Lyons v. Federal System of Bakeries of America

• Decision Date: 23 April 1923
• Docket Number: 3114.
• Citation: 290 F. 793
• Parties: LYONS et al. v. FEDERAL SYSTEM OF BAKERIES OF AMERICA.
• Court: U.S. Court of Appeals — Seventh Circuit

290 F. 793

LYONS et al. v. FEDERAL SYSTEM OF BAKERIES OF AMERICA.

No. 3114.

United States Court of Appeals, Seventh Circuit.

April 23, 1923

John Morgan, of Appleton, Wis., for plaintiffs in error.

E. B Shea, of Milwaukee, Wis., for defendant in error.

Before BAKER and PAGE, Circuit Judges, and CLIFFE, District Judge.

PAGE Circuit Judge.

The District Court held against the plaintiffs on their contention that the defendant was doing business in the state of Wisconsin and that holding presents the sole question here for review. Defendant, a Delaware corporation, had its principal office in Iowa. Letters patent covering certain features of baking ovens, had been applied for and belonged to defendant. It had worked out what it called the 'federal system of bakeries,' which included the making and selling of bread, rolls, etc., by the use of an oven, mixer, counters, ice boxes, etc.

In November, 1920, plaintiffs, residing at Appleton, Wis entered into the written contract in question with defendant in the state of Iowa, whereby defendant, in consideration of the payment of $5,000 and a sum equal to 3 per cent. on plaintiffs' gross business as a royalty, and other specified considerations, gave to plaintiffs the exclusive right to use its system in the Wisconsin territory described if the plaintiffs should fully perform their part of the contract. Defendant was to deliver to plaintiffs certain equipment, consisting of ovens, scales, ice boxes, etc., upon which plaintiffs were to pay the freight and install the same at their own expense, in the manner specified in the contract in a ground floor storeroom.

It is not questioned that, in its main purpose, the contract was an interstate contract, but it is urged that certain clauses destroy its interstate character-- clauses complained of that relate to a grant of exclusive territory to plaintiffs and the obligation by defendant to furnish a baker were solely for the benefit of the plaintiffs. The grant of an exclusive territory did not require action by defendant. It was merely a covenant of the defendant in Iowa that it would not interfere with plaintiffs' territory in Wisconsin. The agreement to furnish a baker, to be paid for by the plaintiffs, appears to have been for the purpose of enabling the plaintiffs to start with experienced help and immediately put its business in good working condition. It was a proper and probably a necessary element in the installation of the system. Defendant had no control over the baker.

The obligation of the plaintiffs to make the purchases specified in the contract from defendant, and of defendant to furnish the same, was a mutual undertaking between parties in different states, and clearly related to interstate commerce. We see no difference between those provisions and daily transactions between parties similarly situated for the mortgaging, leasing, and selling of property about which there is no longer any question, but that they fall within the category of interstate transactions.

Two other objections urged are that defendant reserved the right to inspect the plaintiffs' premises and books, and that a royalty or rental, based...