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Kelly v. Kosuga

U.S.
Feb 24, 1959
358 U.S. 516 (1959)

Summary

holding that a promisor may not avoid performing a legal promise because he elsewhere violated the Sherman Act

Summary of this case from Christenberry Trucking v. F M Marketing

Opinion

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT.

No. 267.

Argued January 22, 1959. Decided February 24, 1959.

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. 516-521.

257 F.2d 48, affirmed.

Joseph W. Louisell argued the cause for petitioner. With him on the brief was Ivan E. Barris.

Lee A. Freeman argued the cause for respondent. With him on the brief were Anthony Bradley Eben, Brainerd Currie and Philip B. Kurland.


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 Antitrust 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 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.

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.

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 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 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 174-175. Cf. Bruce's Juices, Inc., v. American Can Co., 330 U.S. 743, 755. See A. B. Small Co. v. Lamborn Co., 267 U.S. 248, 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, 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.

Without deciding the point, we shall assume that the petitioner's allegations duly charged a violation 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, 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." 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 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 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 buying it." Continental Wall Paper Co. v. Louis Voight Sons Co., supra, at 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 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, 185.

Affirmed.

MR. JUSTICE BLACK and MR. JUSTICE DOUGLAS dissent.


Summaries of

Kelly v. Kosuga

U.S.
Feb 24, 1959
358 U.S. 516 (1959)

holding that a promisor may not avoid performing a legal promise because he elsewhere violated the Sherman Act

Summary of this case from Christenberry Trucking v. F M Marketing

finding that "the Sherman Act's express remedies could not be added to judicially by including the avoidance of private contracts as a sanction"

Summary of this case from Paramount Pictures Corporation v. Johnson Broadcasting Inc.

concluding that courts may not "enforc[e] the precise conduct made unlawful" by an act of Congress

Summary of this case from Shanehsaz v. Johnson

rejecting illegality defense when judgment would not have enforced allegedly illegal aspect of contract

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emphasizing that federal courts' authority to enforce agreements against public policy is "subject to the limitation that the illegality defense should be entertained in those circumstances where its rejection would be to enforce conduct that the . . . laws forbid"

Summary of this case from Bassidji v. Goe

In Kosuga, 358 U.S. at 516-18, 79 S.Ct. 429, two parties contracted for the sale of a large amount of onions in order to fix the amount of onions sold in Illinois by agreeing not to deliver the onions on the futures market.

Summary of this case from Teamsters Local Union 682 v. KCI Construction Co.

In Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959), the Court upheld the right of a seller to recover from the buyer the unpaid balance due on a lawful sale even though the sale was made pursuant to an agreement which violated § 1 of the Sherman Act.

Summary of this case from Paul Arpin Van Lines v. Universal Transp

In Kelly, several onion growers, who had agreed to buy part of another's onion stock and subsequently withhold it from the market in a scheme to fix the price and limit the amount of onions sold, raised the illegality of the contract under the Sherman Act as a defense to their default on payment of the purchase price.

Summary of this case from Drury Inn-Colorado Springs v. Olive Co.

In Kelly the Court distinguished the nondelivery agreement (i. e., the agreement to withhold onions from the market) from the contract for the sale of onions.

Summary of this case from Mullins v. Kaiser Steel Corp.

In Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959), a seller brought suit on a contract for sale of 50 carloads of onions at market price to an onion grower.

Summary of this case from Mullins v. Kaiser Steel Corp.

In Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959), on which the trustees rely, a merchant had contracted to buy fifty cars of onions.

Summary of this case from Huge v. Long's Hauling Co.

In Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959), the Court laid out the policies underlying close circumscription of such defenses.

Summary of this case from Huge v. Long's Hauling Co.

In Kelly, the Supreme Court considered the attempt of a vendee of onions to avoid paying for them because of an alleged Sherman Act violation. The Court affirmed judgment for the vendor and stated the limits of the defense of illegality.

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In Kelly, the Court noted that, as a defense to an action based on contract, "the plea of illegality based on violation of the Sherman Act has not met with much favor in this Court.

Summary of this case from Denton v. Mr. Swiss of Missouri Inc.

In Kelly, for instance, the Court was willing to view the sale of onions to petitioner as a legal contract severable from an illegal agreement that respondent would withhold his produce from the market.

Summary of this case from Viacom Intern. Inc. v. Tandem Productions, Inc.

In Kelly, petitioner, a grower of onions, purchased unwanted onions from respondent upon the latter's representation that he would otherwise sell large quantities of the onions on the futures exchange, thereby depressing their market price.

Summary of this case from Viacom Intern. Inc. v. Tandem Productions, Inc.

In Kelly, the Supreme Court found that the provision in the commodity sales contract, where the buyer and seller illegally agreed not to sell on the future's market, was separable from the contractual promise to pay for the commodities.

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In Kelly the Court emphasized the undesirability of relieving from contractual obligations a party who may have sustained only inconsequential damage from the antitrust violation.

Summary of this case from Gutor International AG v. Raymond Packer Co., Inc.

In Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959), defendant (an onion grower) bought 50 carloads of onions at a fair price.

Summary of this case from Milsen Company v. Southland Corporation

In Kelly, the buyer of 50 carloads of onions, withdrew from storage only 13 cars, and the seller was forced to sell the remaining 37 on a declining market for the buyer's account.

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In Kelly, for example, a purchaser of goods failed to complete payment, and set up an antitrust defense to the seller's contract action for the purchase price.

Summary of this case from Dickstein v. DuPont

indicating that "the plea of [contract illegality] based on violation of [a federal law] has not met with much favor in this Court"

Summary of this case from WYCQ, INC. v. NATIONAL MUSIC MARKETING, INC.

noting that as a defense to a contract action, "the plea of illegality on violation of the Sherman Act has not met with much favor in this Court"

Summary of this case from In re Universal Service Fund Telephone Billing Prac. Litig.

In Kelly, as in prior decisions, the Court attempted to accommodate the competing interests involved: enforcement of a contract provision which may in itself be unlawful or in furtherance of illegal ends and thereby frustrating public policy, or denial of recovery which may result in unjust enrichment at the plaintiff's expense or otherwise impose a penalty unrelated to the character of plaintiff's illegal acts and thereby give defendant a windfall.

Summary of this case from Mullins v. Kaiser Steel Corp.

In Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959), the Supreme Court was confronted with a problem not unlike that presented here. While fully cognizant of the principle underlying the defense of illegality, that is, that a court should not sanction illegal acts, the Court nevertheless held that a purchaser of goods could not interpose as an affirmative defense to a contract that the bargain was an indivisible part of an agreement that violated the Sherman Antitrust Act.

Summary of this case from May Dept. Stores Co. v. First Hartford Corp.
Case details for

Kelly v. Kosuga

Case Details

Full title:KELLY v . KOSUGA

Court:U.S.

Date published: Feb 24, 1959

Citations

358 U.S. 516 (1959)
79 S. Ct. 429

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