Distilling & Cattle Feeding Co. v. People ex rel. Moloney
41 N.E. 188
Ill.
1895
Check Treatment
Mr. Justice Bailey

delivered the opinion of the court:

This proceeding being brought against the defendant by its corporate name, the regularity and legality of its organization as a corporation are impliedly admitted. (People v. City of Spring Valley, 129 Ill. 169.) And not only is this so, but the information sets out the defendant’s charter, and the proceedings which resulted in its incorporation, in express terms, thus expressly admitting the purposes of its organization and the scope of its corporate powers. The question, then, of the defendant’s organization, and of its right not only to exercise the franchise of being a corporation but to use and exercise the several powers conferred by its charter, is not raised by the information and is not in controversy here.

But the information charges the defendant with abusing its franchises, and with usurping and exercising powers, privileges and franchises which do not belong to it; and assuming, for the present, that those charges are sufficient to require an answer from the defendant, the first question presented is, whether the court below properly sustained the demurrer to the defendant’s pleas.

The tendency of the courts in modern times being to regard an information in the nature of a quo warranto in the light of a civil remedy, invoked for the determination of civil rights, although still retaining its criminal form and some of the incidents of criminal proceedings, the better doctrine now is that the pleadings should conform, as far as possible, to the general principles and rules which govern in ordinary civil actions. (High on Ex. Legal Rem. sec. 710.) And this is especially so in this State in view of section 10 of our Practice act, which provides that in cases of this character it shall be sufficient to summon the defendant to appear and answer the plaintiff in an action of quo warranto, and that the issues shall be made up by answering, pleading or demurring to the petition, as in other cases. 2 Starr. & Cur. Stat. 1780.

It has been repeatedly held in this State that in proceedings of this character the defendant must either disclaim or justify. If he disclaims, the People are at once entitled to judgment; and if he justifies, he must set out his title specially. Clark v. People, 15 Ill. 213; Illinois Midland Railway Co. v. People, 84 id. 426; Holden v. People, 90 id. 434; Carrico v. People, 123 id. 198. See, also, High on Ex. Legal Rem. sec. 716.

In our opinion none of the pleas in this case conform to this rule. The first plea, the substance of which is set out at length in the foregoing statement, is partly a plea of justification and partly a disclaimer, but is neither a complete plea of justification nor a full disclaimer,—and very much the same thing may be said of all the other pleas. As was said in Illinois Midland Railway Co. v. People, supra: “Such pleas must be consistent, and not allege defenses repugnant to each other. This one contains some matters tending to show justification and others tending to show a disclaimer. In that respect the defenses set up are repugnant and inconsistent with each other, and for that reason the plea is bad.”

But in addition to this, all the pleas, with perhaps the exception of the fifth, contain various defects of form, which are sufficiently pointed out by the special demurrer. The first plea,—and to a lesser extent the second, third and fourth pleas,—shows an evident attémpt to follow the usual form of an answer in chancery, rather than that of a plea at law. The first plea commences with an express admission of many of the allegations of the information. Then follow a large number of express denials of particular facts alleged in the information, (those denials, so far as they go, being in the nature of disclaimers,) and the plea closes with express allegations of a large number of affirmative facts, intended, apparently, to serve by way of justification. But even if the disclaimer and the justification were both full and complete, they constitute repugnant and inconsistent defenses, and the attempt to join them in the same plea renders- the plea obnoxious to demurrer.

The second plea is substantially like the first, omitting the denials. The third plea embodies simply the denials contained in the first, and the fourth contains the affirmative allegations appearing in the first.

Various of the allegations of these pleas are evasive and argumentative, and constitute negatives pregnant. It would be tedious to discuss at length the various defects of form in these pleas pointed out by special demurrer, and one or two must serve by way of example. Thus, the denial that all the firms, individuals and corporations mentioned as signing the trust agreement, were on May 10,1887, engaged in operating distilleries, in the purchase of corn and in the manufacture of spirits and the sale of the same, may be true, and yet all the distillery companies, firms and individuals but one may have been engaged in all those lines of business, and that one may have been engaged in part of them. Of the same character is the denial that all of the distillery companies joining the trust transferred their capital stock to the trust. This may be true, and yet all but one may have made such transfer of their stock. Various other similarly evasive averments might be cited. The pleas are double, in that they attempt to raise a great variety of issues, some material and some immaterial, thus tending to great and unnecessary prolixity of pleading. That pleas containing such defects were obnoxious to both general and special demurrers seems too clear to require extended argument.

The fifth plea differs somewhat from the others, and should be considered separately. It alleges that the defendant exercises its powers, privileges and franchises of a corporation under and by virtue of the articles of incorporation set out in the information, and denies that it was organized for the purpose of creating, continuing, perpetuating or being a monopoly in the manufacture and sale of distilled spirits, alcohol and highwines, or that it has done, at any time, any of the acts charged in the information with any such purpose or design, and denies all abuse or misuse of its powers, as charged in the information.

When this plea is analyzed it will be found that it wholly fails to tender any material issue, either by way of justification or disclaimer. It seeks to justify under its articles of incorporation, at the same time denying that it was incorporated for the purpose of creating a monopoly, or that it has done any of the acts charged with that purpose, thus seeking to raise an issue upon the purposes or motives which actuated those who were instrumental in its organization or who have conducted its affairs, without reference to the legal character and consequences of the acts charged. If the-defendant is guilty of usurping and exercising powers and franchises not conferred upon it by law, the purpose or design with which it has done so is of little materiality. The denial that the defendant has abused and misused its powers, as charged, is not co-extensive with the charges of the information, as the defendant is there charged, not only with abusing and misusing the powers conferred, but also with usurping and exercising powers not conferred upon it. It thus appears that the issues tendered by the fifth plea are either evasive or immaterial, and that the demurrer to that plea also was properly sustained.

Counsel for the defendant, as we understand them, practically admit the informality and insufficiency of their pleas, but insist that the information is materially defective, and that it is insufficient, on its face, to warrant or sustain the judgment of ouster, and they claim that the demurrer ought therefore to have been carried back and sustained to the information. It is undoubtedly the rule that in proceedings by quo warranto, as in other suits at law, a demurrer reaches back to the first defect in pleading, so that a demurrer to a plea may reach defects in the information. (People v. Mississippi and Atlantic Railroad Co. 13 Ill. 66; People v. Whitcomb, 55 id. 172.) The Attorney General, on the other hand, insists, that as no motion was made in the court below to carry the demurrer back to the information, it is too late to raise the question here. As the case is presented in this court we do not regard it a matter of any material consequence whether the demurrer is technically carried back to the information, since the defects alleged by the defendant, if they exist, are such as may be taken advantage of on error, whether previously challenged by demurrer or not. They go to the sufficiency of the information, in point of substance, to sustain the judgment, and are available either on demurrer, on motion in arrest of judgment or on error. The question, then, is fairly presented whether the information is sufficient to sustain the judgment of ouster.

There can be no doubt, we think, that the Distillers’ and Cattle Feeders’ Trust, which preceded the incorporation of the defendant, was an organization which contravened well-established principles of public policy, and that it was therefore illegal. No one who intelligently considers the scheme of this trust, as detailed in the information, can for a moment doubt that it was designed to be, and was in fact, a combination in restraint of trade, and that it was organized for the purpose of getting control of the manufacture and sale of all distillery products, so as to stifle competition, and to be able to dictate the amount to be manufactured and the prices at which the same should be sold, and thus to create, or tend to create, a virtual monopoly in the manufacture and sale of products of that character. No other business principles can be suggested upon which the development of such an elaborate and far-reaching scheme can be accounted for. No rational purpose for such organization can be shown consistent with an intention to allow business to run in its normal channels, to give competition its legitimate operation, and to allow both production and prices to be controlled by the natural influence of supply and demand, and the results, as shown by the information, were such as might be anticipated. The -trust obtained Í possession of nearly all the distilleries and of nearly the entire distillery product of the United States, thus enabling it to dictate prices and the amount of production, and to thus draw to itself the substantial control of the distillery business of the country.

Combinations of this character have been frequently made the subject of judicial investigation within the last few years, and while the proceeding has most generally been against some one of the corporations entering into the trust, the courts,, so far as they have had occasion to speak on the subject at all, have held such trusts to be illegal. Among cases of this character reference may be had to State v. Nebraska Distilling Co. 29 Neb. 700. The defendant in that case was one of the corporations entering into and forming the trust now under consideration, and while it was held that the action of the defendant corporation in entering into the trust was an abuse of its corporate powers, and so ultra vires, and the judgment of ouster was sustained on that ground, still the court, in its argument, takes the position, broadly, that the trust, having a tendency to destroy competition and to create a monopoly, was contrary to public policy and unlawful, and the inference fairly arises that if the exigencies of the case had required it the court would have unhesitatingly placed its judgment on that ground.

Another case of a similar character is State v. Standard Oil Co. 49 Ohio St. 137. The defendant in that case was an Ohio corporation which had become a member of the Standard Oil Trust, a trust organized upon very much the same plan as the one under consideration here. There the defendant was ousted from its power to make or perform the. trust agreement, on the ground that such agreement was ultra vires. But the court, in its opinion, in speaking of the Standard Oil Trust, says: “Its object was a virtual monopoly of the business of producing petroleum, and of manufacturing, refining and dealing in it and all its products, throughout the entire country, and by which it might not merely control the production, but the price, at pleasure. All such associations are contrary to the policy of our State, and void.”

The case of People v. North River Sugar Refining Co. 54 Hun, 354, was a proceeding brought to vacate the charter of the defendant corporation for its action in becoming a member of the “Sugar Trust,” an association organized upon substantially the same plan as the trust in this case. It was held by Barrett, J., at special term, and by Daniels, J., at general term, that the trust was organized for an unlawful purpose, and that the action of the defendant corporation in entering into the association justified its dissolution. The judgment in this casé was subsequently affirmed by the Court of Appeals, the latter court placing its decision solely on the ground of ultra vires, without expressing an opinion as to the legality of the trust. People v. North River Sugar Refining Co. 121 N. Y. 578.

In Richardson v. Buhl, 77 Mich. 632, a corporation known as “The Diamond Match Company” was organized under articles of incorporation which stated that its business was to manufacture, buy, sell and deal in friction matches, and all articles entering into the composition and manufacture thereof, and also in machines and machinery, whether applicable to the manufacture of friction matches or to certain other purposes, and to purchase, own and sell exclusive rights under letters patent relating to the manufacture of friction matches and to machines and machinery applicable thereto, and to other purposes, and to buy, sell, own and deal in any real or personal property necessary or convenient to the prosecution of the business. It appeared that the real object of the corporation was to buy up the property of all corporations or individuals engaged in the manufacture of friction matches, exacting from the seller, in every case, a bond that he would not, for a term of years, engage in, or aid any one else in, the manufacture of matches in any place where his action might conflict with the interest or diminish the profits of the Diamond Match Company. Suit was brought in Michigan to restrain the defendants from disposing of certain stock in the match company, held by them as security for a loan to the complainant to enable him to purchase the stock, and the circuit court granted the injunction. On appeal the purposes of the company were declared to be unlawful, and it was held that any contract made to further them was void, as against public policy, and such as the court would neither enforce while executory nor relieve against when executed. It was held that a corporation organized for the purpose of controlling the manufacture and sale of friction matches, and by means of which all competition was stifled and opposition crushed, and the whole business of the country in that line engrossed by the corporation, was a menace to the public, its object and direct tendency being to prevent fair competition and to control prices; that it is no answer to say that the monopoly had in fact reduced the prices of friction matches; that such policy may have been necessary to crush competition; that the fact exists that it rests in the discretion of the corporation to raise prices at any time to an exorbitant degree, and that such combinations have frequently been condemned by courts as unlawful and against public policy.

In People v. Chicago Gas Trust Co. 130 Ill. 268, the defendant corporation was organized under the general Incorporation law of this State for two purposes, as expressed in its articles of incorporation: First, for the purpose of erecting and operating gas works for the manufacture and sale of gas in Chicago and other places in this State; and second, “to purchase and hold or sell the capital stock, or purchase or lease or operate the property, plant, good will, rights and franchises of any gas works or gas company or companies, in Chicago or elsewhere,” etc. The company sought to exercise the powers claimed under the second clause only, and for that purpose bought a majority of the shares of the stock in all the gas companies in Chicago, being four in number, whereby it might have the control of all the gas companies in the city, and thus destroy competition and monopolize the gas business, and it was held that the corporation so formed was not organized for a lawful purpose, and that all acts done by it toward the accomplishment of such object were illegal and void.

Many other decisions of similar import might be referred to, but the foregoing will suffice. They are sufficient, in our opinion, to establish the conclusion, in which the courts of the country, with very great unanimity, seem to concur, that trusts of the character of the one described in the information as existing prior to the organization of the defendant corporation are against the policy of the law, and are therefore illegal and void.

But the defendant contends that, while this may all be so, the change in organization from an unincorporated association to a corporation, and the change in the mode of holding the distillery properties of the various corporations formerly belonging to the trust, by surrendering the stock of the corporations, by means of which the control of those properties was formerly maintained, and having the properties themselves transferred and conveyed directly to the defendant corporation, have purged the combination of its illegality. It must be admitted that these changes, so far as they have any effect upon the rights or interests of the former stockholders in those corporations or of the public, are formal, rather than substantial. The same interests are controlled in substantially the same way and by the same agencies as before. The nine trustees of the trust, who, as the holders of all the capital stock of the corporations and as a majority of the directors of each, controlled such corporate property, became the subscribers for all the stock of the new corporation, and its board of directors. The conveyance and transfer of the properties of the constituent companies to the new corporation was merely a transfer by the trustees to themselves, though in a slightly different capacity, and the former stockholders in the constituent companies simply exchanged their trust certificates, share for share, for stock in the new corporation. That corporation thus succeeds to the trust, and its operations are to be carried on in the same way, ,for the same purposes, and by the same agencies, as before. The trust, then, being repugnant to public policy and illegal, it is impossible to see why the same is not true of the corporation which succeeds to it and takes its place. The control exercised over the distillery business of the country—over production and prices—and the virtual monopoly formerly held by the trust, are in no degree changed or relaxed, but the methods and purposes of the trust are perpetuated and carried out with the same persistence and vigor as before the organization of the corporation. There is no magic in a corporate organi- • zation which can purge the trust scheme of its illegality, and it remains as essentially opposed to the principles of sound public policy as when the trust was in existence. It was illegal before and is illegal still, and for the same reasons.

But it is urged that the defendant, by its charter, is authorized to purchase and own distillery property, and that there is no limit placed upon the amount of property which it may thus acquire. By its certificate of organization it is authorized to engage in a general distillery business in Illinois and elsewhere, and to own the prop-o erty necessary for that purpose. It should be remembered that grants of powers in corporate charters are to be construed strictly, and that what is not clearly given is, by implication, denied. The defendant is authorized to own such property as is necessary for carrying on its distillery business, and no more. Its power to acquire and hold property is limited to that purpose, and it has no power, by its charter, to enter upon a scheme of getting into its hands and under its control all, or substantially all, the distillery plants and the distillery business of the country, for the purpose of controlling production and prices, of crushing out competition, and of establishing a virtual monopoly in that business. Such purposes are foreign to the powers granted by the charter. Acquisitions of property to such extent and for such purpose do not come within the authority to own the property necessary for the purpose of carrying on a general distillery business. In acquiring distillery properties in the manner and-for the purposes shown by the information, the defendant has not only misused and abused the powers granted by its charter, but has usurped and exercised powers not conferred by, but which are wholly foreign to, that instrument. It has thus rendered itself liable to prosecution by the State by quo warranto, and we are of the opinion that, upon the facts shown by the information, the judgment of ouster is clearly warranted. It will accordingly be affirmed.

Judgment affirmed.