Kelly v. Kosuga

• Decision Date: 24 February 1959
• Docket Number: No. 267,267
• Citation: 358 U.S. 516,3 L.Ed.2d 475,79 S.Ct. 429
• Parties: Jack H. KELLY, Petitioner, v. Vincent W. KOSUGA
• Court: U.S. Supreme Court

358 U.S. 516

79 S.Ct. 429

3 L.Ed.2d 475

Jack H. KELLY, Petitioner,

v Vincent W. KOSUGA.

No. 267.

Argued Jan. 22, 1959.

Decided Feb. 24, 1959.

Rehearing Denied April 6, 1959.

See 359 U.S. 962, 79 S.Ct. 796.

Mr. Joseph W. Louisell, Detroit, Mich., for petitioner.

Mr. Lee A. Freeman, Chicago, Ill., for respondent.

Mr. Justice BRENNAN delivered the opinion of the Court.

The respondent sued the petitioner in the District Court for the Northern District of Illinois for failing to complete payment of the purchase price of 50 cars of onions which the respondent had sold to the petitioner in December 1955. Jurisdiction was based on diversity of citizenship. The petitioner interposed the defense that the sale was made pursuant to and as an indivisible part of an agreement which violated § 1 of the Sherman AntiTrust Act, 26 Stat. 209, as amended, 15 U.S.C. § 1, 15 U.S.C.A. § 1. A motion was made to strike this defense and therefore the facts underlying it must be taken to be those set up in the petitioner's answer. Petitioner and respondent were both engaged in the marketing of onions. Petitioner, who was a grower of onions, admitted that he bought the onions from the respondent. But he alleged that the respondent and one Sam Siegel had represented to him and to other onion growers that they were the owners of substantial amounts of onions in storage, controlling 600 cars in the Chicago area and 400 more elsewhere throughout the country; that respondent and Siegel further informed the petitioner and other growers, at meetings called for the purpose in November and December 1955, that unless the growers purchased a large quantity of these onions, the respondent and Siegel would deliver them on the futures exchange for the purpose of depressing the futures price and the cash market price of onions. The petitioner and the other growers, who usually sold through trade channels, were fearful that this would cause them considerable loss. It was finally agreed by the petitioner and other growers that they would purchase 287 of the 600 cars of onions stored in the Chicago area, and the respondent and Siegel agreed not to deliver any onions on the futures market for the remainder of the current trading season. The petitioner and the other purchasers themselves agreed not to deliver any of the onions purchased from respondent and Siegel on the futures market for the remainder of the season; this was 'for the purpose of creating a false and fictitious market condition,' and 'to fix the price of onions and limit the amount of onions sold in the State of Illinois.' The District Court granted respondent's motion and struck the defense as insufficient in law.¹

The District Court then found, on the undisputed facts, that petitioner had in fact purchased the 50 cars of onions from the respondent, at an agreed price of $960 per car, plus storage charges incurred after sale; that petitioner had withdrawn 13 cars of the onions from the designated storage places after the sale, but had not withdrawn the remainder; that while petitioner had made some payments on account of the sale, he had come into default on them; and that, when the onions began to show signs of deterioration, the respondent properly, after repudiation of the purchase by the petitioner, withdrew the remaining cars from storage and sold them for petitioner's account. The District Court entered summary judgment for the unpaid purchase price and storage charges, less the amounts obtained on the sale by respondent, the market price having declined in the interim. The Court of Appeals for the Seventh Circuit affirmed. 257 F.2d 48. We granted certiorari to consider the availability of the petitioner's pleaded defense of illegality under the Sherman Act to this action to enforce the terms of a sale made under state law. 358 U.S. 811, 79 S.Ct. 59, 3 L.Ed.2d 54.

As a defense to an action based on contract, the plea of illegality based on violation of the Sherman Act² has not met with much favor in this Court. This has been notably the case where the plea has been made by a purchaser in an action to recover from him the agreed price of goods sold. In Connolly v. Union Sewer Pipe Co., 184 U.S. 540, 22 S.Ct. 431, 46 L.Ed. 679, one who had purchased merchandise from a firm allegedly a combination in restraint of trade was not allowed to set up that fact as a defense to an action for the purchase price. In D. R. Wilder Mfg. Co. v. Corn Products Refining Co., 236 U.S. 165, 35 S.Ct. 398, 59 L.Ed. 520, Corn Products sold merchandise to Wilder with a standing offer, of which the latter apparently had sought to take some advantage, to give Wilder a rebate if it bought exclusively from it. Again, in an action by the seller, Corn Products, to recover the agreed price, the purchaser, Wilder, was denied any defense of illegality based on the Sherman Act. The Court observed that the Sherman Act's express remedies could not be added to judicially by including the avoidance of private contracts as a sanction. Id., 236 U.S. at pages 174—175, 35 S.Ct. at pages 401—402. Cf. Bruce's Juices, Inc., v. American Co., 330 U.S. 743, 755, 67 S.Ct. 1015, 1021, 91 L.Ed. 1219. See A. B. Small Co. v. Lamborn & Co., 267 U.S. 248, 252, 45 S.Ct. 300, 302, 69 L.Ed. 597, generally to the same effect. Obviously, state law governs in general the rights and duties of sellers and purchasers of goods, and, while the effect of illegality under a federal statute is a matter of federal law, Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173, 176 177, 63 S.Ct. 172, 173—174, 87 L.Ed. 165, even in diversity actions in the federal courts after Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, still the federal courts should not be quick to create a policy of nonenforcement of contracts beyond that which is clearly the requirement of the Sherman Act.

The petitioner recognizes the import of the holdings in Connolly, wilder and Small, but he argues that they involve situations where a person not party to any unlawful agreement sought to defend against the action on the grounds of the seller's unlawful acts; where the...