Arbour v. Pittsburg Produce Trade Ass'n

Opinion by Orlady, J., While there are a number of defendants named in this bill in equity as it was originally filed, the final decree, as made by the court below, affects only the Pittsburg Produce Trade Association, which is a corporation of the first class, incorporated by an order of the court of common pleas, No. 2, of Allegheny county, its purposes as set out in its application for incorporation being “to encourage and protect trade and commerce by adjusting differences among the members; spreading reliable commercial intelligence among them; protecting them against unjust exactions by carriers and others; furnishing information to members to enable them to regulate credits and collect debts, and advancing in every lawful way the interest of the business in which the members are engaged”; and its members who are defendants, their officers, managers, agents, servants and employees, who are perpetually restrained from enforcing certain designated by-laws, which govern the management of its affairs and are set out at length in the bill. The by-laws governing the management of its affairs are set out at length and the ones which are specially for our consideration relate to art. XIV, sec. 6. “Withholding credit,” by which all members are held bound that they or their firm shall refuse to sell on credit or for spot cash to any person or firm reported as a debtor until duly notified by the secretary that such party’s name has been removed from the list; and secs. 1 and 3 of art. VIII,' by which, the president is directed to appoint an arbitration committee of five members, so as to represent the various commercial interests of the membership, and who shall have all the powers and be subject to all the requirements of arbitrators in the trial of causes submitted to them, and such decisions as they may render, or such awards as they may make, shall be final and conclusive and not subject to appeal. The plaintiff was a retail produce dealer at the Liberty market in Pittsburg, and had a well-established and — 248 — growing business, which assured to him reasonable gains and profits. This bill in equity resulted from a number of disputes and controversies between the plaintiff and other dealers similarly circumstanced with the defendant association, owing to the enforcement of its by-laws. As stated by the trial judge: “The bill in substance alleges that the defendant corporation, in the conduct of its business under its charter and by-laws, constitutes a combination and monopoly in restraint of trade; that its methods are an illegal violation of its charter; that they are unlawful, unreasonable, arbitrary and oppressive,” and the question presented by the bill, answer and testimony was narrowed to the one question whether the facts found by the court established the plaintiff’s contention that this by-law was unreasonable, in restraint of trade, and oppressive, and the method of arbitration provided for by the by-laws was unfair and illegal. The court held that the by-law so far as it related to a sale “for spot cash,” and the provision relating to the power of, and the effect to be given to the decisions of, the arbitration committee were unreasonable, oppressive and not within the charter power, and entered a decree accordingly. The findings of fact and law of the learned trial judge are exhaustive, and the pertinent authorities are marshaled by him so as fully to warrant the conclusion he reached and the decree he entered. These by-laws were so interpreted and administered by this association that it was not a matter of any importance whether a customer of the members of the association was a person of property or not; whether he was in excellent local credit or a bankrupt; whether he was a large or an insignificant dealer; whether the claim or demand of a member of the association against him was real or fanciful, just or unjust: The sole test of the right to purchase from any member of the association turned on the one question, whether any member of the association asserted any claim against him, and the merit of the claim and validity of the de — 249 — fense to it was to be determined by a self-appointed tribunal selected from the members of the association; in which the customer had no right of selection or challenge, and whose summary decision arbitrarily bound him. This is at times tolerated in unincorporated associations among the members or parties to it because they all are voluntary parties to that contract, and they are held to be bound by the contract they make, but in this case the plaintiff was not a member, and his business standing and credit with other dealers, as well as his lawful claims, demands and defenses were disposed of without regard to the forms prescribed by our legal procedure. One of the active parties in the association stated with commercial frankness, that in order to do business with members, the by-law forces them to pay all accounts to all the other members, and that the members could not accept even cash from a prospective purchaser who was on the black list, because the members were subject to the penalties imposed by the by-laws. The right in the courts to review and supervise the operation and management of corporations is summarized in 1 Thomp. Gorp., sec. 1021, and 4 Thomp. Corp., secs. 5472-74, as follows: “The visitorial or superintending power of the state over corporations created by the legislature will always be exercised, in proper cases, through the medium of the courts of the state, to keep those corporations within the limits of their lawful powers, and to correct and punish abuses of their franchises. Every corporation of the state, whether public or private, civil or municipal, is subject to this superintending control, although in its exercise different rules may be applied to different classes of corporations. . . . The chartered rights of a corporation are no more sacred than the rights of a person and property possessed by individuals, and all must alike give way to the legitimate exercise of the police power. All rights whether of individuals or corporations are held subject to this paramount and inalienable sovereign power of the state. . . . Cor — 250 — porations have none of the elements of sovereignty; they cannot go beyond the powers granted to them; they must exercise those powers in a reasonable manner; and whether they have in a given instance, exercised them reasonably or unreasonably, is a question which it is competent for the judicial powers to decide. It is therefore a principle of the common law, running back so far that its origin cannot be found, that the by-laws of a corporation will be set aside by the judicial courts when deemed unreasonable. The principle applies equally to private and public corporations.” In Pennsylvania the rule has been inflexibly enforced that the right to make by-laws is restricted to such as are authorized by the charter or act of incorporation, and they must in every instance be consistent with and not repugnant to the constitution and laws of the state and the United States: Northern Liberties v. Gas Company, 12 Pa. 318; Com. v. Cain, 5 S. & R. 510; Com. v. St. Patrick’s Bene. Soc., 2 Binn. 441; s. c., 4 Am. Dec. 453; O’Maley v. Freeport, 96 Pa. 24; and where the facts are undisputed the question whether a by-law is reasonable or whether it ought to be set aside as unreasonable is a question of law for the court and is not to be submitted to a jury: Pittsburg, etc., Ry. Co. v. Lyon, 123 Pa. 140. By our general equity Act of June 16, 1836, P. L. 784, paragraph 5 of sec. 13 gives to the Supreme Court and the several courts of common pleas, jurisdiction and powers of a court of chancery, so far as relates to “The supervision and control of all corporations other than those of a municipal character, and unincorporated societies or associations and partnerships.” Specific relief is furnished by our Act of June 19, 1871, P. L. 1360, relating to legal proceedings by or against corporations, which provides “that in all proceedings in courts of law or equity in which it is alleged that the private rights of individuals .... are injured or invaded by any corporation claiming to have a right or — 251 — franchise to do the act from which such injury results, it shall be the duty of the court in which such proceedings are had to examine, inquire, and ascertain whether such corporation does in fact possess the right or franchise to do the act from which such alleged injury to private rights results, and grant appropriate relief, etc.” The Pittsburg Produce Association was incorporated under the general Act of April 29, 1874, P. L. 73, and by sec. 10 of its application for incorporation it averred and prayed that, “The corporation shall have power to adopt by-laws for the regulation of its affairs, not inconsistent either with the constitution and laws of the United States or with the constitution and laws of this commonwealth, and not inconsistent with this charter.” This defendant association was chartered by the very court in which this bill is filed, and which had ample jurisdiction to correct or prohibit abuses committed by the subject of its creation. The act of 1871 was enacted to meet just such a case as is presented by this record, as said in Windsor Glass Co. v. Carnegie Company, 204 Pa. 459, and Packard v. Thiel College, 209 Pa. 349, “The act was intended to enlarge and make clear the rights of individuals to inquire into the charter franchises of corporations when asserted to their individual injury.” Whether the alleged wrong is done under an assertion of a charter right or under the enforcement of a by-law enacted under the charter authority is not material. The injury, if one exists, to be remedied is one flowing in direct course from the charter as from a fountain head. When a citizen finds his property or his rights in danger of being injured or invaded by the acts of a corporation, the act of 1871 gives him the right, without waiting for the assistance of the commonwealth, to challenge the authority of the corporation to the possession of the right or franchise to do the act from which such alleged injury to private rights results: Edwards v. Pittsburg June. R. R. Co., 215 Pa. 597. The private rights of individuals referred to in this — 252 — act (1871) are the rights of property of some character: Andel v. Duquesne St. Ry. Co., 219 Pa. 635; and as said in Purvis v. United Brotherhood, 214 Pa. 348: “The business of the plaintiffs is property within the meaning of the law. The defendants sought by concerted action to injure them in their business, in other words, their property, in order to coerce them into submission to the demands of the union (association).” This record discloses that there is an average of 200 names weekly made delinquent, by this association, resulting in various suits at law for damages, which necessarily causes a multiplicity of actions at law and forms an added argument for an equitable interpretation of the charter or by-law right to do the thing of which complaint, is here made: Donovan v. Pennsylvania Co., 199 U. S. 279; Bitterman v. Louisville, etc., R. R. Co., 207 U. S. 205; Buck Stove Co. v. Am. Fed. of Labor, Wash., D. C., Law Repr. of December 20, 1907; Grenada Lumber Co. v. Mississippi, U. S. Supreme Court, decided May 2, 1910. The methods adopted by this association were substantially those mentioned in McIntyre v. Weinert, 195 Pa. 52, and the effect here was substantially the same as the one held to be actionable in that case, “The retail dealers whose names appear on the list are regarded by the trade generally as dishonest in their business practices and unworthy of credit, and the members of the association are prohibited from selling, and refuse to sell to any person whose name appears on the debtors’ list,” and this was said in a case which fits in all its material facts the one under consideration. “The plaintiff was a retail produce dealer and was almost wholly dependent for his supplies of produce upon the defendant and other members of the association. He was able and willing to pay for his supplies and offered to purchase them for cash from the members of the association.” The decree is affirmed.