Kf P3/ (JnrnpU Slam ^rtynnl ICibtary Cornell University Library KF 1625.Z9P31 Law of contracts in res^^^^^^^ Cornell University Library The original of tliis book is in tlie Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924019206261 THE LAW OF tl CONTRACTS IN RESTRAINT OFT^RADE, SPECIAL REFERENCE TO "TRUSTS." BY GEORGE STUART PATTERSON, Ph.B., LL.B., H&MBER OF THE PHILADELPHIA BAR AUD FELLOW IN THE DEPARTMENT OF LAW OP THE lOTIVEESITY OF PENNSYLVANIA. PHILADELPHIA: UNIVERSITY OP PENNSYLVANIA PRESS. 1891. COPTKIBHT BT UNIVEKSITT OF PENNSYLVANIA PRESS, 1891. 1511 CONTENTS, CHAPTER I. PAGE The Rule and its Historical Reason .... 1 — 27 CHAPTER II. The Consideration op such a Contract . . . 28 — 31 CHAPTER III. The Construction of these Contracts, and their En- forcement BY Courts op Equity .... 32 — 33 CHAPTER IV. Contracts in Restraint op those Sorts op Business in THE Exercise of which the Public has a Peculiar Interest 34^ — 36 CHAPTER V. Restrictions on Competition and Production . 37 — 59 APPENDIX. English and American Cases decided since this Essay was written 67-70 (iii) THE LAW OF CONTRACTS EESTEAINT OF TRADE. CHAPTER I. THE ETJLE AND ITS HISTORICAL REASON. Public policy, remarked Mr. Justice Burrougb, in Richardson vs. Mellish/ "is a very unruly horse, and when once you get astride it you never know where it will carry you;" and, added Mr. Justice Kekewich, in Davies vs. Davies,^ '^ One thing I take it to be clear and it is this, that public policy is a variable quantity ; that it must vary and does vary with the habits, capacities, and opportunities of the public." And in that branch of the law relating to contracts in restraint of trade these statements have been most clearly borne out. Contracts in restraint of trade were originally void at common law on account of public policy and they were opposed to public policy for two reasons. One was, the injury to the public by being deprived of the restricted party's industry ; the other was the injury to the party » 2 Bing. 229. 36 Ch. Dlv. 359. 1 2 THE LAW OF CONTRACTS himself by being precluded from pursuing his occupa- tion, and thus being prevented from supporting himself and his family.^ Two other reasons have been suggested, one, that as mechanical arts were in their infancy in England when this rule was first laid down, it was of the utmost im- portance that there should be no restrictions preventing people from engaging in them.*^ The other reason sug- gested, was, that the rule " dates from the time when a man could not lawfully exercise any trade to which he had not been duly apprenticed and admitted ; so that if he covenanted not to exercise his own trade, he practi- cally covenanted to exercise none, in other words, not to earn his living at all."^ As early as the reign of Henry V. (1415), a case arose in which a dyer had bound himself not to exer- cise his trade for half a year in the same town with the plaintiff, and in an action on the bond Judge Hull exclaimed in great anger, " Per Dieu, si le plaintiff fut id, il irra al prison, tang il ut fait fine al Roy ;" but though the anger of the learned judge was possibly justifiable, the case proceeded to issue as to whether the condition of the bond had been performed or not.* Again, in Colgate vs. Batchelor,^ where a bond had been given not to exercise the trade of haberdasher within the ' Oregon S. S. Co. vs. Winsor, 20 "Wallace, 64. ' Wright vs. Ryder, 36 Cal. 342. ' Pollock on Contracts, 313 ; Parsons on Contracts, vol. II., 255. * 2 Henry V., pi. 22. ' Cro. Eliz. 872. IK EESTRAINT OF TRADE. 3 cities of Canterbury and Rochester for the space of four years, the court resolved, " that the condition was against law to prohibit or restrain any to use a lawful trade at any time or at any place;" and the court disposed of the argument that it was only a partial restraint, by saying that the defendant ought not to be abridged of his trade and living. In Rogers vs. Parry ,^ Coke, C. J-, recognized the prin- ciple that for a time certain and for a place certain a man may be well bound and restrained from using his trade. In the Ipswich Taylor's Case^ it was resolved, " that at the common law no man could be prohibited from work- ing in any lawful trade, for the law abhors idleness, the mother of all evil, and especially in young men, who ought in their youth (which is the seed-time), to have lawful sciences and trades, which are profitable to the Commonwealth, and whereof they might reap the fruit in their old age, for idle in youth, poor in age; and, therefore, the common law abhors all monopolies which prohibit any from working in any lawful trade." Also in Prugnell vs. Gosse,* the distinction was taken that contracts entirely restraining the exercise of a man's trade throughout England were void, even if there were a consideration, but contracts in partial restraint are valid if there be a consideration, but void without one. Finally, in an elaborate opinion in Mitchell vs. Rey- nolds,* Chief Justice Parker, afterwards Lord Macclesfield, ' 2 Bulstrode, 136. ' 11 Coke, 540. ' Aleyn, 6T. * 1 P. Wms. 181. 4 THE LAW OF CONTEACTS came to the following conclusions with, regard to the validity of contracts in restraint of trade : — " That voluntary restraints by agreement between two parties, if they amount to a general restraint of trading by either party are void, whether with or without con- sideration; but particular restraints of trading, if made upon a good and adequate consideration, so as to be a proper and reasonable contract, are good." Chief Justice Parker also says : " The true reasons of the distinctions upon which the judgments in the case of voluntary restraints are founded are, the mischief which may arise from them, first, to the party by the loss of his livelihood and the subsistence of his family ; secondly, to the public by depriving it of a useful member." Again he says : " In a great many instances they (these restraints) can be of no use to the obligee ; which holds in all cases of general restraint throughout England ; for what does it signify to a tradesman in London what another does at Newcastle 1 And surely it would be unreasonable to fix a certain loss on one side without any benefit on the other." The facts in Mitchell vs. Rey- nolds were as follows, and from these it can be seen that notwithstanding the dicta by the learned judge all the case decided was that a reasonable restraint when sup- ported by a good consideration will be enforced. In this case the plaintiff had assigned the lease of a house in the parish of A. to the defendant for five years, and the defendant entered into a bond conditioned that he would not exercise the trade of a baker for five years IN RESTRAINT OF TRADE. 5 within that parish, and the court held it good because it was a reasonable restraint and founded on a good con- sideration. As Chief Justice Tindal pointed out in Hor- ner vs. Graves/ when Chief Justice Parker says : " A restraint to carry on a trade throughout the kingdom must be void ; a restraint to carry it on within a parti- cular place is good," those are only examples and not limits of the application of the rule which can only be, " What is a reasonable restraint with reference to the particular case." The general rule can then best be stated as follows: Contracts in restraint of trade are in themselves, if nothing more appear to show them reasonable, bad in the eye of the law, but if from the peculiar circum- stances of each case they appear to be reasonable and are founded upon a good consideration they are valid.^ The questions then to be determined in each par- ticular case (with the exception of those sorts of business whose peculiar nature makes them incapable of any re- striction without injury to the public welfare), are whether the contract is a reasonable one or not, and whether it is founded upon a good consideration. In the case of 1 1 Bingham, "735. " Horner vs. Graves, Y Bing. 135 ; Mitchell vs. Reynolds, 1 P. Wms. 181; Davies w. Davies, L. R. 36 Ch. Div. 348; Rousillon vs. Rousillon, 14 Ch. Div. 351 ; Collins vs. Locke, 4 Appeal Cases, 674 ; Oregon S. S. Co. vs. Winsor, 20 Wall. 64 ; Watertown Thermometer Co. vs. Pool, 4 N. Y. S. 861 ; Morris Run Coal Co. vs. Barclay Coal Co., 68 Pa. St. 1T3. 6 THE LATV OF CONTRACTS Horner vs. Graves,^ the agreement was that the defen- dant, a moderately skilful dentist, would abstain from practising over a district two hundred miles in diameter, in consideration of receiving instructions and a salary from the plaintiff, and the court held the agreement void on account of its not being a reasonable restraint. Tindal, C. J., said: "And we do not see how a better test can be applied to the question whether the agreement is reasonable or not, than by considering whether the re- straint is such only as to afford a fair protection to the interests of the party in favor of whom it is given, and not so large as to interfere with the interests of the pub- lic. Whatever restraint is larger than the necessary protection of the party, can be of no benefit to either, it can only be oppressive ; and if oppressive, it is, in the eye of the law, unreasonable. Whatever is injurious to the interests of the public is void, on the grounds of public policy." In Hitchcock vs. Coker,^ the same judge said : " We agree in the general principle adopted by the court, that, where the restraint of a party from carrying on a trade is larger and wider than the protection of the party with whom the contract is made can possibly require, such restraint must be considered unreasonable in law, and the contract which would enforce it must be therefore void. What is reasonable depends upon the varying circumstances of each case." ' T Bing. 135. ' 6 A. & E. 454. IN RESTRAINT OF TRADE. 7 111 Gale vs. Reed,' Lord EUenborough said that the restraint imposed on one should be co-extensive with the benefit conferred on the other. This test of Chief Justice Tindal's as to reasonableness has been followed in all the cases, but as Mr. Justice Bradley said in The Oregon S. S. Co. vs. Winsor,^ "The application of the rule is more difficult than a clear understanding of it." In Gale vs. Reed,* defendant covenanted not to ex- ercise the business of a rope maker during his life except on government contracts, and to employ the plaintiff exclusively to make all his cordage which should be ordered of him by his friends or connections. The plain- tiffs were to allow him two shillings per cwt. on the cordage made on his recommendation for such of his friends or connections whose debts should turn out to be good, and were not to be compelled to furnish goods to any whom they should be disinclined to trust. The court held the agreement good considering they must construe the whole of it together, and that, construing it together, it appeared not to be the intention of the plain- tiff to restrain the defendant from supplying such of his connections as they themselves did not think fit to trust. In other words this agreement fulfilled Lord Ellen- borough's test as to the restraint imposed upon the de- fendant being co-extensive with the benefit conferred upon the plaintiff. In the case of Ward vs. Byrne,'' a bond conditioned ' 8 East, 81 ' 20 Waft. 64. ' 8 Bast, 80. * 6 M. & W. 548. 8 THE LAW OF CONTRACTS that the defendant would not engage in the business of a coal merchant for nine months after leaving the employ- ment of plaintiff (a coal merchant), the consideration for the bond being defendant's employment by plaintiff, was held null and'void on the ground that the restraint was larger than was necessary for the protection of plaintiff's interests, Lord Abinger, C. B., saying, " What protection could the plaintiff require to such an extent as thisl Can it be supposed the plaintiff's trade could be preju- diced by this man's entering into the service of a coal merchant in Scotland 1" In Whitaker vs. Howe,^ Lord Langdale held that an agreement by a solicitor for a valuable consideration not to practise as solicitor in any part of Great Britain for twenty years, was valid. He approved the test of C. J. Tindal in Horner vs. Graves, as to what constituted reasonableness and went on to say, " Now, whatever may be the talents, knowledge, and experience of the defend- ant, and I am disposed to rate them highly, I cannot say that in my opinion the public interest will be in any way interfered with or affected by his not being allowed to practise as an attorney and solicitor in Great Britain for twenty years without the consent of the plaintiff. The question, therefore, is, whether the restraint ought to be considered, as reasonable in this particular case. The business is that of an attorney and solicitor, which to a great extent may be carried on by correspondence or • 3 Beavan, 383. IN RESTRAINT OF TRADE, 9 agents, and as to which it has already been decided, that a restraint of practice within a distance of 150 miles was not an unreasonable restraint.^ " Agreeing with the Court of Common Pleas^ that in such, cases, 'no certain precise boundary can 'be laid down within which the restraint would be reasonable and beyond which excessive,' having regard to the nature of the profession, to the limitation of time and to the decision,^ that a distance of 150 miles does not describe an unreasonable boundary, I must say, as Lord Kenyon said in Davis vs. Mason,* ' I do not see that the limits are necessarily unreasonable, nor do I know how to draw the line.' " The distinction between Ward vs. Byrne, and Whitaker vs. Howe would seem to be that it is possible for a solic- itor to have clients all over England, while it is improba- ble that a coal merchant would have customers at so great a distance from him on account of the costs of transporta- tion, therefore in Whitaker vs. Howe, the restraint was no larger than was necessary for the plaintiff's protection, while in Ward vs. Byrne it exceeded that limit. It will be noticed that Chief Justice Tindal requires two elements to be present in order to constitute a valid con-tract in restraint of trade, one is, that the restraint is necessary for the protection of the cove- nantee's interests, and secondly, " that it is not so large » Bunn vs. Guy, 4 East, 190. ' Horner vs. Graves, T Bing. T35. ' Bunn vs. Guy, 4 East, 190. * 5 ,T. R. 118. 10 THE LAW OF CONTRACTS as to interfere with the interests of the public." Now if the restraint is necessary for the protection of the covenantee's interests, can it interfere with the interests of the public 1 and the two answers to this question have given rise to the two theories as to whether there is an absolute limit of space beyond which if the restraint ex- tend, the contract is bad ; no matter whether it is a neces- sary protection to the covenantee or not. One line of cases maintain that the restraint of the contract may be a necessary protection to the covenantee and yet so large as to interfere with the public interests, and therefore null and void, while the other line holds that if the restraint is a necessary one then it cannot interfere with the public interests and is valid. It must be kept in mind that only restraints of ordi- nary sorts of business and trade are being considered, and not those in which the public has a pecuhar interest and the restriction of which is governed by special rules, which will be treated hereafter. In Mitchell vs. Reynolds,^ Chief Justice Parker gives for his third reason for holding contracts in restraint of trade bad, " Because," he says, " in a great many instances, they can be of no use to the obligee; which holds, in all cases of general restraint throughout England ; for what does it signify to a tradesman in London what another does in Newcastle ? and surely it would be unreasonable to fix a certain loss on one side without any benefit to the other ;" and from this dicta, and from the case in the ' 1 P. Wms. 181. IN RESTRAINT OF TRADE. 11 Year Book of Henry V., an arbitrary limit as to space has been attempted to be laid down beyond which, if the restriction of any contract extend, it is void, though the restraint may be a necessary protection to the covenantee. I purpose considering first whether this arbitr^y limit is in force in England; and, secondly, whether it is recog- nized by the courts of the United States. In Ward vs. Byrne,* Baron Parke thus drew the dis- tinction between restrictions limited only as to time and those limited as to space : " Now a restraint prohibiting a party from carrying on trade within certain limits of space would be good, and a contract entered into for the purpose of enforcing such an agreement as that would be valid ; and the limit of the space is that which, accord- ing to the trade he carries on, is necessary for the pro- tection of the party with whom the contract is made; and all the cases cited appear to turn on the question as to the limit of space within which the restriction should extend. Now where a limit as to space is imposed, the public, on the one hand, do not lose altogether the ser- vices of the party in the particular trade ; he will carry it on in the same way elsewhere, nor within the limited space will they be deprived of the benefit of the trade being carried on, because the party with whom the con- tract is made will most probably within those limits ex- ercise it himself. But when a general restriction, limited only as to time, is imposed, the public are altogether losers, for that time, of the services of the individual, and ' 5 M. & W. 548. 12 THE LAW OF CONTRACTS do not derive any benefit whatever in return ; and looking at the authorities cited upon this subject, it does not ap- pear that there is one clear authority in favor of a total restriction on trade limited only as to time." Certainly if the trade extends over the whole country it is just as probable that the party in whose favor the restriction is made will exercise it within that limit as in the case of a trade only local in its extent, therefore, Baron Parke's reason for holding contracts whose re- straint is limited, valid, provided they are reasonable, applies equally well to the case of a contract whose restraint extends over the whole country. To be sure, this recognition of a hard and fast rule is mere dicta, because, as said before, in the case before him the restriction was greater than the necessary pro- tection of the covenantee, but being dicta of Baron Parke (and being cited and approved in later cases), it is entitled to some weight. Ward vs. Byrne was followed by Hinde vs. Grey,' which held that a covenant during the continuance of a demise of a public-house not to be concerned in that business anywhere was void on the authority of Ward vs. Byrne. But this case also could have been decided with- out the application of an unbending rule, as it certainly was not necessary for the protection of the lessee of a public-house that the lessor should be restrained from setting up that business anywhere in England. Jones vs. Lees^ was the next case in which this question > 1 Man. & Gr. 195. ' 1 H. & N. 189. IN RESTRAINT OF TRADE. 13 arose. Here the plaintiif was owner of a patent of an improvement in slubbing machines, for a term of fourteen years, and he assigned his interest in it to the defendant, who covenants that he will not, during the term, make or sell any slubbing machines without that invention ap- plied to them. The court held the covenant binding. Baron Bramwell saying, " It is objected that the restraint extends to all England ; but so does the privilege. The cases with respeet to the sale of a good-will do not apply, because the trade, which is the subject-matter of the sale, is local, and therefore a prohibition against carrying it on beyond that locality would be useless ; here, however, there is no limit to the place within which the license is to be exercised." This opinion is quoted with approval by Mr. Justice Fry, in Rousillon vs. Rousillon,^ who construes it as fol- lows : " In other words, the learned judge explains the inclination of the courts against the universality of a pro- hibition as applying only to cases where the subject-matter of the sale was itself local. This is just the view I take of the earlier cases." In Leather Cloth Co. vs. Lorsont,^ a company had been formed for the purpose of buying the right to manu- facture leather cloth by a peculiar process, which was partially covered by patents. Upon the sale of this pro- cess and patents to the company, the vendors covenanted " that they would not carry on, nor allow others to carry on, to the best of their ability, in any part of Europe, any ' 14 Ch. Div. 351. " L. R. 9 Eq. 345. 14 THE LAW OF CON'TRACTS company or manufactory for the sale of any of these pro- ductions now manufactured in the vendor's manufactory, and will not communicate the means or process of such manufacture so as to in any way interfere with the ex- clusive enjoyment by the purchasing company of the benefits agreed to be purchased." Sir W. M. James held the covenant valid, saying: "No doubt the covenant is expressed in very large and full terms, and it is insisted that the mere fact that the covenant is" not to carry on, nor allow to be carried on, in any part of Europe, " is in itself what is called a general restraint of trade, and that what is called a general restraint of trade is a restraint of trade throughout the United Kingdom, and that in that form a restraint of trade extending throughout the United King- dom is upon the face of it bad, though something short of it may be allowable, provided the circumstances justify it. I do not read the cases as having laid down that un- rebuttable presumption which was insisted upon with so much power by the defendant's counsel." This case, however sweeping the dicta may be, as the learned judge later in his opinion admitted, resembled the case of the sale of a secret, in which case, as will be seen later, the ordinary rules as to contracts in restraint of trade do not apply. In AUsopp vs. Wheatcroft,' Sir John Wickens recog- nized the existence of this hard and fast rule, as laid down in Ward vs. Byrne and Hinde vs. Gray, and decided that a covenant by a brewer's clerk not to be engaged in the » 15 Eq. 59. IN EESTKAINT OF TRADE. 15 business for two years after leaving their service, was void, but he also went on to say that independently of the existence of this rule the covenant was void as being more extensive than was necessary for the protection of plaintiff's interests. In Rousillon vs. Rousillon,* the defendant wrote a letter to the plaintiff, saying that in return for the commercial education plaintiff had given him, defendant promised not to engage in the champagne business for ten years after leaving plaintiff's employment (plaintiff was a cham- pagne merchant). The agreement was held valid. Mr. Justice Fry denied the existence of any hard and fast rule that an unlimited restraint as to place was bad, and said such a rule would not be reasonable on account of the diversity in trades with reference to the space they extended over. In Davies vs. Davies,^ a partner in a firm of iron manu- facturers covenanted " to retire wholly and absolutely from the partnership, and as far as the law allows from the trade or business thereof in all its branches, and not to trade, act, or deal in any way so as either directly or indirectly to affect" the continuing partners. In the lower court this was held valid, the words, " as far as the law allows," being construed to mean " to the full extent that the doctrines of English law as interpreted by the High Court or the Court of Appeal, or in the last resort, the House of Lords, will allow a man to contract himself out of the privilege of engaging in a particular trade or busi* ' L. R. 14 Ch. Div. 351. ' 36 Ibid. 351. 16 THE LAW OF CONTRACTS ness," and the covenant is not too vague, nor is its re- striction unreasonable. In the Court of Appeal the decision was reversed ; the court holding it was too vague to be enforced, and Cotton, L. J., holding that contracts whose restraint was unlimited as to space were null and void. Bowen, J., declined to decide this point, but Fry, J., reiterated his opinion as expressed in Rousillon vs. Rousillon. Cotton, L. J., held that the test of C. J. Tindall as to reasonableness applied only to the cases of partial restraints, that the Leather Cloth Co. vs. Lorsont was the case of a trade secret and not an ordinary case of a covenant in restraint of trade, and therefore did not apply. The question, then, as to whether there is an inflexible rule that contracts, the restraint of which extends through- out England, are null and void, is still a mooted one. Such a rule was recognized in Mitchell vs. Reynolds, but the reason given for its existence was that it could be of no possible benefit to the covenantee to have an unlimited restraint. This may have been so in 1711, when Mitchell vs. Reynolds was decided, but with the change and development in society, the shortening of distances by ' improved means of communication, it is not necessarily true now, and it is quite possible that similar cases to Rousillon vs. Rousillon may arise in which it would be necessary for the protection of the covenantee that the restraint should extend throughout England. If the reason for the rule has ceased to exist, why should the rule remain 1 IN RESTRAINT OF TRADE. 17 In Collins vs. Locke/ Sir Montague Smith, in giving the opinion of the Privy Council, says : " It may be gathered from the cases that agreements in restraint of trade are against public policy and void, unless the re- straint they impose is partial only, and they are made on good consideration and are reasonable," and this is quoted by Cotton, L. J., in his opinion in Davies vs. Davies as the sanction of the Privy Council to the existence of an un- changeable rule, vi'hich it certainly seems to be. On one side, then, the existence of this unchangeable limit, beyond which the restraint of no contract can go, is recognized in Mitchell vs. Reynolds, Ward vs. Byrne, Hinde vs. Grey, AUsopp vs. Wheatcroft; by Cotton, L. J., in Davies vs. Davies, and seemingly by the Privy Council in Collins vs. Locke. On the other side, the dicta in Jones vs. Lee, and Leather Cloth Co. vs. Lorsont, and the decisions in Whitaker vs. Howe, and Rousillon vs. Rousillon, hold that if the contract fulfils the test of reasonableness laid down by C. J. Tindal, *. e., that the restraint is no larger than is necessary for the protection of the covenantee's in- terests, it is valid, no matter whether it is unlimited as to space or not.^ And certainly this last view seems the one most in accord with the theory of public policy. The doctrine of public policy is not a fixed unbending rule of law. Pub- lic policy from its very nature must change from year to year with the habits and customs of the people. Because something was opposed to public policy at one time, it ' 4 Appeal Cases, 674. ' See Appendix, Note A. 2 18 THE LAW OF CONTRACTS does not necessarily follow that it will be hostile to it at another. At one time in England it was deemed public policy to prohibit the exportation of gold from the king- dom ; such a regulation now would be deemed of doubt- ful expediency. "If," said Sir George Jessell, in Printing Company vs. Sampson/ " there is one thing more than another which public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that contracts, when entered into freely and voluntarily, shall be held good and shall be enforced by courts of justice." The objection to con- tracts in restraint of trade is based upon public policy, and as public policy varies, so the test as to. the validity of such a contract must vary, and it is impossible to lay down a limit beyond which the restraint of a contract may not extend on account of public policy. Such a re- straint may infringe a fixed rule of law, but it is not necessarily opposed to public policy. The reason which Lord Macclesfield gave in Mitchell vs. Reynolds for holding covenants in restraint of trade, unlimited as to space, void, was that such a restraint was more extensive than was necessary for the protection of the covenantee. Ward vs. Byrne, Hinde vs. Grey, and AUsopp vs. Wheatcroft, were all cases in which the re- straint was more extensive than the benefit conferred upon the covenantee, though the dicta of the judges re- cognize the rule as an absolute one. Now that social conditions have changed, distances which were unsurpass- ' 19 L. R. Eq. Cas. 462. li; RESTRAINT OF TRADE. *19 able fifty years ago for business purposes are now easily overcome by means of the railroad, telegraph, and tele- phone, why should the rule continue if the reason for it has ceased to exist 1 Certainly in this country, as will be seen a little later, the absolute test of space has been done away with, and the reasonableness of a contract in restraint of trade, as judged by its own peculiar cir- cumstances, determines its validity. Is it not an encouragement to industry if a man has built up a busi- ness, however general in its character, to sell it with a covenant restraining him from engaging in it if by such a covenant he can obtain a higher price than he could without if? Is a mafi who restrains himself from engag- ing in a business which extends all over England, or the United States, more of a burden to the public than the one who covenants not to carry on a trade purely local in its character, in that locality '?^ It does not create a monopoly, for the business is open to every one else, and the public is only precluded of the competition of the covenantor.^ In the United States there are two artificial limits of space, the State and the United States, one comprising the other, so the first question to be determined is whether a contract whose restraint extends over the ' Diamond Match Co. vs. Roeber, 106 N. Y. 413. ' Sir Frederic Pollock seems to think that at present there is no absolute limit of space beyond which the restraint of a contract may not extend. Pollock on Contracts, 316, and his notes in Law Quarterly Review, vol. 4, page 240, and vol. 7, page 203. 20 THE LAW OF CONTRACTS entire State is ipso facto void ; and if this be answered in the negative, then comes the second one, Is the United States too extensive in point of law, for the restraint of a contract to embrace 1 In the early history of the United States, when the States were for the most part thinly settled, communica- tion between one part of the State and another being very difficult, and when the doctrine of State sovereignty with all that that meant in full force, any contract in restraint of trade whose restraint extended over the whole State was null and void. The first case in which this doctrine was laid down was in a New York case,^ decided in 1889, in which the court said : " Contracts which go to the total restraint of trade, as that a man will not pursue his occupation or carry on business anywhere in the State, are void, upon whatever consideration they may be made. They must be injuri- ous to the public, and no good reason can be shown why one individual should thus fetter himself or another indi- vidual should contract for the restraint. The obligation is injurious to one party without being beneficial to the other." In other words, at that time it was not possible for a restraint, extending throughout the whole State, to be necessary for the protection of the covenantee. This dicta was approved in Lawrence vs. Kidder,'' the court adding another reason for the above rule, " That with regard to domestic interests each State is a separate ^ Chappel vs. Brockway, 21 Wend. 15T. ' 10 Barb. 641. IN RESTRAINT OF TRADE. 21 community and it is by no means the same thing to the people of this State, whether an individual carries on his trade within or without its borders."^ In Taylor vs. Blan- chard,^ a contract by which a shoemaker was restrained from exercising his trade throughout Massachusetts, was held void as too extensive. Wright vs. Byder,^ held that a covenant by the vendor of a steamboat not to run any other steamboat for ten years on any waters of Cahfornia was void, as being too extensive in point of space. In 1873, in Oregon S. S. Co. vs. Winsor,* the question came up before the Supreme Court of the United States who decided that a restraint co-extensive with the Stat6 was not necessarily void. The facts were as follows : The California Steam Navigation Company, being engaged in the business of transportation on the rivers, bays, and waters of California, sold one of their steamers to the Oregon Steam Navigation Company, which was engaged in a similar business on the Columbia River of Oregon and Washington and its tributaries, with a provision that the steamer should not be used for ten years in California waters from May, 1864. This agreement was held valid, as the stipulation was necessary for the protection of the vendor's interests. Mr. Justice Bradley, in delivering the opinion of the court, said : " In this country especially, where State lines interpose such a slight barrier to social and business intercourse, it is often difficult to decide * Compare this with remarks of Christiancy, J., in Beal vs. Chase, 31 Mich. 524. » 13 Allen, 875. ' 36 Cal. 312. « 20 Wall. 64. 22 THE LAW OF CONTRACTS whether a contract not to exercise a trade in a particular State is or is not within the rule, that such contracts are void. It has been generally held to be so, on the ground that it would compel a man thus bound to transfer his residence and allegiance to another State in order to pur- sue his avocation. But this mode of applying the rule must be received with some caution. This country is substantially one country, especially in all matters of trade and business, and it is manifest that cases may arise, in which it would involve too narrow a view of the subject, to condemn as invalid, a contract not to carry on a particular business within a particular State." The doctrine of Oregon S. S. Co. vs. Winsor was fol- lowed in Beal vs. Chase,^ in a masterly opinion by Judge Christiancy, in which he decided that a provision in a contract for the sale of a printing and publishing busi- ness and good-will, together with a newspaper and the copyrights of certain books, that the vendor should not engage in the business in the State, so long as the vendee should continue in the business at the place of sale, was valid, as it was necessary for the protection of the vendee. He shows that the earlier cases in England, which decided that restraints throughout the kingdom were void, were based upon the ground that at that time no restraint which was so extensive was necessary for the protection of the covenantee, but now, with the improved methods of communication and the different conditions of society, no arbitrary rule could be laid down and the ' 31 Mich. 490. IN RESTRAINT OF TRADE. 23 reasonableness of a restraint in any case was to be deter- mined by the peculiar circumstances of that case. In the late case of Hereshoff vs. Bontineau/ the Supreme Court of Rhode Island carefully considered this question, and came to the conclusion that there was no absolute rule of law existing, that a contract whose re- straint was co-extensive with the State was ipso facto void, but that the test in each case was whether the restraint was necessary for the protection of the covenantee.^ It is, therefore, now well settled that a restraint ex- tending over an entire State will be enforced, provided it is a reasonable one. Is a restraint co-extensive with the United States necessarily bad, or will it be enforced if it be a reasonable onel In Oregon S. S. Co. vs. Winsor,' Judge Bradley, after giving the two reasons for holding contracts in restraint of trade void, " the injury to the public by being deprived of the restricted party's industry, and the injury to the party himself by being precluded from pursuing his occupation," says, " It is evident that both these evils occur when the contract is general, not to pursue one's trade at all, or not to pursue it in the entire realm of the country. The country suffers the loss in both cases and the party is deprived of his occupation, or is obliged to expatriate himself in order to follow it. A contract that • 19 Atlantic, 712 (1890). 2 See also Diamond Match Co. vs. Eoeber, 106 N. Y. 473. » 20 Wall. 64. 24 THE LAW OF CONTRACTS is open to such grave objections is clearly against public policy." In Gibbs vs. Baltimore Gas Co./ Chief Justice Fuller said : " The decision in Mitchell vs. Reynolds is the foun- dation of the rule in relation to the invalidity of contracts in restraint of trade ; but as it was made under a condi- tion of things and a state of society different from those which now prevail, the rule laid down is not regarded as inflexible, and has been considerably modified. Public welfare is first considered, and if it be not involved, and the restaint upon one party is not greater than protection to the other party requires, the contract may be sustained. The question is whether, under the particular circum- stances of the case and the nature of the particular contract involved in it, the contract is or is not unreasonable.^'^ The Chief Justice then goes on to quote Judge Bradley in Oregon S. S. Co. vs. Winsor, as to the reasons underlying the objections to these contracts and to their applicability in the case of a restraint extending over the entire country. Reading the dicta together, however, and noticing especially the citation of Rousillon vs. Rousillon and Leather Cloth Co. vs. Lorsont, which are two of the strongest authorities against any fixed limit, together with the recognition of a modification of the law since Mitchell vs. Reynolds was decided, the opinion of the Chief Justice of the Supreme Court of the United States would seem ' 130 U. S. 396. ' Rousillon vs. Rousillon, 14 Ch. Div. 351 ; Leather Cloth Co. vs. Lorsont, L. R. 9 Eq. 345. IN RESTRAINT OF TRADE. 25 to be against the existence of any hard and fast limit as to space. In Lange vs. Werk,^ a covenant not to manufacture starin or star candles in the United States was held void as being too extensive. In Peltz vs. Eichele,'' a covenant not to engage in a particular business in " St. Louis or elsewhere" was sued upon, but the breach alleged was committed in St. Louis, and the court seemed to think that probably the whole covenant was valid. In Diamond Match Co. vs. E.oeber,^the court said: "In the present state of the authorities we think it cannot be said that the early doctrine that contracts in general re- straint of trade are void, without regard to circumstances, has been abrogated. But it is manifest that it has been much weakened, and that the foundation upon which it was originally placed has, to a considerable extent at least, by the change of circumstances, been removed." In Watertown Thermometer Co. vs. Pool (1889),* a covenant not to engage in the manufacture of thermome- ters in the United States for ten years was upheld as a reasonable restriction, the court saying that the sole question to be considered in such a contract was its " reasonableness." The weight of authority in this country, as in England, would seem therefore to be opposed to the establishment » 2 Ohio St. 519. » 62 Mo. Itl. » 106 N. Y. 473. ' 4 N. Y. S. 861. 26 THE LAW OF CONTRACTS of any fixed limit beyond which the restraint of a con- tract cannot extend. It has never been any objection to the validity of an agreement that its restraint was unlimited as to time for the reasons given by Baron Parke in Ward vs. Byrne.* The question as to whether a given restraint is rea- sonable or not is a question of law for the court and not of fact for the jury.^ Covenants in restraint of trade are divisible and may be valid in part and void as to the rest.* Thus in Mallan vs. May a covenant " not to practise as a dentist in London, or any of the towns or places in England or Scotland, where the plaintiffs, or the defendant on their account, might have been practising before the expiration of the said service," was held valid as to London, but void as to the other places. In Smith's Appeal* a covenant not to engage in the manufacture of ochre "in the county of Lehigh or else- where," was held valid as to that county, but void as to elsewhere.® When it is said that contracts in restraint of trade are illegal, it is meant that such contracts cannot be ■ Mumford vs. Gething, 1 C. B. N. S. 317 ; Ward vs. Byrne, 5 M. & W. 548; Beard vs. Dennis, 6 Ind. 200; Cook vs. Johnson, 47 Con. 175 ; Bunn vs. Guy, 4 East, 190. See supra, page 11. * Mallan vs. May, 11 M. & W. 548. = Mallan vs. May, 11 M. & W. 653 ; Price vs. Green, 16 Ibid. 346 ; Oregon S. S. Co. vs. Winsor, 20 Wall. 64 ; Lange vs. Werk, 2 Ohio, 519 ; Smith's Appeal, 113 Pa. St. 579, sed confer. ♦ 113 Pa. St. 579. ' More vs. Bonnet, 40 Cal. 251. IN RESTRAINT OF TRAQE. 27 enforced either at law or in equity, and it does not mean that the formation of such a contract is in itself an indict- able or actionable offence.* ' Price vs. Green, 16 M. & W. 346 ; Hilton vs. Eckersley, 6 El. & Bl. 47; Mogul S. S. Co. vs. McGregor, 23 Q. B. Div. 598; Hornly vs. Close, L. R. 2 Q. B. 153; sed confer. Crompton, J., in Hilton vs. Eckersley, and Lord Esher, M. R., in Mogul S. S. Co. vs. McGregor. This was the rule at common law. Some of the States, and also the United States, have statutes making it a criminal offence to form combinations to control any article and stifle competition. See Appendix, Note A. 28 THE LAW OF CONTRACTS CHAPTER II. THE CONSIDERATION OF SUCH A CONTRACT. The second essential element in the validity of a contract in restraint of trade is the presence of some consideration upon its face, for no matter how necessary for the protection of the covenantee's interests the re- straint may be, if a consideration be wanting, the contract is null and void.^ In Hutton vs. Parker^ the declaration simply stated that the defendant had entered into a bond conditioned that he would not enter into the service of any one but plaintiff for two years after leaving the plaintiff's service. On demurrer the declaration was held bad on the ground of no consideration appearing ; Lord Denman, C. J., saying, " We cannot leave this (the consideration) to conjecture. It may or may not be true in part that there is consideration. If parties seek to enforce an obligation of this kind, some consideration for it must be ' Prugnell vs. Gosse, Aleyn, 6T ; Mitchell vs. Reynolds, 1 P. Wms. 181 ; Hitchcock vs. Coker, 6 Ad. & El. 438 ; Collins vs. Locke, 4 Appeal Cases, 674 ; Oregon S. S. Co. vs. Winsor, 20 Wall. 64 ; Gompers vs. Rochester, 56 Pa. St. 194. ' 1 Dowling, 139. IN RESTRAINT OP TRADE. 29 shown." Therefore a declaration on a bond which sets forth no actual consideration is bad on demurrer.* Even in a case of a contract under seal the declara- tion- must aver some consideration, as the presence of the seal alone is not sufficient.'* The explanation of this lies in the fact that contracts in restraint of trade are prima facie bad, but may be valid if certain elements are present, one of which is a good consideration, and the presence of a seal alone is not sufficient to destroy this presumption of invalidity. In other words in the case of contracts in restraint of trade, the presence of a seal raises no presumption of consideration.* It is now well settled that the court will not in- quire into the adequacy of the consideration, and such consideration only is required as is sufficient to support any contract not under seal,* though Baron Parke, in Young vs. Timmins,^ seemed to think that the considera- tion must be adequate. In that case there was an agree- ment by which a brass founder was to work exclusively for certain factors for his and their lives, they not under-- ' Hutton vs. Parker, *l Dowling, '739 ; Gompers vs. Rochester, 56 Pa. St. 194. " Metcalf on Contracts, 270 ; Grompers vs. Rochester, 56 Pa. St. 194. ' See Appendix, Note A. * Hitchcock vs. Coker, 6 Ad. & El. 438 ; Pilkington vs. Scott, 15 M. & W. 657 ; Guerand vs. Daudelet, 32 Md. 561 ; McClung's Appeal, 58 Pa. St. 51. ' 1 Tyrth, 226. 30 THE LAW OF CONTRACTS taking to find him full employment, and reserving the right to employ others and to put an end to the agree- ment at three months' notice. London and six miles around it were exempted from the agreement. The court held the agreement bad for want of an adequate consideration on the ground that there was no obligation on the part of the factors to give the brass-founder any work if they did not want to. This case might have been decided on the ground of the contract not being a reasonable one, but the court seemed to consider the inadequacy of the consideration as the fault in the agreement. In Hitchcock vs. Coker,* Tindal, C. J., sums up the law on this question as follows : " But it was urged in the course of the argument that there is an inadequacy of consideration in this case with respect to the defen- dant, and that, upon that ground, the judgment must be arrested. Undoubtedly in most, if not all, the decided cases, the judges, in delivering their opinion that the agreement in the particular instance before them was a valid agreement, and the restriction reasonable, have used the expression, that such agreement appeared to have been made on an adequate consideration, and seem to have thoug'ht that an adequacy of consideration was essential to support a contract in restraint of trade. If, by that expression, it is intended only that there must be a good and valuable consideration, such consideration as is essential to support any contract not under seal, we ' 6 Ad. & El. 456. IN RESTRAINT OF TRADE. 31 concur in that opinion. If there is no consideration, or a consideration of no real value, the contract in restraint of trade, which in itself is never favored in ]aw, must either be a fraud upon the rights of the party restrained, or a mere voluntary contract, a nudum pactum, and therefore void. But, if by adequacy of consideration more is intended, and the court must weigh whether the consideration is equal in value to that which the party gives up or loses by the restraint under which he has placed himself, we feel ourselves bound to differ from that doctrine." * * "It is enough, as it appears to us, that there is actually a consideration for the bargain ; and that such consideration is a legal consideration, and of some value." In Pierce vs. Fuller^ one dollar was held a sufficient consideration to support an agreement not to run a stage over a particular road. I 8 Mass. 223. 32 THE LAW OF CONTRACTS CHAPTER III. THE CONSTRUCTION OF THESE CONTRACTS, AND THEIR ENFORCEMENT BY COURTS OF EQUITY. In the case of a contract limited as to space, and there is no method of measuring that space prescrihed by the contract, the distance should be calculated "as the crow flies," and not necessarily by the usual means of approach.^ If the covenant is valid when made, subsequent cir- cumstances, such as the covenantee's retiring from busi- ness, do not aff"ect its validity,^ for such a covenant is assignable with the interest which it protects.^ The extent of the restraint of a contract even in partial restraint of trade as being prima facie opposed to public policy must be construed strictly.* If the contract is a reasonable one at the time it is entered into, the courts are not bound to look for improbable and extravagant contingencies in order to make it void.® • Dingman vs. Walker, 1 Johnson, 446 ; Mouflet vs. Cole, L. R. 7 Exch. 70. ' Elves vs. Crofts, 10 C. B. 241 ; Jones vs. Lees, 1 H. & N. 189 ; Cook vs. Johnson, 47 Con. 175. ' Hedge vs. Lowe, 47 Iowa, 137 ; Gompers vs. Rochester, 56 Pa. St. 198 ; Pemberton vs. Vaughn, 59 E. C. L. R. 87. * Talcott vs. Brackett, 5 Bradwell, 60 ; Wiggins Ferry Co. vs. Ferry Co., 72 111. 360 ; see Appendix, Note A.. ' Rannie vs. Irvine, 7 Man. and Qr. 969. IN RESTRAINT OF TRADE. 33 The parties must fix the terms of the restraint them- selves and not leave it to the law to do ; thus, a covenant to retire from business " as far as the law allows" is too vague to be enforced.* The general rule is that if a contract in restraint of trade is valid at law an injunction will lie to prevent its breach -^ but if its terms are hard or even complex, equity is loth to enforce them.^ Thus, in Keeler vs. Taylor,* the defendant, in considera- tion of the complainant's teaching him how to make plat- form scales, and of employing him at a certain sum per day, agreed not to make scales for any one else (except under complainant's written consent), upon a penalty for each scale manufactured for any one else. The defendant broke the agreement, and the complainant filed a bill for an account and payment. The court refused the prayer on account of the " unreasonableness" of the agreement, holding that it was void at law, and also because, " if it were not void, however, a chancellor would regard the hardship of the bargain, and the prejudice to the public, and would withhold his hand from enforcing it, for such decrees are always of grace and not of right," ' Davies vs. Davies, L. R. 36, Ch. Div. 348. "^ Kemble vs. Kean, 6 Sim. 635 ; Kiraberly vs. Jennings, Ibid. 340 ; Whitaker vs. Howe, 3 Beavan, 383 ; Leather Cloth Co. vs. Lorsont, L. R. 9 Eq. 345 ; Hall's Appeal, 60 Pa. St. 456 ; Beard vs. Dennis, 6 Ind. 200; Smith's Appeal, 113 Pa. St. 519. ' Bispham's Equity, see. 228; Kimberly vs. Jennings, 6 Sim. 340 ; Keeler vs. Taylor, 53 Pa. St. 463. ♦ 53 Pa. St. 463. 3 34 THE LAW OF CONTRACTS CHAPTER IV. CONTRACTS IN RESTRAINT OF THOSE SORTS OF BUSINESS IN THE EXERCISE OF WHICH THE PITBLIC HAS A PECULIAR INTEREST. As the objection to contracts in restraint of trade is based entirely upon public policy, if it is for the public interest that any sort of business shall be restricted, then as the reason for the objection falls, the objection falls with it and contracts restraining the exercise of that busi- ness are as valid as any ordinary contract. Thus, the law as to contracts in restraint of trade does not apply in the case of a patent,^ because it is the object of a patent to create a temporary monopoly as a reward for inventive genius. Also the sale of " trade secrets" with a restriction as to their use is exempt from the operation of the ordinary rule.^ As was said in Vickery vs. Welch, the public are not prejudiced by the transfer of a secret process of manufacturing from the defendant to the plaintiff; " if it were worth anything, the defendant would use the art and keep it secret, and it is of no consequence to the ' Morse Twist Drill and Machine Co. vs. Morse, 103 Mass. 73 ; Fowle vs. Parke, 131 U. S. 88. "■ Bryson vs. Whitehead, 1 Sim. & Stu. 74 ; Leather Cloth Co. vs. Lorsont, L. R. 9 Eq. 845 : Vickery vs. Welch, 19 Pick. 523. IN RESTRAINT OF TRADE. 33 public whether the secret art be used by the plaintiff or by the defendant." In the case of Dixon vs. The United States,^ it was argued against the validity of an embargo bond that it was void at common law on account of being in restraint of trade, but Chief Justice Marshall held that it was valid at common law because the policy of the law at that time, as shown by the " Embargo Act," was to restrain trade ; therefore, the bond was in conformity to public policy and not opposed to it. For the same reason a bond not to engage in the sale of intoxicating liquors within the boundaries of a State was held valid, it being the policy of the law in that State to discourage their sale.^ As there are sorts of business the restraint of which is beneficial to the public, so also there are others whose peculiar nature makes them incapable of any restriction without injury to the public interests, such as railroading, telegraphing, and any business the pursuit of which it is the policy of the law peculiarly to promote. In Transportation Company vs. Pipe Line Company,^ an oil company, the plaintiff had obtained an exclusive right of way for a pipe line through a tract of land. Another oil company, by virtue of a statute in West Virginia which authorized oil companies to exercise the right of eminent domain in acquiring a right of way for » 1 Brock, 1T7. ' Harrison vs. Lockhart, 25 Ind. 112. » 22 West Va. 600. 36 THE LAW OF CONTRACTS their tubing, attempted to exercise this right through this tract. The plaintiff asked for an injunction, which the court refused on the ground that the granting of an exclusive right of way for tubing was in restraint of trade and void. The court held that it was the policy of the law of "West Virginia, as shown by that statute, that the utmost facilities should be given for getting oil to market, and the granting of an exclusive right of way was in contra- vention of such policy and would also defeat the State's right of eminent domaiui So, also, " a contract by a railroad company granting to a telegraph company the exclusive use and occupation of its right of way for telegraph purposes is void as in re- straint of trade and against public policy."^ In Chicago Gas Light Co. vs. People's Gas Light Co.,^ the plaintiff, a gas-manufacturing corporation, had been granted the exclusive privilege of supplying gas to the city of Chicago for ten years. The defendant, another gas-manufacturing corporation, had been granted this pri- vilege at the expiration of the ten years, thus giving two competing companies. These companies divided the city, and agreed not to compete in each other's territory. The agreement was held void as in restraint of trade and op- posed to public policy ; the court saying : " In Trans. Co. vs. Pipe Line Co.^ it was held that ' whenever the legis- lature by statute law has authorized any person or corpo- "■ W. U. Tel. Co. vs. A. IJ. Tel. Co., 65 Ga. 160. » 121 111. 530. ' 22 "West Va. 660. IN EESTRAINT OF TRADE. 87 ration to condemn the lands of others in order to carry on its business the courts will regard this as a legislative declaration that this character of business is such as that the public has so great and direct an interest in, that the courts must hold it as contrary to public policy to permit any restriction of it by private contract,' " and as these companies had the right and power to tear up the city streets this same public character should attach to them.^ So also contracts between railroad companies not to extend their roads so as to compete with each other are void if the object is to give one road a monopoly;* but a contract between two railroad companies whose lines of road are parallel, by which certain naturally tributary territory is preserved to each, within which it shall prose- cute the work of extending its branch lines without in- terference with or from the other, and designed to prevent an unprofitable war of competition is not contrary to public policy, and will be enforced.* ' See also People vs. Chicago Gas Trust Co., 22 N. E. 798. » H. & N. H. R. R. Co. i;s. N. Y. & N. H. R. R. Co., 3 Rob. 411 ; State vs. H. & N. H. R. R. Co., 29 Con. 538; Denver & N. 0. R. R. Co. vs. A. T. & S. F. R. R. Co., 15 Fed. Rep. 650. ' Ives vs. Smith, 8 N. Y. S. 645 (1888). 3S THE LAW OF CONTKACTS CHAPTER V. RESTRICTIONS ON COMPETITION AND PRODUCTION. One of the great dogmas of the English school of political economy is the old saying, " Competition is the life of trade ;''^ and this theory, that anything which inter- fered with free competition was detrimental to the public interests was recognized, and became a part of the com- mon law, though considerably modified in the last few years. In Mitchel vs. Reynolds,^ Chief Justice Parker said that " to obtain the sole exercise of any trade throughout England was a monopoly and a crime." In Hooker vs. Vandewater,* the court said : " It is a familiar maxim that competition is the life of trade. It follows that, whatever destroys or even relaxes competi- tion in trade, is injurious, if not fatal to it." " Public policy," says Judge Mcllvaine in Salt Co. vs. Gutherie,* " unquestionably favors competition in trade to the end that its commodities may be afforded to the con- sumer as cheaply as possible, and is opposed to monopo- ' " That free competition which is the life of business." Sher- wood, C. J., in Richardson vs. Buhle, 77 Mich. 632. ' 1 P. Wms. 181. » 4 Denio, 349. * 35 Ohio St. 666. IN EESTRAINT OF TRADE. 39 lies, which tend to advance market prices, to the injury of the general public."^ But, notwithstanding the general drift of opinion, there have been a few judicial recognitions of the doctrine that excessive competition is not ipso facto beneficial to the public interests. In Perkins vs. Lyman,* the defendant had covenanted that he would not be directly or indirectly interested in any voyage to the northwest coast of America, or in any traffic with the natives of that coast, for seven years, and to the objection that this was a contract in restraint of trade and opposed to public policy, the court said : " In- stead of an injury to the public, the community may receive a benefit from such a procedure, as it will go to prevent the trades being overdone, and so becoming profitable to none." In Kellogg vs. Larkins,* Judge Howe says : " But I apprehend it is not true that ' competition is the life of trade.' On the contrary, that maxim is one of the least reliable of the host that may be picked up in every market- place. It is in fact the shibboleth of mere gambling speculation, and is hardly entitled to take rank as an axiom in the jurisprudence of this country. I believe 1 See, also, Stanton vs. Allen, 5 Denio, 434 ; "Wiggins Ferry Co. vs. C. & A. R. R. Co., 6 Mo. Ap. 347; Coal Co. vs. Coal Co., 68 Pa. St. 173; Stewart vs. E. & W. Trans. Company, 17 Minn. 872; Anderson vs. Jett, 41 Alb. L. J. 104; Richardson vs. Buhle, 43 N. E. Rep. 1102. » 9 Mass. 522. = 3 Chand. 183. 40 THE LAW OF CONTRACTS universal observation will attest that, for the last quarter of a century, competition in trade has caused more indi- vidual distress, if not more public injury, than the want of competition." In Leslie vs. Lorillard,^ Judge Grey said, " I do not think that competition is invariably a public benefaction ; for it may be carried on to such a degree as to become a general evil." In People vs. North Eiver Sugar Refinery Co.,^ when tried before Judge Barrett at the circuit, he said : " Exces- sive competition may sometimes result in actual injury to the public, and competitive contracts, to avert personal ruin, may be perfectly reasonable. It is only when such contracts are publicly oppressive that they become unrea- sonable, and are condemned as against public policy." The court of last resort in England would seem to stamp this view of the doubtful advantages of competi- tion with their approval. In Collins vs. Locke,* in decid- ing as to the validity of an agreement, Sir Montague Smith says : " The objects which this agreement has in view are to parcel out the stevedoring business of the port amongst the parties to it, and as to prevent compe- tition, at least amongst themselves, and also, it may be, to keep up the price to be paid for the work. Their lordships are not prepared to say that an agreement, having these objects, is invalid if carried into effect by proper means, that is, by provisions reasonably necessary > 110 N. T. 519. » 54 Hun, 354. ' 4 Ap. Cases, 6'74. IN RESTRAINT OF TRADE. 41 for the purpose, though the effect of them might be to create a partial restraint upon the power of the parties to exercise their trade." The end in view, the restriction of competition, is then, according to this dictum, a legal one, if the means used to effect it are reasonable ones. Within the last few years numerous combinations of capital have been formed in different trades, their object being the control of " the market" by driving out weaker competitors and restricting production. In the case of a corporation entering into one of these combinations, there are two questions to be decided : first, is such an act within the scope of the corporate power, no matter whether the object of the combination is valid or not 1 and, secondly, is the combination a legal one, such as would have been lawful between individuals 1^ The first question is not within the province of this essay; and the answer to the second will alone be attempted to be solved. The validity of some of these combinations has been passed upon by the courts, and in most cases they have been pronounced opposed to public policy in most em- phatic terms, though in a few cases they have been upheld, owing to the peculiar circumstances of the case, their object not being, in the opinion of the court, to obtain an oppressive monopoly. In Hooker vs. Vandewater,^ the proprietors of five lines of boats engaged in the business of transporting freight ^ Judge Barrett in People vs. N. R. R. Co., 54 Hun, 354. = 4 Denio, 349. 42 THE LAW OF CONTRACTS and passengers on the Erie and Oswego Canals entered into an agreement among themselves to charge certain rates and to divide the net earning at certain proportions. One of the parties refused to make payment, and the court refused to enforce the agreement on the ground that its sole object vs'as to destroy competition, and there- fore was null and void, and was within the meaning of the New York statute making it an offence to commit " an act injurious to trade." In Stanton vs. Allen,^ a similar association was held illegal as restraining competition, and therefore being void at common law as opposed to public policy. In Hilton vs. Eckersley,^ a number of manufacturers to offset combinations among their workingmen, entered into an agreement to regulate their rates of labor, hours of work, suspension of work, and other matters in con- formity with the rules formulated by a majority of those who entered into the agreement, and each gave a bond to enforce it. In an action on one of the bonds the court declared it void as being in restraint of trade, as it prevented freedom of action in each individual in carry- ing on his trade. Crompton, J., said, if such a bond were good in law, similar ones entered into by workingmen to enforce a strike would be valid, and enforceable in equity ; therefore courts of equity might be called on to enjoin masters from opening their mills or workingmen from discontinu- 1 5 Denio, 434. ' 6 El. & Bl. 46. IN RESTRAINT OF TRADE. 43 ing a strike.* Erie, J., dissented on the ground that the agreement was for the advancement of trade, as it was a protection from the combinations of the workmen. In Louisiana, in 1856, an agreement was entered into by several firms by which they bound themselves not to sell any cotton-bagging for three months except with the consent of the majority of them, and the court refused to enforce it as being contrary to public policy.^ In Pennsylvania the question as to the validity of these combinati-ons came up in the case of the Morris Eun Coal Company vs. Barclay Coal Company.* There, five coal- companies agreed to divide two coal-regions of which they had the control, to appoint an agent through whom all the coal mined was to be sold, at prices fixed by a com- mittee; each company only to mine its proportion as fixed by the agreement, and to sell coal in no other way. Judge Agnew, in delivering the opinion of the court, held the agreement bad as a contract in restraint of trade for two reasons: first, it was not reasonable, and, sec- ondly, it was a conspiracy to raise the prices of coal. In Arnot vs. Pittstown and Elmira Coal Co.,* a coal ' This dictum of the learned judge would hardly seem to be cor- rect, as the mere fact that a contract in restraint of trade is valid at law does not, ipso facto, make it enforceable in equity, if its terms be at all complex or hard. Kimberly vs. Jennings, 6 Sim. 840 ; Kemble vs. Kean, 6 Ibid. 335 ; Keeler vs. Taylor, 3 P. F. Smith, 46-7. See also supra, page 33. ' India Bagging Ass. vs. Koek, 14 La. An. 168. » 68 Penna. ITS. * 68 N. T. 558. 44 THE LATV OF CONTRACTS company purchased coal from several companies upon their contract not to sell to other parties in that vicinity. The purchaser not paying for the coal, the vendor brought suit, but the court held the agreement illegal as an at- tempt to create a monopoly by the defendant ; and, as the plaintiiF was a party to it, he could not recover. In Craft vs. McConoughy,^ it was held that an agree- ment by grain-dealers Avhich on its face purported to be articles of partnership, but which was in reality a secret agreement to stifle competition, was void, and the court would not decree an account for the profits of this transaction. In Salt Co. vs. Guthrie,^ a number of salt manufactu- rers combined and agreed to turn over their output to the association to be sold by them at a price fixed by the di- rectors of this combination, and each manufacturer bound himself " to sell salt only at retail, and then only to actual consumers, at the place of manufacture, and at such prices as may be fixed by the directors from time to time." The court refused to enforce the agreement, as its sole object was to restrict competition. In Hoffman vs. Brooks,* the court held an agreement among tobacco-sellers, the object of which was to destroy competition among themselves, void, as tending to breed a monopoly. In Collins vs. Locke,* the Privy Council held an agree- ' 'J9 111. 346. » 35 Ohio St. 666. ° 23 Am. Law Reg. 648. * 4 Ap. Cases, 674. IN RESTRAINT OF TRADE. 45 ment between four firms of stevedores that, in case a con- signee of a ship should refuse to permit that firm of steve- dores to unload her, whose turn it was according to the agreement, the other three should not touch her, void as an unreasonable restraint. In Mill and Lumber Co. vs. Hayes,' a combination to secure control of the lumber market in four counties of California was attempted by means of contracts to buy a certain amount of lumber during the year, the vendors covenanting not to manufacture for any one else. The court refused to enforce one of the contracts on account of its purpose being to suppress the supply and enhance the price of lumber. In the case of The People vs. North River Sugar Re- fining Co.,^ the validity of the sugar trust was passed upon. This was a proceeding to determine whether the North River Sugar Refining Company, a corporation chartered under the laws of the State of New York, had forfeited its charter by going into the sugar trust, on the ground of having " become liable to be dissolved by the abuse of its powers, and because it had exercised a privi- lege or franchise not conferred by law.'"* The sugar trust was in the nature of a partnership based upon a trust deed signed by diff"erent sugar corpo- rations. The stock of the different corporations was to be turned over to the trustees of the combination, and 1 76 Cal. 387. '' 54 Hun, 354. ' See Code of Civil Procedure of New York, section 1798. 46 THE LAW OF CONTEACTS trust shares issued to the holders of the corporations stock in the proportions previously held by them in the corpo- rations themselves. The earnings and profits of the dif- ferent corporations were to be turned over to the trustees who were to issue dividends to the holders of the trust shares. Judge Barrett, at the Circuit, held that the corporation had forfeited its charter ; that its entering into such a com- bination was beyond its corporate power ; and that also the combination was an illegal one. This was affirmed in the Supreme Court; but, in the Court of Appeal, the decision was affirmed on the first point only, the court declining to pass upon the validity of the combination. Judge Barrett said at the Circuit : " It is not a case where a few individuals in a limited locality have united for mutual protection against ruinous competition. It is the case of great capitalists uniting their enormous wealth in mighty corporations and utilizing the franchises granted them by the people to oppress the people." The Supreme Court held that the object of the combi- nation was to prevent competition, and raise the price of sugar, and was therefore opposed to public policy. As Judge Barrett says, the object of this combination was not to protect themselves against ruinous competi- tion, but was entered into solely for the object of making exorbitant profits, and was most clearly opposed to the in- terest of the public.^ ' See, also, Emery vs. Ohio Candle Co., 24 N. E. 660. IN RESTRAINT OF TRADE. 47 There are a few cases in which restraints on compe- tition and production have been held valid, but in most of them, the elements of monopoly will be found wanting, and were merely contracts entered into for self-protection. In Wickens vs. Evans,^ three trunk-makers divided England into three districts ; each took one and agreed to confine themselves to it. The court upheld the agree- ment as it did not create any monopoly, "except as between themselves, because every other man may come into their district and vend his goods." In Collins vs. Locke,^ the Privy Council upheld an agreement among four firms of stevedores that if any of the persons named in the agreement should refuse to allow the stevedoring of any ship to be done by the firm who was entitled to it under the agreement, and should re- quire one of the other parties to do it, the party doing it should give an equivalent to the party who had lost it. They said that this was perfectly fair and reasonable, even though the object of the agreement was to prevent com- petition at least among themselves and» to keep up prices. The distinction between this agreement and the one which was declared void in this same case,* is, that this one provided that the work should be done by some one party to the agreement, while the other agreement provided that on a certain contingency none of the parties to it should be allowed to do the work. In a Missouri case, Skrainka vs. Schaarenghausen,* ' 3 Y. & J. 318. ' 4 Ap. Cases, 674. ' Infra, page 44. * 8 Mo. App. 622. 48 THE LAW OF CONTRACTS twenty-four owners of quarries in one district of the city of St. Louis formed an agreement to limit their output, and only to sell in accordance with the agreement, with a penalty for any violation of the agreement. In a suit to recover the penalty, the court upheld the agreement, as it was limited to the quarrymen of one district, and did not embrace them all. "There is no evidence," said the court, " that it works any public mischief, and the con- tract is not of such a nature that it is apparent from its terms that it tends to deprive men of employment, unduly raise prices, cause a monopoly, or put an end to competi- tion." In other words, the court did not consider that these men were able to create a monopoly, and therefore there was no danger to the public interests ; and this seems to be the distinction between this case and Coal Co. vs. Coal Co.i In Ontario Salt Co. vs. Merchants' Salt Co.^ several incorporated companies and individuals in the salt business agreed to combine ; the agreement provided that all the parties to it shouW sell all salt manufactured by them through the trustees of the association, and should sell none in any other manner. The agreement was held valid, the court saying that it was out of the question that this agreement had for its object the formation of a monopoly, as there are other parties than those to the agreement engaged in the manufacture of salt, and this agreement is nothing more than the agreement of two • 68 Pa. St. 113. ' 18 Grant's Ch. Rep. 540. IN EESTRAINT OF TRADE. 49 persons carrying on the same trade not to undersell each other.* In Kellogg vs. Larkin^ the defendant had agreed to lease certain warehouses to plaintiff for a limited period, and had bound himself not to store wheat for any one else, with a penalty for so doing. This agreement was part of a plan to give certain mill-owners control of the Milwaukee wheat-market, by the warehousemen refusing to store wheat for any one else. The court upheld this agreement on the ground that all the rest of Wisconsin was an open and unrestricted market for the sale of wheat, and even in Milwaukee the market was open to the com- petition of all except the obligors, and therefore there was no monopoly possible. Judge Howe disapproved of the theory that competition is a benefit to trade, and held this a reasonable agreement, as it protected the mill- owners from the competition of the warehousemen. This case certainly takes very advanced ground, as there was no doubt that the ultimate object of the agree- ment was the control of the wheat-market, and, as a judicial precedent, is hardly of much weight. Some idea of the diversity of judicial opinion on this subject may be given by the attempt of the Diamond Match Co. to obtain a monopoly of the match business. Their plan was to buy out rival companies, obtaining a covenant from them, with the sale, not to engage in the ' See Hearne vs. Griffin, 2 Chit. Rep. 40T. " 3 Chand. 133 50 THE LATV OF CONTRACTS match business in the United States. In one case the covenant exempted the territories of Nevada and Mon- tana from its operation ; and the Court of Appeal in New York upheld it as a reasonable one.^ In Richardson V8. Buhle,^ similar contracts of the Diamond Match Company, except the restraint was un- limited, came incidentally before the Supreme Court of Michigan, and were treated as perfectly valid by the counsel on each side. Yet two of the judges, in their decisions, went out of their way to hold the contracts void, as creating a monopoly ; while the third one declined to express an opinion upon that point. There is of course this distinction between the two cases: that in the New York case the restraint was limited; while in the Michigan one the restraint was unlimited ; and also in the second case the testimony showed that the object of the contract was to obtain a monopoly and raise the price of matches. The exemption of the two territories, in the first case, however, was clearly an at- tempt to evade the strict rule of law if it existed, as to an unlimited restraint being bad, and the two cases, there- fore, would seem to be in direct conflict. The question as to whether the nature of the combina- tion is tending towards monopoly and thereby injurious to the public, is to be determined by a construction of the provisions of the agreement constituting the com- ' Diamond Match Co. vs. Roeber, 106 N. Y. 473. » 11 Mich. 632. m EESTRAINT OF TRADE. 51 bination, and not by its eifect in actual operation.^ In Salt Co. vs. Guthrie the court said, " The clear tendency of such an agreement is to establish a monopoly and destroy competition in trade. It is no answer to say that competition in the salt trade was not in fact destroyed, or that the price of the commodity was not unreasonably advanced. Courts will not stop to inquire as to the degree of injury inflicted upon the public ; it is enougb to know that the inevitable tendency of such contracts is injurious to the public." But it should also be remem- bered that this unlawful tendency must be clearly shown ; and the courts are not bound to look out for improbable or extravagant circumstances.'* At the present time, excessive competition is often as injurious to the public interests as the absence of com- petition. If a small town can support only one hotel, and another one is built, the result of the competition feietween the two being the failure of both, is the public loss, hj their failure, oflFset by the public gain in temporary reduction io prices by competition 1 I take it, it is not. At the same time it is very important that the public interests should be> protected from the vast combinations of capital which would crush out all rivals and monopolize their own particular field of labor. The rule that is deducible from the cases seems to be ' Salt Co. vs. Guthrie, 35 Ohio St. 672;, Hilton vs. Eckersley, 6 Ellis & Bl. il ; Atchinson vs. Mallon, 43 N. T. 149 ; Richardson vs. Buhle, 43 N. E. 1102; Anderson vs. Jett, 41 Alb. L. J. 104. ' Rannie vs. Irvine, 7 Man. & Gr. 969. 52 THE LAW OF CONTKACTS that restraints on competition and production are valid, provided they be for the necessary protection of the par- ties' interests; but combinations between producers to limit production and to enhance prices are opposed to public policy, and are not merely void contracts, but are offences and punishable as such.^ What is a necessary protection of the parties' interests is a question to be determined by the court in view of the peculiar circumstances of each case. There seems, then, to be only one legal way by which the control of the markets of any particular business can be secured, and that is, by buying out rivals with cove- nants that they will not engage in the business again. The public outcry against these vast combinations of capital in the form of trusts or otherwise, whose only object was the enhancement of prices, by limiting pro- duction, or by driving weaker competitors to the wall by temporarily underselling them, led to the passage by Congress of the National Trust Act (1890), the first section of which makes it a misdemeanor for any person who shall make a contract in restraint of trade or engage in any combination in the form of a trust or otherwise in restraint of trade, among the several States or with foreign nations, and punishable by fine or imprisonment or both. This section, then, merely makes such contracts and com- binations criminal offences, and leaves the question as to ' Coal Co. vs. Coal Co., 68 Pa. St. 1*73 ; National Trust Act of 1890; see supra, page 56. IN RESTRAINT OF TRADE. 53 whether the contract is in restraint of trade and void, the same as it was at common law. The second section of the act declares that " every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons to monopolize any part of the trade or commerce among the several states or with foreign nations, shall be deemed guilty of a misdemeanor," and then imposes the same punishment as that under the first section of the act. The phraseology of this section is so vague that it is difiicult to determine what is meant by it, and as it imposes a penalty it might be declared void for uncer- tainty.^ The scope of the act is by its very terms limited to contracts in restraint of trade among the several States or with foreign nations, for otherwise, under the decision in the Trade Mark Cases,^ the act would be unconstitu- tional. The only change, therefore, that the passage of this act makes in the law of contracts in restraint of trade is that if such a contract is void at common law, and is within the province of the Federal jurisdiction, then it is a misdemeanor to be a party to it, and is punishable as prescribed by the act. A question of peculiar interest to the public at the present time, and one which was certainly not contem- * Vide opinion of H. LaBarre Jayne, Esq., to the N. W. D. A. on the act. » 100 U. S. 81. 64 THE LAW OF CONTRACTS plated by Congress when the act was passed, comes up under a consideration of the first section of the act. At common law an agreement to strike, or a trades union whose object was the encouragement of strikes, was in restraint of trade and illegal in the sense of not being enforceable at law or in equity, but was probably not indictable.^ Now, as an agreement to strike is a contract in restraint of trade, and as contracts in restraint of interstate trade are made misdemeanors by this act of Congress, any agreement to strike between employes of a railroad, the operation of which comes within the jurisdiction of the Interstate Commerce Act, is a misdemeanor, and punish- able by fine or imprisonment, or both. This would also be true of a strike in any trade which is within the operation of that clause in the Constitution granting Congress the power to regulate commerce.^ There is no doubt that Congress never meant to touch upon the strike-question when it passed this act, as there are few members of either House who would risk their political future by legislating against the right of labor to enforce its demands by concerted strikes. As was confessed in the lower House by one of the supporters of the bill during the debate on it, it will be impossible to determine the scope of the measure until 1 Hilton vs. Eckersley, 6 E. & Bl. 59 ; Hornby vs. Close, L. R. 2 Q. B. 153 ; Mogul S. S. Co. vs. McGregor, L. R. 23, Q. B. Biv. 598. ' Article I., section 8, clause 8. IN RESTRAINT OF TRADE. 55 it had been passed upon by the courts. The primary object was to attack the vast combinations of capital, and in so doing they would seem to have rendered labor's most deadly weapon useless. How the courts will con- strue the act remains to be seen, and can only be deter, mined after an actual case has arisen. 66 THE LAW OF CONTRACTS AN ACT TO PROTECT TRADE AND COMMERCE AGAINST UNLAW- FUL RESTRAINTS AND MONOPOLIES. Beit enacted hy the Senate and House of Representatives of the United States of America in Congress assembled. Sec. I. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be pun- ished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court. Sec. 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court. Sec. 3. Every contract, combination in form of trust IN RESTRAINT OF TRADE. 67 or otherwise, or conspiracy, in restraint of trade or com- merce in any Territory of the United States or of the District of Columbia, or in restraint of trade or com- merce between any sucli Territory and another, or between any such Territory or Territories and any State or States or the District of Columbia, or with foreign nations, between the District of Columbia and any State or States or foreign nations, is hereby declared illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by a fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court. Sec. 4. The several circuit courts of the United States are hereby invested with jurisdiction to prevent and restrain violations of this act; and it shall be the duty of the several district attorneys of the United States, in their respective districts, under the direction of the Attorney-General, to institute proceedings in equity to prevent and restrain such violations. Such proceedings may be by way of petition setting forth the case and praying that such violation shall be enjoined or other- wise prohibited. When the parties complained of shall have been duly notified of such petition the court shall proceed, as soon as may be, to the hearing and determi- nation of the case ; and pending such petition and before final decree, the court may at any time make such tem- 58 THE LAW OF CONTRACTS porary restraining order or prohibition as shall be deemed just in the premises. Sec. 5. Whenever it shall appear to the court, before which any proceeding under section four of this Act may be pending, that the ends of justice require that other parties should be brought before the court, the court may cause them to be summoned, whether they reside in the district in which the court is held or not ; and subpoenas to that end may be served in any district by the marshal thereof. Sec. 6. Any property owned under any contract or by any combination, or pursuant to any conspiracy (and being the subject thereof) mentioned in section one of this Act, and being in the course of transportation from one State to another, or to a foreign country, shall be forfeited to the United States, and may be seized and condemned by like proceedings as those provided by law for the forfeiture, seizure, and condemnation of property imported into the United States contrary to law. Sec. 7. Any person who shall be injured in his busi- ness or property by any other person or corporation by reason of anything forbidden or declared to be unlawful by this Act, may sue therefore in any circuit court of the United States in the district in which the defendant resides or is found, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the costs of suit, including a reason- able attorney's fee. Sec. 8. That the word " person," or " persons," wher- IN RESTRAINT OF TRADE. 59 ever used in this Act, shall be deemed to include corpora- tions and associations existing under or authorized by the laws of either the United States, the laws of any of the Territories, the laws of any State, or the laws of any foreign country. Approved July 2d, 1890. [United States Statutes at Large, page 209.] TABLE OF CASES. A. T. & S. F. R. R. Co., Denver & N. 0. R. R Fed. Rep. 650 A. U. Tel. Co., W. TJ. Tel. Co. vs. 65 Ga. 160 Allen, Stanton vs. 5 Denio, 434 Allsopp vs. Wheatcroft, 15 Eq. 59 . Anderson vs. Jett, 41 Alb. L. J. 104 Appeal, Hall's, 60 Pa. St. 456 Appeal, McClung's, 58 Pa. St. 51 . Appeal, Smith's, 113 Pa. St. 579 . Arnot vs. Pittstown and Elmira Coal Co., 68 Atehinson vs. Mallon, 43 N. Y. 149 Baltimore Gas Co., Gibbs vs. 130 U. g. 396 Batehelor, Colgate vs. Cro. Eliz. 872 Beal I's. Chase, 31 Mich. 490 . Beard vs. Dennis, G Ind. 200 . Bispham's Pr. of Equity, sec. 228 . Blanchard, Taylor vs. 13 Allen, 375 Bonet, More vs. 40 Cal. 251 . Boutineau, Hereshoff rs. 19 Atlantic, 712 Brackett, Talcott vs. 5 Bradwell, 60 Brockway, Chapel vs. 21 "Wend. 157 Brooks, Hofifman vs. 23 Am. Law. Rep. 648 Bryson vs. Whitehead, 1 Sim. & Stu. 74 Bnhle, Richardson vs. 43 N. E. Rep. 1102 . . 38, 39, Bunn vs. Guy, 4 East, 190 . Byrne, Ward w. 5 M. & W. 548 . . 7,11,12,16,17, Co. vs. 15 N. Y. 558 14. 37 36 39, 42 17, 18 39, 51 33 29 26, 33 43 51 24 2 21, 22 26, 33 . 33 . 21 . 2fi 23 . 32 20 44 , 34 50, 51 9, 26 18, 2fi C. & A. R. R. Co., Wiggins Ferry Co. vs. 5 Mo. Ap. 347 . 39 Chapel vs. Brockway, 21 Wend. 157 20 Chase, Beal vs. 31 Mich. 490 21,22 Chicago Gas Light Co., People's Gas L'ght Co. vs. 121 111. 530 ..;... . . . 36 Chicago Gas Trust Co., People vs. 22 N. B. 798 . . 37 (61) 62 TABLE OF CASES. 5, 39, 43, 6,28, . 5, IT, 28, 40, I., sec. 8, clause 3 Close, Hornby vs. L. R. 2 Q. B. 153 Coal Co. vs. Coal Co., 68 Pa. St. 173 Code of Civil Procedure of New York, sec. 1T98 . Coker, Hitchcock vs. 6 A. & E. 454 Cole, Mouflet vs. L. R. 7 Exch. 70 Co?gate'US. Batchelor, Cro. Eliz. 872 Collins vs. Locke, 4 Appeal Cases, 674 Constitution of the United States, article Cook vs. Johnson, 47 Conn. 175 . Craft vs. McCononghy, 79 111. 34& Crofts, Elves vs. 10 C. B. 241 Daudelet, Guerand vs. 32 Md. 561 Davies vs. Davies, 36 Ch. Div. 359 Davis vs. Mason, 5 Term. Rep. 118 Dennis, Beard vs. 6 Ind. 200 Denver & N. 0. R. R. Co. vs. A. T. & S. P. R. Fed. Rep. 650 . Diamond Match Co. vs. Roeber, 106 N. Y. 478 Dingman vs. Walker, 1 Johnson, 446 Dixon vs. The United States, 1 Brock. 177 E. & W. Trans. Co., Stewart vs. 17 Minn. 372 Eckersley, Hilton vs. 6 El. & Bl. 47 Eichele, Peltz vs. 62 Mo. 171 Elves vs. Crofts, 10 C. B. 241 Emery vs. Ohio Candle Co., 24 N. E. 660 Evans, Wickens vs. 3 Y. & J. 318 Ferry Co., Wiggins Perry Co. vs. 72 111. 360 Powle vs. Park, 131 U. S. 88 Fuller, Pierce vs. 8 Mass. 223 Gale vs. Reed, 8 Bast, 81 . . . Gething, Mumford vs. 7 C. B. N. S. 317 Gibbs vs. Baltimore Gas Co., 130 U. S. 396 Gompers vs. Rochester, 56 Pa. St. 194 . Gosse, Prugnell I's. Alcyn, 67 Graves, Horner vs. 7 Bing. 735 Green, Price vs. 16 M. & W. 346 . PAGE 27,54 48, 52 . 45 29, 30 . 32 2 44, 47 . 54 26, 32 . 44 . 32 . 29 1, 5, 15^17, 33 9 26, 33 R. Co., 15 . 37 19, 23, 25, 50 32 34 27, 42, 39 51, 54 25 32 46 47 32 34 31 7 26 24 28, 29, 32 3, 28 5, 6, 9 26, 27 TABLE OF CASES. 63 Grey, Hinde, vs. 1 Man & Gr. 195 GrifBn, Hearne vs. 2 Chit. Rep. 407 Guerand vs. Daudelet, 32 Md. 651 Guthrie, Salt Co. vs. 35 Ohio St. 666 Guy, Buna vs. 4 East, 190 . H. & N. R. R. Co. vs. N. Y. & N. H. R. R. Co. H. & N. H. R. R. Co., State vs. 29 Conn. 538 Hall's Appeal, 60 Pa. St. 456 ... Harrison vs. Lockhart, 25 Ind. 112 Hayes, Mill and Lumber Co. vs. 16 Cal. 38t . Hearne vs. Griffin, 2 Chit. Rep. 40T Hedge vs. Lowe, 4T Iowa, 137 Hereshoff vs. Boutineau, 19 Atlantic, 712 Hilton vs. Eckersley, 6 El. & Bl. 47 Hinde vs. Grey, 1 Man. & Gr. 195 Hitchcock vs. Coker, 6 A. & E. 454 Hoffman vs. Brooks, 23 Am. Law Rep. 648 . Hooker vs. Vandewater, 4 Denio, 349 . Hornby vs. Close, L. R. 2 Q. B. 153 . Horner vs. Graves, 7 Bing. 735 Howe, Whittaker vs. 3 Beavan, 383 Hutton vs. Parker, 7 Howling, 739 India Bagging Ass. vs. Kock, 14 La. An. 168 Ipswich Taylor's Case, 11 Coke, 540 Irvine, Rannie vs. 7 Man. & Gr. 969 Ives vs. Smith, 3 N. Y. S. 645 .. . Jayne, Opinion of H. La Barre, to N. W. D. A. Jennings, Kimberly vs. 6 Sim. 640 Jett, Anderson vs. 41 Alb. L. J. 104 Johnson, Cook vs. 47 Conn. 175 \ Jones us. Lees, 1 H. & N. 189 Kean, Kemble vs. 6 Sim. 635 Keeler vs. Taylor, 53 Pa. St. 463 Kellogg vs. Larkin, 3 Chand. 133 Kemble vs. Kean, 6 Sim 635 Kidder, Lawrence vs. 10 Barb. 641 . 12 . 49 29 . 38 44 51 9, 26 3 Rob. 411 37 , 37 . 33 34 , 45 49 . 32 , 23 . 21 ,42 51, 54 12 ( ,28 29, 80 44 38 41 27 64 5, 3,9 8,9 10, 33 28, 29 43 3 32, 51 37 53 33, 43 39, 51 26, 32 12, 32 33, 43 33, 43 39, 49 33, 43 • 20 64 TABLE OF CASES. Kimberly vs. Jennings, 6 Sim. 640 Kock, India Bagging Ass. vs. 14 La. An. 168 Langevs. Werk, 2 Ohio St. 519 . Larkin, Kellogg vs. 3 Chand. 133 . Lawrence vs. Kidder, 10 Barb. 641 Law Quarterly Review, vol. 4, page 240; vol. 7 Leather Cloth Co. vs. Lorsont, L. R. 9 Eq. 345 Lees, Jones vs. 1 H. & N. 189 Leslie vs. Lorillard, 110 N. Y. 519 Locke, Collins vs. 4 Ap. Cases, 674 . . 5, Lockhart, Harrison vs. 25 Ind. 112 Lorrillard, Leslie vs. 110 N. Y. 519 Lorsont, Leather Cloth Co. vs. L. R. 9 Bq. 345 Lowe, Hedge vs. 47 Iowa, 137 Lyman, Perkins vs. 9 Mass. 522 . Mallan vs. May, 11 M. & W. 653 . Mallon, Atchison vs. 43 N. Y. 149 Mason vs. Davis, 5 Term Rep. 118 May, Mallan vs. 11 M. & W. 653 . McClung's Appeal, 58 Pa. St. 561 McConoughy, Craft vs. 79 111. 346 McGregor, Mogul S. S. Co. vs. 23 Q. B Mellish, Richardson vs. 2 Bing. 229 Merchants' Salt Co., Ontario Salt Co. us 540 Metcalf on Contracts, 270 Mill and Lumber Co. vs. Hayes, 76 Cal Mitchell vs. Reynolds, 1 P. Wms. 181 3, Mogul S. S. Co. vs. McGregor, 23 Q. B More vs. Bonet, 40 Cal. 251 . Morse, Morse Twist Drill and Machine Morse Twist Drill and Machine Co. vs, Mouflet vs. Cole, L. R. 7 Exch. 70 Mumford v. Gething, 7 C. B. N. S. 317 page Div. 598 18 Grant 13 203 ,24, 7,28: 13 sCh 387 5, 10, 16,17, 18 Div. 598 40, 2-4, PAGE 33, 43 . 43 25, 26 39, 49 . 20 . 19 33, 34 12, 32 . 40 44, 47 34 40 33, 34 32 39 26 51 9 26 29 44 54 1 Rep. 27, , 24, 28, 27, Co. vs. 103 Mass. 73 Morse, 103 Mass. 73 48 29 45 38 54 26 34 34 32 26 N. R. S. R. Co., People vs. 54 Hun, 354 . . .40, 41, 45 N. Y. & N. H. R.R. Co., H. & N. H. R. R. Co. vs. 3 Robb. 41 1 ' 37 National Trust Act of 1890 52, 56 TABLE OF CASES. 65 PAGE Ohio Candle Co., Emery vs. 24 N. E. 660 . . . . 46 Ontario Salt Co. vs. Merchant's Salt Co., 18 Grant's CL Rep. 48 640 Oregon S. S. Co. vs. Winsor, 20 Wallace, 64 2, 5, 1, 21, 23, 26, 28 Park, Fowle vs. 131 TJ. S. 88 Parker, Hutton vs. 7 Dowling, 789 Parry, Rogers vs. 2 Bulstrode, 136 Parsons on Contracts, vol. 2, page 255 Peltz -OS. Eichele, 62 Mo. 171 Pemberton vs. Yaughn, 59 E. C. L. R. 87 , People vs. Chicago Gas Trust Co., 22 N. E. 798 People vs. N. R. S. R. Co., 54 Hun, 354 .. . 40, People's Gas Light Co. vs. Chicago Gas Light Co., 121 111 530 Perkins vs. Lyman, 9 Mass. 522 . Pierce vs. Puller, 8 Mass. 223 Pilkington vs. Scott, 15 M. & W. 657 Pipe Line Co., Transportation Co. vs. 22 West Va. 600 Pittstown & Elmira Coal Co., Arnot vs Pollock on Contracts, 313 Pool, Watertown Thermometer Co. vs. 4 N. T. S. 861 Price vs. Green, 16 M. & W. 548 . Printing Co. vs. Sampson, L. R. 19 Eq. Cas. 462 Prugnell vs. Gosse, Aleyn, 67 Rannie vs. Irvine, 7 Man. & Gr. 969 Reed, Gale vs. 8 East, 81 Reynolds, Mitchell vs. 1 P. Wms. 181 3, 5 Richardson vs. Buhle, 43 N. E. Rep. 1102 Richardson vs. Mellish, 2 Bing. 229 Rochester, Gompers vs. 56 Pa. St. 194 . Roeber, Diamond Match Co. vs. 106 N. T. 473 Rogers vs. Parry, 2 Bulstrode, 136 Rousillon vs. Rousillon, 14 Ch. Div. 351 Ryder, Wright vs. 36 Cal. 342 .. . . 34 28, 29 3 3 25 32 37 41, 45 36 39 31 29 35, 36 43 19 25 26, 27 18 3, 28 32. 51 7 10, 16, 17, 18, 24, 28, 38 . 38, 39, 50, 51 1 . 28, 29, 32 . 19, 23, 25, 50 3 5, 13, 15, 16, 17, 24 2. 21 Salt Co. vs. Guthrie, 35 Ohio St. 666 . . . . 38, 44, 51 Sampson, Printing Co. vs. L. R. 19 Eq. Cas. 462 ... 18 5 66 TABLE OF CASES. PAGE Schaarenghausen, Skrainka vs. 8 Mo. App. 522 ... 47 Scott, Pilkington vs. 15 M. & W. 65t 29 Skrainka vs. Schaarenghausen, 8 Mo. App. 522 ... 47 Smith's Appeal, 113 Pa. St. 579 ^ 26, 33 Smith, Ives i)s. 3 N. Y. S. 645 ' 37 Stanton vs. Allen, 5 Denio, 434 39, 42 State vs. H. & N. H. R. R. Co., 29 Conn. 538 .. . 37 Stewart vs. E. & W. Trans. Co., 17 Minn. 372 ... 39 Talcott vs. Brackett, 5 Bradwell, 60 32 Taylor vs. Blanchard, 13 Allen, 376 21 Taylor, Keeler vs. 53 Pa. St. 463 33, 43 Timinins, Young vs. 1 Tyrwh. 226 29 Trade Mark Cases, 100 TJ. S. 81 53 Transportation Co. vs. Pipe Line Co., 22 West Va. 600 35, 36 United States, Dixon vs. 1 Brock. 177 34 Vandewater, Hooker vs. 4 Denio, 349 . . . . 38, 41 Vaughn, Pemberton vs. 59 E. C. L. R. 87 . . . . 32 Vickery vs. Welch, 19 Pick. 523 34 W. U. Tel. Co. vs. A. TJ. Tel. Co., 65 Ga. 160 .. . 36 Walker, Dingman vs. 1 Johnson, 446 32 Ward vs. Byrne, 5 M. & W. 548 . . 7, 11, 12, 16, 17, 18, 26 Watertown Thermometer Co. vs. Pool, 4 N. Y. S. 861 . . 5, 25 Welch, Vickery m. 19 Pick. 523 34 Werk, Lange vs. 2 Ohio St. 519 25,26 Wheatcroft, AUsopp vs. 15 Eq. 59 .... 14, 17, 18 Whitaker vs. Howe, 3 Beavan, 383 . . . 8, 9, 10, 33 Whitehead, Bryson vs. 1 Sim. & Stu. 74 . . . .34 Wickens vs. Evans, 3 Y. & J. 318 47 Wiggins Perry Co. vs. C. & A. R. R. Co., 5 Mo. Ap. 347 . 39 Wiggins Ferry Co. vs. Perry Co., 72 111. 360 ... 32 Winsor, Oregon S. S. Co. vs. 20 Wall. 64 2, 5, 7, 21, 23, 26, 28 Wright vs. Ryder, 36 Cal. 342 2, 21 Year Book Henry V., pi. 22 . , 2 10 Young vs. Timinins, 1 Tyrwh. 226 29 APPENDIX. NOTE A. In the late case of Mills vs. Dunham,^ the Court of Appeals in England have virtually overruled Allsop vs. Wheatcroft^ and affirmed the doctrine of Rousillon vs. Rousillon.' In this case an agreement for the employment of the defendant as a traveller provided that he was to "call upon and solicit orders" for all articles in the way of the plaintiff's business of antiseptic manu- facturers, and, in the event of the termination of the agreement, that he should not, either on his own account or for any em- ployer, " call upon or directly or indirectly solicit orders from, or in any way deal or transact business with," any one who had, while the agreement was in force, been a customer of the plain- tiff. After the termination of the agreement, the defendant entered the employment of rival antiseptic manufacturers, and as their traveller called upon and solicited orders from some of the plaintiff's customers, in violation of the agreement. The plain- tiff moved to restrain the defendant from committing any fur- ther breach of the agreement. The defendant admitted the breach, but claimed that the agreement was void, as its restraint was unlimited as to space. Neither Mr. Justice Chitty, in the lower court, nor the Court of Appeal, seemed to consider the fact, that the restraint was unlimited as to space, any objection to the validity of the agree- ment, and the case turned upon what was the proper construction of the agreement. In the course of the argument in the Court of Appeal one of the counsel referred to AUsopp vs. Wheatcroft as holding that a restraint unlimited as to space was bad ; but 1 '91. 1 Ch. 576. " 15 Bq. 59. See supra, page 14. ' 14 Ch. Div. 351. See supra, page 15. (67) 68 APPENDIX, Lopes, L. J., interrupted him, and said : '■ That case was disap- proved of in Eousillon vs. Eousillon." I think, therefore, it can be safely said that the doctrine that a restraint unlimited as to space, without reference to its reason- ableness, is ipso facto invalid, is no longer the law of England. Mr. Justice Chitty, in the lower court, laid down the following rule for the construction of contracts in restraint of trade : — " When a covenant or agreement is impeached on the ground that it contains an unreasonable restraint of trade, the duty of the Court is, first, to interpret the covenant or agreement itself, and to ascertain, according to the ordinary rules of construction, what is the fair meaning of the parties, and then to apply the rule as to reasonableness with reference to the extent of the im- peached covenant, and to see whether it goes too far; in other words, to adopt the modern rule with reference to perpetuities, a cognate subject, where, when a limitation is impeached on the ground of being too remote, the right way is to consider the instrument without reference to the rule of perpetuity, and then, having ascertained the true meaning of the parties, to apply the rule." Lindley, L. J., in the Court of Appeal, said : " I think that Mr. Levitt's contention that you are to treat a restraint of trade as prima fade bad, and throw upon the person supporting it the onus of showing that it is reasonable, is introducing a wholly unsound principle into the construction of documents." Therefore, a contract in restraint of trade is no longer prima fade bad, and the burden of proof would seem to be on the per- son alleging its invalidity, to show that the contract is an unrea- sonable one. NOTE B. The cases on this subject which have been decided in the United States since this essay was written do not seem to lay down any new rules,' though in one case the Supi-eme Court of ' See Moore vs. Hardware Co., G South. Rep. (Ala.) 41. APPENDIX. 69 Michigan have held that any contract in restraint of trade, the effect of which is to prevent the covenantor from carrying on a particular business within the State of Michigan without the covenantee's intending to carry it on within that State, is void,' thus affirming the doctrine of "Wright and Eyder.^ They dis- tinguish Beal and Chase,* the earlier Michigan case, on the ground that there the covenantee intended to carry on the business within the State. The modern English rule that there is no fixed limit of space beyond which the restraint of a contract may not extend is laid down in one case*, although it was mere dicta, but the dicta in another case recognizes the old rule." The manufacturers of articles under a patent may combine to prevent competition among themselves,* but attempts to form a monopoly by restricting competition, and thereby enhancing the price of an ordinary article of commerce, are opposed to public policy, and will not be aided.'' With reference to contracts in restraint of those sorts of busi- ness in which the public has a peculiar interest, it has been held by the Supreme Court of the United States that a stipulation in a contract between a sleeping-car company and a railroad com- pany that the sleeping-car company shall have the exclusive right for fifteen years to furnish drawing-room and sleeping-cars for the railroad company's use, does not render the contract void as in restraint of trade or against public policy, as such stipula- tion does not disable the sleeping-car company from furnishing cars to rival railroads, and the law will imply from the terms of the contract that it must furnish the railroad company in ques- tion sufficient cars in number for the use of the public travelling ' Wooden Ware Ass. vs. Starkey, 47 N. W. 604. 2 36 Cal. 342 ; supra, page 21. ' 31 Mich. 490 ; supra, page 22. * Per Judge Mitchell, in National Ben. Co. vs. Union Hospital Co., 47 N. W. 806. 5 Chaplin vs. Brown (Iowa), 48 N. W. 1074. ^ Shade Roller Co. vs. Cushman, 143 Mass. 353; Gloucester Isinglass and Glue Co. vs. Russian Cement Co. (Mass.), 27 N. B. 1005. ' Chaplin vs. Brown (Iowa), 48 N. W. 1074; De Witt Wire Cloth Co. vs. N. J. Wire Cloth Co., 14 N. Y. S. 277. 70 APPENDIX. on the latter's road.' The stipulation in this contract, however, does restrain the railroad company from using any other sleeping- cars on their line, and might seem therefore to be a restraint on them which would be opposed to public policy.^ That same court have also held that a palace-car company who was chartered to engage in the business of transporting passengers in railroad cars constructed and owned by the said company, can- not agree with a similar company that one of them shall lease all its corporate projDerty to the other for ninety-nine years and in the mean time the lessor shall go out of business, as such an agreement is in restraint of trade and opposed to public policy.* ' C, St. L. & N. O. R. Co. vs. P. S. Car Co., 11 Sup. Ct. 490 ; confer. W. U. Tel. Co. vs. A. U. T. Co. 65 Ga. 160; supra, page 36. " See W. U. Tel. Co. vs. A. U. Tel. Co., 65 Ga. 160. ^ Central Trans. Co. vs. Pullman's Palace Car Co., 11 Sup. Ct. 478.