Turner et al v Laughlin, Clark and Co.

Contracts-Illegal- -Public Policy

Pleading—Doing Business Within the State Proof—Act of May 15, 1874, P. L. 178, and Pennsylvania Constition, Section 6, Article XVII.

It is very doubtful if a court would sustain an illegal contract because the defendant had not alleged the facts constituting that contract illegal in his affidavit of defense. The general rule is, that if it appear in the trial of the case that the contract is illegal, then the courts will not enforce that contract. The courts of this state are not going to permit employees of railroads of this state to go outside of the state and make contracts which are prohibited them within the state by Section 1 of the Act of May 15, 1874, P. L. 178, and of Section 6 of Article XVII. of the Constitution of Pennsylvania, but defendant to escape liability on a contract made illegal by the Constitution, and said Act must prove that it is a citizen of and does business within the state.

Plaintiffs were employed by a railroad and recovered a verdict on a contract for materials furnished the railroad company contrary to Section 1 of the Act of May 15, 1874, P. L. 178, and of Section 6 of Article XVII. of the Constitution of Pennsylvania. Where plaintiff failed to prove that it was a Pennsylvania corporation or did business in the state, the Court could not take judicial notice of these facts.

Motion for Judgment N. O. V.

Allegheny County.

No. 1433 January Term, 1918. C. P.

James W. Collins, John A. Murphy, Charles A. Locke, and Kay, Totten & Powell, for plaintiffs.

Morris, Walker & Boyle, for defendant.
Reed, Smith, Shaw & Beal, for garnishee.

EVANS, J., April 17, 1920.-The plaintiffs brought suit on an alleged contract with the defendant company on a written contract, consisting of two letters, the first written by Turner and Burry to Laughlin, Clark & Company, as follows:

"Gentlemen:

In the absence of any contract binding for the present, on the manufacture and sale of the Burry rocker side bearing, this will be your advice that for the order for the two thousand cars for the P & L E Railroad, we will conduct the business along the lines agreed upon verbally, namely, the profits to be divided by two, this to take place after the cost of manufacture and royalties have been paid, the royalties in this particular case being $2.50 per car, which we hope to improve on in later transactions.

Should there be any litigation, it is understood that the costs will be borne, one-half by the Laughlin, Clark and Company, and one-half by V. J. Burry and L. H. Turner. We trust and believe that there is so little opportunity of infringement that no trouble will be experienced from any one, and an acknowledgment from you, agreeing to the terms of this letter, will be sufficient contract for the first two thousand cars, on order which we expect from the Pittsburgh & Lake Erie."

In answer to this Laughlin, Clark & Company wrote as follows: "Dear Sirs:

This is to acknowledge receipt of and thank you for your letter of the 2nd inst., outlining the verbal agreement we have for the manufacture and sale of the Burry rocker side bearing for the 2,000 P & L E cars, to be built at Butler, and to advise you that the conditions mentioned therein are satisfactory to us and that we shall be governed accordingly."

Turner et al. v Laughlin, Clark and Co.

The suit was brought to recover a $5,000 royalty of $2.50 per car, and one-half the net profits of the transaction. There was no claim made at the trial for anything but the $5,000.00. It developed in the trial of the case that Turner and Burry were employees of the Pittsburgh and Lake Erie Railroad. There was no allegation in the affidavit of defense that the contract sued upon was illegal, being in violation of Section 1, of the Act of May 15, 1874, P. L. 178, and of Section 6, of Article 17 of the Constitution of Pennsylvania, the former providing as follows: "No president, director, officer, agent or employe of any railroad or canal company of this commonwealth shall hereafter be interested in any contract for the furnishing of material or supplies to any such railroad or canal company, and it shall not be lawful for such president, director, officer, agent or employe, to institute or maintain any action at law or suit in equity to recover under such contract for his or their interest therein * * *" and the Constitutional provision as follows: "No president, director, officer, agent or employee of any railroad or canal company shall be interested, directly or indirectly, in the furnishing of material or supplies to such company * *."

*

But as stated, it did appear, during the progress of the trial, that Burry and Turner were at that time employees of the Pittsburgh & Lake Erie Railroad. There was no evidence as to whether the Pittsburgh & Lake Erie Railroad was a Pennsylvania corporation. It is contended however, by the defendant, in his brief for judgment n. o. v. that this contract was illegal, and the plaintiffs can not recover. It appeared from the undisputed evidence in the case, that the $2.50 per car royalty was to be paid by Burry and Turner to the Anti Friction Bearing Company, and that company was a corporation, the controlling of the stock being held by J. M. Schoonmaker, at the time Vice President and General Manager of the Pittsburgh & Lake Erie Railroad, and the claim of the plaintiff, if recovered in this case, would go to the Anti Friction Bearing Compnay. It is urged by the plaintiff that this matter, not having been set up in the affidavit of defense, can not be urged by the defendant as a defense in the trial of the case. If this were an ordinary matter of defense, there is no question but that position would be sound, but the defense in this case is that the contract was illegal, and it was illegal on the ground of public policy, and we think it is very doubtful if a court would sustain an illegal contract because the defendant had not alleged the facts constituting that contract, illegal in his affidavit of defense. The general rule is, that if it appear in the trial of the case that the contract is illegal, then the courts will not enforce that contract.

It will be observed that the language of the Act of May 15, 1874, and of the provisions of the Constitution above quoted, are not identical, the Constitution providing that an officer or agent shall not be interested directly or indirectly in the furnishing of material or supplies to his company, and the indirectness is not mentioned in the Act of Assembly, and therefore it is claimed that the Anti Friction Bearing Company is the real person in interest in this case, and that while J. M. Schoonmaker is an officer of the Pittsburgh & Lake Erie Railroad Company, and the owner of the controlling stock of the Anti Friction Bearing Company, he is not barred from recovery because his interest in the Anti Friction Bearing Company is not in violation of the Act of 1874. It is urged on the other hand that the Constitution is self-enforcing, and the full provisions of that Article of the Constitution are in force. It is also urged on the part of the plaintiff that there is no evidence in this case that the Pittsburgh & Lake Erie Railroad is a Pennsylvania corporation, and it is true that we have no evidence on that subject, and we do not see how this court can take judicial knowledge of that fact, whether it be a fact or not.

Turner et al. v Laughlin, Clark and Co.

It is also urged by the plaintiff that this is an Illinois contract, the plaintiff's proposition being accepted in Illinois. We cannot see how that would affect the contract, if the Pittsburgh & Lake Erie Railroad be a Pennsylvania corporation. Surely the courts of this state are not going to permit employees of railroads of this state to go outside of the state and make contracts which are prohibited them within the state.

We cannot sustain the contention of plaintiff's counsel, that there is any difference between the provision of the Act of May 15, 1874, namely, that "no president, director, officer, agent or employee of any railroad or canal company of this commonwealth, shall hereafter be interested in any contract, etc.," and the provision of the Constitution, that such persons shall not be interested directly or indirectly in the furnishing of material or supplies to such companies. If one is interested indirectly, he is interested in the contract just as much as if he is interested directly, and therefore one who owns stock in a corporation, and who is one of the persons mentioned in the above clause of the Constitution and in the Act of 1874, he is subject to the prohibition of the Act and of the Constitution. But as we stated above, we have no evidence that the Pittsburgh & Lake Erie Railroad is a corporation of Pennsylvania. We have no evidence that the Pittsburgh & Lake Erie Railroad mentioned in the contract sued upon in this case is located within the territory of the State of Pennsylvania, and this court cannot take judicial notice of those two facts. In the first place, we do not know that the Pittsburgh & Lake Erie Railroad is a railroad of Pennsylvania. Individually we may know that there is a railroad, which is called the Pittsburgh & Lake Erie, which operates cars within the territory of Pennsylvania, but whether that was the one mentioned in this contract, we do not know, and we have no information as to whether there is a Pittsburgh & Lake Erie Railroad that is a corporation of the State of Pennsylvania. Those being the facts, following the decision in the case of Rumsey v Railroad Company, 203 Pa., 579, we must refuse the motion of the defendant to enter judgment non obstante veredicto.

Dermott Land & Lumber Company v Sipe.

Pleading and Practice Affidavit of Defense-Set Off—Averments.

Judgment will be entered for want of a sufficient affidavit of defense where the affidavit of defense is vague, indefinite, uncertain and, in some of its allegations, obviously wrong.

Allegations of set-off for loss of profits under a contract will not constitute a good defense, where the allegations are of a vague, indefinite, and uncertain character, where the profits alleged to have been lost are remote and speculative in the extreme, where there is no indication of the basis on which they were calculated, and where there is nothing to show in any respect the provisions of the contract for a breach of which they are claimed.

Rule for Judgment for Want of a Sufficient Affidavit of Defense. No. 421 September Term, 1920. C. P. Fayette County.

Goldsmith&Goldsmith, for plaintiff.

F. E. Younkin, for defendant.

VAN SWEARINGEN, P. J., July 27, 1920.-This case is before the court on a rule for judgment for want of a sufficient affidavit of defense. Plaintiff sold and delivered to defendant a carload of mixed oak bridge plank, containing 14,400 board feet, at $42.50 per M, amounting to $612. Defendant paid $300 on account

Dermott Land & Lumber Company v Sipe.

thereof, he was given credit for freight paid by him amounting to $170.85, and he was allowed a discount of $8.55, leaving a balance alleged to be due of $132.60, to recover which amount, with interest thereon from July 10, 1918, this action was brought.

In his affidavit of defense the defendant denies owing the plaintiff anything, alleges a set-off, and asks to have a balance certified in his favor of $312.64, with interest thereon from May 28, 1918. Defendant admits that he ordered said carload of lumber from the plaintiff and that the price charged was the price agreed upon between the parties, but he claims that "when the lumber was received by him, or by his customers, there was a shortage caused by shrinkage away of the said lumber," for which he asks a credit of $107.48. He claims he paid freight amounting to $140.16, which is $30.69 less than he is given credit for by the plaintiff on account of freight paid by him. He asks credit for a discount of $6.00, which is $2.55 less than the amount plaintiff has allowed him as a discount. He alleges he paid $300 on the bill, which corresponds with plaintiff's credit for payment. But defendant alleges that on account of said "shrinkage" he owes plaintiff a balance on this carload of lumber of but $58.36, for which amount he says he tendered plaintiff a check which was refused.

In addition to the matters of defense above stated, defendant says in his affidavits of defense: "Defendant claims in the way of further credits as against this one order, damages for breach of contract on the part of the plaintiff as follows: Order No. 7694 was given by defendant and accepted by plaintiff, on May 18, 1918, for one car of lumber Toading fourteen thousand (14,000) feet. and by reason of said breach of contract defendant realized a loss of profit of nine 50/100 ($9.50) dollars per M, or one hundred thirty-three ($133) dollars on this order, also order No. 7695 for two (2) cars of lumber loading twentyeight thousand (28,000) feet, on which a loss of profit was sustained by the breach of said contract of eight 50/100 ($8.50) dollars per M, or two hundred thirty-eight ($238) dollars on this particular order, said total loss on two orders No. 7694 and No. 7695 being three hundred seventy-one ($371) dollars, all of which was sustained by the defendant because of the breach of contract on the part of the plaintiff as for these two particular orders which were not filled by plaintiff."

Defendant alleges that he is entitled to a certificate of a balance in his favor of $312.64, being the difference between his alleged damages for breach of contracts by plaintiff and the amount admitted to be otherwise owing by him to plaintiff on the carload of lumber mentioned in plaintiff's statement of claim, on which balance he claims interest from May 28, 1918.

In regard to the "shrinkage" of the lumber constituting the carload mentioned in plaintiff's statement of claim we can but surmise, from a comparison of the itemized statement attached to plaintiff's statement of claim with a statement attached to the affidavit of defense, that pieces of lumber billed as of a size 21⁄2" x 12"-12', shrank, by reason of being green, to an extent that some of them became of a size 24" x 12"-12' and others of them of a size 24" x 11"-12". These conclusions may be reached only by conjecture, such facts are not specifically alleged. And even such conjectures do not account for the total difference claimed in the number of board feet. In calculating the number of feet the defendant does not count as many pieces of lumber as are shown to have been shipped. He makes no complaint of not having received the total number of pieces billed, but he does not include that total number of pieces in his calculation of the total number of board feet in the carload. His affidavit of defense in these respects is vague, indefinite, uncertain, and, in some of its allegations, obviously wrong. His contention is not supported by his own calculations. There is no allegation in the affidavit of defense that anything was agreed upon between

Dermott Land & Lumber Company v Sipe.

the parties covering this subject at the time the order for the lumber was given by defendant. There is no allegation that dried lumber was ordered. There is no definite allegation that the alleged shrinkage had taken place when the lumber was received by defendant. There is no allegation that the lumber when received by defendant was not merchantable for the purposes for which it was intended. The lumber was shipped to defendant from Dermott, Ark. It is conceded by defendant that the carload of lumber when shipped by plaintiff contained the number of board feet specified in plaintiff's invoice. The affidavit of defense shows the defendant to be a "manufacturer of and dealer in lumber, posts and ties." Being a lumber dealer defendant must have known that if green lumber were shipped it would shrink, yet he does not even claim to have ordered dried lumber. Conceding all the allegations of the affidavit of defense relative to the shrinkage of this lumber to be true, it may well be that the condition of the lumber when received by defendant was exactly what he expected it to be and knew it would be. And an affidavit of defense is to be construed most strongly against him who makes it. Under these circumstances we are of opinion that defendant's allegations as to the shrinkage of the lumber do not constitute a good defense.

Nor do we think defendant's allegations of set-off constitute a good defense. The allegations are of a most vague, indefinite, and uncertain character. The profits alleged to have been lost are remote and speculative in the extreme. There is no indication of the basis on which they are calculated. There is nothing to show the provisions of the contracts in any respect. There is nothing to show the character of the alleged breach of the contracts, except in the last five words of the paragraph above quoted from the affidavit of defense where it is alleged that the contracts or orders "were not filled by plaintiff." If damages are to be recovered for loss of profits growing out of the breach of a contract, the provisions of the contract must be shown, and the nature of the breach thereof, and some basis in fact for a calculation of lost profits must be made to appear. And such matters must be as specific in a defendant's claim of set-off as in a plaintiff's statement of claim. As to matters of set-off a defendant actually becomes a plaintiff. If the allegations in this affidavit of defense relative to defendant's claim of set-off were contained in a statement of claim by some plaintiff as the basis of a cause of action, without more particularity, certainly no lawyer would contend that they would be sufficient upon which to sustain the action.

And now, July 27, 1920, for the reasons stated in the opinion herewith filed, the rule for judgment is made absolute, and it is ordered that judgment be entered in favor of the plaintiff and against the defendant for the sum of $132.60, with interest thereon from July 10, 1918, for want of a sufficient affidavit of defense.