CHESAPEAKE & O. RY. CO. v. STANDARD LUMBER CO., 174 F. 107

PRITCHARD, Circuit Judge (after stating the facts as ábove). The first and second assignments of error are as follows: •‘First.

The contract is shown to be incomplete upon its face, and there were no allegations in the declaration that the signatures of the Ohio & Big Sandy Railroad Company were waived by either of the parties, or that it was agreed upon and acquiesced in by the defendant without ever having been signed by the Ohio & Big Sandy Railroad Company; because, if the said contract had been ratified by the parties thereto, the declaration should have so stated, and suit should have been brought' against both parties; because the contract shows on its face that, under the laws and statute governing railways and railway rates, the said contract was contrary to the statute, and incapable of being enforced, and not binding on either party.

The trial court, however, taking the view of the statute contrary to the defendant’s contention, overruled said demurrer and permitted the contract to go to the jury as evidence of the alleged agreement, holding that, although the railroad company could not he permitted to make a contract as to rates, and would have a right to change the same, still the plaintiff might recover in the action the money expended by it. The overruling of the demurrer and this view of the court as to the effect of the contract is assigned as the first error. “Second.

At the time iho contract was claimed to have been executed, namely, in November, 1899, up to the time of the first shipment of ties over said road, the legal rate on ties shipped over the Ohio & Big Sandy Railroad and the Chesapeake & Ohio Railway, from Louisa, Ivy., to Huntington, W. Va., was 3 cents per 100 pounds, or about 0 cents per tie. The tariff arranged under the contract for ties over the hoist in question was $8.30 per car, or about 4% cents per tie, while the rate per car not taken over the hoist was $10, the difference of about one-half cent per lie in favor of the plaintiff, who operated the hoist.

The tariff sheets introduced in evidence on the examination of W. F. Hite, division freight agent, showed this to be the fact, and showed the discrimination iu favor of the plaintiff.

The defendant, taking the view that the contract under the circumstances was illegal, and the illegality vitiated the same entirely and prevented the plaintiff from recovering on it, sought to show, in addition to the published rates, that the special rale allowed to the plaintiff and provided for in the contract was a discrimination .in favor of the plaintiff, not allowed to other shippers over the road under like- ebfidifions and like circumstances, and therefore the whole contract was void.

The court, however, while taking the view of the case that the railway company could not give the special rate provided for iu the contract, held lliat the defendant was, however, liable to the plaintiff in this action for the money expended, and, holding that view of the cause, refused to permit the defendant to show the jury the facts showing that said rate was a discrimination, and the allowance of 10 per cent, on the freight bills a rebate.

The defendant also claimed that to allow the plaintiff to recover under the 'contract, would be to permit and make a discrimination in favor of the plaintiff over the other shippers, and thereby give the plaintiff an advantage over the other shippers of ties from Louisa on the same road and to the same destination, who were-not permitted to participate in the rare claimed by the plaintiff or the adyanta-ges given it, and that the whole contract was but an effort on the part of the plaintiff to obtain an advantage in shipments under the contract; that said contract, not having been executed by the parties thereto, was never in fact Nin force, and that to allow the plaintiff to take advantage thereof would be in effect a violation of the interstate commerce laws governing rates and rebates, and would permit the plaintiff to be repaid the expenses of transporting its ties from the river to the railroad, which expense was not paid to other shippers and was illegal in its inception.

And the defendant also claimed that if the plaintiff was permitted to recover for money expended in building a side track and a tie. hoist for its own benefit, to be used until the rebates were paid for the cost of construction, and that then the hoist and side tracks were to go to the defendant, the plaintiff must show that it had complied with its contract, and had put itself in a position to transfer the track and hoist to the railway company; and, taking this view of the case, it offered to prove that the rate made was not made for any other party except for the plaintiff, that no party was given the same privilege, and, in addition, that the plaintiff had never put itself in a position to transfer the property to the railway company, but that it had itself sold and disposed of the greater part of the property, and applied the money to its own use, and had never conveyed the same,, or offered to convey the tie hoist and side track, with the right to use the same, to the company; but the court, taking a contrary view of the case, refused to permit the defendant to show the discrimination, or to show that the track and hoist had ever been constructed on land to which the plaintiff had a right, or on which it had made arrangements for the use thereof, or transfer to the railway company on the payment of the cost thereof, and the defendant assigns this view of the contract and rulings of this court hereunder as the second ground of error.” These assignments of error embody the main points involved in this controversy; the principal question being as to whether the agreement between the Standard Lumber Company and the Chesapeake & Ohio Railway Company constitutes a valid contract, and this necessarily involves a consideration of

section 3 of the interstate commerce act, as well as

section 1 of what is known as the “Elkins Act.”

Section 3 of the interstate commerce act provides that: “It shall be unlawful for any common carrier, subject to the provisions of this act, to make or give any undue or unreasonable preference or advantage to any particular company, * * * ” etc.

Section 1 of the Elkins act, which was passed February 19, 1903, reads as follows: “That anything done or omitted to be done by a corporation common carrier, subject to the act to regulate commerce and the acts amendatory thereto, which, if done or omitted to be done by any director or officer thereof, or any receiver, trustee, lessee, agent or person acting for or employed by such corporation, would constitute a misdemeanor under said acts or under this act, shall also be held to be a misdemeanor committed by such corporation, and upon conviction thereof it shall be subject to like penalties as are prescribed in said acts or by this act with reference to such persons, except as such penalties as are herein changed.

The willful failure upon the part of any carrier subject to said acts to file and publish the tariffs or rates and charges as required by said acts, or strictly to observe such tariffs until changed according to law, shall be a misdemeanor, and upon conviction thereof the corporation offending shall be subject tó a fine of not less than one thousand dollars nor more than twenty thousand dollars for each offense; and it shall be unlawful for any person, persons, or corporations to offer, grant, or give, or solicit or accept, or receive any rebate, concession or discrimination in respect to the transportation of any property in interstate or foreign commerce by any common carrier subject to said act to regulate commerce and the acts amendatory thereto whereby any such property shall by any device whatever be transported at a less rate than that named ’in the tariffs published and filed by such carrier, as is required by said act to regulate commerce and the acts amendatory Thereof, or whereby any other advantage is given or discrimination is practised, livery person or corporation, whether carrier or shipper, who shall, knowingly, offer, grant, or give, or solicit, accept, or receive any such rebates, concessions, or discrimination shall lie deemed guilty of a misdemeanor, and on conviction thereof shall be punished by a fine of not less than one thousand dollars nor more than twenty thousand dollars: Provided that any person or any officer or director of any corporation subject to the provisions of this act or the act to regulate commerce and the acts amendatory thereof, or any receiver, trustee, lessee, agent, or person acting for or employed by any such corporation who shall be convicted as aforesaid, shall, in addition to the lino heroin provided for, be liable to imprisonment in the penitentiary for a term of not exceeding two years, or both such fine and Imprisonment, in the discretion of the court.

Every violation of this

section shall be prosecuted in any court of the United States having jurisdiction of crimes within the district in which such violation was committed, or through which the transportation may have been conducted: and whenever the offense is begun in one jurisdiction and completed in another it may be dealt with, inquired of, tried, determined, and punished in either jurisdiction in the same manner as if the offense had been actually and wholly committed therein. * * * ” The foregoing' provision was adopted subsequent to the date of the agreement in question.

At the time this contract was entered into between the parties the interstate commerce act of 1887 was in effect, and this act prohibits the making of any discriminations between shippers by carriers. While the contract purports to be between the Standard .Cumber Company, the Chesapeake & Ohio Railway Company, and the Big Sandy Railroad Company, it does not appear to have been executed by the Big Sandy Railroad Company, and this is assigned as one of the causes on demurrer by the railway company.

The interstate commerce act requires: •‘That all charges for services for handling proi>erty shall be reasonable and just; that no rebates, no drawbacks or other devices by which any person shall pay. or ihe carrier receive, a greater or less compensation shall be allowed: and that no undue influence or advantage shall be given to any person or traffic.'’ By an additional act, passed March 2, 1889, the interstate commerce act was amended so as to compel the carrier by mandamus to give all carriers similar terms and as favorable conditions as those given by a common carrier for traffic under similar conditions to any shipper.

Where the parties to a contract agree to do an illegal act, such agreement is void. Under the head of “Contracts,” Cyclopedia of Raw and Procedure, vol. 9, p. 569, it is said: “If the direct object of the parties is to do an illegal act, the agreement is void, and it is immaterial that either or both did not know that the object was illegal; for, as a general rule, ignorance of the law is no excuse.” Are the terms of the agreement in question in violation of the statutes to which we have just referred? In other words, is the agreement as to rates void? Is such an agreement inherently unlawful?

Are its terms and conditions unenforceable? These are questions that must be carefully considered in determining the merits of this controversy. The railway company insists that it now has the right to complain of the illegality of the contract, and to escape payment by reason of such illegality, inasmuch as, at the time the contract was made, botli the common law, as well as the act of 1887, expressly required a common carrier to transport traffic for all without unreasonable discrimination, either in charges or the facilities .of actual transportation. Southern Ry. Co. et al. v. Tift, 148 Fed. 1021, 79 C. C.

A. 536. This case was affirmed by the Circuit Court of Appeals for the Fifth Circuit, also in 206 U. S. 428, 27 Sup. Ct. 709, 51 L. Ed. 1124. It is insisted by the railway company that, in refusing to comply with this contract; it is simply obeying- the plain mandate of the statute, and that it would be liable under the Elkins act, notwithstanding the fact that said act was passed subsequent to the execution of this contract. In the case of United States v. Great Northern Railway Company (C. C.) 157 Fed. 288, Hough, District Judge, in referring to this phase of the question, said: ‘■‘Eirst.

Although it may be assumed that no indictment could have been found under the interstate commerce act against the carrying corporation, yet, the arrangement above outlined was under that act alone illegal and unenforceable. Texas & Pacific Ry. v. Mugg, 202 U. S. 242, 26 Sup. Ct. 628, 50 L. Ed. 1011. The said unlawful arrangement was not completed until 1904, when the moneys were paid. United States v. Hanley (D. C.) 71 Fed. 675. When the transaction was completed the Elkins act had made each and every part thereof not only unlawful, but a criminal offense.

One part thereof, and certainly the most important, was giving the rebate and accepting the same, and. it is a refinement of language to say that the rebate was given or accepted until the amount thereof was paid. This occurred in 1904, and this act was the crime ‘complained of in the indictment.

A solvent contractor may 'be said to have given some pecuniary advantage to another when he has agreed to give it, his contract being enforceable in ordinary course of law; but if a man agrees to give another an unlawful pecuniary advantage, something not enforceable at law at all, it appears to me plain that the person to whom the promise is made has gotten nothing whatever until he has received and pocketed the pecuniary fruits of such illegal arrangement. If the payment and acceptance of the rebate constituted a crime in 1904.

I do not think that the passage of the Hepburn act prevented the finding of this indictment. On the contrary, within the period of the statute of limitations, I think the Elkins act is in full force as to offenses committed prior to the passage of the Hepburn bill, and can add nothing to the views expressed in U. S. v. Standard Oil Company (D. C.) 148 Fed. 719, U. S. v. Chicago, St. Paul, etc., Ry. (D. C.) 151 Fed. 84, "and the decision of this court, per Holt, J., in U. S. v. D., L. & W. Ry. (filed Feb. 14, 1907) 152 Fed. 269. “Second.

Assuming that the offense sought to be reached by this indictment is the giving — i. e., the paying — of rebate moneys in 1904, the Elkins act is not ex post facto. ■ It did not impose a punishment for

an act which was not punishable when it was committed, nor did it impose additional punishment for such act, nor did it change the rules of evidence; and, if it did none of .these things, it does not transgress the constitutional limitation referred to.” That the construction of the tie hoist in question inured to the benefit of the Standard Dumber Company, in that it gave such company a preference ovér other companies similarly situated, is apparent from an inspection of the agreement.

In other words, it cannot be denied that, the payment back to a shipper, as in this instance, of 10 per cent, on" the.'freight bills paid by the shipper to the railway company, must necessarily result in the shipper, getting its property transported at a lower rate than that indicated in the published schedules. Dandis, District- Judge, .in the case of United States v. Chicago & Alton Ry. Co. et al: (D.

C.) 148 Fed. 647, in discussing this question, said: “ * * * The word ‘rate,’ as used in the intestate commerce law, means the net cost to the shipper of the transportation of his property; that is to .say. the net amount the carrier receives from the shipper and retains. In determining fids net amount in a given ease, all money transactions of every kind or character having a bearing on, or relative to, that particular instance of transportation, whereby the cost to the shipper is directly or indirectly enhanced or reduced must be taken into considera I ion.

Applying this test to the case before me, the net cost to Schwarzchild & Sulzberger Company has been made .si per car less than the published schedules represented that net cost would he. Viewing the transaction from the standpoint most favorable to the defendants, it amounts to the railway assuming the cost of getting the shipper's property to the carriers’ rails for transportation — a substantial consideration not mentioned in, or contemplated by, the published schedules.

This agreement shows on its face that the railway company was to assume the cost of removing the shipper’s property from the river to the carrier’s rails for transportation. The fact that the shipper was to be reimbursed for the amount expended in the erection of the hoist clearly shows that it was the intention of the parties to thus indirectly give such shipper an advantage over other parties similarly situated.

It could not be reasonably contended that, if the railway company had, in the first instance, erected this hoist, on its own account, it could have fixed a cheaper rate for a particular company engaged in delivering its ties over the same, and also denied the right to others to deliver their ties for transportation by the same method and at the same rate. .Such conduct on the part of the railway company would undoubtedly have been in violation of the statute, and, when we come to analyze this contract, that is precise^ what was proposed to be done by the terms thereof.

If the agreement in this instance had been that the hoist in question was to be erected by the Standard Lumber Company for the railway company, and the lumber company paid for the same as provided therein, and it had been further provided that all shippers were to be given the privilege of removing ties from the river over the hoist thus erected for the purpose of being loaded by the carrier at a rate which applied alike to all shippers similarly situated, then, in that event, it would not have been subject to the objection that its terms contemplated the doing of

an act which is made unlawful by the statutes to which we have referred. In addition to what appears on the face of this contract, there is the further fact that this property, when sold by an employé of the lumber company, only brought the sum of $200, which amount was applied to the pajment of the debts of the lumber company. It also appears that tile tariff rate published was $8.50 per car, when the ties were taken over the hoist, as against a $10 rate when loaded by other means.

It also appears that the lumber company charged the railroad company $1,500 for a boiler and engine, which their own agent testified was worth about $150, and also charged $3,505.70 for the material which went into the hoist; and it further appears that this material, when sold, only brought the sum of $200, as hereinbefore stated. This clearly indicated a purpose on the part of the lumber company to do by indirection that which it could not do directly, by fixing a fictitious price on the property in question.

It appears from an examination of the rec'ord that evidence was offered tending to show that there was a discrimination, and that there were other parties engaged in shipping ties who did not enjoy the same privileges and benefits the lumber company enjoyed. However, this evidence, upon the objection of the plaintiff, was ordered stricken out by the court, and the action of the court in this respect eliminated the question as to whether the agreement relied upon by the defendant in error constituted a valid contract. In the case of Chicago & Alton Railroad Company v. United States, supra, 156 Fed. 558, 84 C. C.

A. 324, the Circuit Court of Appeals, for the Seventh Circuit affirmed the ruling of the lower court. In that case the shipper constructed private tracks on its own property extending from a connection with the belt line railroad company to and around its buildings and used for loading cars for shipment. The railroad company made and published a

schedule of through rates, including the belt line charge of $1 per car to such packing company on such shipments made by it and paid for at the

schedule rate, on the ground that it was a payment for the use of its private tracks, thus making the rate charged $1 less per car than that published and charged-to shippers generally from the same point. The court held that the facts of that case constituted the giving of a rebate, in violation of

section 1 of the Elkins act. In the syllabus it is stated: “Private tracks built by the owner oí a packing plant on its own property, extending from a connection with the tracks of a belt line railroad company to and around its buildings, and used in loading ears for shipment, are not a part of the railroad system, but plant facilities; and the refunding by a railroad company, which made and published a

schedule of through rates, including the belt line charge of $1 per car to such packing company on shipments made by it and paid for at the

schedule rate, on the ground that it was a payment for the use of such private tracks, thus making the rate charged $1 per car less than that published and charged to shippers generally from the same point, constituted the giving of a rebate, in violation of

section 1 of the Elkins act (Act Feb. 19, 1903, c. 708, 32 Stat. 847 [U. S. Comp. St. Supp. 1907, p. 880]).” Also in the case of Wight v. United States, 167 U. S. 512, 17 Sup. Ct. 822, 42 L. Ed. 258, it was decided that: “Hauling goods on the Pittsburg, Cincinnati & St. Louis Railroad Company from Cincinnati to Pittsburg, and delivering them to a consignee in his warehouse from a siding connection, and hauling goods for him from and to the same cities on the Baltimore & Ohio Railroad Company, and delivering them to him from the stations of that road in Pittsburg, there being no siding connections, is transportation ‘under similar conditions and circumstances,’ within the meaning of

section 2 of the interstate commerce act of February 4, 1887, and a rebate allowed by the Baltimore & Ohio Railroad Company to compensate for cartage to his warehouse is a discrimination against other shippers over that road to whom no rebate is allowed.” There .the hauling was done by wagons, and in the case at bar the transportation was by machinery; and it is sought by the agreement in question to compel the railroad company to pay for the value of . the machinery.

The fact that the tie hoist thus erected was .not thrown open to the public, and all shippers given an opportunity .of hauling their ties by that method, shows conclusively that this hoist was not intended to be used by the railroad company for transportation purposes generally, but that the transaction was intended solely for the purpose of inducing this particular shipper to transport its ties over the lines of the railroad company.

If the erection of this hoist had been intended tor genenil use, the railroad company certainly would not have permitted it to be sold at a nominal price, as it was; and this, among oilier things, shows most conclusively that the whole transaction -was a subterfuge; by -which one shipper was to be given an advantage over others similarly situated. The .Interstate Commerce Commission, “In the Matter of Allowances for Transfer of Sugar,” in its decision rendered December 12, 1908 (14 Interst. Com. R. (AT), in referring to the cases of Wight v. United States, supra, and Chicago & Alton R. R. Co. v.

United States, supra, said: ‘•All tlie tariffs purport to make the allowance as compensation for transfer. It necessarily follows that if the allowance is to be sustained the transfer of Koods to the possession of the carrier must be held to be the carrier’s duty, for which the shipper malting the transfer is entitled to compensation. Such is not the law. and the first to resist ilie attempt to impose such duty upon the, carriers would be the carriers themselves.

Within the present year this Commission has decided at least two eases in favor of carriers involved in this proceeding. and has held that the delivery of goods to a carrier and the receipt, of goods from a carrier are duties devolving upon the shipper, for which the carrier cannot be compelled to pay.

For carriers to undertake to make to shippers allowances based upon the performance by the shippers for themselves of services which they are legally bound to do for themselves is for the carriers to violate the act to regulate commerce.” It was also held by the Commission: “That it is not a part of the carrier's duty to bear the expense of transfer of goods from the shipper to the carrier.

For carriers to undertake to com]aní-sate shippers for performing service's which the shippers are legally bound to do for themselves is for the carrier to violate the act.” The court below held that the lumber company was not entitled to recover anything for overcharge or damages growing out of the change of rates, but that it could recover under the contract whatever the jury might find from the evidence it was entitled to for building the hoist.

In other words, the court was of the opinion that the contract in question was not binding upon the railroad company to the extent of preventing it from changing its rates, so as to make them uniform and apply alike to all shippers similarly situated; but, notwithstanding this ruling (which must necessarily mean that the contract was invalid in so far as rates were concerned), the court was of the opinion that the defendant in error was entitled, under the contract, to recover the cost of erecting the tie hoist.

When we view this agreement, together with the other evidence offered, in the light of the cases quoted, we are forced to the conclusion that the agreement in this instance is in violation of the provisions of the statutes enacted for the express purpose of regulating the conduct of a common carrier in its transactions with a shipper.

An agreement which contemplates the doing of an unlawful act is absolutely void, and cannot be enforced for any purpose; and this is especially true in a case like this, wdiere it was, on the one hand, the manifest purpose of the railroad company to give a shipper an undue advantage over other' shippers similarly situated, and, on the other hand, the intention of the shipper to receive an undue advantage over another shipper under like conditions.

There are numerous assignments of error; but we do not "deem it necessary to consider them seriatim, but will content ourselves with saying that we are of the opinion that the court erred in holding that the agreement in question constitutes a valid contract. For -the reasons stated, the judgment of the court below is reversed, with instructions to proceed in accordance with the views herein expressed. Reversed.