Fox Film Corporation v. C. & M. AMUSEMENT CO.

• Decision Date: 28 March 1932
• Docket Number: No. 2926.,2926.
• Citation: 58 F.2d 337
• Parties: FOX FILM CORPORATION v. C. & M. AMUSEMENT CO.
• Court: U.S. District Court — Southern District of Ohio

58 F.2d 337 (1932)

FOX FILM CORPORATION v. C. & M. AMUSEMENT CO.

No. 2926.

District Court, S. D. Ohio, E. D.

March 28, 1932.

Morton, Irvine, Blanchard & Touvelle, of Columbus, Ohio, for plaintiff.

R. M. Noll and Clarence C. Middleswart, both of Marietta, Ohio, for defendant.

HOUGH, District Judge.

The plaintiff sues the defendant for breach of two written contracts, known in the film trade as "standard exhibition contracts." The contracts were in process of performance, the film company furnishing the films periodically under the terms of the contracts, and the amusement company or exhibitor receiving the films, exhibiting the same in its theaters, and paying the contract price therefor.

The standard exhibition contract such as is involved in this action was tested for its legality in the United States District Court for the Southern District of New York, where it was determined that that type of contract was illegal, in restraint of trade under the Sherman Anti-Trust Act (15 USCA § 1 et seq.). Thereupon the defendant gave notice of its intention to disregard the contracts and breach the same. This action is one for damages for the recovery of the contract prices of the unperformed and executory portions of the contracts.

To plaintiff's petition the defendant files its answer, admitting the execution and part performance of the contracts and the breach, and defends on the ground that the contracts have been held to be illegal and in restraint of trade, particularly as the same applies to section 18 of the contracts, relating to its provisions in reference to arbitration. To this answer the plaintiff has filed its general demurrer, which raises the question now submitted to the court.

The defendant contends that the contracts upon which action is brought have been determined to be illegal and void, and therefore that its promise of further performance is unenforceable. The position of the plaintiff is that, although it concedes that paragraph or section 18 of these contracts has been determined by the courts to be and is illegal and void, still the contract is divisible, and the illegal section is separable from the remainder of the contract, and that the contracts with that section eliminated are legal and enforceable, and that the furnishing of films, exhibition of the same, and the payment of the contract price therefor, is collateral and independent of any contractual provisions that are the basis of illegality.

The standard exhibition contract was one agreed to between the leading film producers, under a compact that prevented the exhibitor from exhibiting the films of the producers, except after executing the standard contract. The United States government in 1929 brought a proceeding in equity in the District Court for the Southern District of New York, for the purpose of determining the acts of the distributors in relation to their compact, and for testing the standard contract in relation to the federal anti-trust laws. The court in that case determined that there had been a conspiracy in restraint of trade, and that the standard exhibition contract was the evidence of that conspiracy. U. S. v. Paramount Famous Lasky Corp. et al. (D. C.) 34 F.(2d) 984, 989. The court in the course of its opinion said: "By agreement of these distributors exhibitors who were not represented in the adoption of the uniform contracts have been constrained to accept their terms regardless of their wishes, and by the compulsory system of arbitration, sanctioned and enforced by the collective action of the distributors, have been constrained to perform the contractual obligations thus assumed. In fairness it cannot be said that the restraint imposed upon these exhibitors is voluntary because they accept and agree to be bound by the contracts. They can have none other, because the defendants have agreed that they shall not; and, unless something more than the mere acceptance of all they can get is shown, they must be said to have acted under an involuntary restraint, imposed and continued by the defendants to the end that the contracts shall be signed and their terms obeyed. That such coercive restraint upon the commercial freedom of an exhibitor, who was neither represented nor consulted with reference to the agreement to adopt the standard form of contract, is undue and unreasonable, both at common law and under the Sherman Act, cannot be doubted. * * * Nothing that has been said should be taken in derogation of the right of trade or commercial groups, or of traders generally, to voluntarily impose upon themselves standard forms of agreement which do not unduly restrict competition and thus restrain trade, or to agree that all controversies arising between them shall be settled by arbitration. Such agreements dealing only with the rights of those who execute and intend to be bound by them are normal and usual, and are proper instruments in the lawful conduct of trade. It is...