In this suit brought in a Federal District Court on grounds of
diversity of citizenship by a seller to recover from a buyer the
unpaid balance due in respect to a lawful sale for a fair
consideration, the District Court properly granted the plaintiff's
motion to strike an affirmative defense pleaded by the buyer to the
effect that the sale was made pursuant to, and as an indivisible
part of, an agreement which violated § 1 of the Sherman Antitrust
Act. Pp.
358 U. S.
516-521.
257 F.2d 48 affirmed.
MR. JUSTICE BRENNAN delivered the opinion of the Court.
The respondent sued the petitioner in the District Court for the
Northern District of Illinois for failing to complete payment of
the purchase price of 50 cars of onions which the respondent had
sold to the petitioner in December, 1955. Jurisdiction was based on
diversity of citizenship. The petitioner interposed the defense
that the sale was made pursuant to and as an indivisible part of an
agreement which violated § 1 of the Sherman Anti-Trust Act, 26
Stat. 209, as amended, 15 U.S.C. § 1. A motion was made to strike
this defense, and therefore the facts underlying it must be taken
to be those set up in the petitioner's answer. Petitioner and
respondent were both
Page 358 U. S. 517
engaged in the marketing of onions. Petitioner, who was a grower
of onions, admitted that he bought the onions from the respondent.
But he alleged that the respondent and one Sam Siegel had
represented to him and to other onion growers that they were the
owners of substantial amounts of onions in storage, controlling 600
cars in the Chicago area and 400 more elsewhere throughout the
country; that respondent and Siegel further informed the petitioner
and other growers at meetings called for the purpose in November
and December, 1955, that, unless the growers purchased a large
quantity of these onions, the respondent and Siegel would deliver
them on the futures exchange for the purpose of depressing the
futures price and the cash market price of onions. The petitioner
and the other growers, who usually sold through trade channels,
were fearful that this would cause them considerable loss. It was
finally agreed by the petitioner and other growers that they would
purchase 287 of the 600 cars of onions stored in the Chicago area,
and the respondent and Siegel agreed not to deliver any onions on
the futures market for the remainder of the current trading season.
The petitioner and the other purchasers themselves agreed not to
deliver any of the onions purchased from respondent and Siegel on
the futures market for the remainder of the season; this was "for
the purpose of creating a false and fictitious market condition,"
and "to fix the price of onions and limit the amount of onions sold
in the State of Illinois." The District Court granted respondent's
motion, and struck the defense as insufficient in law. [
Footnote 1]
Page 358 U. S. 518
The District Court then found, on the undisputed facts, that
petitioner had in fact purchased the 50 cars of onions from the
respondent at an agreed price of $960 per car, plus storage charges
incurred after sale; that petitioner had withdrawn 13 cars of the
onions from the designated storage places after the sale, but had
not withdrawn the remainder; that, while petitioner had made some
payments on account of the sale, he had come into default on them;
and that, when the onions began to show signs of deterioration, the
respondent properly, after repudiation of the purchase by the
petitioner, withdrew the remaining cars from storage and sold them
for petitioner's account. The District Court entered summary
judgment for the unpaid purchase price and storage charges, less
the amounts obtained on the sale by respondent, the market price
having declined in the interim. The Court of Appeals for the
Seventh Circuit affirmed. 257 F.2d 48. We granted certiorari to
consider the availability of the petitioner's pleaded defense of
illegality under the Sherman Act to this action to enforce the
terms of a sale made under state law. 358 U.S. 811.
As a defense to an action based on contract, the plea of
illegality based on violation of the Sherman Act [
Footnote 2] has not met with much favor in
this Court. This has been notably the case where the plea has been
made by a purchaser in an action to recover from him the agreed
price of goods sold. In
Connolly v. Union Sewer Pipe Co.,
184 U. S. 540, one
who had purchased merchandise from a firm allegedly a combination
in restraint of trade was not allowed to set up that fact as a
defense to an action for the purchase price. In
D. R. Wilder
Mfg. Co. v. Corn Products Refining Co., 236 U.
S. 165, Corn Products sold merchandise to Wilder with a
standing offer, of which the
Page 358 U. S. 519
latter apparently had sought to take some advantage, to give
Wilder a rebate if it bought exclusively from it. Again, in an
action by the seller, Corn Products, to recover the agreed price,
the purchaser, Wilder, was denied any defense of illegality based
on the Sherman Act. The Court observed that the Sherman Act's
express remedies could not be added to judicially by including the
avoidance of private contracts as a sanction.
Id. at
236 U. S.
174-175.
Cf. Bruce's Juices, Inc. v. American
Co., 330 U. S. 743,
330 U. S. 755.
See A. B. Small Co. v. Lamborn & Co., 267 U.
S. 248,
267 U. S. 252,
generally to the same effect. Obviously, state law governs in
general the rights and duties of sellers and purchasers of goods,
and, while the effect of illegality under a federal statute is a
matter of federal law,
Sola Electric Co. v. Jefferson Electric
Co., 317 U. S. 173,
317 U. S.
176-177, even in diversity actions in the federal courts
after
Erie R. Co. v. Tompkins, 304 U. S.
64, still the federal courts should not be quick to
create a policy of nonenforcement of contracts beyond that which is
clearly the requirement of the Sherman Act.
The petitioner recognizes the import of the holdings in
Connolly, Wilder, and
Small, but he argues that
they involve situations where a person not party to any unlawful
agreement sought to defend against the action on the grounds of the
seller's unlawful acts; where the purchaser is party to the
unlawful agreement and the agreement bears some relation to the
suit, the petitioner claims he is not to be held to the purchase
price. The distinction asserted is, to say the least, on its face,
paradoxical, and the petitioner quotes from this Court's opinion in
McMullen v. Hoffman, 174 U. S. 639,
174 U. S. 669,
which dealt with the plea of illegality in another context:
"It has been often stated in similar cases that the defence is a
very dishonest one, and it lies ill in the mouth of the defendant
to allege it, and it is only allowed for public considerations, and
in order the better to secure the public against dishonest
transactions. "
Page 358 U. S. 520
Petitioner evidently is willing to take the bitter as well as
the sweet from this passage. If the defense of illegality is to be
allowed as a collateral method of enforcement of the antitrust
laws, as the breadth of the petitioner's argument suggests, it must
be said that his theory creates a very strange class of private
attorneys general.
In any event, an analysis of the narrow scope in which the
defense is allowed in respect of the Sherman Act indicates that the
principle of distinction is not what the petitioner claims it to
be. The leading case here in which the defense was allowed is
Continental Wall Paper Co. v. Louis Voight & Sons Co.,
212 U. S. 227,
much relied on by petitioner. There, the Voight company had made
purchases from Continental, a corporation which existed only as a
selling agent for numerous wallpaper companies doing business as a
pool and selling at prices, alleged to be excessive and
unreasonable, fixed through the pool agreement. The Court was of
opinion that to give judgment for the excessive purchase price so
fixed in favor of such a vendor would be to make the courts a party
to the carrying out of one of the very restraints forbidden by the
Sherman Act. 212 U.S. at
212 U. S. 261.
Any thought that the Court might have been proceeding on broader
grounds was shortly afterwards laid to rest by the unanimous
opinion of the Court in the
Wilder case. 236 U.S. at
236 U. S. 177.
The scope of the defense of illegality under the Sherman Act goes
no further. While enforcement of a contract between wrongdoers may
more frequently present such a situation,
cf. Lyons v.
Westinghouse Electric Corp., 222 F.2d 184, 188, the character
of the parties is not, in itself, determinative. Past the point
where the judgment of the Court would itself be enforcing the
precise conduct made unlawful by the Act, the courts are to be
guided by the overriding general policy, as Mr. Justice Holmes put
it, "of preventing people from getting other people's property for
nothing when they purport to be
Page 358 U. S. 521
buying it."
Continental Wall Paper Co. v. Louis Voight &
Sons Co., supra, at
212 U. S. 271
(dissenting opinion). Supplying a sanction for the violation of the
Act, not in terms provided and capricious in its operation,
cf.
Bruce's Juices, Inc. v. American Can Co., supra, at
330 U. S.
753-754, is avoided by treating the defense as so
confined.
Accordingly, while the nondelivery agreement between the parties
could not be enforced by a court, if its unlawful character under
the Sherman Act be assumed, it can hardly be said to enforce a
violation of the Act to give legal effect to a completed sale of
onions at a fair price. And while analysis in terms of
"divisibility" or some other verbal formula may well be circular,
see 6 Corbin, Contracts, § 1520, in any event, where, as
here, a lawful sale for a fair consideration constitutes an
intelligible economic transaction in itself, we do not think it
inappropriate or violative of the intent of the parties to give it
effect even though it furnished the occasion for a restrictive
agreement of the sort here in question.
Cf. Cincinnati,
Portsmouth, Big Sandy & Pomeroy Packet Co. v. Bay,
200 U. S. 179,
200 U. S.
185.
Affirmed.
MR. JUSTICE BLACK and MR. JUSTICE DOUGLAS dissent.
[
Footnote 1]
Petitioner also interposed defenses of illegality under the
Commodity Exchange Act, § 9, 42 Stat. 1003, as amended, 7 U.S.C. §
13, and the Illinois Antitrust Act, Smith-Hurd Illinois Ann.Stat.,
c. 38, §§ 569, 573, 574, and a counterclaim alleging respondent's
breach of the nondelivery agreement. These issues were decided
adversely to the petitioner below, and are not preserved by him
here.
[
Footnote 2]
Without deciding the point, we shall assume that the
petitioner's allegations duly charged a violation of the Sherman
Act.