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For such sum judgment was ren

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*Mr. Assistant Attorney General Davis, for the United States.

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*Mr. William L. Marbury, of Baltimore, Md., for appellees.

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the time-that is, that the probe had pene- [ 050.09. trated or had not penetrated-but there was dered, and the United States prosecuted this nothing on the map exhibited to bidders appeal. showing the field notes taken at the time the borings were made. It was hence shown that the material to be encountered was "mainly mud or mud with an admixture of sand." In other words, the map did not contain a true description of the character of the material which was to be encountered, and was encountered by the dredging company in the prosecution of the work. The material dredged, at certain places, differed from that [1] The case turns upon the statement of shown on the map exhibited to bidders. The the government of its belief of the character company made no independent examination, though it had time to do so, and in making its of the material to be en*countered, and, as proposal it stated that it did so with full misrepresentation, the omission from the map knowledge of the character and quality of the exhibited to bidders of the actual borings work required. made and their disclosures.

The proposals required the character and capacity of the plant proposed to be employed by the contractor to be stated and that it should be kept in condition for efficient work and be subject to the inspection and approval of the "contracting officer." In compliance with the requirement the plant was submitted to such officer and by him inspected and approved. It was efficient for dredging the character of material mentioned in the specifications and described on the map to which bidders were referred for information; it was not efficient for dredging the material actually found to exist, and the company secured the services of another concern to do the dredging for it, and that concern did all of the work that was done.

After the company, and the concern it had employed, had been at work for some time, it complained of the character of material which was being encountered, and a supplementary contract was entered into by it and the "contracting officer."

*After stating the case as above, Mr. Justice MCKENNA delivered the opinion of the Court.

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The government asserts that there was no misrepresentation, basing the assertion upon the declaration of the specifications that no guarantee was intended and the admonition to bidders that they must decide as to the character of the materials to be dredged, and to "make their bids accordingly."

The assertion puts out of view, we think, other and determining circumstances. There was not only a clear declaration of the belief of the government that its representation was true, but the foundation of it was asserted to be the test of actual borings, and the reference to maps as evidence of what the borings had disclosed. The finding is that the maps contained a record of 26 borings as covering specified sections that were to be dredged, and of these 10 were in the section of the river, which, by its contract afterwards made, the plaintiff agreed to dredge.

through its "contracting officer," by the apThere was a further assertion of belief, proval of the company's plant. As we have seen the government's care of its interests exThis contract recited that "heavy and re- tended to the inspection of the instrumentalifractory material, consisting mainly of com- ties of the contractor, and required the charpacted sand and gravel, with a small percent-acter and capacity of the plant which was to age of cobbles had been encountered," and be used, to be submitted for inspection and provided that such material might be deposited in the Delaware river, instead of on shore, as provided in the original contract.

At the time of making the supplemental contract the company was not aware of the manner in which the "test borings" over the area embraced in its contract had been made. Upon learning of this in December, 1915, it discontinued work and declined to do further work. The company then had not been informed of the fact that impenetrable material had been reached by the probe. At the time of the cessation of work there remained approximately 350,000 cubic yards of matèrial to be dredged in the area of the contract. The American Dredging Company completed the dredging at 16.2 cents per cubic yard.

The amount expended by the company was $354,009.19, upon which it had received $142,959.10, making its loss on the contract $211,

approval. In fulfillment of the requirement the company submitted its plant. It was only efficient for dredging material of the character mentioned in the specifications and described on the map, and it was so approved. The significance of the submission and approval are manifest. The character and capacity of the plant conveyed to the officer the fact that the company was accepting as true the representation of the specifications and the map of the materials to be dredged; and reciprocally the approval of the plant by

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the officer was an *assurance to the company of the truth of the representation and a justification of reliance upon it.

The case is therefore within the ruling of United States v. Spearin, 248 U. S. 132, 136, 39 Sup. Ct. 59, 63 L. Ed. 166, where it is stated that the direction to contractors to visit the site and inform themselves of the

(40 Sup.Ct.)

The CHIEF JUSTICE and Mr. Justice CLARKE dissent.

(253 U. S. 26)

actual conditions of a proposed undertaking, [ply compensatory of the cost of the work, of will not relieve from defects in the plans and which the government got the benefit. specifications, citing Christie v. United States, Affirmed. 237 U. S. 234, 35 Sup. Ct. 565, 59 L. Ed. 933, Hollerbach v. United States, 233 U. S. 165, 34 Sup. Ct. 553, 58 L. Ed. 898, and United States v. Utah, Nevada & California Stage Co., 199 U. S. 424, 26 Sup. Ct. 69, 50 L. Ed. 251. It is held in those cases "that the contractor ought to be relieved, if he was misled by erroneous statements in the specifications." The present case is certainly within the principle expressed. In the cited cases there was no qualification of the requirement; in this case it was accompanied by the expression of belief, and conduct which was, in effect, a repetition and confirmation of the belief and gave assurance that it had a reliable foundation. The company, therefore, was justified in acting upon it.

[2] The government, however, contends that at best, the alternative was presented to the company, when it discovered the character of the materials, to either quit work and sue for damages, or continue the work; and that having elected the latter, it cannot now resort to the other. In fortification of this contention it is said that

"Even if the government made a misrepresentation as to the borings that misrepresentation would necessarily have been as to the character of the materials to be dredged, and claimant knew all there was to know about this from the 'very beginning.'"

This assumption and the extent of it and the conclusion from it, are not justified. It is true the company discovered that the material it encountered was different in character from that represented, but the company did not know of the concealment of the actual test of the borings, and the fact that it, the

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company, attempted to *struggle on against the difficult conditions with its inefficient plant, should not be charged against it. In other words, it should not now be held to have been put to the suggested election. It did not know at that time of the manner in which the "test borings" had been made. Upon learning that they had been made by the probe method, it then elected to go no further with the work, that is, upon discovering that the belief expressed was not justified and was in fact a deception. And it was not the less so because its impulse was not sinister or fraudulent.

UNITED STATES v. READING CO. et al.† READING CO. et al. v. UNITED STATES. (Argued Oct. 10, 11, 1916. Restored for Reargument May 21, 1917. Reargued Nov. 20, 21, 1917. Restored for Reargument June 10, 1918. Reargued Oct. 7, 1919. Decided April 26, 1920.)

Nos. 3, 4.

1. MONOPOLIES 20-STOCK CONTROL OF
RAILROAD COMPANY AND LARGE COAL COM-
PANY BY HOLDING COMPANY HELD A "COM-
BINATION TO UNDULY RESTRAIN INTERSTATE
COMMERCE."

A scheme of reorganization of a railroad company and a coal mining company which owned almost two-thirds of the land in one of the three large Pennsylvania coal fields, and whose stock was owned by the railroad company, whereby a holding company acquired all the stock of the other two companies giving its board of directors control of the largest coal company in such field and almost 1,000 miles of railroad over which its coal must find access to interstate markets, constituted a "combination to unduly restrain interstate commerce" within Act July 2, 1890 (Comp. St. §§ 8820-8823, 8827-8830).

[Ed. Note. For other definitions, see Words and Phrases, First and Second Series, Combination in Restraint of Trade.]

2. MONOPOLIES 24(2)-EVIDENCE HELD TO

SHOW THAT RAILROADS AND COAL COMPANIES
WERE COMPETITORS PRIOR TO PURCHASE OF
STOCK CONTROL.

In an action under Anti-Trust Act July 2, 1890 (Comp. St. §§ 8820-8823, 8827–8830), evidence held to show that a railroad company whose stock was owned by a holding company and another railroad company in whose stock the holding company purchased a controlling interest were competitors prior to such purchase, and that a coal company controlled by the railroad company so purchased were also comholding company and one controlled by the petitors prior to the purchase.

3. MONOPOLIES 20-COMMERCE RESTRAINED AND COMPETITION DISCOURAGED BY CARRIER'S FAVORITISM.

For a railroad company or a holding company controlling a railroad to make large advances to a coal company also controlled by it, and shipping coal over its lines, and to grant it unusual credits in the payment of its freight bills, tends to unduly restrain interstate commerce.

[3] The government makes the point, however, that the implication of the case is that bad methods were used, and insists that the implication makes the action one for a tort, and not tenable against the United States. We cannot assent. There is no intimation of bad faith against the officers of the government, and the Court of Claims regarded the representation of the character of the material as in the nature of a warranty; besides, its judgment is in no way punitive. It is simFor other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

4. MONOPOLIES 16(1)-COVENANT BY LES

SOR TO SHIP COAL OVER LEASED LINE NOT
UNLAWFUL.

Where an owner of extensive coal producing properties leased a railroad owned by it to † Motion to modify decrees denied 253 U. S. 478, 40 Sup. Ct. 585, 64 L. Ed.

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a connecting, but not competing road, to which its line served as a natural extension, its cove nant to ship all of its coal over the leased line did not violate Act July 2, 1890 (Comp. St. §§ 8820-8823, 8827-8830), where its purpose was not to suppress interstate commerce and instead of suppressing it, it greatly promoted such com

merce.

5. MONOPOLIES

OF

16(1)-ENFORCEMENT COVENANTS TO SHIP COAL BY CERTAIN LINES

PROPERLY ENJOINED WHEN PART OF UNLAW

FUL SCHEME.

yet where such ownership is not resorted to for the purpose of participating in the affairs of the mining corporation in the manner normal and usual with stockholders, but, for the purpose of making it a mere agent or instrumentality or department of the railroad company the transportation of the products of the mining company is unlawful.

Mr. Chief Justice White, Mr. Justice Holmes, and Mr. Justice Van Devanter dissenting.

Appeals from the District Court of the United States for the Eastern District of Pennsylvania.

Enforcement of covenants in leases of coal producing lands, requiring the lessee to ship all coal mined by rail routes named or to be designated, was properly enjoined in a suit under Acting Company and others. July 2, 1890 (Comp. St. §§ 8820-8823, 88278830), where they were resorted to as part of a scheme to control the mining and transportation

of coal.

6. MONOPOLIES 20-RELATION BETWEEN RAILROADS AND COAL COMPANIES ORDERED

DISSOLVED.

Where a railroad constituting an outlet to one of the large anthracite coal fields of Pennsylvania acquired more than two-thirds of the acreage of such field with the avowed purpose of monopolizing the production, transportation, and sale of coal, and subsequent to Act July 2, 1890 (Comp. St. §§ 8820-8823, 8827-8830) the railroad company and an affiliated coal company were reorganized and all of the stock of both issued to a holding company to evade the state law and the act of 1890, and the holding company subsequently purchased control of a great competing coal carrying railroad with its extensive coal owning and mining subsidiary, and thereafter the holding company exercised the power so acquired by participating in flagrant violations of the Anti-Trust Act, the relations between the various companies will be ordered dissolved so as to give to each a position in all respects independent and free from stock or other control of either of the other corporations. 7. MONOPOLIES ~16(1)—TRANSPORTATION BY RAILROAD OF COAL PRODUCED BY COMPANY CONTROLLED BY SAME HOLDING COMPANY IS FORBIDDEN BY STATUTE.

Where a railroad company, a coal mining company, and a holding company owning all of the stock of the other two companies have the same officers and directors, the mines are worked and the railroad operated by the same authority within the meaning of Act June 29, 1906, making it unlawful for any railroad company to transport in interstate commerce any article or commodity produced or mined by it, or under its authority, and the transportation by the railroad company of coal produced by the coal company is a violation of that act.

8. MONOPOLIES 16(1)—TRANSPORTATION BY
RAILROAD OF PRODUCTS OF MINING COMPANY

CONDUCTED AS DEPARTMENT OF RAILROAD
COMPANY IS FORBIDDEN BY STATUTE.

While the ownership by a railroad company of shares of the capital stock of a mining company does not necessarily create an identity of corporate interest between the two such as to render it unlawful under Act June 29, 1906, for the railroad company to transport in interstate commerce the products of the mining company,

Suit by the United States against the ReadFrom a decree granting insufficient relief (226 Fed. 229), the United States appeals, and defendants also appeal. Affirmed in part, reversed in part, and remanded, with directions.

Messrs. Solicitors General Davis and King and G. Carroll Todd, of Washington, D. C. (Mr. T. W. Gregory, Atty. Gen., on the brief), for the United States.

Mr. Jackson E. Reynolds, of New York City, argued and filed briefs for the several Reading Company defendants.

William

Messrs. Charles Heebner and Clarke Mason, both of Philadelphia, Pa., filed brief for Philadelphia & Reading Ry. Co.

Mr. John J. Beattie, of Warwick, N. Y., filed brief for Lehigh & Hudson River Ry. Co. Messrs. Henry S. Drinker, Jr., and Abraham M. Beitler, both of Philadelphia, Pa., filed brief for Lehigh Coal & Navigation Co.

Mr. William J. Turner, of Philadelphia, Pa., filed brief for Lehigh & New England Ry. Co.

Mr. Robert W. De Forest, of New York City, argued orally for defendant Central R. R. Co. of New Jersey.

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*Mr. Justice CLARKE delivered the opinion of the Court.

These are appeals from a decree entered in a suit instituted by the government to dissolve the intercorporate relations existing between the corporation defendants, for the alleged reason that through such relations

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they constitute a combination in restraint of interstate commerce in anthracite coal, and an attempt to monopolize or a monopoliza. tion of such trade and commerce in violation of the first and second sections of the AntiTrust Act of Congress, of July 2, 1890 (26 Stat. 209 [Comp. St. §§ 8820, 8821]); and also for the alleged reason that the defendants, Philadelphia & Reading Railway Company and Central Railroad Company of New Jersey, are violating the commodities clause of the act of Congress of June 29, 1906 (34 Stat. 585 [Comp. St. § 8563(6)]) by transporting over their lines of railroad, in interstate commerce, coal mined or purchased by coal companies with which they are associated by stock ownership.

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

(40 Sup.Ct.)

It will contribute to brevity and clearness Company of controlling interests in the shares to designate the defendant corporations as of the capital stocks of the Reading Railfollows: Reading Company, as Holding Com-way Company, of the Reading Coal Company pany; Philadelphia & Reading Railway and of the Central Railroad Company, conCompany as Reading Railway Company; stitutes a combination in restraint of interPhiladelphia & Reading Coal & Iron Compa- state trade and commerce and an attempt to ny, as Reading Coal Company; Central Rail-monopolize and a monopolization of a part of road Company of New Jersey, as Central the same in violation of the Anti-Trust Act of Railroad Company; Lehigh & Wilkes-Barre July 2, 1890. Coal Company as Wilkes-Barre Company; Lehigh Coal & Navigation Company as Navigation Company.

Practically all of the anthracite coal in this country is found in Northeastern_Pennsylvania, in three limited and substantially parallel deposits, located in valleys which are separated by mountainous country. For trade purposes these coal areas are designated: The most northerly, as the Wyoming field, estimated to contain about 176 square miles of coal; the next southerly, as the Middle or Lehigh field, estimated to contain about 45 square miles, and the most southerly, as the Schuylkill field, estimated to contain about 263 square miles of coal.

The annual production of the mines in these three fields in 1896 was about 43,640,000 tons and in 1913 it slightly exceeded 71,000,000 tons. The chief marketing centers for this great tonnage of coal are New York, distant by rail from the fields about 140 miles,

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and Philadelphia, distant *about 90 miles. From these cities it is widely distributed by rail and water throughout New York and New England, and to some extent, through the South.

Second. That the Holding Company in itself constitutes a like violation of the act. Third. That certain covenants and agreements between the Central Railroad Compa

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ny and the Navigation Com*pany contained in a lease, by the latter to the former, of the Lehigh & Susquehanna Railroad, constitute a like violation of the act.

Fourth. That the transportation in interstate commerce by the Reading Railway Company and by the Central Railroad Company, of coal mined or purchased by the coal companies affiliated with each of them, constitutes a violation of the commodities clause of the Act to Regulate Commerce.

Pursuant to the provisions of the act of June 25, 1910 (36 Stat. 854 [Comp. St. § 8824]), the case was heard by three Circuit Judges of the Third circuit, who while holding against the contention of the government on many of the prayers for relief in the bill, some generally and some without prejudice, also held that the Reading Coal Company and the Wilkes-Barre Coal Company were naturally competitive producers and sellers of anthracite coal, and that their union through the Holding Company and the Central ComSuch a large tonnage was naturally at-pany constituted a combination in restraint tractive to railroad carriers, with the re- of trade within the Anti-Trust Act, and for sult that the Wyoming field has six outlets by rail to New York harbor, viz.: The Central Railroad of New Jersey and five others, known as initial anthracite carriers. The Lehigh field has three such rail outlets, but the largest, the Schuylkill field, has only two direct rail connections with Philadelphia and New York, viz.: The Reading and the Pennsylvania Railroads. Outlets by canal to Philadelphia and tidewater, at one time important, may here be neglected.

This description of the subject-matter and of its relation to the interstate transportation system of the country will suffice for the purposes of this opinion. It may be found in much greater detail in the cases cited in the margin.1

The essential claims of the government in the case have become narrowed to these, viz.:

First. That the ownership by the Holding

1 United States v. Reading Co. et al. (C. C.) 183 Fed. 427; United States v. Reading Co. et al. (D. C.) 226 Fed. 229; United States v. Delaware & Hudson

Co., 213 U. S. 366, 29 Sup. Ct. 527, 53 L. Ed. 836;

United States v. Lehigh Valley Railroad Co., 220 U. S. 257, 31 Sup. Ct. 387, 55 L. Ed. 458; United States v. Delaware, Lackawanna & Western Railroad Co.,

238 U. S. 516, 35 Sup. Ct. 873, 59 L. Ed. 1438; United States v. Reading Co., 226 U. S. 324, 33 Sup. Ct. 90,

57 L. Ed. 243.

this reason the Central Company was ordered to dispose of all the stock, bonds, and other securities of the Wilkes-Barre Coal Company owned by it, and was enjoined from requiring the Coal Company to ship its coal over the lines of the Central Company.

The court also held that clauses in mining leases by the Reading Coal Company and by the Wilkes-Barre Coal Company, and their subsidiaries, requiring the lessees to ship all coal produced, over roads, named or to be designated, were unlawful and void.

The case has been appealed by both parties, and is before us for review on all of the issues as we have thus stated them.

Reference to the history of the properties now controlled by the Holding Company will be of value for the assistance it will be in

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determining the intent and purpose *with which the combinations here assailed were formed. Standard Oil Co. v. United States, 221 U. S. 1, 46, 76, 31 Sup. Ct. 502, 55 L. Ed. 619, 34 L. R. A. (N. S.) 834, Ann. Cas. 1912D,

734.

The Philadelphia & Reading Railroad Company was chartered by special act of the Pennsylvania General Assembly in 1833 (P. L. 144), and it conducted the business of a

railroad carrier prosperously for about 30 | the property of the Reading Railroad Comyears, when, as its annual reports show, it pany and of the Reading Coal Company. In embarked upon the policy of attempting to 1893 there was default in the payment of control the anthracite tonnage of the Schuyl-interest on these bonds and receivers were kill field by acquiring extensive ownership of appointed who operated both properties until coal lands. Thus, the report of the company 1896 when they were sold to representatives for 1870 contains the following: of the creditors and stockholders of the two companies, and under a scheme of reorganization, the validity of which is assailed in this suit, both properties were transferred to three corporations in the manner now to be described:

"Up to this time about 70,000 acres of the best anthracite coal lands in Pennsylvania have been acquired and will be held by an auxiliary company known as the Philadelphia & Reading Coal and Iron Company of which the Philadelphia & Reading Railroad Company is the First. To the Reading Railway Company, only stockholder. The result of this action has been to secure and attach to the company's rail- a corporation newly organized under the laws road-a body of coal land capable of supplying of Pennsylvania, were allotted about 1,000 all the coal tonnage that can possibly be trans-miles of the railroad (but none of the equipported over the road for centuries."

[blocks in formation]

said:

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"The coal lands comprise in extent about thirty-three per cent of the entire anthracite coal fields of the state, and taking into account the aggregate thickness of the veins on the company's lands, and the greater proportionate depletion of the estates in the other regions which has been going on for many years, it must be conceded that we have at least fifty per cent of the entire deposit remaining unmined."

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ment) which had been owned or leased by the former Reading Railroad Company. The capital stock of this company was fixed at $20,000,000 and it issued $20,000,000 of bonds, all of which were given to the Holding Company. The property thus transferred was valued, in the representations made at the time to the New York Stock Exchange, at $90,000,000.

In 1896 this railroad carried

in excess of 9,000,000 tons of anthracitemore than one-fifth of the then total production of the country. But by the plan of reorganization adopted it was disabled from performing its functions as a carrier, except with the aid of the Holding Company. for all of the equipment, engines, cars and ships, owned, by the former Railroad Company, and its tidewater terminals at Philadelphia and on New York Harbor, were al

lotted to the Holding Company.

Second. By the decree of sale the Reading Coal & Iron Company was released from its former obligations and to it thus freed the principal part of the property (coal and other), owned by it before the sale, was allotted and retransferred upon condition that it would deliver all of its capital stock to the Holding Company, would become co-obligor with that company on bonds to be issued, and would join with it in executing a mortgage As if in further pursuit of this now settled for $135,000,000 on all of its property to sepurpose, in the following year, 1892, the cure such bonds. This company thus came Reading Railroad Company leased the Lehigh into possession of 102,573 acres of anthracite Valley Railroad and the Central Railroad of lands, owned and leased-almost two-thirds New Jersey for 999 years. These were both of the entire acreage of the Schuylkill coal anthracite carriers, competing with the Read- field-stocks and bonds in other coal coming and each had an important coal mining panies, coal in storage and other property, subsidiary company. But the lease by the all of the estimated value of $95,000,000. Central Railroad Company was assailed in Third. To serve the purposes of the intendthe New Jersey courts and all operations un-ed Holding Company, a charter granted in der it were enjoined, with the result that both

leases were abandoned.

It is obvious that these reports show an avowed and consistently pursued purpose (not then prohibited by statute) to secure by purchase a dominating control over the coal of the Schuylkill field and over the transportation of it to market.

In the large financial operations incident to the expansion policy thus described, bonds were issued, secured by a mortgage on all of

1871 by special act of the General Assembly of Pennsylvania, but unused for 20 years, was utilized. This charter was of the class denominated "omnibus" by the Supreme Court

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of Pennsylvania, and in terms it authorized the company to engage in, or control, almost any business other than that of a bank of issue-this broad charter was the occasion for making use of the company in this enterprise. The corporate name was changed

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