Morris Run Coal Co. v. Barclay Coal Co.

• Decision Date: 08 May 1871
• Citation: 68 Pa. 173
• Parties: The Morris Run Coal Company <I>versus</I> The Barclay Coal Company.
• Court: Pennsylvania Supreme Court

68 Pa. 173

The Morris Run Coal Company versus The Barclay Coal Company.

Supreme Court of Pennsylvania.

March 14 and 15, 1871.

May 8, 1871.

March 14th and 15th 1871.

Before THOMPSON, C. J., READ, AGNEW and SHARSWOOD, JJ. WILLIAMS, J., at Nisi Prius

Error to the Court of Common Pleas of Bradford county: No. 282, to January Term 1871.

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U. Mercur (with whom was E. Overton, Jr.), for plaintiffs in error.—The agreement was but for a year, and to operate in but a limited portion of the state of New York; it was not a general restraint of trade, and therefore was good: Chitty on Contracts 591, 597, 599. The restraint is valid, unless plainly beyond what the party's interests require: Wickens v. Evans, 3 Y. & J. 318.

The action is on the draft, and the contract was not needed to establish it: Swan v. Scott, 11 S. & R. 164; Thomas v. Brady, 10 Barr 164; Scott v. Duffy, 2 Harris 20. The contract was executed: Lestapies v. Ingram, 5 Barr 71; Fox v. Cash, 1 Jones 207. The defendants' acceptance was on a new consideration: Tabor v. Armstrong, 4 W. C. C. R. 299.

J. De Witt, for defendant in error.

The opinion of the court was delivered, May 8th 1871, by AGNEW, J.

This was an action on a bill drawn upon one party in favor of another party to a contract between five coal companies, for a sum found due in the equalization of prices under the contract. It raises a question of great importance to the citizens of this state and the state of New York, where the contract was made, and was in part to be executed, to wit: whether the contract was illegal, as being contrary to the statute of New York, or at common law, or against public policy. The instrument bears date the 15th day of February 1866. The parties are five coal companies, incorporated under the laws of Pennsylvania, to wit: The Fall Brook Coal Company and Morris Run Coal Company, of the Blossburg coal region; and the Barclay Coal Company, Fall Creek Bituminous Coal Company, and Towanda Coal Company, of the Barclay coal region. By the agreement the market for the bituminous coal from these two regions is divided among these parties in certain proportions. A committee of three is appointed to take charge and control of the business of all these companies, to decide all questions by a certain vote, and to appoint a general sales agent to be stationed at Watkins, New York. Provision is made for the mining and delivery of coal, their kinds, and for its sale through the agent, subject, however, to this important restriction, that each party shall, at its own costs and expense, deliver its proportion of the different kinds of coal in the different markets at such times and to such parties as the committee shall from time to time direct. The committee is authorized to adjust the prices of coal in the different markets and the rates of freight, and also to enter into such an agreement with the anthracite coal companies as will promote the interest of these parties. Then comes an important provision that the companies may sell their coal themselves, but only to the extent of their proportion, and only at the prices adjusted by the committee. It is also provided that the general sales agent shall direct a suspension of shipment or deliveries of coal by any party making sales or deliveries beyond its proportion, and thereupon such party shall suspend shipments until the committee shall direct a resumption. Detailed reports of the business are to be made by the companies to the general sales agent at fixed and short intervals, and settlements are to be made by the committee monthly, prices averaged, and payments made by the companies in excess to those in arrear; and finally, each party binds itself not to cause or permit any coal to be shipped or sold otherwise than as the same has been agreed upon, and that all rules and regulations by the executive committee in relation to the business shall be faithfully carried out.

In regard to the relation these companies hold to the public, the field of their mining operations, the markets they supply, the extent of their coal-fields, and the general supply of coal, the distinguished referee, Judge Elwell, finds as follows: "The Barclay and Blossburg coal-mines are the only coal-mines furnishing the kind of coal mined and shipped by these companies, except the Cumberland coal, which latter, in order to reach the same markets, north, would have to be shipped by tidewater. There was some of the same kind of coal mined in McKean and Elk counties, in this state, but in quantities so small as that it was not considered by these companies as coming into competition with them. The coal of the Blossburg and Barclay regions is adapted to mechanical purposes and for generating steam. Wherever sold it comes into competition with anthracite coal, and also with the Cumberland coal sent by tidewater to Troy, New York, to which point both kinds of bituminous coal are shipped."

During the season of 1866 these companies made sales of coal at Oswego and Buffalo to parties who shipped to Chicago, Milwaukie and other western cities. It there came into competition to some extent with Pittsburg coal. The latter is used for making gas, but the coal of these companies cannot be used for that purpose.

The referee found that the statute of New York is, "if two or more persons shall conspire," first, "to commit any offence;" second, "to commit any act injurious to the public health, to public morals, or to trade or commerce, they shall be deemed guilty of a misdemeanor."

The referee found, as his conclusion upon the whole case, that the contract was void by the statute, and void at common law, as against public policy. The restraint of the contract upon trade and its injury to the public is thus clearly set forth by the referee: "These corporations (he says) represented almost the entire body of bituminous coal in the northern part of the state. By combination between themselves they had the power to control the entire market in that district. And they did control it by a contract not to ship and sell coal otherwise than as therein provided. And in order to destroy competition they provided for an arrangement with dealers and shippers of anthracite coal. They were thereby prohibited from selling under prices to be fixed by a committee representing each company. And they were obliged to suspend shipments upon notice from an agent that their allotted share of the market had been forwarded or sold. Instead of regulating the business by the natural laws of trade, to wit, those of demand and supply, these companies entered into a league, by which they could limit the supply below the demand in order to enhance the price. Or if the supply was greater than the demand, they could nevertheless compel the payment of the price arbitrarily fixed by the joint committee. The restraint on the trade in bituminous coal was by this contract as wide and extensive as the market for the article. It already embraced the state of New York, and was intended and no doubt did affect the market in the Western States. It is expressly stipulated that the parties to this contract shall not be considered as partners. The agreement was not entered into for the purpose of aggregating the capital of the several companies, nor for greater facilities for the transaction of their business, nor for the protection of themselves by a reasonable restraint, as to a limited time and space, upon others who might interfere with their business."

The plaintiff in error's reply to this vigorous statement of the purpose of the contract and its effect upon the public interest, alleges that its true object was to lessen expenses, to advance the quality of the coal, and to deliver it in the markets it was to supply, in the best order, to the consumer. This is denied by the defendants; but it seems to us it is immaterial whether these positions are sustained or not. Admitting their correctness, it does not follow that these advantages redeem the contract from the obnoxious effects so strikingly presented by the referee. The important fact is that these companies control this immense coal-field; that it is the great source of supply of bituminous coal to the state of New York and large territories westward; that by this contract they control the price of coal in this extensive market, and make it bring sums it would not command if left to the natural laws of trade; that it concerns an article of prime necessity for many uses; that its operation is general in this large region, and affects all who use coal as a fuel; and this is accomplished by a combination of all the companies engaged in this branch of business in the large region where they operate. The combination is wide in scope, general in its influence, and injurious in effects. These being its features, the contract is against public policy, illegal, and therefore void.

The illegality of contracts affecting public trade appears in the books under many forms. The most frequent is that of contracts between individuals to restrain one of them from performing a business or employment. The subject was elaborately discussed in the leading case of Mitchell v. Reynolds, 1 Peere Williams 181, to be found also in 1 Smith's Lead. Cases 172. The distinction is there taken which now marks the current of judicial decision everywhere; that a restraint upon a trade or employment which is general, is void, being contrary to public interest, really beneficial to neither party, and oppressive at least to one. "General restraints (says Parker, J.) are all void, whether by bond, covenant or promise, with or without consideration, and whether it be of the party's own trade or not;" citing Croke Jam. 596; 2 Buls. 136; Allen 67. To obtain, he says, the sole exercise of any known trade throughout England, is...