Northern Wisconsin Co-operative Tobacco Pool v. Bekkedal

The following opinion was filed November 13, 1923:

Owen, J.

The question which first should be considered is whether the plaintiff is entitled to equitable relief preventing the defendants from, interfering with the contracts existing between the plaintiff and its numerous members. It is to be borne in mind that the Bekkedal firm has for thirty years been engaged in the tobacco business in this state, during which time it has purchased the tobacco crops of many growers who had become members of the plaintiff corporation and had entered into contracts to sell and deliver their 1922 and four succeeding years’ crops to the plaintiff. This situation constituted a serious interference with the Bekkedals’ usual business, and they freely admitted that they had been unable to purchase the desired amount of the 1922 crop. Notwithstanding the fact that plaintiff offered to sell them one million pounds of tobacco, they never made any reply to the offer, but, instead, sent out their agents and solicitors, and at the. time of the commencement of the action were engaged in inducing growers who were members of the plaintiff corporation and under contract to- deliver to the plaintiff their 1922 crop to breach their contracts with the plaintiff and to sell and deliver their, respective crops to the Bekkedals. The son, Lloyd Bekkedal, testified that it was the intention of the Bekkedal firm to go out and try to buy two and one-half million pounds of tobacco from plaintiff’s members, and that but for the service of the temporary restraining order they would be “going yet.”

The trial court specifically found that the defendants had deliberately solicited persons known by them to be signers of the contracts with the plaintiff to bréale said contracts, and agreed to indemnify and protect such growers against damage to the plaintiff for or on account of such breach; that they represented to such growers, for the purpose of inducing them to breach their, contracts, that the contracts were inoperative, and that they endeavored to create dissatisfaction by telling said growers that the price they were to receive for -their tobacco from the plaintiff was too low and that their tobacco was worth more than the plaintiff would pay, and offered and agreed to pay them more for their, said tobacco than they would receive under plaintiff’s contracts.

We consider the law well settled that one who maliciously induces another to breach a contract with a third person is liable to such third person for the damages resulting from such breach. Martens v. Reilly, 109 Wis. 464, 84 N. W. 840; Knickerbocker Ice Co. v. Gardiner Dairy Co. 107 Md. 556, 69 Atl. 405, 16 L. R. A. n. s. 746, and note; Wheeler-Stenzel Co. v. American W. G. Co. 202 Mass. 471, 89 N. E. 28, L. R. A. 1915F, 1076, and note; Swain v. Johnson, 151 N. C. 93, 65 S. E. 619, 28 L. R. A. n. s. 615, and note; 36 Harvard Law Rev. 663.

Appellants concede the doctrine that where one knowingly induces the servant or employee of another to breach his contract of employment, or where the interference of a third person is. from malicious motives, or by the employment of methods not regarded by the law as proper, the party so offending must respond in damages. But they claim that this case falls within the principle that, in the interest o'f free trade and competition, it is permissible for any one to purchase in the open market products offered to him although the person offering such products for sale may be under contract to deliver all or some of the products to someone else, to which principle they cite Citizens' L., H. & P. Co. v. Montgomery L. & W. P. Co. 171 Fed. 553; Sweeney v. Smith, 171 Fed. 645, and other cases. It is not to be denied that numerous cases hold that one acting in good faith may advise another to breach a contract existing between such other and a third person without incurring liability, and no. doubt that is sound law. Where the interference is malicious, however, the great weight of authority upholds the liability of the intermeddler. There is some confusion in the authorities as to what constitutes a malicious interference; but, without undertaking to. review the authorities or to define or fix the limits of conduct amounting to a malicious interference, we do not hesitate to say that the conduct of the defendants in this case did constitute a malicious interference with the contracts existing between the plaintiff and the tobacco growers.

The defendants knew of the existence of the plaintiff and were cognizant of the fact that the growers of tobacco' had very generally become members of the corporation and had agreed to sell and deliver their crops thereto. By reason of this very situation the- Bekkedals had been unable to purchase the amount of tobacco which they desired. They saw that their business was threatened by the existence of this corporation. They organized a campaign to scatter seeds of dissatisfaction and discontent among plaintiff’s members, offered more than the market price to induce them to- breach their contracts with the plaintiff, and offered to indemnify them from any costs or damages which might result from breaches of their contracts.

Co-operative associations among the farmers are favored by our laws. Our statutes provide for their organization. Such associations cannot live when discontent and dissatis-, faction is rife among the members. Defendants’ plan of campaign was well calculated to ruin the plaintiff and bring about its. dissolution, thereby relieving- the defendants from undesirable competition. These facts supply the malice necessary to render them liable in damages for their attempts to bring about breaches of the contracts, under the great weight of authority, and even if authority were lacking we should be impelled to the 'same conclusion.

Liability on the part of the defendants for causing breaches of plaintiff’s contracts having been established, the question arises whether it is entitled to the relief of a court of equity in restraining the defendants from' further efforts along this line.

The plaintiff has contracts with upwards of 6,500 members. While it may prosecute actions at law to recover damages for breaches of these contracts, it would require a multiplicity of stilts, and the damages which it would sustain by reason of its inability to deliver the tobacco which it had sold to its customers would be difficult of proof in an action against the defendants. These facts furnish a plain situation for equitable interference. American Law Book Co. v. Edward Thompson Co. 41 Misc. 396, 84 N. Y. Supp. 225; Jesse L. Lasky F. P. Co. v. Fox, 93 Misc. 364, 157 N. Y. Supp. 106; affirmed without opinion in 174 App. Div. 872; Beckman v. Marsters, 195 Mass. 205, 80 N. E. 817, 11 L. R. A. n. s. 201.

The contract existing between the plaintiff corporation and its members provided as follows •.

“The parties agree that the contract shall be in effect from the time that growers of seventy-five per cent, of the tobacco produced in Wisconsin in 1920 sign similar contracts until June 1, 1927, and that it shall continue thereafter from year to year; subject to the right of either party to terminate liability'- on June 1st of any year following 1926 by giving notice to the other party at least thirty days before the expiration of such year.

“The association agrees that it will notify the grower as soon as growers of the required acreage, as above stipulated, have signed similar contracts.

“The parties further agree, however, that this contract s'hall not affect the 1922 crop unless by June 30, 1922, growers of the required acreage, as stipulated above, have signed similar contracts.”

The court found that on or before June 30, 1922, a sufficient number of growers of tobacco had signed similar contracts to make all of said contracts operative upon the 1922 crop of tobacco; that notice thereof was given by the plaintiff corporation to its various contracting members, and that the terms and conditions of said contracts had been fully met and complied with so as to make said contracts operative upon the 1922 crop.

Whether or not a sufficient number of growers had signed contracts with the plaintiff to make said- contracts operative upon the 1922 crop' was the subject of exhaustive inquiry upon the trial. We are asked to. review the evidence upon this point and to set aside the finding of the count in this respect. It strikes us that the question whether these contracts are in all respects technically valid, or whether the contracting parties could, if they were so disposed, defend against them, is a matter with which the defendants are not concerned and which they ought not to be permitted to raise. The contracts were treated as valid and subsisting by both parties thereto. The plaintiff had proceeded on the theory that it had the requisite number of contracts. It so notified all of its contracting members in August, 1922. Not a single one of the members questioned that fact. The plaintiff, proceeded to finance itself and to. dispose of the crop, which these contracts assured to it. The contracting members planned on delivering their respective crops to the plaintiff corporation in accordance with their agreement. All parties acquiesced in the validity of the contracts. Under such circumstances, we are unable to perceive any legitimate reason for permitting a mere intermeddler with relations thus created to assert the right to- challenge the validity of these contracts. If the immediate parties saw fit to treat them as legal contracts, defendants’ interference with relations thereby created is no less immoral because the grower members, might have had a legal defense thereto. This conclusion is supported by Rice v. Manley, 66 N. Y. 82, and Jesse L. Lasky. F. P. Co. v. Fox, 93 Misc. 364, 157 N. Y. Supp. 106; affirmed without opinion in 174 App. Div. 872.

It is also contended that the contract between the plaintiff corporation and its grower members was ultra vires. This is another question which the defendants should not be permitted to raise, especially in view of the rule that the question of whether the contracts are ultra vires can be raised only by the state or some member of the corporation. John V. Farwell Co. v. Wolf, 96 Wis. 10, 70 N. W. 289, 71 N. W. 109.

The appellants next contend that the plaintiff is a monopoly, and that the manner in which it conducts its business constitutes an unlawful restraint of trade. In the brief filed as amicus curice by the attorney general it is suggested that the appellants may not raise this question; at least that they cannot ask that the plaintiff corporation be dissolved on the ground that it is an illegal combination under the antitrust laws, as that is the exclusive province of the sovereign, citing to that proposition Minnesota v. Northern S. Co. 194 U. S. 48, 24 Sup. Ct. 598; Pulp Wood Co. v. Green Bay P. & F. Co. 157 Wis. 604, 147 N. W. 1058. In 19 Ruling Case Law at page 205 it is said:

“The great weight of modern authority is to the effect that one who has been or will be injured thereby is ordinarily entitled to the equitable remedy of injunction to prevent the carrying out of a contract or combination, to which he is not a party, formed for the purpose of creating a monopoly, maintaining prices, restraining trade or competition, or injuring others in their business contrary to common law or statute, if the damages which he would otherwise suffer are unascertainable, or the resulting injury would be irreparable, and legal remedies are inadequate or a resort thereto would cause a multiplicity of suits.”

In Hawarden v. Youghiogheny & L. Coal Co. 111 Wis. 545, 87 N. W. 472, it was held that a retail coal dealer who-was injured by an unlawful combination between other coal dealers to drive out of business all not members of the combination might maintain an action to restrain the continuation of the operations of the conspiracy.

Sec. 1747e, Stats., provides that any corporation or association who shall either as principal or agent become a party to any contract, combination, conspiracy, trust, pool, or agreement in the nature of a trust or conspiracy in restraint of trade or commerce, shall be liable to any person- transacting or doing business in this state for all damages he may sustain by reason of the doing of anything forbidden by this section. While this does not in terms give the injured person a right to equitable relief, in view of the fact that it gives such injured party a right of action at law to recover damages it would seem that a court of equity should grant relief where the remedy at law expressly conferred by the statute is inadequate. The authorities sufficiently establish the right of the defendants to urge the monopolistic nature of the plaintiff as a defense to the action as well as the right to ask for affirmative equitable relief if it shall be determined that the plaintiff, either by virtue of its contracts with its members or by reason of its business methods, in fact constitutes a monopoly or effects an unreasonable restraint of trade.

The plaintiff corporation is organized without capital stock pursuant to secs. 1786<? — 1 to 1786e — 17® of the Statutes, providing for incorporation of co-operative associations. Sec. 1786<? — 2 provides that any number of adult persons, not less than five, who are residents of this state, may organize as a co-operative association for the purpose of conducting any agricultural, dairy, mercantile, mining, manufacturing, or mechanical business on the co-operative plan, or of acting as a selling or buying agent for its members or patrons. Sub. 2, sec. 1786c — 7, provides:

“Contracts between, any association organized under sections 1786c — 1 to 1786c — -17, inclusive, and its members, whereby such members agree to sell all or a specified part of their products to or through, or to' buy all or a specified part of goods from or through the association or any facilities created by the association, shall, if otherwise lawful, be valid; provided that the term of such contracts does'not exceed five years; provided, however, that this requirement shall not prevent such contracts from being made self-renewing for periods not exceeding five years each. A provision in any such contract determining a specific sum to be paid by the member as liquidated damages for breach of said contract shall be valid; provided, that the amount of said liquidated damages does not exceed one fifth of the value of the products which are the subject of the breach.”

By virtue of the contract entered into between plaintiff and its members the member agreed to sell to' the association all tobacco produced by or for him until June 1, 1927; that he would produce and prepare such tobacco- for shipment in accordance with the lawful rules of the association, and that he would deliver such tobacco at the time and place and in the manner directed by the association. The member agreed that in the event he violated the contract he would pay the association the sum of .five cents per pound for each pound of tobacco- produced but not delivered by him according to the provisions of the contract and that said sum might be deducted from any money due from the association to the grower. The contract was -to become effective from the time that growers of seventy-five per cent, of tobacco produced in Wisconsin in 1920 should sign similar contracts.

Appellants’ contention that plaintiff constitutes a monopoly and an unlawful combination in restraint of trade condemned by sec. 1747c is based on the following considerations : (1) The contract is not to- take effect until seventy-five per cent, of the growers of tobacco in Wisconsin signed similar contracts; (2) the provision in the contract that the member will pay to the association the sum of five cents per pound for each pound of tobacco produced but not delivered by him according to the provisions of the contract; (3) that the admitted purpose and conduct of the plaintiff was to combine at once one hundred per cent, of the growers in Wisconsin, and obtain a complete monopoly; (4) that the Wisconsin tobacco crop is peculiarly subject to monopolization because of its distinctive quality; (5) that the plaintiff pool established a price upon its crop- which was- a monopoly price, as appears by the fact that the price once fixed by the pool was to continue for the whole season, and the prices fixed by-the pool were regarded by it, due to its- control over the market, as the market price, and anything beyond was classed by it as in excess of the true market price so fixed; (6) that the plaintiff acquired such monopolistic control over the tobacco crop' of Wisconsin as to be able to disorganize, in its first season, the entire distribution and marketing system of tobacco- in this state; and (7) that the plaintiff acquired such monopolistic control over the tobacco crop in Wisconsin as to be able to exercise monopolistic discrimination in the distribution of the Wisconsin tobacco crop'among the buyers of tobacco-.

A number of the propositions thus laid down by the appellants are not without dispute in the evidence. But, for the present at least, we shall assume these several propositions as verities. From the premises so laid down, appellants proceed with the discussion on the assumption that the situation is governed entirely by the provisions of sec. \7\7e, which is our statutory condemnation of contracts or combinations in the nature of a trust or conspiracy in restraint of trade or commerce. It is- to be conceded that for a long time the public policy of this state was in accordance with this statutory declaration, and probably such would have been the public policy of the state in the absence of such statutory declaration, as the statute in question adds very little to the condemnation visited upon such agreements at common law. It is not to be denied, however, that the public policy of the state with reference to such combinations and agreements is within the control of the legislature, and that such public policy is subject to legislative control and modification. Thus, in Pulp Wood Co. v. Green Bay P. & F. Co. 168 Wis. 400, 412 (170 N. W. 230), it was said:

“It may be well that the time is approaching, if not already here, when monopolies or business combinations controlling the market (subject, however, to efficient government control) will be found more desirable than unrestrained competition; but that is a question for the lawmaking power to decide, not for the courts.”

Such combinations and agreements have been condemned by the law because their existence was regarded as prejudicial to the public interest. If in the course' of time changing conditions should give rise to economic views and public opinion wiping out the prejudice hitherto entertained with reference to such combinations and they should come to be regarded as beneficial rather than injurious to the public interest, there is no doubt of the power of the legislature to completely reverse the public policy of the state with reference to such combinations and agreements and to promote rather than suppress the same. So, also, if the legislature should conclude that some combinations are'injurious while others are beneficial to the public interest, no reason is perceived why the injurious combinations may not be prohibited and the beneficial combinations encouraged, due regard being had, of course, to the legal requirements concerning proper and germane classifications.

Since the enactment of sec. 1747^, condemning every contract or combination in unreasonable restraint of trade, legislation has been enacted providing for the incorporation of co-operative corporations, or associations, as they are called. The plaintiff is organized under such statutory provisions, secs. 1786<? — 1 to 1786e — 17», Stats. 1921, inclusive'. Such legislation specifically provides (sub. 1, sec. 1786e — 2) :

"Any number of adult persons, not less than five, who are residents of this state, may organize as a co-operative association, for the purpose of conducting any agricultural, dairy, mercantile, mining, manufacturing or mechanical business on the co-operative plan, or of acting as a selling or buying agent for its members or patrons.”

Sub. 2 of sec. 1786e — 7, already quoted herein, would seem to authorize every provision of the contract here in question. Under contracts so authorized, members may agree to sell all or a specified part of their products to or through, or to buy all or a specified part of goods from or through, the association or any facilities created by the association, and such contracts, if otherwise lawful, shall be valid. Such contracts shall not exceed five years, but they may be made self-renewing for periods not exceeding five years. The same subdivision also specifically provides' that the contracts may contain a provision for liquidated damages in case of their breach. Every provision of the contract here in question which it is claimed constitutes a restraint of trade is specifically authorized by this legislation. This legislation, being enacted subsequent to the enactment of our general anti-trust statutes, must be considered as modifying the scope of the former, and the validity of plaintiff’s contracts, or the effect of their operation so far as they constitute a restraint of trade, is not to be tested by the provisions of sec. 1747c or court decisions condemning contracts under similar legislative provisions. This legislation providing for the organization of co-operative associations manifests a clear purpose on the part of the legislature not only to authorize but to encourage cooperative effort along the lines to which the legislation is made applicable and to legalize practices which no doubt were of questionable validity prior to the enactment of such legislation.

The reasons for promoting such legislation are generally understood. It sprang from a general, if not well-nigh universal, belief that the present system of marketing is expensive and wasteful and results in an unconscionable spread between what is paid the producer and that charged the consumer. It was for the purpose of encouraging efforts to bring about more direct marketing methods, thus benefiting both producer and consumer and thereby promoting the general interest and the public welfare, that the legislation was enacted.

We therefore hold that the validity of the plaintiff organization and its operations must be tested not by the former public policy of this state with reference to combinations and. agreements in restraint of trade, as declared b3<- sec. 1747c, but by the provisions of the co-operative association statutes. So far as the contract is concerned, it seems to be in conformity with those provisions. The statute specifically provides that any number of persons may organize as a co-operative association. This language negatives any legislative purpose to limit the number of persons that may so organize, and the fact that seventy-five per cent, or even one hundred per cent, of the tobacco growers of the state affiliated with this association does not render its organization illegal or its operations unlawful. It may be and probably is true that the organization and operation of this association had a very serious effect upon defendants’ business in the various respects above set forth, but it is to be remembered that the very purpose of the legislation was to bring about a different system of marketing, which must of necessity injuriously affect middlemen (and such is the Bekkedal firm). The effect of the operation of such associations upon business in general cannot be considered in determining the legality thereof or their operations, because the public policy which formerly condemned them now encourages their existence and operation. If they have no effect upon business as heretofore existing and conducted, then their existence and operation as well as the legislation promoting them is futile and to no purpose. The effect of similar legislation upon prior existing public policy is considered in Tobacco Growers’ Co-operative Asso. v. Jones, 185 N. C. 265, 117 S. E. 174; Brown v. Staple Cotton Cooperative Asso. (Miss.) 96 South. 849; Hollingsworth v. Texas Hay Asso. (Tex.) 246 S. W. 1068; Poultry Producers v. Barlow, 189 Cal. 278, 208 Pac. 93, all of which are in harmony with the conclusion we have reached.

We are not called upon to consider questions of classification, as the statute authorizes the formation of co-operative associations not for the purpose of conducting a particular or a limited class of businesses, but, by its terms, it applies to agricultural, daily, mercantile, mining, manufacturing, or mechanical business. This provides a very wide field for the operation of these associations and relieves the law of any suspicion arising on its face at least of special or class legislation.

Whether the plaintiff association constitutes a monopoly or an unreasonable restraint of trade tested by public policy existing prior to the enactment of our co-operative association legislation would present a most interesting question. But in view of the conclusion we have reached, a discussion of that question would be to no point and would constitute a mere superfluous effort.

It may be that some matters of minor importance have been raised in the briefs to which reference has not been made in this opinion. We desire to' give assurance, howr ever, that all questions raised by appellants have been considered, and if they have not been treated here it is because they seemed to be immaterial in our view of the case.

By the Court. — Judgment affirmed.

Eschweiler and Jones, JJ., dissent.