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Subject Area: Law
Topic: The American Revolution and Constitution

§ 108.: Prevention of combinations in restraint of trade.— - Christopher G. Tiedeman, A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, vol. 1 [1900]

Edition used:

A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint (St. Louis: The F.H. Thomas Law Book Co., 1900). Vol. 1.

Part of: A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, 2 vols.

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§ 108.

Prevention of combinations in restraint of trade.—

While the manipulation of capital by single individuals cannot threaten the public welfare by the general oppression of the masses; when two or more people combine their energies and their capital, the acquisition of this extraordinary power becomes easier and more common. In fact, it may be stated that, practically, combination is absolutely necessary in all cases to its acquisition. But combinations are beneficial, as well as injurious, according to the motives and aims with which they were formed. It is, therefore, impossible to prohibit all combinations. The prohibition must rest upon the objectionable character of the object of the combination. One of these objectionable objects is the restraint of trade. At common law, and it is still the law in most, if not all of the States [in some there are statutory regulations on the subject], all unreasonable combinations in restraint of trade were unlawful, and no contracts, founded upon the combination, would be enforced by the courts.1

It is necessary, in view of modern statutory legislation, to accentuate the fact that at the common law, in England and in the United States alike, contracts were not necessarily void, simply because they were in restraint of trade. In order that such a contract may be declared void at the common law, the restraint had to be unreasonable in order that it may come under the ban of the law. It is undoubtedly the accepted law everywhere, in the English-speaking world, that any contract in restraint of trade, which is unlimited in its restrictions as to time, place, persons and circumstances, is void, and the courts will refuse to enforce it, or to recognize any cause of action which is based thereon.1 But wherever the contract was in restraint of trade, only to a limited degree, either as to time, persons, place or other circumstance, the contract was held to be valid and enforceable, because the limited character of the restriction prevented it from coming into conflict with public policy; the rational and beneficial character of the limited restriction outweighing the supposed injurious effect of the restraint of trade on the competition which is said to be the life of trade.2 The question, whether the contract is in unreasonable restraint of trade, is one of law for the courts, and no hard and fast line is or can be laid down by the courts, for determining a priori whether a particular contract in restraint of trade is unreasonable and void, or reasonable and valid. The limitations as to time, persons, place and other circumstances are considered in the light of the motive of the restriction, in order to determine in the particular case, whether the restraint is reasonable.3 The cases are very numerous in which contracts in restraint of trade are declared to be void or valid, according as they are unreasonable or reasonable. But a few cases will suffice for illustration. The contract of a lawyer, in the sale of his practice, not to practice in Great Britain, was held to be reasonable, and hence valid.1 So, also, the contract not to practice one’s profession or to carry on one’s business in a particular town or county and its vicinity.2 But where the restriction as to space is unreasonable in extent, the contract in restraint of trade would be held to be unreasonable and void. Generally, a contract not to carry on a particular business in any part of the State would be held to be unreasonable.3 Sometimes, a contract in restraint of trade is held to be reasonable where it is unlimited as to space but limited as to time. This is possible only, where the business is of such a character that any limitation of the restraint as to space would make the restriction valueless to the purchaser of the business.4 Other cases of reasonable contracts in restraint of trade may be cited, which are not directly limited by time or space. Exclusive agencies of certain articles of merchandise in a certain territory are held to be valid contracts, although they prevent the sale of the goods through any other party.1 And the by-law of the Associated Press Association, that its members shall not receive or furnish “the regular news dispatches of any other news association covering a like territory and organized for a like purpose,” was held by the Court of Appeals to impose only a reasonable restraint upon trade, and hence was valid and binding upon the parties to the contract.2 But the Supreme Court of Illinois has reached a contrary conclusion on the identical question.3

The cases, which have been cited and explained in the foregoing paragraphs, involving the determination of the contracts which are in unlawful restraint of trade, include only those agreements, having that effect, which are entered into only as a part of the consideration of the sale of a business or trade or profession, and have the reasonable and sound purpose of transferring the good will of the business to the purchaser, and protecting his right to it, by obligating the vendor to refrain from setting up a rival business in the same place or locality or for a given time. There is no motive in such contracts of enhancing prices by the creation of combinations of capital or skill.

The cases are numerous where that is the motive and apply to almost all kinds of combinations, the object of which is the extortion of the public. As expressed by one judge, “a combination is criminal, whenever the act to be done has a necessary tendency to prejudice the public; or to oppress individuals, by unjustly subjecting them to the power of the confederates, and giving effect to the purpose of the latter, whether of extortion or of mischief.”1 Even where this effect is more or less remote, the combination will be void. Thus the English court has refused to enforce an agreement, entered into by several employers in the same line of business, to suspend or carry on the business, in obedience to the direction of the majority.2 So also, are all combinations among employees void, whose object is the restraint or control of a particular trade. The obligations of the individual member to obey the orders of the league or combination, to refuse to offer his services to one, against whom the combination is directed, cannot be enforced in the courts.1

Labor organizations are very common in this country, and a consideration of their rights and powers inside of the law is therefore necessary. It can hardly be denied that so far as these organizations have charitable objects in view, the care of their sick and indigent members, the dissemination of useful literature among them and their enlightenment on matters connected with their trade, they are lawful. For such purposes, the formation of associations can never be prohibited in any free State. Their prohibition would be a violation of constitutional liberty. But so far as these combinations have for their object the control of trade, and of the price of labor, they constitute combinations in restraint of trade, and all contracts founded upon them are void. A successful combination of labor will raise the price of labor and hence the cost of the commodity above its normal value in the same manner as the combination of capitalists will increase the cost of the commodity by increasing the return to capital. Free trade is only possible by a prohibition of both classes of combinations which, if successful, are equally dangerous to the public safety and comfort.2

[1]1 Hawk Pleas C., ch. 80, § 1; 1 Bl. Com. 150; Rex v. Waddington, 1 East, 43; 1 Smith’s Lead. Cas. 367, 381; Lang v. Weeks, 2 Ohio (n. s.) 519; Thomas v. Tiles, 3 Ohio, 74; Barry v. Croskey, 2 Johns. & H. 1; Jones v. Lees, 1 H. & N. 189; Gulich v. Ward, 5 Halst. 87; Benjamin on Sales, 799.

[1]Hilton v. Eckersley, 6 Ellis & B. 47; Mitchell v. Reynolds, 1 P. Wms. 181; Homer v. Ashford, 3 Bing. 322; Homer v. Graves, 7 Bing. 735; Oregon Steam Nav. Co. v. Winsor, 20 Wall. 64; Alger v. Thacher, 19 Pick. 51; Dean v. Emerson, 102 Mass. 480; Ross v. Sadgbeer, 21 Wend. 166; Western Woodenware Association v. Starkey, 84 Mich. 76; Heichow v. Hamilton, 3 Greene (Iowa), 596. It is probably true that in England, at an early day and in the first enunciations of judicial opinion on the subject, all contracts in restraint of trade were declared to be void, whether they were per se reasonable or unreasonable. See Dyer’s case, Y. B. 2 H. 5, Pl. 22; Colgate v. Batchellor, Cro. Eliz. 872.

[2]Whitaker v. Howe, 3 Beav. 383; Dendy v. Henderson, 11 Exch. 194; Leather Cloth Co. v. Lorsant, L. R. 9 Ex. 345; Pierce v. Woodward, 6 Pick. 206; Saratoga Co. Bank v. King, 44 N. Y. 87; Curtis v. Gokey, 68 N. Y. 300; Perkins v. Clay, 54 N. Y. 518; Treat v. Shoninger Melodeon Co., 35 Conn. 543; Guerand v. Dandelet, 32 Md. 561; Ellis v. Jones, 56 Ga. 504; Smalley v. Greene, 52 Iowa, 241.

[3]Rousillon v. Rousillon, 14 Ch. D. 351; Oregon Steam Nav. Co. v. Winsor, 20 Wall. 64.

[1]Whittaker v. Howe, 3 Beav. 383.

[2]Butler v. Burleson, 16 Vt. 176; Cook v. Johnson, 47 Conn. 175; Swanson v. Kirby, 98 Ga. 586; McClurg’s Appeal, 8 Smith (Pa.) 51; Hursen v. Gavis, 162 Ill. 377; Kramer v. Old, 119 N. C. 1; Davis v. Brown (Ky.), 32 S. W. 614; Tillinghast v. Boothby, 20 R. I. 59; O’Neal v. Hines, 145 Ind. 32; Smith v. Brown, 164 Mass. 584; McCurry v. Gibson, 108 Ala. 451.

[3]Taylor v. Blanchard, 13 Allen, 370; Dean v. Emerson, 102 Mass. 480; Nobles v. Bates, 7 Cow. 307; More v. Bonnet, 40 Cal. 251. In Althen v. Vreeland, (N. J.), Eq.; 36 A. 479, a contract, not to carry on a business within a radius of 1,000 miles, was held to be unreasonable. And so, likewise, in Consumers’ Oil Co. v. Nunnemaker, 142 Ind. 560, a contract was held to be in unreasonable restraint of trade, which provided that one party cannot carry on his business in the State of Indiana for five years, except in Indianapolis.

[4]Nordenfelt v. Nordenfelt Guns and Ammunition Co., 94 H. L. Ap. Cases, 535, a contract in restraint of trade was sustained as reasonable, which provided that the patentee and manufacturer of guns and ammunition, who had transferred all his patent rights, would not for 25 years engage directly or indirectly in the same business. So, also, a contract that one shall not carry on a certain business, as long as he remains in the employ of another, is a reasonable and valid contract in restraint of trade. Carnig v. Carr, 167 Mass. 544.

[1]Woods v. Hart, 50 Neb. 497. In Brewing Association v. Houck, 88 Tex. 184, the contract of a brewing association with certain persons, to furnish them with beer and to furnish it to no other persons in the same city, was held to be a reasonable contract in restraint of trade.

[2]Matthew v. Associated Press, 136 N. Y. 333. The court said: “The latest decisions of courts in this country and in England show a strong tendency to very greatly circumscribe and narrow the doctrine of avoiding contracts in restraint of trade. The courts do not go to the length of saying that contracts which they now would say are in restraint of trade are, nevertheless, valid contracts, and to be enforced; they do, however, now hold many contracts not open to the objection that they are in restraint of trade, which a few years back would have been avoided on that sole ground, both here and in England. * * * So that, when we agree that a by-law which is in restraint of trade is void, we are still brought back to the question, What is a restraint of trade in the modern definition of that term?

“The authority to make by-laws must also be limited by the scope and purpose of the association. I think this by-law is thus limited, and that is not in restraint of trade, as the courts now interpret that phrase.”

[3]Inter-Ocean Pub. Co. v. Associated Press (Ill. 1900), 56 N. E. 822.

[1]Com. v. Carlisle, Brightley, 40; Hooker v. Vandewater, 4 Denio, 349; Stanton v. Allen, 5 Denio, 434; Marsh v. Russell, 66 N. Y. 288; Arnot v. Pittston, etc., Coal Co., 68 N. Y. 558; Wiggins Ferry Co. v. Ohio, etc., Ry., 72 Ill. 360; Craft v. McConoughy, 79 Ill. 346; West. Un. Tel. Co. v. Chicago & P. R. R. Co., 86 Ill. 246; Central Ohio Salt Co. v. Guthrie, 35 Ohio St. 666; Fairbank v. Leary, 40 Wis. 637. See also, post, § 109, and for the more modern development of the laws against contracts and combinations in restraint of trade, §§ 110 et seq. Of the same character and equally prohibited by law, as being in unlawful restraint of trade, is an agreement among certain manufacturers that one of the parties to the contract will keep his plant in idleness for a given number of years, in consideration of his receipt from the other parties to the agreement of a certain percentage on the sales of the latter. Oliver v. Gilmore, 52 Fed. 562; Am. Strawboard Co. v. Peoria Strawboard Co., 65 Ill. App. 502. In the latter case, the contract took the form of a lease of the plant of one by the other party to the agreement, and the consideration was paid as rent for the lease of the property of the former.

[2]Hilton v. Eckersley, 6 El. & Bl, 47, 66.

[1]Hornby v. Close, L. R. 2 Q. B. 183.

[2]The character, scope and constitutional powers of labor organizations are more fully treated in §§ 114, 115.