
    CONTRACTS IN RESTRAINT OF TRADE.
    [Superior Court of Cincinnati, General Term.]
    Standard Distilling & Distributing Co. v. Block & Sons.
    Decided, January 14, 1907.
    
      Defenses — Must be Pleaded to be Made Available — Contracts—Where Operative Chiefly in Ohio are Governed by the Laws of Ohio— To be in Restraint of Trade a Contract must Tend to Create a Monopoly — Pleading—Agency.
    1. The proof of the defendant to an action for recovery of money for breach of -contract is confined to the issues as presented by his pleading, and where he has failed to plead his equities he can not thereafter set up the invalidity of the contract on the theory that it was a part of another contract not pleaded. (Hoffheimer, J., dissents.)
    ,2. A contract made and executed in Ohio, the chief stipulations of which are to be performed in Ohio, is to be governed by the laws of Ohio.
    3. Inasmuch as the test of the validity of a contract involving the suggestion, of restraint of trade is its tendency to create a monopoly, a contract whereby a distillery appoints a dealer in liquor as its exclusive agent and agrees to pay him $1,000 a month, in consideration whereof the dealer agrees to manufacture no spirits or alcohol except such as may be required in making whisky at-the distillery, with the further provision that a certain rebate is to be paid the agent on all goods purchased from the principal, does not tend to create a monopoly, and is therefore not invalid as in restraint of trade.
    T. M. Hinkle, for defendant in error
    cited as to error in admitting evidence: Field v. Cordage Co., 6 C. C., 615; Thayer v. Luce, 22 Ohio St., 62; Black v. Hill, 32 Ohio St., 313; Kilbourn v. Fury, 26 Ohio St., 153; Cooke v. Slate Co., 36 Ohio St., 135; Bowers’ Cal. Dredg. Co. v. Bridge Co., 132 Cal., 342.
    As to the rebates: In re Greene, 52 Fed. Rep., 104; Olmstead v. Distilling & Cattle Feeding Co., 77 Fed. Rep., 265; National Distilling Co. v. Importing Co., 86 Wis., 352; Oregon Steam Nav. Co. v. Winsor, 87 U. S., 64; Fowle v. Park, 131 U. S., 88; Chicago, St. L. & N. O. Ry. v. Car Co., 139 U. S., 79; Dennehy v. McNulta, 86 Fed. Rep., 825.
    
      As to severability: Park v. Druggists’ Assn., 175 N. Y., 1.
    The illegal purpose must be mutual: Carter-Crume Co. v. Peurrung, 86 Fed. Rep., 439; Rountree v. Smith, 108 U. S., 269; Irwin v. Williar, 110 U. S., 499; Bibb v. Allen, 149 U. S., 481; United States Consol. Seeded Raisin Co. v. Griffin, 126 Fed. Rep., 364.
    With reference to severable provisions: Sims v. Brewing Co., 132 Ala., 311; Cedar Rapids Water Co. v. Cedar Rapids, 118 Iowa, 234; McPherson v. Foster, 43 Iowa, 48; Hitchcock v. Galveston, 96 U. S., 341; Chicago, St. L. & N. O. Ry. v. Car Co., 139 U. S., 79; Connoly v. Pipe Co., 184 U. S., 540; McCausland Bros. v. Akers, 1 C. C.—N. S., 108; 15 Am. & Eng. Enc. Law (2d Ed.), 990; State v. Board of Education, 35 Ohio St., 519; Armstrong v. Bank, 133 U. S., 433; Armstrong v. Toler, 24 U. S., 258; Minnesota Sandstone Co. v. Clark, 35 Wash., 466; Gelpcke v. Dubuque, 68 U. S., 220; King v. King, 63 Ohio St., 363; Widoe v. Webb, 20 Ohio St., 431; Doty v. Bank, 16 Ohio St., 133; Hoffman v. McMullen, 83 Fed. Rep., 372; Jackson v. Dwight, 78 Fed. Rep., 896; Metcalf v. American School Furniture Co., 122 Fed. Rep., 115; Trenton Potteries Co. v. Oliphant, 58 N. J. Eq.. 507; Diamond Match Co. v. Roeber, 106 N. Y., 473; McQuade v. Rosecrans, 36 Ohio St., 442; Addyston Pipe & Steel Co. v. United States, 175 U. S., 211; Lange v. Werk, 2 Ohio St., 519; Lufkin Rule Co. v. Fringeli, 57 Ohio St., 596; Thomas v. Miles, 3 Ohio St., 274; Troy Laundry Machinery Co. v. Dolph, 138 U. S., 617; Davis v. Booth & Co., 131 Fed. Rep., 31, 37.
    Restraint is. not always against public policy: Harrison v. Lockhart, 25 Ind., 112; McAlister v. Howell, 42 Ind., 15; 2 Parsons, Contracts, 529; Chitty, Contracts (10th Am. Ed.), 807; Oscanyan v. Arms Co., 103 U. S., 261; Central Ohio Salt Co. v. Guthrie, 35 Ohio St., 666; Hines v. Bank & Tr. Co., 120 Ga., 711. '
    The public not concerned: Chicago, St. L. & N. O. Ry. v. Car Co., 139 U. S., 79; Clarke v. Needham, 125 Mich., 84; Fox Solid Pressed Steel Co. v. Schoen, 77 Fed. Rep., 29; Oliver v. Gilmore, 52 Fed. Rep., 562; Troy Laundry Machinery Co. v. Dolph, 138 U. S., 617; Fowle v. Park, 131 U. S., 88; Gibbs v. Gas Co., 130 U. S., 396; Oregon Steam Nav. Co. v. Winsor, 87 U. S., (20 Wall.), 64; Gibbs v. McNeeley, 118 Fed. Rep., 120; United States v. Knight Co., 156 U. S., 1; State v. Gaslight Co., 92 Minn., 467.
    With reference to agency: Oliver v. Gilmore, 52 Fed. Rep., 562.
    
      The law applicable: Polson v. Stewart, 167 Mass., 21; Minor, Conflict of Laws, 420, 421; London Assur. Co. v. Companhia De Moagens Do Barreiro, 167 U. S., 149; Kulp v. Fleming, 65 Ohio St., 321.
    Valentine Anti-trust act and Ohio common law: State v. Pipe Line Co., 61 Ohio St., 520; Gage v. State, 1 C. C.—N. S., 221.
   I-Iosea, J.;

Caldwell, J., concurs; IToeei-ieimer, J., dissents.

Error to special term.

Block & Son (herein referred to by initials), plaintiffs below, recovered judgment by consideration of the court at special term against the Standard Distilling Company (herein referred to by initials), defendant below, upon a written contract dated September 14, 1898, in substance as follows:

“1. The S. D. Co. to appoint B. & Co. their ‘authorized dealers. ’

“2. B. & Sons agree to purchase and pay for continuously and exclusively of the S. D. Co. their ‘entire need and supply of spirits and alcohol.’

“3. B. & Co. agree that they will not manufacture spirits and alcohol except such as they may require in making whiskey at their distillery, which whiskey shall be marked as ‘whiskey’ and not as ‘spirits’ and shall not be tax paid less than sis months old.

“4. The S. D. Co. agree to pay to B. & Sons upon compliance with the conditions of this contract, and those of Exhibit A, attached hereto, $1,000 per month.

“5. The contract to continue five years from date.

‘ ‘ 6. Nothing herein to be construed as preventing B. & Sons from manufacturing bourbon, rye or continuous whiskeys or gins.

“7. This agreement to be binding upon the parties, their successors or assigns, and upon any purchaser or transferee of any distillery of B. & Sons, excepting the Pennwick distillery in Pennsylvania.

“8. If the contract is not renewed at the end of five years, any rebates then' due B. & Sons under Exhibit A shall be paid over.”

Exhibit A attached to said contract provided in substance as follows:

1. The S. D. Company appoints B. & Sons one of their “authorized distributors. ’ ’

2. S. D. Co. agrees for the purpose of securing the continuous and exclusive patronage of B. & Sons to allow a rebate of one cent per proof gallon on all spirits, alcohol, double stamped gins, and continuous goods purchased of the S. D. Co. on proof furnished.

3. The S. D. Co. further agree to pay into the treasury of the United States Spirits Association one-half cent per proof gallon on-such purchases.

i. S. D. Co. authorize B. & Sons to use the trade-mark of the S. D. Co. on invoices of goods so purchased.

5. S. D. Co. agrees not to increase rebates or offer any rebates to customers of B. & Sons; and to sell to B. & Sons at same terms as it makes with any of its other “authorized dealers” during the five years.

6. (Reiterates clause 8 of the main contract).

The amended petition below, filed October 30, 1900, setting up this -contract avers that B. & Sons complied with all the conditions on their part to be performed, but that the S. D. Co. failed to pay the installments due from July to December, inclusive, of 1899, and January to April, inclusive, of 1900 — in all $10,000, for which B. & Sons ask judgment with interest from April 30, 1900.

To this petition a general demurrer was filed on November 16, 1900, and overruled on February 20, 1901; and as appears from a memorandum opinion of the court below, the argument in support of the demurrer was based on the claim that the contract in question was void, as being in restraint of trade.

On March 11, 1901, the defendant below answered, setting up as its defenses:

1. A general denial except as to specific admissions relating to the status of parties;

2. That said contract was in violation of the statute law of Kentucky and void;

3. That said contract was in violation of the common law of Kentucky and void.

The reply filed by plaintiff below denied the new matter of the answer apd joined issue as upon its petition. The judgment of the court below rendered upon a full hearing was in favor of B. & Sons, and this proceeding in error is prosecuted to reverse said judgment.

Both in testimony and argument the defense below was carried quite beyond the issue presented by the pleadings and should have been restrained within those limits. The action was for recovery of money alleged to be due upon a contract; and, while the defendant was fully authorized by the code of civil procedure to interpose legal and equitable defenses by answer, its failure to do so was a waiver as to such as might have been pleaded. Stewart; v. Hoag, 12 Ohio St., 623; Wilte v. Lockwood, 39 Ohio St., 141; Hites v. Irvine, 13 Ohio St., 283.

This being so, the assumption of the invalidity of the contract sued upon, under the theory that it was a mere incident and part of another contract not pleaded, is not tenable and must be discarded here. This case must stand or fall upon the contract pleaded and the issues raised thereon, viz., the written agreement of September 14, 1898 (including its attached Exhibit A), and its alleged breach.

But this contract was made in Ohio, and its main stipulations —to-wit, the sale and purchase of spirits and alcohol, and corresponding payments and concessions — were to be- performed in Ohio; and notwithstanding the reference to the Kentucky distillery (which, as will be shown later, was incidental merely), the issues are to be dealt with under Ohio law and not under the laws of Kentucky.

Strictly speaking, these holdings might be said to dispose of the case, under the issues presented; but as the case was argued upon general doctrines of the common law of Ohio as affecting the pleaded contract, we have considered the case in this aspect.

It is claimed by the plaintiff in error here that the contract is invalid as being in restraint of trade because, it is urged, its main purpose is to restrict and prevent manufacture by plaintiff, and that the real consideration for the agreement to pay $1,000 per month is a restriction which was unreasonable because unlimited in extent. In a word it is claimed that this was an agreement to purchase the defendants in error “out of business,” as phrased in Lufkin Rule Co. v. Fringeli, 57 Ohio St., 596. Then follow other suggested objections, couched in terms of inductive reasoning — among them, that the contract tended to enable the plaintiff in error to charge a higher price for goods sold bjr increasing its power to control the market, etc.; and, further, that it does not empower the defendant in error to fix the prices of goods purchased from plaintiffs in error under it.

Manifestly these arguments depend for their cogency upon the construction to be given to the contract itself; and this is obviously a condition precedent to consideration of the legal results flowing from it.

Certain facts surrounding the making of the contract are to be taken into consideration. B. & Sons were dealers in alcohol, spirits, whiskey, etc., and were located and doing business in Cincinnati. They also owned and operated a distillery in Kentucky, and one in Pennsylvania — but the latter being excepted in the contract, cuts no figure here.

The Kentucky distillery was a source of supply in their business as dealers in spirits and alcohol, but to what extent is not shown. Spirits and alcohol are the primary product of the distillation of grains, and may be regarded as the raw material for the manufacture of whiskey, etc.

In construing contracts to ascertain the intention of parties, it is an elemental principle that the parties are to be presumed to intend lawful as opposed to unlawful obligations; and out of this has grown the established rule that where a contract is susceptible of two constructions one of which malees it lawful and the other unlawful, the former is to be adopted. 1 Page, Contracts, 1120; Hobbs v. McLean, 117 U. S., 567.

Extending the same principle to contracts involving restriction of trade, it is held .that they are to be taken, where possible, to impose reasonable as opposed to unreasonable limitations as to time and space (Dethless v. Tamsen, 7 Daly, 354). And this is carried to the extent of arbitrarily discarding what is unreasonable where the context permits a separation as between it and that which is reasonsable (Lange v. Werk, 2 Ohio St., 519). In this connection also the principle of fortius causa proferentem, is applied as between the parties in various relations. London Assur. Co. v. Companhia de Moagens, 167 U. S., 149; Texas & Pac. Ry. v. Reiss, 183 U. S., 621; Laidlaw v. Marye, 133 Cal., 170.

Considering the contract in question in the light of these principles, it seems plain that the primary' object of the contract had relation to the business of B. & Sons as dealers and not as manufacturers ; also, that the parties were contracting with reference to the conditions surrounding the business of B. & Sons as it then existed. .In other words, the parties dealt with an existing status and did not reach out to cover all possibilities of the future, because there was nothing in existing conditions to suggest it. The obligations imposed on B. & Sons were specifically limited in time, and were determinable practically at their will, subject to a possible liability in damages necessarily limited in amount.

Having reference to the supply of spirits and alcohol for resale in their ordinary trade as dealers, the provision as to manufacture in Kentucky was an incident implied in the stipulation for furnishing the “entire need and supply,” and not necessarily a restriction at all; for it could mean nothing else than that B. & Sons should not sell the product of the distillery as spirits ox-alcohol — that is, as raw material — in diminution of the quantity stipulated for. In a word, it is quite supposable within the terms of the contract, that so far from restricting the output of the Kentucky distillery, the arrangement may have tended to ixicrease the same by enabling B. & Sons to convert the entire prodxxct ixxto whiskey to meet a possible increased demand. The view we take of the contract on this point necessarily confines its operation as to territorial scope to the Kentucky distillery, and this we think fully justified by the precise language used, when construed in harmony with the gexieral rules of construction before stated, and in view of the limitations arising out of the main pux-pose of the contract and the conditions surrounding its execution. This applies also to the phrase, “any distillery property belonging to the second party,” because the 'term “belonging” applies strictly to an existing and not a future ownership.

To illustrate the legal status more correctly, let us suppose (1) that B.'& Sons had reached a determination to devote their distillery product entirely to the production of whiskey in view of or anticipating an increased demand in this direction; and, to maintain their independent trade as dealers in spirits and alcohol, should have contracted with other manufacturers for their own “entire need and supply” -of those goods. Certainly no one would claim such a contract to be objectionable in •law. But suppose again (2) that a single outside manufacturer learning of the determination of B. & Sons, should propose to them that if they would bring themselves for a limited period to adhere to their determination to devote their distillery to producing whiskey only and contract-with the proposer for their entire supply of spirits and alcohol for resale, that a certain bonus and certain rebates — in other words, certain reductions in prices —would be given, which would be advantageous to B. & Sons. Upon what ground could such a contract be assailed for illegality! In this connection, we think that an agreement to sell at ‘ ‘ lowest price given any customer ’ ’ must be given a practical construction and not a strained theoretical one. There were other manufacturers, and a market which must necessarily govern prices in a general way. The phrase used is, therefore, practically synonymous with “lowest market price,” in the sense used by the parties; for it must be taken for granted that to be able to make pur chases B. & Sons must be able to resell, and that to resell they must meet the market. The parties must be supposed to have had these things in mind.

Unquestionably, the criterion of validity in contracts involving a suggestion of restraint of trade is their “tendency” to create a monopoly. But, in a sense, “the creation of a corporation involving the combination of the aggregated capital of individuals, the creation of a partnership for the same purpose, or a contract for the entire output of a manufacturer — and indeed very many contractural arrangements daily made among men— do all tend to monopoly. So far, however, from being regarded as objectionable in law, such contracts are held to be the very life of business- and trade.

To fall within the inhibition of the law of public policy contracts must in their purpose and scope plainly tend to restraint .of trade as an independent factor, or, if this restraint is connected with, and incidental to, another main purpose in itself lawful (as the sale of a business), it must be “unreasonable” in its restrictions measured in time and space..

Taking the contract in question here by its four corners, limited, as we are constrained to consider it, by the rules of construction laid down by highest authorities and generally followed by courts everywhere, what is there in it that suggests more than is contained in the second above-supposed case ?

The decision of the late Justice Jackson — justly esteemed as one of the ablest and best equipped lawyers of his day on the Supreme Bench of the United States — in the case of In re Greene, 52 Fed. Rep., 105, is in many respects instructive in this contention. True, that case was brought under the United States trust act, but the act itself is but an embodiment of the general principles involved in laws invalidating contracts in restraint of trade. Judge Jackson held that a contract for rebates, similar to that here in question, was but an effort to “retain patronage against competing manufacturers” and therefore not inhibited by law but a “legitimate method of inducing trade” and did not operate to monopolize trade. To add a bonus to the consideration, in view perhaps of the anticipated magnitude of the transactions to accrue under the contract, does not change its legal character.

There are other cases to the same general effect. See In re Corning, 51 Fed., 205; National Distilling Co. v. Importing Co., 86 Wis., 352; State v. Warehouse Co., 109 La., 64. The question being whether the contract .stipulations tend to monopoly, the contract can not be held invalid under this doctrine unless such tendency be plainly shown, and it does not seem to be so shown here.

In the present case, the contract being for a supply of a,11 spirits and alcohol for sale as such in the business of B. & Sons as dealers, and, incidental thereto, a stipulation not to use the product of their distillery in conflict with this stipulation, but for conversion into whiskey, etc., only — no curtailment of ability to supply all public demands necessarily flowing from the contract or being shown by evidence — how can it be said that the rights of the public are in any way jeopardized or interfered with ?

Tested by all the considerations usual in such cases, the contract under consideration here does not fall within any of the classes avoided by the statute or by public policy, but rather within those distinguished as free from objection on those accounts. It is, in fact, to our apprehension, one where the restraint is to such extent only “as to afford a fair protection to the party in favor of whom it is given, and not so large as to interfere with the interest of the public.” Page, Contracts, 373, 375 (and a very large number of cases there cited) ; Kevil v. Standard Oil Co., 8 N. P., 311; Lange v. Werk, supra.

The construction we place upon the contract has rendered it unnecessary to follow out in detail all the ramifications of argument suggested in the brief of counsel. It may be noted,, however, that the only suggestion in the present contract which in any way points to some arrangement exterior to itself, as connected with it in the minds of the parties, is in Clause 3 of Exhibit A, stipulating for payment into the treasury of the U. S. Spirits Association. This does not effect the main purpose inferable from the language of the contract but is a detail relating to a payment of part of the stipulated consideration to X instead of to Y. It could only become important when performance is challenged and if declared to. be void it would be lopped off without affecting the general contract as a separable part of the consideration.

We may also say, in conclusion, that even if we are to regard the existence and effect of an agreement between B. & Sons and the United States Spirits Association as within the purview of the present determination, we would be compelled to hold it to be a collateral and severable matter that would have no necessary' bearing on the question at issue here. Upon the whole case we think the judgment of the court below should be affirmed, and it is so ordered.

Judgment affirmed with costs.

Hoffhbtmer, J.,

dissenting.

I am compelled to dissent. My reasons for so doing, stated as briefly as possible, are as follows:

There are two views to be taken of the case, either one of which, in my judgment, bars recovery. The pleaded contract, on its face, appears to be one in general restraint of trade. The promise upon which B. & Sons seek recovery is based on a consideration which, to say the least, is in part illegal. Its breach, therefore, can not be made the predicate of an action at law. The broader aspect of the case, however, carries us beyond what may appear to be the scope of the pleadings. Strictly speaking, however, this is not true. The evidence in the ease shows the pleaded contract was inextricably interwoven with another contemporaneous agreement, the manifest object and purpose of all of which was a plan to control the price and' output of spirits and alcohol — a public commodity. 1 Eddy, Combinations, Section 612, page 580.

The agreement to which I refer was the United States Spirits Association agreement. This agreement was within the contemplation of the parties at the time of the execution of the pleaded contract, as the record shows, and, as a matter of fact, it became effective the very day the pleaded contract was executed, namely, September 14, 1898. The pleaded contract, then, is a part of a plan whereby the control of the manufacture of spirits and alcohol is placed in the hands of the Standard Distilling & Distributing Company, and the distribution of the product is placed in the hands of the United States Spirits Association. By this I mean, the power is vested in the Standard Distilling & Distributing Company, the manufacturer, to fix the price of the goods to be sold to the “authorized dealers,” after which the “authorized dealers,” comprising the United States Spirits Association, agree to sell such goods to the consumer, at prices not less than those fixed by a committee of said association. The contract, therefore, contemplates not only a condition whereby the cpiantity to .be manufactured may be lessened, but the price, which formerly depended on competition, is arbitrarily left to the Standard Distilling & Distributing Company in the first instance, and to the committee of the United States Spirits Association in the second. Can there be any doubt as to the inevitable tendency of such a contract in its effect upon the public ?

To make this plan possible, B. & Sons, as one of the prospective “authorized dealers,” agree to stop producing — to become non-producers, to sell only the alcohol and spirits of the Standard Distilling & Distributing Company, in return for which they are to receive a certain stipulated sum monthly and also rebates, part of -which it seems was to be paid to them directly and part, for their benefit, to the United States Spirits Association, of which, as already indicated, they became members. It thus appears B. & Sons were not only participants in this side contract —a contract forbidden by the statute and common law of our state, or, if the case is to be determined according to Kentucky law, of that state, also — but they were to be beneficiaries under it as well. The active participation by plaintiff below in the United States Spirits Association agreement being revealed by the evidence, the class of cases to which belong Carter-Crume Co. v. Peurrung, 86 Fed. Rep., 439; Hines v. Bank & Tr. Co., 120 Ga., 711; Armstrong v. Toler, 24 U. S. (11Wheat.), 258, cited by defendant in error, becomes inapplicable. In those cases the party seeking to recover had no knowledge or was not a participant in the alleged illegal scheme.

It is urged by defendant in error, however, that the United States Spirits Association agreement; or evidence relating to it, can not be considered by the co\irt, because not pleaded as a defense, and it is claimed the court is, therefore, limited to a consideration of the pleaded contract only. The position is not tenable. The answer denies the contract. Evidence of illegality disproves the contract as much as evidence which tends to show that, as a matter of fact, it was never executed. In Simmons v. Green, 35 Ohio St., 104, it was held that, in an action to recover damages for breach of a contract,' the averments in the answer setting up a different contract were immaterial, except that they operated to deny the making of the contract sued on. In other words, the general denial is a defense that the defendant is entitled to have passed upon and determined, and any evidence which goes to show there could have been no contract, as, for example, in this case, evidence that it was an illegal contract, tends to establish that defense. See also Despatch Line v. Glenny, 41 Ohio St., 166; Oscanyan v. Arms Co., 103 U. S., 261 (opinion of Mr. Justice Field, page 266, par. 2).

Now, this evidence relating to the United States Spirits Association agreement was in the case for all purposes, and was not ruled out. It tended to prove there was no contract; and I 'think it was properly before the court for that pm’pose, under the issues. If, then, the contract sued upon was valid on its face, and not objectionable, it could not give rise to a cause of action, because it was part of a plan forbidden by both Kentucky and Ohio law and in which the plaintiff below was a participant and beneficiary. Whenever it may appear to the court that the contract sued upon, though valid on its face, is in restraint of trade, or is against public policy, -it seems the court is not even restricted to the issues joined between the parties.

The reason for the rule is clearly stated in the case of Field Cordage Co. v. Cordage Co., 6 C. C., 615, in which Judge Shauck, chief justice of Ohio, said:

“Counsel for plaintiff in error also insist that the trial court erred in overruling their objections to the evidence by which the defendant showed the negotiations between the parties, the execution of contemporaneous agreements between the defendant and other mill owners, and the subsequent correspondence and conduct of the parties touching the machinery and the business of the plaintiff. The trial court was not concerned in ascertaining the rights and duties of parties arising out of a contract confessedly valid as against every consideration of public policy. It urns chiefly concerned in ascertaining whether the contract had been entered into for purposes which a due regard to the interests of the public forbid. In its inquiry and judgment it was not even restricted to the issues joined between the parties, for it was its duty- to refuse to enforce the contract even though its validity was not challenged by either party. The materiality of the facts which this evidence tended to establish is shown by the cases cited, and the competency of the evidence is thus made to appear.”

See, also, Emery v. Candle, Co., 47 Ohio St., 320; and in Baltimore & Ohio Ry. v. Coal Co., 61 Ohio St., 242, 251, Judge Shauck again says:

“That courts organized to enforce the law will not lend their countenance to a claim founded upon its violation has been long and uniformly held, except in those caess where a departure from principle is required by statute. * * A recovery in such case is not denied because of any supposed rights of the promisor, but out of that respect for the law in which the courts should not be wanting, although parties may be. The recovery will be denied however and whenever the illegality of the contract upon which a recovery is sought may be made to appear. The defense need not be interposed by the promisor. It could not be effectually waived by him. As was said by Justice Swayne, in Hall v. Coppell, 74 U. S., 542, ‘whenever the illegality appears, whether the evidence comes from one side or the other, the disclosure is fatal to .the case. No consent of the defendant can neutralize its effect. A stipulation in the most solemn form to waive the objection would be tainted with the vice of the original contract, and void for the same reasons. ’ ’ ’

See, also, the opinion of Severens, J. (Lurton and Clark, JJ., concurring), in Cravens v. Carter-Crume Co., 92 Fed. Rep., 479. Upon this view of the case alone the judgment was wrong, and should have been in favor of plaintiff in error, defendant below.

If this view is not correct, then I think plaintiff in error is still entitled to judgment upon the ground first stated herein, namely, that the pleaded contract, upon its face, shows that the promise sued on was based on a consideration in part illegal. Its breach warrants no recovery. The promise of B. & Sons to cease producing was unreasonable. By applying the ordinary rules of construction to the contract, unless resort be had to transposition of words and phrases, which, in my judgment, works violence to the manifest intent of the parties, B. & Sons agree to stop producing alcohol and spirits for sale as such, not only at the Kentucky distillery, but elsewhere. In legal effect, they promise not to manufacture such articles “directly or indirectly” anywhere. This would include the entire state of Ohio. Whatever rule may obtain elsewhere — and a different rule does obtain in many jurisdictions — Ohio adheres to the earlier rule announced in Lufkin Rule Co. v. Fringeli — a restriction which is co-extensive with the lines of the state is illegal. Lufkin Rule Co. v. Fringeli, 57 Ohio St., 596; Harriman, Contracts, Sections 215, 216a.

And even if we endeavor to uphold the contract, for courts seek to uphold contracts whenever that is possible, and by some construction we limit the restriction to the Kentucky zone (Darling distillery), and hold that' the restriction, because of the limitation, is not unreasonable, it would still be void, unless it can be shown to be ancillary to some main valid contract whose purpose it furthers or subserves.

Judge Taft, in United States v. Pipe & Steel Co., 85 Fed. Rep., 271, sets out the nature of such contracts. But the contract between the parties in the instant case gives rise to none of the relations which would justify the ■ restriction as ancillary. When the demurrer was passed upon by the court below, it was assumed that the contract gave rise to and established a relation of agency as between the parties, and therefore the court overruled the demurrer.

The court believed the language employed imported agency, and that the restriction was necessary to enable the Standard Distilling & Distributing Company to enjoy the fruits of its contract. This assumption of agency was probably based on language in the petition suggestive of agency. By oversight apparent from the language of the court in its decision, Block v. Distilling & Distrib. Co., 8 N. P., 313, the court, in passing on the demurrer, had before it the original petition and not the amended petition. The latter, it appears, had been filed as a result of a motion directed to the original petition, to make the same more definite and certain. The original petition contained an averment that “it was agreed that the plaintiff should be appointed one of the authorized agents or distributors of defendant’s product.” The amended petition contains no such language, but avers “enter into a written contract by which it was agreed that the plaintiff should be one of the authorized dealers of the defendant, under an instrument appointing them such dealers, a copy of which was attached to, and made part of, said contract as Exhibit A. By said Exhibit A defendant appointed plaintiffs for five years from said date one of the authorized distributors (meaning dealers) of defendant. By the word ‘dealers’ or ‘distributors’ were intended those who agreed to buy from the defendant in large quantities for the purpose of selling or distributing to the trade in smaller quantities. ’ ’

If there were any ambiguity as to the term “authorized dealers,” the court, according to the well-established rule, may look to the construction placed upon it by the parties. Here, then, we find plaintiff below expressly discarding a technical term in itself suggestive of agency for one that suggests the relation of buyer and seller merely. To say the least, it would seem plaintiff below did not believe that the contract created an agency.

But, assuming that this act was not conclusive, and conceding that there is no “magic in words,” still agency can not be said to exist unless the usual tests can be applied. See Mechem, Agency, par. 1; 1 Livermore, Agency, 67; 2 Bouvier, Institutes of Am. Law, 3.

If there could have been any doubt about the true relation created by the contract, when the demurrer was acted upon, certainly all doubt must disappear on reading the testimony of the parties themselves. See the deposition, S. T.‘ Block, Exhibit 113, questions 50 to 55, deposition page 46. Also E. J. Mack, Exhibit 113, questions 34 -to 43.

The distinguishing features of the agent are his “representative character and his derivative authority” (Mechem, Agency, supra). These elements, under the evidence, are entirely lacking. The relation intended to be and actually created must be held to be that of buyer and seller merely, and not that of principal and agent.

The following cases would seem to be decisive: Russell v. McSwegman, 84 N. Y. Supp., 614; Towle v. White, 21 W. L., 465; Vosbury v. Mallory, 75 N. Y. Supp., 480; Roosevelt v. Nusbaum, 77 N. Y. Supp., 457; Tady v. Sterious, L. R, 1 Ch., 354; In re Nevitt, L. R, 6 Ch., 397.

Under the authorities, the restriction can not be upheld as ancillary to such a relation as that contemplated. It will be borne in mind that this is hot a ease of a restriction to protect “good will.” It was purely a case — to borrow tbe language of Judge Minshall — where the Standard Distilling & Distributing Company sought to buy B. & Sons “out of business,” so far as making alcohol and spirits for sale as such was concerned. Lufkin Rule Co. v. Fringeli, supra.

The only other agreement or contract whose purpose the restriction could be said to subserve is the United States Spirits Association agreement. But this contract, on its face, is in contravention of the Valentine law, 93 O. L., 143 (Rev. Stat. 4427-1), and the common and statute law of Kentucky. It, being void because illegal, can not be made the predicate of a valid ancillary contract. ' As I view the contract, therefore, it presents an agreement of B. & Sons, for a certain consideration to be paid by the Standard Distilling & Distributing Company, not to manufacture or produce, for sale as such, alcohol or spirits, for five years, and to buy all their needed alcohol and spirits from the Standard Distilling & Distributing Company. This is in general restraint of trade, and is forbidden by law. By permitting the plaintiff below to recover the amount promised fox-doing that which the law distinctly forbids, the coux-t Avould be placed in the anomalous position of placing a premium on that which the law declares shall not be done.

Even if' this provision in the agreement was bad, can it be severed and eliminated and the good be enforced? This view seems to have obtained when the cause was heard on its merits before a court other than the one that passed on the demurrer. But I axn of opinion that the axxthorities forbid this also. Legal proxnises, it is true, xnay be severed froixx illegal ones; but the legal part of the consideration can not be severed from the illegal part. The good, ex necessitate, falls with the bad. The consideration of the promise of the Staxxdard Distilling & Distributing Compaixy to pay B. & Sons a stipulated monthly sum, had for its basis the promise of B. & Sons not to manufacture ox-produce spirits and alcohol for sale as sixch. To say the least, this was part of the coxxsideration. This promise, being in coxxtravexxtion of law, caix not be made the basis of the couxxtex- promise of the Standard Distilling & Distributing Company. • The legal maxim, “Ex turpi contractu non oritur actio,” applies in all its force. Bishop v. Palmer, 146 Mass., 469; Lange v. Werk, 2 Ohio St., 519; Widoe v. Webb, 20 Ohio St., 431; McQuade v. Rosecrans, 36 Ohio St., 442; Bridge v. Cage, 2 Croke, 103; Douthart v. Congdon, 197 Ill., 349; Filson v. Himes, 5 Pa. St., 452; Foley v. Spier, 100 N. Y., 552; Burke v. Child, 88 U. S., 441.

'Worthington & Strong and Moran, Mayer (& Meyer, for plaintiff in error.

Thornton M. Hinkle, for defendant in error.

For these reasons I am of opinion that the court below erred in overruling the demurrer, and upon the whole case I think the judgment was against the evidence and the law. I think the judgment should be reversed and judgment entered up for plaintiff in error.  