A railroad corporation engaged at the time of the passage of the
Hepburn Act in the business of mining, buying, transporting and
selling coal, in order to divest itself of title after the coal had
been mined and before transportation began, caused a coal company
to be incorporated having stockholders and officers in common with
itself; thereupon, the two corporations, having a common
management, entered into a contract prepared by the railroad
company under which the railroad company did not go out of the
mining and selling business, but when the coal was brought to the
surface, it lost title by a sale to the coal company f.o.b. the
mines and instantly as carrier regained possession and retained it
until delivery to the coal company, which subsequently paid the
contract price; the price paid was a fixed percentage of the price
at a stated terminal on the day of delivery at the mines, and the
railroad agreed to sell all of the coal it produced or purchased
from others to the coal company, and the latter company agreed to
buy only from the railroad company and subject to the contract; the
stockholders of the railroad company were allowed to take
pro
rata the stock of the coal company, and practically all
availed of the option, and the coal company declared a dividend on
each share of stock sufficient to pay for
Page 238 U. S. 517
the amount of stock allotted to the holder thereof. In a suit
brought by the government alleging that the two corporations were
practically one and that the contract was invalid,
held
that:
The Commodity Clause of the Hepburn Act was intended to prevent
railroads from occupying the dual and inconsistent position of
public carrier and private shipper, and, in order to separate the
business of transportation from that of selling, the statute made
it unlawful for the carriers to transport in interstate commerce
any coal in which the carrier had any interest, direct or
indirect.
It is not improper for a carrier engaged in mining coal to
institute the organization of a coal company to buy or produce the
coal so as to comply with the terms of the Commodity Clause and to
give its stockholders an opportunity to subscribe to the stock, but
it must dissociate itself from the management of the coal company
as soon as the same starts business.
Mere stock ownership by a railroad company or by its
stockholders in a producing company is not the test of illegality
under the Commodity Clause, but unity of management and
bona
fides of the contract between the carrier and the
producer.
The Commodity Clause and the Anti-Trust Act are not concerned
with the interest of the parties, but with the interest of the
public, and if a contract between a carrier and a producer is as a
matter of law in restraint of trade, or if the producing company is
practically the agent of the carrier, the transportation of the
article produced by the carrier is unlawful.
The contract in this case enables the railroad company to
practically control the output, sales, and price of coal, and to
dictate to whom it should be sold, and, as such, is illegal under
both the Commodity Clause and the Anti-Trust Act.
In order to comply with the Commodity Clause in regard to the
transportation of coal, a carrier engaged also in mining coal must
absolutely dissociate itself from the coal before the
transportation begins, and if it sells at the mouth of the mine,
the buyer must be absolutely free to dispose of it and have
absolute control, nor should a carrier sell to a corporation
managed by the same officers as itself -- that is contrary to the
policy of the Commodity Clause.
While there might be a
bona fide and lawful contract
between a carrier mining coal and a buying company by which the
latter buys all of the coal of the former, the contract, to be not
illegal, must leave the buyer free to extend its business
elsewhere
Page 238 U. S. 518
as it pleases, and to otherwise act in competition with the
carrier.
213 F. 240 reversed.
The appellee was chartered not only as a railroad company, but
was authorized to mine and sell coal. The Commodity Clause of the
Hepburn Act of 1906 made it unlawful for the carrier to haul its
own coal beyond the limits of the State of Pennsylvania, and,
desiring to continue the business of mining and transporting coal,
the railroad adopted a plan under which it was to make a sale and
divest itself of title to the coal at the mouth of the mines,
before transportation began. Accordingly, it caused to be
incorporated, under the laws of New Jersey, the Delaware,
Lackawanna and Western Coal Company, with a capital stock of
$6,800,000 -- divided into shares of $50 each. The Railroad Company
then invited its own stockholders to subscribe to the capital stock
of the Coal Company at the rate of one share of the latter for each
four shares of the former. Ninety-nine percent of these
stockholders did, as was expected, subscribe for the stock of the
Coal Company, their subscriptions being paid for in full out of a
cash dividend of $13,600,000 previously declared by the Railroad
Company. The new corporation was then organized by electing the
Vice-President of the Railroad Company as President of the Coal
Company and other officers and directors of the Coal Company were
also officers and directors of the Railroad Company.
As soon as the organization was completed, the Railroad Company
prepared and submitted to the Coal Company a contract by which the
Railroad Company, reserving what it needed for its railway
locomotives,
"agreed to sell and the Coal Company agreed to buy, f.o.b. the
mines, all coal which, during the term of the contract, the
Railroad Company should produce from its own mines or purchase from
anyone else."
The price for prepared sizes -- the more important commercial
coal -- was fixed at 65 percent
Page 238 U. S. 519
of the price in New York on the day of delivery at the mines.
The railroad company also leased to the coal company all its
trestles, docks, and shipping facilities.
The contract, thus prepared by the railroad company, was then
signed by both corporations, and, on August 2, 1909, the coal
company took possession of the leased property; those who had been
agents of the railroad in its sales department became agents of the
coal company in its sales department, and the two corporations,
with managing officers in common, also had offices in common in the
City of New York.
Thereafter, the railroad company continued its mining business,
annually producing about 7,000,000 tons and purchasing about
1,500,000 tons from operators whose mines were located on its
railway. After retaining what was needed for use on its railway
engines, it sold the balance, aggregating about 7,000,000 tons, to
the coal company at the contract prices f.o.b. the mines. The coal
thus sold by the railroad company was then transported by the
railroad company to destination, where it was delivered to the coal
company, which paid the regular tariff freight rate and the
contract prices on the 20th of each month. This course of dealing
continued until February, 1913, when the government filed a
petition against both corporation alleging that the two were
practically one, and attacking the validity of the contract.
The petition alleged that the coal business was extremely
profitable, and in order to continue it, in all its branches, the
railroad company (which was controlled by a group of 25 persons,
owning a majority of its stock) had determined
"to cause the organization of a new corporation to be under
their own control, whose stockholders would be substantially the
same as those of the railroad company, and through it to conduct
the business theretofore carried on by the railroad sales
department, thus securing, in effect, the continued unity of
Page 238 U. S. 520
mining, transporting, and selling, in substance, as theretofore,
and depriving the public of the benefits which the commodity clause
was intended to produce."
The petition alleged that, when the contract was made, in
August, 1909, the stockholders of the two corporations were
practically identical; that a large majority of the stock in both
is still owned by the same persons, and that, by virtue of the
terms and provisions of the contract, the railroad had such an
interest in the coal as to make it unlawful for it to transport
such commodity in interstate commerce.
It was further charged that the transportation of the coal sold
to the coal company was not only a violation of the commodity
clause, but that the contract tended to create a monopoly and
unlawfully to hinder and restrain trade in coal, in violation of
the provisions of the Anti-Trust Act. In this connection it was
also charged that the railroad company not only mined coal, but
purchased the product of other mines located along its railway, and
had acquired the output of other collieries on its line, giving to
it the disposition of more than 90 percent of the market, with
power to arbitrarily fix prices. The petition averred:
"By reason of the arrangements described, the support of the
railroad company, and the peculiar advantages and facilities
acquired, the coal company at once secured and has ever since
maintained an unlawful monopoly of the sale of coal produced along
defendant's railroad, and has completely dominated the markets at
all points thereon not reached by any other railroad. Its position,
power, and support render effective competition with it practically
impossible, and the monopoly which it now holds will continue
indefinitely unless restrained."
Both defendants answered. There was practically no dispute as to
the facts, though both corporations contended that the facts
alleged and proved did not support
Page 238 U. S. 521
the legal conclusions sought to be drawn therefrom by the
government. Each insisted that the two corporations were separate
in law and in fact, contended that the railroad company had no
interest in the coal, and insisted that the coal company acted
independently of the railroad company, and was not subject to its
control.
At the hearing, there was evidence that, at the date of the
making of the contract, all except 2,249 shares in the coal company
were held by those who held stock in the railroad company. By
reason of sales of both stocks, it appeared that, in October, 1913,
88,116 shares of the railroad stock were held by those who were not
then interested in the coal company, and 6,907 shares of stock in
the coal company were held by those who were not owners of the
railroad stock.
There was also evidence that many of the officers of the coal
company were not officers of the railroad company; that the
management of the two corporations was separate and distinct; that
the coal company kept its own books, deposited its funds in its
name in banks of its own choosing, and that the profits went solely
to its own stockholders. The coal company paid the same rates of
freight and demurrage as other shippers, and received no
discriminating favors from the railroad company. In 1910, the
amount paid to the railroad for the purchase price of coal under
the contract was about $20,000,000, and for the freight thereon
about $14,000,000. Since the contract was made, the coal company
has bought coal from other persons, the quantity being 3,847 tons
in 1909; 2,267 tons in 1910; 6,600 tons in 1911; 92,004 tons in
1912; 310,645 tons in the first ten months in 1913.
There are about 70,000,000 tons of anthracite coal produced
annually, of which 20,000,000 tons are sold at tidewater. Of the
7,000,000 tons sold by the Delaware, Lackawanna & Western
Railroad Company, about
Page 238 U. S. 522
2,000,000 tons are transported to tidewater points, and of this,
500,000 tons are prepared sizes. The coal company, at large
expense, bought land, built trestles and storage facility at
various points in addition to those leased to it by the railroad
company.
The district court held that the business of the two
corporations had not been so commingled as to make their affairs
indistinguishable; that they are two distinct and separate legal
beings actually engaged in separate and distinct operation, and
that the railroad does not own the coal, either in whole or in
part, during its carriage, but has in good faith dissociated itself
therefrom before the beginning of the act of transportation.
In answer to the claim that
"the railroad will be the gainer from a high price at tide,
since this will necessarily increase the price at the mines, and
therefore that this interest in the price is such an interest in
the coal itself as is condemned by the statute,"
the court said:
"Undoubtedly it is correct to say that the railroad has an
interest in the price, but . . . that 'interest' merely means that
the railroad will gain by a higher price at tide, and does not mean
that the railroad has power to control the coal or the price for
which it sells."
The alleged power to increase the price by increasing the
freight was held to be ineffective because freight rates were
controlled by the Commerce Commission.
"The railroad company does not fix prices; it does not decide
how much coal is to go to New York harbor, and it does not
determine the sum for which the coal is to be sold at that
point."
The 65 percent basis had its origin many years ago, and affords
a convenient basis for calculating the price to be paid for future
deliveries. The railroad retains nothing more after the title
passes to the coal company at the mines than an interest in the
price, and this is not the same thing as an interest in the coal.
The commodity clause deals with an "interest,
Page 238 U. S. 523
direct or indirect," in the commodities themselves, and this
must mean some kind or degree of ownership in the thing transported
or some power to deal with it or to control it. The railroad
company neither owns nor controls the coal after it has been loaded
on the cars at the breakers. Thereafter the coal company is the
owner and the master, and fixes prices, routes, and destination at
its own will.
The court further said that the bill of complaint makes a formal
charge against both defendants under the antitrust act, but the
oral argument left us under the impression that this charge was not
much insisted on. For that reason the antitrust branch of the
complaint was regarded as comparatively unimportant, and for that
reason we shall not undertake what we think would be the needless
task of discussing the evidence bearing upon the charge of
restraining or monopolizing commerce. If we are mistaken in this
supposition, the error can easily be corrected.
The petition was thereupon dismissed without prejudice to the
government's right to begin a second proceeding whenever it may be
so advised. 213 F. 240. The government then brought the case here
by appeal.
In the government's brief, it is stated that, while it did not
now ask for a ruling as to the right of the railroad company to
purchase and sell coal produced in mines along its railroad, it did
ask that, if the decree was affirmed, it should be without
prejudice to the right of the United States to institute such
proceedings.
Page 238 U. S. 525
MR. JUSTICE LAMAR, after making the foregoing statement of
facts, delivered the opinion of the Court.
The commodity clause of the Hepburn act was intended to prevent
railroads from occupying the dual and inconsistent positions of
public carrier and private shipper, and, in order to separate the
business of transportation from the business of selling, that
statute made it unlawful for railroads to transport in interstate
commerce any coal in which the company had "
any interest,
direct or indirect."
* United
States v. Delaware & Hudson, 213
U. S. 415;
Delaware &c. R. Co. v. United
States, 231 U. S. 363,
231 U. S.
371.
As will be seen from the statement of facts, the Delaware,
Lackawanna & Western Railroad Company was, at the time of the
passage of the Hepburn Act of 1906, one of the great coal roads
engaged in the fourfold business of mining, buying, transporting,
and selling coal. As the commodity clause made it unlawful to
transport its own coal to market, the railway company decided to
adopt a plan by which to devest itself of title after it had
Page 238 U. S. 526
been mined, but before transportation began. It thereupon caused
a coal company to be incorporated having stockholders and officers
in common with the railroad company. The two corporations, thus
having a common management, then made a contract -- prepared by the
railroad company -- under which the railroad company did not go out
of the mining and selling business, but, when the coal was brought
to the surface, the railroad company lost title by a sale to the
coal company f.o.b. the mines, and instantly regained possession as
carrier. It retained that possession until delivery to the coal
company, which subsequently paid therefor at the contract
price.
The district court held that it was not illegal for the same
person to own a majority of the stock in the two corporations, and
that their contract of sale was lawful.
From the decree dismissing the bill the government appealed to
this Court, where much of the argument was directed to the question
as to whether the fact that the two corporations had practically
the same shareholders left the railroad company in a position where
it could lawfully transport coal which it had sold at the mouth of
the mine to the coal company.
1. But mere stock ownership by a railroad, or by its
stockholders, in a producing company cannot be used as a test by
which to determine the legality of the transportation of such
company's coal by the interstate carrier. For, when the commodity
clause was under discussion, attention was called to the fact that
there were a number of the anthracite roads which at that time
owned stock in coal companies. An amendment was then offered which,
if adopted, would have made it unlawful for any such road to
transport coal belonging to such company. The amendment, however,
was voted down, and, in the light of that indication of
congressional intent, the commodity clause was construed to mean
that it was not necessarily
Page 238 U. S. 527
unlawful for a railroad company to transport coal belonging to a
corporation in which the road held stock.
United States v.
Delaware & Hudson Co., 213 U. S. 414.
For a stronger reason, it would not necessarily be illegal for the
road to transport coal belonging to a corporation whose stock was
held by those who owned the stock of the railroad company.
Nevertheless, the commodity clause of the Hepburn Act of 1906
rendered unlawful many transaction which, prior to that time, had
been expressly authorized by the statutes of the states which had
chartered the coal roads. And, while the Hepburn Act provided that,
in the future, interstate railroads should not occupy the dual
position of carrier and shipper, there was, of course, no intent on
the part of Congress to confiscate property or to destroy the
interest of the stockholders. But still, upon adoption of the
commodity clause, this appellee railroad was confronted with a
difficult situation. To shut down the mines, because the coal could
not be transported, would have meant not only a vast monetary loss
to the company and its stockholders, but would have been even more
harmful to the interests of the public, which required a constant
supply of fuel. The character of coal property was such as to make
it impossible to divide the same in kind among the railroad
stockholders, while the value of the coal land was so great as to
make it impracticable to find a purchaser in ordinary course of
trade. It was therefore natural, if not necessary, to organize a
corporation with which a contract could be made, and out of cash
received or stock issued to pay for or preserve the equity which
the railroad shareholders had in the coal.
In this situation, there may have been no impropriety in the
railroad company's taking the preliminary steps of organizing such
a corporation. Neither was it illegal for the stockholders of the
railroad company to take stock in the coal company, for there are
many instances
Page 238 U. S. 528
in which the law recognizes that there may be diversity of
corporate interest even when there is an identity of corporate
members. A city and the county in which it is located may both have
the same population, but different corporate interests. Many
private corporations have both stockholders and officers in common,
yet they may nevertheless make contracts which will bind both of
the separate entities. But whenever two such companies thus owned
or managed make contracts which affect the interest of minority
stockholders, or of third persons, or of the public, the fact of
their unity of management must be considered in testing the
validity and
bona fides of the contracts under review.
2. That principle is to be specially borne in mind in the
present case. For this is not an instance of a coal road and a coal
company, both of which existed and had made contracts prior to the
commodity clause, but a case where a coal company was created with
the express purpose that, with stockholders in common, it should be
a party to a contract intended to enable the railroad company to
meet the requirements of the commodity clause and at the same time
continue the business of buying, mining, selling, and transporting
coal.
It is also to be noted that the Delaware, Lackawanna &
Western Railroad Company did not part with title to its coal lands,
mines, and mining machinery, as seems to have been done, on terms
not fully stated (
United States v. Delaware & Hudson,
213 U. S. 366,
213 U. S.
398(5),
213 U. S.
392), in some of the instances discussed in the
commodity cases. In them, the ownership of the mines had passed
completely from the railroads to the producing companies, and the
coal property was no longer subject to the debts of the railroad
companies. After such sale of the coal lands, there was both a
technical and a practical separation of the legal interest of the
two corporations in the coal under the ground, on the surface, when
it was transported, and
Page 238 U. S. 529
when it was sold. The fact that the railroad held stock in the
producing company and received dividends thereon did not give to
the railroad company, any more than to any other stockholder in any
other corporation, a legal interest in the property of the coal
company. Nor would the fact that the railroad company had once
owned it have made any difference if, by a normal and
bona
fide sale at the point of production, the carrier had lost all
power of control and all right, title, and interest in the coal
before the transportation began.
United States v. Delaware
& Hudson, 213 U. S. 413,
top.
3. But the decisions construing the statute recognize that one
corporation can be an agent for another corporation, and that, by
means of stock ownership, one of such companies may be converted
into a mere agent or instrumentality of the other.
United
States v. Lehigh Valley R. Co., 220 U.
S. 257,
220 U. S. 273.
And this use of one by the other -- or this power of one over the
other -- does not depend upon control by virtue of the fact that
stock therein is held by the railroad company or by its
shareholders. For dominance of the coal company may be secured by a
carrier (
New Haven R. Co. v. Int. Com. Comm., 200 U.
S. 361) not only by an express contract of agency, but
by any contract which, in its practical operation, gives to the
railroad company a control or an "interest, direct or indirect," in
the coal sold at the mouth of the mines.
Assuming, then, that the incorporation and organization of the
coal company under the auspices of the railroad company was legal;
assuming that the election of railroad officers as the first
managers of the coal company was not illegal; assuming that, as
officers of the railroad, they could contract with themselves as
officers of the coal company; assuming that at the time of
organization it was not unlawful for the railroad company and the
coal company not only to have officers but offices in common, and
finally assuming that all these
Page 238 U. S. 530
facts together did not, in and of themselves, establish an
identity of corporate interest -- still these facts, taken
together, are most significant. They at least prove that the
relation between the parties was so friendly that they were not
trading at arm's length. And the further fact that one of the
parties was under a statutory disability as to hauling coal makes
it necessary to carefully scrutinize their arrangement in order to
determine whether it was a
bona fide and lawful contract
of sale, or a means by which the railroad, though parting with the
legal title, retained an interest and control in what had been
sold.
4. That contract is published in full in 213 F. 255-259. The
provisions material in the present inquiry may be thus
summarized:
(a) The railroad company agreed to sell and the coal company
agreed to buy all of the coal mined or acquired by the railroad
company during the continuance of the contract; (b) the price for
the more important commercial grades was to be 65 percent of the
New York price on the day of delivery; (c) the amount of coal to be
sold and delivered was at the absolute option of the railroad
company as its interests might determine; (d) the coal company was
not to buy coal from any other person or corporation without the
written consent of the railroad company; (e) the coal company was
to conduct the selling of the coal so as best to conserve the
interests, goodwill, and markets of the coal mined by the railroad
company; (f) the coal company was to continue to fill the orders of
present responsible customers of the railroad company, even if some
of such sales might be unprofitable; (g) the railroad leased to the
coal company all of its trestles, docks, and shipping facilities at
a rental of 5 percent of their value; (h) the contract could be
terminated by either party on giving six months' notice.
Page 238 U. S. 531
The most cursory examination of the contract shows that, while
it provides for the sale of coal before transportation begins, it
is coupled with onerous and unusual provisions which make it
difficult to determine the exact legal character of the agreement.
If it amounted to a sales agency, the transportation was illegal
because the railroad company could not haul coal which it was to
sell in its own name or through an agent. If the contract was in
restraint of trade, it was void because in violation of the Sherman
Anti-Trust Law. The validity of the contract cannot be determined
by consideration of the single fact that it did provide for a sale.
It must be considered as a whole, and in the light of the light of
the fact that the sale at the mine was but one link in the business
of a railroad engaged in buying, mining, selling, and transporting
coal.
5. By virtue of the fact that the railroad company bought,
mined, and sold, it -- like any other dealer -- was interested in
maintaining prices, since the contract did not fix a definite sum
to be paid for all of the coal sold, but provided that the railroad
company was to receive 65 percent of the New York price on the day
the coal was loaded into the cars. The higher the rate in New York,
the better for the seller. And, by the contract, the railroad
reserved a power which when exercised, could not only curtail
production, but shipments. Thus, by decreasing the amount
transported, the supply in New York could be lessened. This would
tend to raise New York prices, and thus increase the sum the
railroad was to receive.
The railroad company was in the business of selling, and it is
not to be presumed that its power to limit deliveries or to prevent
the coal company from obtaining coal elsewhere would be often
exercised. Yet the power did exist, and it was reserved for some
purpose -- not, as argued, to prevent controversy as to failure to
deliver
Page 238 U. S. 532
in cases of strikes or accidents, for such is not the language
or intent of the contract. Nor is room left for the implication
(necessary to the validity of such an exclusive contract,
Chicago &c. R. Co. v. Pullman, 139 U.
S. 80(3),
139 U. S. 89-90)
that the seller would deliver reasonable amounts at reasonable
times. All such defensive arguments are excluded by the express and
emphatic terms of the contract that
"the amount of coal to be so delivered and sold to the buyer by
the seller shall be at the absolute option of the seller as its
interests may determine, and the seller shall be subject to no
liability whatsoever for failure to supply the buyer with such
amount of coal as it may desire."
It might be said that, if such a power was exercised, the coal
company could then go into the market and purchase from other coal
dealers. But this contract deprives the buyer even of that ordinary
business privilege, declaring
"that the coal company will purchase all coal to be sold by it
from the seller, and will purchase no coal from any other person or
corporation, except with the written consent of the seller."
6. Reading these two clauses together, it is evident that the
coal company was neither an independent buyer nor a free agent. It
was to handle nothing except the railroad's coal, and was the
instrument through which the railroad sold all its product. The
coal company, though incorporated to do a general coal business,
was dependent solely upon the railroad for the amount it could
procure and sell, and was absolutely excluded from the right to
purchase elsewhere without the consent of the railroad company,
which, however, was under no corresponding obligation to supply any
definite amount at any definite date.
Restrictive contracts should at least be reciprocal and mutual,
for if A is bound to purchase only from B, the latter should
certainly be bound to furnish what A wishes to buy (
Chicago
&c. R. Co. v. Pullman, 139 U. S.
80(3),
Page 238 U. S. 533
139 U. S. 89-90)
-- especially is this true when the subject of the contract is an
article in which the public is interested. Even at common law, in
passing upon the validity of contracts in restraint of trade,
the
"public welfare is first considered, and if it be not involved
and the restraint upon one party is not greater than protection to
the other party requires, the contract may be sustained."
Gibbs v. Baltimore Consolidated Gas Co., 130 U.
S. 396,
130 U. S. 409;
Fowle v. Park, 131 U. S.
97.
In this case, the subject of the contract was anthracite coal --
an article of public necessity and of limited supply, one-tenth
being controlled by the appellee. The railroad company might have
justly insisted on contract provisions intended to secure payment
for all that it produced. But, going beyond what was required for
its own protection, it restrained the coal company from buying from
anyone else, and -- what is probably more significant in this case
-- thereby prohibited the coal company from competing with the
railroad company for the purchase of coal mined on the railroad
lines. And this was not a mere perfunctory provision, because the
railroad company was a buyer of coal, and purchased 1,500,000 tons
per annum from mines on its system. By this contract, it excluded
from that market the coal company, which, with its capital of
$6,000,000, could have been a strong competitor. Such a provision
may not have actually effected a monopoly. But, considering the
financial strength of the carrier, its control of the means of
transportation, its powers to fix the time when transportation of
the very coal sold was to begin, its power in furnishing cars to
favor those from whom it bought or to whom it sold, such a contract
would undoubtedly have that tendency. In that respect, it was
opposed to that policy of the law, which was the underlying reason
for the adoption of the commodity clause.
New Haven R. Com v.
Int. Com. Comm., 200 U. S. 361, 373
[argument of counsel -- omitted].
Page 238 U. S. 534
7. There is another provision of the contract which shows that
the railroad had such an interest in the coal as enabled it to
dictate to whom it should be sold, even at unprofitable prices. The
agreement provides:
"Sixth. The buyer agrees that it will conduct the business of
selling the coal of the seller in such manner as best to conserve
the interests of and preserve the good will and markets of the coal
mined by the seller, and to continue to fill the orders of all
responsible present customers of the seller even though, as to some
of such customers, the sales may be unprofitable, it being
understood and agreed that, at the prices above quoted, the entire
business of the buyer will be conducted at a profit."
This is not a mere stipulation that the coal company would not
injure the reputation of the railroad company's coal, while the
further provision that the coal company would "continue to fill the
orders of all responsible present customers, even though some of
such sales might be unprofitable," was a further indication of the
fact that both parties recognized the railroad had an interest in
the coal, and used the coal company to preserve and secure that
interest even after transportation began.
The unusual, onerous, and restrictive terms imposed by this
contract may, as between the parties, have been negligible --
certainly so as long as the stockholders remained the same, since a
loss to the coal company would be presumably represented by a gain
to the railroad company. But the commodity clause and the
Anti-Trust Act are not concerned with the interest of the parties,
but with the interest of the public, and it therefore makes no
difference whether this contract dictated by the railroad company
was for the permanent advantage of the coal company.
8. It is argued, however, that the contract has not operated to
the injury of the parties or of the public.
Page 238 U. S. 535
And, in answer to those urged by the government, it is said that
some of the objections now insisted on were not pressed in the
lower court, that there is no complaint that the railroad charged
the coal company exorbitant prices, or that it ever raised the New
York prices, or that it failed to make prompt deliveries, or that
it has prevented the coal company from buying coal from other
operators, or that the railroad monopolized the coal mined on its
railway, or that it deprived such mining companies of an open
market. From this it is argued that the present objections to the
contract are purely academic. But its validity depends upon its
terms. And if, as a matter of law, the contract is in restraint of
trade, or if the coal company is practically the agent of the
railroad company, then the transportation of the coal by the latter
is unlawful.
9. As already pointed out, the contract has in it elements of
sale and elements of a sales agency. It provides that the railroad
company will sell and that the coal company will buy all coal that
is mined during the continuance of the contract, but it prevents
the coal company from buying from anyone else. It requires it to
sell to present railroad customers at the old price, even though
those prices may be unprofitable. The seller is not bound to make
deliveries of fixed quantities at fixed dates, and by decreasing
what it will sell and determining when it will ship, it has a power
in connection with its power as a carrier which, if exerted, would
tend to increase prices in New York. Besides all this, the contract
prevents the coal company from competing with the railroad company
in the purchase of coal along the railway line. Taking it as a
whole, and bearing in mind the policy of the commodity clause to
dissociate the railroad company from the transportation of the
property in which it is interested, and that the Sherman Anti-Trust
Act prohibits contracts in restraint of trade,
Page 238 U. S. 536
there would seem to be no doubt that this agreement violated
both statutes.
10. The railroad company, if it continues in the business of
mining, must absolutely dissociate itself from the coal before the
transportation begins. It cannot retain the title, nor can it sell
through an agent. It cannot call that agent a buyer while so
hampering and restricting such alleged buyer as to make him a
puppet, subject to the control of the railroad company. If the
railroad sells coal at the mouth of the mines to one buyer or to
many, it must not only part with all interest, direct or indirect,
in the property, but also with all control over it or over those to
whom the coal is sold at the mines. It must leave the buyer as free
as any other buyer who pays for what he has bought. It should not
sell to a corporation with officers and offices in common, for the
policy of the statute requires that, instead of being managed by
the same officers, they should studiously and in good faith avoid
anything, either in contract or conduct, that remotely savors of
joint action, joint interest, or the dominance of one company by
the other. If the seller wishes -- by a lawful and
bona
fide contract, whose provisions as to delivery and otherwise
are not in restraint of trade -- to sell all of its coal to one
buying company, then that one buyer can be bound by reasonable
terms and required to pay according to the contract. But such buyer
should otherwise be absolutely free to extend its business to buy
when, where, and from whom it pleases, and otherwise to act as an
independent dealer in active competition with the railroad
company.
What has been said is sufficient to show that the contract was
invalid. That makes it unnecessary to discuss other questions
raised but not disposed of by the district court, and the decision
herein is without prejudice to the right of the United States to
institute proceedings
Page 238 U. S. 537
in reference thereto or to test the right of the railroad
company to purchase coal for sale.
The decree is reversed, with directions to enter a decree
enjoining the railroad from further transporting coal sold under
the provisions of the contract of August 2, 1909, referred to in
the petition.
Reversed.
MR. JUSTICE McREYNOLDS took no part in the decision of this
case.
*
"From and after May 1, 1908, it shall be unlawful for any
railroad company to transport [in interstate commerce] any article
or commodity other than timber . . . manufactured, mined or
produced by it, or under its authority, or which it may own in
whole, or in part, or in which it may have any interest, direct or
indirect, except such articles or commodities as may be necessary
and intended for its use in the conduct of its business as a common
carrier."
34 Stat. 585.
