1. A contract for a term of two years from its date and from
term to term thereafter until terminated by either party by giving
three months' notice within thirty days after the expiration of any
contract period, the contract to continue in effect during such
three months,
held, where notice was not given after the
first two years, to have remained effective for two years longer
and three months thereafter. P.
258 U. S.
353.
2. A suit to restrain a violation of a contract does not become
moot with the expiration of the contract if the bill also prays for
damages capable of ascertainment. P.
258 U. S.
353.
3. Under the General Laws of Massachusetts, c. 155, § 51, the
existence of a corporation which has gone out of business and wound
up its affairs is continued for three years thereafter for the
purpose of prosecuting and defending suits. P.
258 U. S.
353.
4. A contract between a manufacturer and a retailer creating an
"agency" for the retailing of goods made by the former but to be
purchased by the latter, with provisions for periodical exchange of
old goods for new of less valuation, and for repurchase by the
manufacturer of stock on hand at termination of the contract,
held a contract of sale within § 3 of the Clayton Act. P.
258 U. S.
354.
5. In a contract between a manufacturer and a retailer granting
the latter the "agency" for the sale at its store of goods bought
by it from the former and stipulating that the retailer shall not
assign or transfer the agency or remove it from its original
location without the manufacturer's consent, a covenant of the
retailer not to sell on its premises goods of the manufacturer's
competitors during the term of the contract,
held, a
general restriction not confined to the particular shop. P.
258 U. S.
354.
6. The Clayton Act was intended to supplement the Sherman and
other antitrust acts by reaching agreements in their incipiency. P.
258 U. S.
355.
Page 258 U. S. 347
7. The purpose of § 3.of the Clayton Act in forbidding contracts
of sale, made upon the agreement or understanding that the
purchaser shall not deal in goods of the seller's competitors,
which " may substantially lessen competition or tend to create a
monopoly," was not to prohibit the mere possibility of those
consequences, but to prevent agreements which, in the
circumstances, will probably lessen competition or create an actual
tendency to monopoly. P.
258 U. S.
356.
8. When the meaning of an act of Congress is plain on its face,
there is no occasion to resort to the reports of congressional
committees concerning it. P.
258 U. S.
356.
259 F. 793 affirmed.
Certiorari to a decree of the circuit court of appeals which
affirmed a decree of the district court dismissing a suit brought
by the petitioner to restrain the respondent from violating a
contract and for damages.
Page 258 U. S. 351
MR. JUSTICE DAY delivered the opinion of the Court.
Petitioner brought suit in the United States District Court for
the District of Massachusetts to restrain the respondent from
violating a certain contract concerning the sale of patterns for
garments worn by women and children, called standard patterns. The
bill was dismissed by the district court, and its decree was
affirmed by the circuit court of appeals. 259 F. 793.
Petitioner is a New York corporation engaged in the manufacture
and distribution of patterns. Respondent conducted a retail dry
goods business at the corner of Washington Street and Temple Place
in the City of Boston. On November 14, 1914, the parties entered
into a contract by which the petitioner granted to the respondent
an agency for the sale of standard patterns at respondent's store,
for a term of two years from the date of the contract, and from
term to term thereafter until the agreement should be terminated as
thereinafter provided. Petitioner agreed to sell to respondent
standard patterns
Page 258 U. S. 352
at a discount of 50% from retail prices, with advertising matter
and publications upon terms stated, and to allow respondent to
return discarded patterns semiannually between January 15th and
February 15th, and July 15th and August 15th, in exchange at
nine-tenths cost for other patterns to be shipped from time to time
thereafter. The contract provided that patterns returned for
exchange must have been purchased from the petitioner, and must be
delivered in good order to the general office of the seller in New
York. Respondent agreed to purchase a substantial number of
standard fashion sheets, to purchase and keep on hand at all times,
except during the period of exchange, $1,000 value in standard
patterns at net invoice price, and to pay petitioner for the
pattern stock to be selected by it on terms of payment which are
stated. Respondent agreed not to assign or transfer the agency, or
to remove it from its original location, without the written
consent of the petitioner, and not to sell or permit to be sold on
its premises during the term of the contract any other make of
patterns, and not to sell standard patterns except at labeled
prices. Respondent agreed to permit petitioner to take account of
pattern stock whenever it desired, to pay proper attention to the
sale of standard patterns, to conserve the best interests of the
agency at all times, and to reorder promptly as patterns were sold.
Either party desiring to terminate the agreement was required to
give the other party three months' notice in writing within thirty
days after the expiration of any contract period, the agency to
continue during such three months. Upon expiration of such notice,
respondent agreed to promptly return to petitioner all standard
patterns, and petitioner agreed to credit respondent for the same
on receipt in good order at three-fourths cost. Neglect to return
the pattern stock within two weeks after the expiration of the
three months' notice to relieve the petitioner from all obligation
to
Page 258 U. S. 353
redeem the same. It was further stipulated that, in the event
the business property of the respondent, or a substantial part
thereof, should be disposed of by respondent for business other
than that of dry goods or as a general department store, the
respondent should have the privilege of terminating the contract by
giving the petitioner due notice of such change. Two weeks after
the change in the premises had been made, the respondent might
deliver its stock of standard patterns to the petitioner for
repurchase under the repurchase clause of the contract.
We agree with the courts below that, the notices not having been
given as required by the contract, the same continued in force
until three months from November 25, 1918, to-wit, to February 25,
1919. It is contended in the brief for the government, filed by it
as
amicus curiae, that, as the date last mentioned had
elapsed pending the suit, the case has become moot, but we are
unable to agree with such contention. The bill prayed an assessment
of damages as far as capable of ascertainment. The record shows
that such damages were capable at least of partial
ascertainment.
The suggestion that the respondent had wound up its affairs and
had gone out of business on March 27, 1920, is met by General Laws
of Massachusetts, § 51, continuing its corporate existence for the
period of three years for the purpose of prosecuting or defending
suits by or against it.
The principal question in the case, and the one upon which the
writ of certiorari was granted, involves the construction of § 3 of
the Clayton Act, 38 Stats. 731. That §, so far as pertinent here,
provides:
"It shall be unlawful . . . to . . . make a sale or contract for
sale of goods . . . or fix a price charged therefor, or discount
from, or rebate upon, such price, on the condition, agreement, or
understanding that the
Page 258 U. S. 354
lessee or purchaser thereof shall not use or deal in the goods .
. . of a competitor or competitors of the lessor or seller, where
the effect of such lease, sale, or contract for sale or such
condition, agreement, or understanding may be to substantially
lessen competition or tend to create a monopoly in any line of
commerce."
The contract contains an agreement that the respondent shall not
sell or permit to be sold on its premises during the term of the
contract any other make of patterns. It is shown that, on or about
July 1, 1917, the respondent discontinued the sale of the
petitioner's patterns and placed on sale in its store patterns of a
rival company known as the McCall Company.
It is insisted by the petitioner that the contract is not one of
sale, but is one of agency or joint venture; but an analysis of the
contract shows that a sale was in fact intended and made. It is
provided that patterns returned for exchange must have been
purchased from the petitioner. Respondent agreed to purchase a
certain number of patterns. Upon expiration of the notice of
termination, the respondent agreed to promptly return all standard
patterns bought under the contract. In the event of the disposition
of the business property of the respondent at Washington Street and
Temple Place, the respondent might deliver its stock of standard
patterns to the petitioner for repurchase under the repurchase
clause of the contract.
Full title and dominion passed to the buyer. While this contract
is denominated one of agency, it is perfectly apparent that it is
one of sale.
Straus v. Victor Talking Machine Co.,
243 U. S. 490.
The contract required the purchaser not to deal in goods of
competitors of the seller. It is idle to say that the covenant was
limited to the premises of the purchaser, and that sales might be
made by it elsewhere. The contract should have a reasonable
construction. The purchaser
Page 258 U. S. 355
kept a retail store in Boston. It was not contemplated that it
would make sales elsewhere. The covenant, read in the light of the
circumstances in which it was made, is one by which the purchaser
agreed not to sell any other make of patterns while the contract
was in force. The real question is: does the contract of sale come
within the third section of the Clayton Act because the covenant
not to sell the patterns of others "may be to substantially lessen
competition or tend to create a monopoly"?
The Clayton Act, as its title and the history of its enactment
disclose, was intended to supplement the purpose and effect of
other antitrust legislation, principally the Sherman Act of 1890.
The latter act had been interpreted by this Court to apply to
contracts, combinations, and conspiracies which unduly obstruct the
free and natural flow of commerce. The construction, since regarded
as controlling, was stated in the
Standard Oil case,
221 U. S. 1,
221 U. S. 58,
wherein this Court construed the act as intended to reach
combinations unduly restrictive of the flow of commerce or unduly
restrictive of competition. It was said that the act embraced:
"[a]ll contracts or acts which were unreasonably restrictive of
competitive conditions, either from the nature or character of the
contract or act or where the surrounding circumstances were such as
to justify the conclusion that they had not been entered into or
performed with the legitimate purpose of reasonably forwarding
personal interest and developing trade, but, on the contrary, were
of such a character as to give rise to the inference or presumption
that they had been entered into or done with the intent to do wrong
to the general public and to limit the right of individuals, thus
restraining the free flow of commerce and tending to bring about
the evils, such as enhancement of prices, which were considered to
be against public policy."
See also United States v. American
Tobacco
Page 258 U. S. 356
Co., 221 U. S. 106;
United States v. St. Louis Terminal Co., 224 U.
S. 383;
Standard Sanitary Mfg. Co. v. United
States, 226 U. S. 20;
United States v. Union Pacific R. Co., 226 U. S.
61;
United States v. Reading Co., 226 U.
S. 324;
Nash v. United States, 229 U.
S. 373;
Straus v. American Pub. Assn.,
231 U. S. 222.
As the Sherman Act was usually administered, when a case was
made out, it resulted in a decree dissolving the combination,
sometimes with unsatisfactory results so far as the purpose to
maintain free competition was concerned.
The Clayton Act sought to reach the agreements embraced within
its sphere in their incipiency, and, in the section under
consideration, to determine their legality by specific tests of its
own which declared illegal contracts of sale made upon the
agreement or understanding that the purchaser shall not deal in the
goods of a competitor or competitors of the seller which "may
substantially lessen competition or tend to create a monopoly."
Much is said in the briefs concerning the reports of committees
concerned with the enactment of this legislation, but the words of
the act are plain, and their meaning is apparent without the
necessity of resorting to the extraneous statements and often
unsatisfactory aid of such reports.
See Railroad Commission of
Wisconsin v. Chicago, Burlington & Quincy R. Co.,
257 U. S. 563, and
previous decisions of this Court therein cited.
Section 3 condemns sales or agreement where the effect of such
sale or contract of sale "may" be to substantially lessen
competition or tend to create monopoly. It thus deals with
consequences to follow the making of the restrictive covenant
limiting the right of the purchaser to deal in the goods of the
seller only. But we do not think that the purpose in using the word
"may" was to prohibit the mere possibility of the consequences
described.
Page 258 U. S. 357
It was intended to prevent such agreements as would, under the
circumstances disclosed, probably lessen competition or create an
actual tendency to monopoly. That it was not intended to reach
every remote lessening of competition is shown in the requirement
that such lessening must be substantial.
Both courts below found that the contract, interpreted in the
light of the circumstances surrounding the making of it, was within
the provisions of the Clayton Act as one which substantially
lessened competition and tended to create monopoly. These courts
put special stress upon the fact found that, of 52,000 so-called
pattern agencies in the entire country, the petitioner, or its
holding company controlling it and two other pattern companies,
approximately controlled two-fifths of such agencies. As the
circuit court of appeals, summarizing the matter, pertinently
observed:
"The restriction of each merchant to one pattern manufacturer
must, in hundreds, perhaps in thousands, of small communities
amount to giving such single pattern manufacturer a monopoly of the
business in such community. Even in the larger cities, to limit to
a single pattern maker the pattern business of dealers most
resorted to by customers whose purchases tend to give fashions
their vogue may tend to facilitate further combinations, so that
the plaintiff, or some other aggressive concern, instead of
controlling two-fifths, will shortly have almost, if not quite, all
the pattern business."
We agree with these conclusions, and have no doubt that the
contract, properly interpreted, with its restrictive covenant,
brings it fairly within the section of the Clayton Act under
consideration.
Affirmed.