ment the defense was made that it was invalid as contrary to section 1 of the Industrial Code. The Imperial Court upheld the agreement and said (p. 156): This objection can not, however, be regarded as well founded. The complainant association is established, as expressly stated in the statutes, and without dispute between the parties, in order to prevent for the future a destructive competition between the Saxon wood-pulp manufacturers, and to make possible the attainment of higher prices than would be reached by unrestricted competition. Examining this matter from the point of view of public policy the court went on to say (p. 157): If in any branch of industry the prices of products sink too low and if the thriving operation of the industry is thereby made impossible or endangered, then the crisis which occurs is destructive not only for individuals, but also for the social economy in general, and it lies, therefore, in the interest of the whole community that unduly low prices in a branch of industry shall not permanently exist. While the court concluded, therefore, that such combination agreements were not invalid in principle, it proceeded to consider, nevertheless, whether they might not be invalid under certain circumstances, and stated the possible exceptions as follows (p. 158): Agreements of the kind under consideration can therefore be questioned from the standpoint of the protection of the general interest through the freedom of industry only if particular circumstances give rise to objections in individual cases, especially if it is evident that the creation of an actual monopoly and the usurious exploitation of the consumers is aimed at, or these results are actually brought about by the agreements and arrangements made. It was claimed in this case, also, that another section of the Industrial Code, namely, section 152, which provides that participants in a union or agreement to raise wages or improve the conditions of labor may freely withdraw therefrom, enabled a member of a cartel to refuse to fulfill his agreement, but the court rejected this view. The Civil Code, in section 138, provides in the first paragraph as follows: A jural act which is repugnant to good morals is void.' An additional paragraph of this section states particular instances of its application similar to those noted above (p. 257) in connection with section 302e of the Penal Code. Before the enactment of this code efforts were made to have the courts annul such agreements under substantially similar provisions of prior codes. The Imperial Court, in holding as lawful a bookdealers' cartel which fixed rebates or discounts, declared that the claim that it was an infraction of good morals was not well founded. The court made a distinction between speculative "rings" for the pur Bürgerliches Gesetzbuch, sec. 138. For "Rechtsgeschäft," here rendered "jural act," there is no precise English equivalent; it includes all acts by which persons endeavor to produce legal results-contracts, conveyances, etc. The phrase translated "good morals" is "die guten Sitten," which is itself a trans lation of the Latin "boni mores." pose of controlling the market and destroying the free activity of economic forces and the associations of persons in the same trade for the bona fide purpose of preserving a living basis by preventing the depreciation of commodities and other disadvantages arising from price cutting.1 In an earlier case, in the highest court in Bavaria, the court held that a combination of tile manufacturers which fixed prices and limited production was not against good morals, but, on the contrary, both a valid and a prudent business arrangement.2 The German Imperial Court has almost invariably, indeed, upheld ordinary combination agreements or cartels. Particular reference may be made to a decision affirming the validity of the RhenishWestphalian Coal Syndicate agreement, one of the most powerful cartels in Europe, which regulates the output of its members and sells the coal through a common selling company. A remarkable case was decided recently by the Imperial Court, in which the principal facts were substantially as follows: The DeutschePetroleum Verkaufs-Gesellschaft, plaintiff, a subsidiary of the Europäische Petroleum Union, and the Deutsch-Amerikanische Petroleum Gesellschaft, defendant (a Standard Oil concern), both companies being organized in Germany, made a pool agreement in London on May 27, 1907, to the following effect: The plaintiff company gave to the Standard concern complete control over its equipment, product, and selling force, to manage the sale of oil in Germany, with the power to fix the prices of oil, to appoint and dismiss departmental managers and other employees, and to increase or reduce the equipment, including the sale thereof to the Standard concern or others at the book value less stipulated rates of depreciation. The plaintiff company also agreed that its directors and stockholders would make such by-laws and resolutions necessary for the carrying out of the agreement as might be demanded, under penalty of a fine for each refusal. It also agreed to maintain its capital stock at not less than 6,000,000 marks. The plaintiff company was to keep its general organization and to have “independent" employees for conducting the financial side of its business, but such officials were to be paid by the Standard concern and were not to be allowed to interfere in the commercial side of the business. The Standard concern only was to have the right to admit other members to the pool. Disputes as to the meaning of the agreement were to be determined by an arbitration court. The plaintiff company in 1912 sought to have this agreement annulled by the courts, and it was finally decided in the Imperial Court 1 Urt. v. 25. Juni 1890, Entsch. d. R Ger. in Civilsachen, Bd. 28, S. 238 MI. Urt. d. O. L. G. f. Bayern v. 7. April 1888; Seuffert's Archiv, Bd. 44. Nr. 13. p. 16. Gewerkschaft d. Zeche ver. Hannibal w. Rheinisch-Westfälisches Kohlensyndikat. Urt. v. 19. Feb. 1901; Entsch. d. R Ger. in Civilsachen, Bd. 48, S. 306. Urt. v. 27. Mai 1913, Entsch. d. R Ger. in Civilsachen, Bd. 82, 8. *** ** to be invalid under article 138 of the Civil Code. The court said in part: Such a gagging of one party by the other, such a complete subjection to the will of the opposite party, contradicts the views of morality prevailing in Germany. An agreement which contains such provisions, and especially as the kernel of the whole arrangement, must be regarded as null in its full extent according to section 138, paragraph 1, of the Civil Code. A company can dissolve itself, but it can not put itself in wardship any more than a natural person can. It is noteworthy that in this case the pooling agreement was not declared invalid because the public was injuriously affected, but because it was regarded as unfair between the parties and ultra vires. The public interest is not regarded as injuriously affected, apparently, unless the combination is in the nature of a speculative ring to control the market (see p. 259) or unless it aims at or results in a complete monopoly and the usurious exploitation of consumers. (See p. 259.) The question has also arisen in the German courts whether agreements to prevent competition in public auctions are contra bonos mores. The Imperial Court has declared that they are not necessarily so,1 but nevertheless such agreements have been sometimes declared void.2 Another provision of the Civil Code may be noticed which is of interest in connection with the local criminal prohibitions against combinations at public auctions. (See p. 257.) Section 134 provides: A jural act, which is repugnant to a legal prohibition, is void, if the law does not provide otherwise. In the case of an agreement by which a person refrained from bidding at a public auction contrary to section 270 of the Prussian Criminal Code, the Imperial Court declared that the agreement itself was not necessarily void under article 134 of the Civil Code.3 The most important rules against unfair competition which have been applied to the practices of combinations are found in the Civil Code. There is also a special Law against Unfair Competition, enacted in 1909 (see Chap. X, p. 623), but only a few of its provisions are of much significance with relation to combinations, and no practical application of them by the courts has been noted in this connection.1 1 Urt. v. 11. Juli 1904, Entsch. d. R Ger. in Civilsachen Bd. 58, S. 393 ff. Urt. v. 17. Nov. 1891, Juristische Zeitschrift für Elsass-Lothringen, Bd. 17, S. 139 ff. Cited in Denkschrift ü. d. Kartellwesen, Berlin, 1906, II. Teil, pp. 10-11. 8 Urt. v. 17. März 1905, Entsch. d. R Ger. in Civilsachen, Bd. 60, S. 273 ff. Subsequent to the issue date of this report (Mar. 15, 1915) the Imperial Court held that a company which incorrectly advertised itself as independent of the "Trust" for purposes of competition, had violated secs. 1 and 3 of the Law against Unfair Competition. (See p. 659.) Urt. v. 30. März 1915, Monatsschrift für Handelsrecht u. Bankwesen, Juni 1915, p. 126. The Civil Code, under the title of "Unpermitted dealings," contains numerous sections, of which the most important in the present connection are the first part of section 823 and, especially, section 826, which are as follows: SEC. 823. Whoever, contrary to law, intentionally or negligently injures the life, body, health, freedom, property or any other right of another, is bound to such other for compensation of the injury arising therefrom. SEC. 826. Whoever in a manner repugnant to good morals intentionally inflicts an injury upon another is bound to such other for compensation of the injury. Both of these provisions have been considered by the courts in connection with practices that are often found among cartels. An illustration of the application of section 823 is found in the case of an association of medical practitioners which maintained rules prohibiting members from medical consultation with certain other practitioners. A member physician who conducted a private clinic was expelled from the association for consulting with a homeopathic physician, and other members were warned against consulting with the said member. The physician claimed to be injured thereby under section 823 of the Civil Code. The court held that the said warning issued to other members was in violation of this section of the law, the question of civil liability being referred to the lower court for further evidence and consideration.1 An illustration of the application of section 826 is found in the following case: A steamship company tried to force a competing group of sailing boats out of a certain trade by refusing to accept shipments at the ordinary rates from a large shipper if he persisted in patronizing the competing sailing boats. The shipper brought an action to compel the steamship company to abandon such discrimination. The Imperial Court sustained this claim and said, in part (pp. 119, 125):2 *** section 826 is adapted and also intended by the legislator to provide a protection against unfair treatment in a comprehensive manner, particularly for business intercourse, in so far as provision is not made through special laws. Especially also against abuse of the freedom of industry through avaricious exploitation or through the overpowering of others, section 826 of the Civil Code affords protection. The standard of morals applicable under section 826 the court stated to be the sense of propriety of right-minded persons, and in commercial matters the views of honorable merchants. Another illustration of the application of section 826 is found in the following case: A cartel was formed among goldbeaters in a certain district to regulate production and prices, which made an agreement with an organized union of workpeople in that branch of industry whereby the latter were to receive certain wages, etc., and were to 1 Urt. v. 6. März 1902, Futsch. d. R Ger. în Civleachen, B 51, §. 66 IT. abstain from accepting employment in concerns not comprehended in this agreement, while no new concerns were to be admitted thereto during the first year (1902). Two goldbeaters who had been in the business before, but who had ceased to operate on account of a strike due to a reduction of wages, recommenced business in that district. in 1902 and sought admission into the cartel and the labor agreement. The workpeople were willing to call the strike off, but were induced by the goldbeaters' cartel to continue it for another year. The two goldbeaters brought an action against certain directing members of the cartel under section 826 of the Civil Code. While certain matters relating to the liability of the defendants were not clear, the court gave an opinion on the applicability of section 826 of the Civil Code, as follows (p. 105): According to these unimpeachable statements of fact in the judgment on appeal, no doubt can exist that by the said dealings injury was intentionally done to the plaintiffs through representatives of the employers, in a manner contrary to good morals.1 Prior to the introduction of the present Civil Code, namely, on May 27, 1896, a law against unfair competition was enacted which was subsequently revised and amplified by the Law against Unfair Competition of June 7, 1909. This law prohibits various specific practices, which are not particularly characteristic of combinations, and affords both civil and criminal remedies. (See p. 623.) The most important as well as the most comprehensive provision of the law is the first section, which reads as follows: Whoever in business affairs, for the purpose of competition, commits acts which are repugnant to good morals may be subject to an action to desist therefrom and to pay damages. This section is similar to section 826 of the Civil Code, but it is restricted to business dealings. (See p. 648.) SPECIAL LAWS REGARDING PARTICULAR INDUSTRIES.-A remarkable feature of German policy with regard to combinations is their direct encouragement in a few particular instances. The chief instance of present interest is the imperial law regarding potash, which is practically all produced in Germany at the present time, and in which industry several German States, and especially Prussia and Anhalt, are directly engaged. Until 1910 this industry was practically monopolized by a cartel in which both of these two States were members, and in which the Prussian mining officials had a powerful influence. By the Law Concerning the Sale of Potash, of May 25, 1910, the production, sale, and prices were regulated. The principal provisions are as follows: (1) Potash salts can be sold by the owners of 1 Urt. v. 2. Feb. 1905, Entsch. d. R Ger. in Civilsachen, Bd. 60, S. 94 ff. * Gesetz gegen den unlauteren Wettbewerb, v. 7. Juni 1909. Reichsgesetzblatt, 1909, p. 499, * Gesetz über den Absatz von Kalisalzen, v. 25. Mai 1910; Reichsgesetzblatt, 1910, p. 775. A translation of this law is given in Exhibit D of this report. See p. 770. |