of the inmates of public institutions have also been passed upon by the courts.1

VALID RESTRICTIVE AGREEMENTS.—-In certain cases restrictive agreements between competing parties have been upheld. Thus, in Long et al. v. Towl, it appeared that the plaintiffs were in possession of a tract of land from which miners were engaged in taking lead ore under an agreement to sell such ore to plaintiffs. In violation of this agreement some of the miners sold some of the ore to the defendant. In settlement of litigation arising from this transaction defendant agreed that for ore taken from plaintiffs' land he would not thereafter pay a greater price than plaintiffs were paying for such ore, and that for ore taken from other lands he would not pay a greater price than the plaintiffs were paying for ore taken from their own. He agreed to sell exclusively to the plaintiffs all ore thereafter purchased by him at a price of $4 per 1,000 pounds more than plaintiffs were paying at the time to the miners. on their own land. In a suit to recover liquidated damages for a breach of this agreement it was urged that the contract was in restraint of trade and void. The court was of the opinion, however, that such a contract, which did not prohibit the defendant from carrying on his business at any place he might choose, but only limited the manner of carrying it on by fixing the price at which he might buy and sell and the persons to whom he might sell, was not a restraint of trade."

In Dolph v. Troy Laundry Machinery Co., it appeared that the two principal manufacturers of washing machines in the United States, in order to avoid competition and to secure better prices and larger profits, had agreed to divide profits. The agreement, which was to continue for five years, provided that the plaintiff was to deliver to the defendant a certain number of machines annually. The plaintiff had the option to manufacture all machines sold by both. The court held this agreement was valid and not against public policy. The opinion contained certain statements from which it seems that the court took a view as to the legality of such agreements differing in some respects from the view taken in other cases by other courts. In this case the court was of the opinion that—

Assuming that, in entering into the contract, the parties contemplated that the defendant should cease manufacturing machines, and buy all its machines from the plaintiff, and that the only purpose in view was to promote the inter1 Woodruff v. Berry, 40 Ark., 251 (1882); Atcheson r. Mallon, 43 N. Y., 147 (1870); Marsh v. Russell, 66 N. Y., 288 (1876); Gibbs v. Smith, 115 Mass., 592 (1874). 242 Mo., 545 (1868).

* Case decided on the ground that the dismissal of the original litigation formed no consideration for the promise that sum stipulated was not liquidated damages, but a penalty merely.

428 Fed., 553 (1886).

*

ests of the parties, and enable them to obtain from customers higher prices for the machines, it is not obvious how such a contract contravenes any principle of public policy. Washing-machines, although articles of convenience, are not articles of necessity. The scheme of the parties did not contemplate suppressing the manufacture or sale of machines by others. * * It is quite legitimate for any trader to obtain the highest price he can for any commodity in which he deals. It is equally legitimate for two rival manufacturers or traders to agree upon a scale of selling prices for their goods, and a division of their profits. It is not obnoxious to good morals, or to the rights of the public, that two rival traders agree to consolidate their concerns, and that one shall discontinue business, and become a partner with the other, for a special term. It may happen, as a result of such an arrangement, that the public have to pay more for the commodities in which the parties deal, but the public are not obliged to buy of them. Certainly, the public have no right to complain, so long as the transaction falls short of a conspiracy between the parties to control prices by creating a monopoly.

* * *

The decision in Central Shade Roller Co. v. Cushman1 also seems somewhat at variance with most of the decisions in cases of this kind, although it should be noted that the agreement related to a patented device and also that the court expressly pointed out that the article affected by the agreement was not an article of prime or public necessity. In this case it appeared that three manufacturers of a certain kind of curtain fixture, under different letters patent owned by them severally, in order to avoid competition, had organized the Central Shade Roller Co., a corporation in which they were the only stockholders, and an agreement was entered into between the corporation and the manufacturers, providing that the corporation was to take the output of each manufacturer; that the corporation was to employ no salesmen, but the manufacturers were to act as its selling agents and receive a commission upon their sales; that the prices for rollers of the same grade, made by the different parties should be the same according to a schedule contained in the contract, and that when any party should establish an agency in any city or town for the sale of a roller made exclusively for that purpose, no other party should take orders for the same roller in the same place. During the term agreed upon the manufacturers were not to sell or dispose of any of their letters patent except upon such terms that a transferee should be bound by this agreement, nor were they to dispose of their stock in the corporation without the written consent of a majority of the stockholders. The purpose of the agreement, as stated by the complainant, was to prevent competition in the sale of shade rollers, to secure larger profits by preventing an unprofitable reduction of prices for the same, and so to merge the business of each of said parties that each should obtain an equitable share of the profits of each

1143 Mass., 353 (1887).

of the others and that there should be a substantial identity of interests in said business. The corporation filed a bill alleging a breach of the agreement on the part of the defendant, prayed for an accounting and for an injunction to restrain the defendant from selling in violation of the terms of the agreement. The case was heard on bill and demurrer, and the bill was dismissed. On appeal by the plaintiff the court held that the agreement was not invalid as in restraint of trade or against public policy, being apparently beneficial to the parties to the combination and not necessarily injurious to the public, as the agreement did not relate to an article of prime necessity, to a staple of commerce, or to merchandise to be bought and sold on the market.1

A restrictive agreement among quarrymen was upheld by the court in Skrainka v. Scharringhausen, under the following circumstances: It appeared that some 24 owners and operators of stone quarries in St. Louis, for the purpose of securing "a fair, proportionate sale of the produce of all quarries at uniform prices and living rates," had agreed that for a period of six months they would not sell any stone except as set forth in the agreement. They agreed, further, to appoint an exclusive agent, who was to apportion the output among the various quarries and sell at stipulated prices. A penalty was fixed for the violation of the agreement. Plaintiff was appointed trustee to sue for the damages, and brought this action for violation of the agreement. Defendant contended. that the agreement was against public policy, in restraint of trade, and unreasonable. The court in holding the agreement valid, as being not necessarily in restraint of trade, said:

The agreement is amongst the quarrymen of one district of one city, and it does not appear that it embraces all of them. There is no evidence that it

1 In this connection, the court, in United States v. Addyston Pipe & Steel Co. (85 Fed., 271), in referring to the Shade roller case, said:

"Two other cases deserve mention here. They are Roller Co. v. Cushman, 143 Mass., 353, 9 N. E., 629, and Gloucester Isinglass & Glue Co. v. Russia Cement Co., 154 Mass., 92, 27 N. E., 1005. In these cases it was held that contracts in restraint of trade are not invalid if they affect trade in articles which, though useful and convenient, are not articles of prime or public necessity, and therefore contracts between dealers made to secure complete control of the manufacture and sale of such articles were supported. In the first case the article involved was a fastening of a certain shade roller, and in the, other was glue made from fish skins. We think the cases hereafter cited show that the common law rule against restraint of trade extends to all articles of merchandise, and that the introduction of such a distinction only furnishes another opportunity for courts to give effect to the varying economical opinions of its individual members. It might be difficult to say why it was any more important to prevent restraints in beer, mineral water, leather cloth, and wire cloth than of trade in shades and glue. However this may be, the cases do not touch the case at bar, because the same court in Telegraph Co. v. Crane, 160 Mass. 50, 35 N. E., 98, held that fire-alarm telegraph instruments were articles of sufficient public necessity to render unreasonable restraints of trade in them void, and certainly such articles are not more necessary for public use than water, gas, and sewer pipe."

28 Mo. App., 523 (1880).

works any public mischief, and the contract 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 competition. It is limited both as to time and place, and we know of no case in recent times in which a contract such as the one before us has been declared illegal..

In the People ex rel. Pinckney v. New York Board of Fire Underwriters and Matthews et al. v. Associated Press of the State of New York, the courts held that it was within the power of the respective associations to adopt and enforce a by-law imposing a certain restraint upon its members, providing the restraint was reasonable and appropriate under the circumstances. In the first of these cases, however, it should be noted that the defendant board had been incorporated by an act of the legislature, one of its declared purposes being to "establish and maintain uniformity" among its members in "policies or contracts of insurance," and power had been conferred "to make all needful by-laws not contrary to the provisions of the act or to the constitution and laws of this State or of the United States." The court held that a by-law binding members to uniformity in rates of insurance came within the powers conferred; that as the legislature conferred the power to pass the by-law, it was not in conflict but in harmony with public policy, nor was it open to the objection that it was in restraint of trade; that, as the by-law under which respondents acted was reasonable and within their corporate powers, the relator was liable to expulsion.

In Matthews et al. v. Associated Press, the other case referred to, it appeared that the plaintiffs, who were also members of the United Press Association, had procured an injunction against the Associated Press, etc., restraining it from suspending them from any of the rights or privileges in the Associated Press and from withholding from the plaintiffs (who were publishers of newspapers at Buffalo) the regular news and reports furnished by the association to its members, on account of any alleged violation by the plaintiffs of a by-law of the association which provided in part that "no member of this association shall receive or publish the regular news dispatches of any other news association covering a like territory and organized for a like purpose with this association." The court held that this by-law was valid and enforceable; that it did not improperly tend to restrain trade (assuming the business of collecting and distributing news would come within the definition of a trade); and that it was a natural and reasonable restraint upon the members of the association appropriately regulating their conduct as mem

154 Howard's Prac. (N. Y.), 240 (1875).

2136 N. Y., 333 (1893).

bers thereof with respect to the business which the association was organized to transact.1

Section 4. Agreements among competing interests to consolidate under common ownership or control.

Even before it had become plain that under ordinary circumstances the courts would not uphold a direct agreement among competitors where it appeared that the object or effect was to limit competition, competing concerns sought other methods to accomplish substantially the same result by the more formal plan of combining under common control or ownership. Regarding this as a means of securing control of the market, the courts in general have taken no more favorable a view of this plan than of the direct agreements to limit competition discussed in the preceding section. The same evil is present, namely, the attempt to restrain trade and to control the market primarily for the benefit of the combining interests. In a number of cases involving attempts of this kind, the courts have refused to recognize the validity of agreements entered into for the acquisition of the shares of one corporation by another; agreements for the the surrender of the control of competing concerns to a single

1 The decision in this case should be compared with that in Inter-Ocean Publishing Co. v. Associated Press, decided by the Supreme Court of Illinois in 1900 (56 N. E. Rep., 822), where an opposite result was reached. By a long line of common-law decisions, railroads, other common carriers, and certain other businesses and callings which of necessity are carried on under conditions more or less monopolistic in character have been held to be subject to certain obligations not imposed on those who follow other occupations or trades. It is not within the scope of the present report to discuss the character of these obligations in detail. Besides the cases involving such obligations with respect to railroads, the following may be cited: Munn v. Illinois, 94 U. S., 113 (1876); West Virginia Transportation Co. v. Ohio River Pipe Line Co. et al., 22 W. Va., 600 (1883); People ex rel. Postal Telegraph-Cable Co. v. Hudson River Telephone Co., 19 Abbott's New Cases (N. Y.), 466 (1887); New York and Chicago Grain and Stock Exchange v. Board of Trade of City of Chicago et al., 127 Ill., 153 (1886); State v. Portland Natural Gas & Oil Co., 153 Ind., 483 (1899).

Grants of a monopolistic character by public authority also present a class of cases which should be mentioned here. When the object to be attained seems clearly to be in the public interest, legislative grants authorizing the exercise of special privileges by certain designated persons, to the exclusion of others, have been upheld by the courts in a number of cases. Such grants, however, are subject to strict interpretation by the courts, and any ambiguity is construed in favor of the public and against the grantee. The power of municipal corporations to grant special and exclusive privileges depends upon the power conferred upon the municipal corporation and the powers incident thereto.

Among cases of the class mentioned in the preceding paragraph may be cited: Enfield Toll Bridge Co. v. Hartford & New Haven R. R. Co., 17 Conn., 40 (1845); Broadway & Locust Point Ferry Co. v. Hankey, 31 Md., 346 (1869); Slaughterhouse cases, 83 U. S., 36 (1872); Gaines et al. v. Coates, 51 Miss., 335 (1875); Burlington & Hudson County Ferry Co. v. Davis, 78 Iowa, 133 (1878); State v. Milwaukee Gas Light Co., 29 Wis., 454 (1872); McRae v. Wilmington & Raleigh R. R. Co., 47 N. C., 186 (1855); Norwich Gas Light Co. v. Norwich City Gas Co., 25 Conn., 19 (1856); Caldwell v. City of Alton, 37 Ill., 416 (1864); City of Chicago r. Rumpff et al., 45 Ill., 90 (1867); City of Bloomington v. Wahl, 46 Ill., 489 (1868); Tugman v. City of Chicago, 78 Ill., 405 (1875); Gale v. Village of Kalamazoo, 23 Mich., 344 (1871); and Logan & Sons v. Pyne, 43 Iowa, 542 (1876).