by both buyer and seller from the date of the introduction of the 30-day contract form, and buyers withdrew sugars if, as and when they desired so to do, and it became common practice for all refiners to make deliveries until they notified their trade to the contrary. No effort was made by any refiner to require its customers to withdraw contract bookings, and undelivered contract balances were cancelled at the request of the buyer.

On January 4, 1937 the parties executed two 30-day contracts. By contract No. FA-21160, plaintiff agreed to buy and defendant agreed to sell 75,000 100-pound bags, and by contract No. FA-21161, 25,000 100-pound bags of refined sugar. The parties agree that the language of the contract did not express their true agreement, and both parties disregarded the rights and obligations provided by the contracts with respect to furnishing specifications, the withdrawal of contract balances or the delivery of sugar booked under the contracts. They also agree that the contracts were supplemented or modified by the course of dealing between the parties since January 1, 1932, and by public announcements outlining the basis upon which business was accepted under the contracts.

About 1936 California & Hawaiian Sugar Refining Corporation (hereinafter referred to as C. & H.), to improve its competitive position in the central States, offered to guarantee its 30-day contract price against a decline in its own basis price for 42 days following the date of its contracts. This move by C. & H. was met with like terms by other refiners, and the terms so offered became known as "guarantee terms" or as "the guarantee" and there evolved in the trade a term known as "the regular 42-day guarantee" and thereafter 42-day guarantee terms were extended to purchasers holding 30-day contracts to withdraw sugars booked at the lowest basis price during the first 42 days following the date of the contract.

Having given their customers cause to believe that they would not be required to withdraw 30-day contract bookings if they did not desire to do so, the refiners were confronted with the problem of inducing withdrawals and with the further problem of disposing of undelivered contract balances in cases where the buyer could not be induced to make such withdrawals. They devised various expedients for extending guarantee terms to the unguaranteed contract balances, two of which were known as "extending the guaranty period" and "re-entering contract balances." Re-entering January 4 contracts involved no making of new contracts, and when contract balances were re-entered, the refiners extended to their customers holding undelivered contract balances the same rights and privileges with respect to such contract balances as though the old contracts were cancelled, and upon the customer's request they would cancel undelivered contract balances.

Two methods were devised for the disposition of undelivered contract balances in cases where the customer failed to withdraw such balances. The practice was to advise contract holders by letter or public announcement that unless the balances were withdrawn by a specified date in the future, the contracts would be cancelled. By the other method the refiners announced that they would permit customers to cancel the outstanding contracts. The extension of guarantee terms, the re-entry of contract balances, the cancellation of contract balances and the offer to cancel contract balances are competitive terms, and when extended by one refiner to its customers, competing refiners are required to offer like or similar terms in order to hold the good will of their customers.

From January, 1932, until November 5, 1936, there were 32 market moves on which 30-day contracts were entered into between the parties, and during 1936, deliveries were made to plaintiff many days after the 30-day contracts had expired. January 4, 1937, the cane refiners announced that effective January 5, they would advance their basis prices from 4.80 cents to 5 cents per pound. In the market move which followed, substantial quantities...