quired to create a trust developed in this fashion. (2) Some trusts, the news print paper trust, for example, were established with the aid of promoters who took no pay for their services. Their willingness to perform the service they incurred no risk— may have been because they anticipated that the gain to them as manufacturers would be sufficient; or it may have been because they regarded the task as an opportunity to be of service to their trade, and the honor as a sufficient reward.

As a result of the foregoing study the conclusion would appear to be abundantly justified that the prospect of securing promotion profits has contributed markedly toward the formation of numerous trusts. It played a lesser part, however, than the hope of achieving monopoly prices. A number of trusts, as we have seen, were organized without promoters' profits; whereas few, if any, were organized without the anticipation at least of monopoly gains.

CHAPTER XIII

THE COMMON LAW RELATING TO COMBINATIONS AND TRUSTS 1

1

The law relating to combinations and trusts is of two kindsfirst, common law, and second, statute law. Statute law, in turn, may be either that of the states or of the federal government. Though we are concerned in this treatise mainly with the development of statute law (and particularly of federal law), a brief consideration of the common law decisions of the courts will be advantageous, especially since the Supreme Court in the Standard Oil case held that the term "restraint of trade" as used in the Sherman Act should be construed as declaratory of the common law on this subject.2 Common law, it may be said, imports a system of unwritten law, not evidenced by statute. Its sources are found in the usages, habits, manners, and customs of a people; its seat, in the breast of the judges who are its expounders.3 Common law yields to statute law, where such exists, yet until the late eighties there were very few state statutes dealing with industrial combinations and trusts, and until the passage of the Sherman Act in 1890 there was no federal statute. It was therefore only to be expected that a considerable body of common law doctrine had developed with respect to restraints of trade and combinations of one type or another.

The rule was early established in English law that contracts or agreements in restraint of trade were void, and therefore non

1 On this topic see the Report of the Commissioner of Corporations on Trust Laws and Unfair Competition, chs. 2, 7; and Goodnow, Trade Combinations at Common Law, Political Science Quarterly, 12, pp. 212-245. The author has made liberal use of these works in preparing this chapter. 2 Cf. remarks of Senator Hoar in Cong. Record, April 8, 1890, p. 3152. 3 Judicial and Statutory Definitions of Words and Phrases, second series, p. 810.

enforceable. The courts refused to recognize the validity of any restraint of trade, no matter how limited its scope. The cases which came before them in the early days involved principally the right of an individual, in disposing of his business, to agree not to reënter that same business. The courts took the position that in the interest of trade an individual should not be allowed to contract that he would stay out of the business in which he had been engaged. Subsequently, however, this rule was relaxed. In Mitchell v. Reynolds (1711) an English court held that while general restraints of trade were void, a restraint limited to a particular place might under certain circumstances be enforceable.1 Though American courts, following Mitchell v. Reynolds, have in many cases held that an agreement involving a restraint covering an entire state is void as a general restraint,2 still the cases are numerous in which American courts have upheld particular restraints when the restraint was regarded as reasonable.3 The modern rule was well stated in Hubbard v. Miller. “If, considered with reference to the situation, business and objects of the parties, and in the light of all the surrounding circumstances with reference to which the contract was made, the restraint contracted for appears to have been for a just and honest purpose, for the protection of the legitimate interests of the party in whose favor it is imposed, reasonable as between them and not specially injurious to the public, the restraint will be held valid." 4 Gradually, therefore, the principle became established at common law that agreements connected with the sale of a business were not necessarily void, even though thereby a restraint of trade was effected, providing the restraint was reasonable in character.

1 P. Wms. 181 (1711).

See Lawrence v. Kidder, 10 Barbour (New York) 641 (1851); Taylor v. Blanchard, 95 Massachusetts 370 (1866); Western Woodenware Association v. Starkey, 84 Michigan 76 (1890).

3 See Bowser v. Bliss et al., 7 Blackford (Indiana) 344 (1845); Duffy v. Shockey, 11 Indiana 70 (1858); Beal v. Chase, 31 Michigan 490 (1875); Whitney v. Slayton, 40 Maine 224 (1885); Diamond Match Company v. Roeber, 106 New York 473 (1887); Robinson v. Suburban Brick Company, 127 Fed. Rep. 804 (1904).

27 Michigan 19 (1873).

AGREEMENTS TO RESTRICT COMPETITION

The next class of cases to be described (we are following here the classification adopted in the report of the Commissioner of Corporations on Trust Laws) is that relating to agreements among competitors to restrict competition or to form a combination, but not including such restriction of competition as results from the formation of a trust. The latter will be described later.

Agreements to restrain competition, as pointed out in the chapter on Pools, may be of various sorts. They may be informal, as, for example, the gentlemen's agreements, or they may be quite formal, with provisions for penalties in the event of a failure to observe the agreement. The agreements may look toward the control of the supply, the limitation of the output, the fixing of prices, the pooling of profits, or the division of territory. Whatever their form, they were void under the common law when they unduly restrained competition, and were therefore detrimental to the public interest. No rule for the determination of what constituted undue restraint under the common law was laid down; the common law doctrine was that each case should be settled in the light of the facts.

The state of the common law can best be indicated by citing a few representative cases, some of them illustrating invalid agreements, and some valid agreements.

Invalid Agreements 1

India Bagging Association v. B. Kock and Company. Eight firms had formed an association for the sale of India bagging,

1 See also Craft v. McConoughy, 79 Illinois 346, (1875); Arnot v. The Pittston and Elmira Coal Company, 68 New York 558 (1877); Santa Clara Valley Mill and Lumber Company v. Hayes, 76 California 387 (1888); Anderson v. Jett, 89 Kentucky 375 (1889); Samuels v. Oliver, 130 Illinois 73 (1889); Emery v. Ohio Candle Company, 47 Ohio State 320 (1890); Strait v. National Harrow Company, 18 New York Supplement 224 (1891); The Texas Standard Oil Company v. Adoue, 83 Texas 650 (1892); Oliver v. Gilmore, 52 Fed. Rep. 562 (1892); Bohn Manufacturing Company . Hollis, 2 14 Louisiana Annual Reports 168 (1859).

the bagging to remain the property of the individual members. Each firm agreed not to sell any bagging for a period of three months, except with the consent of the majority, under a penalty of $10 for every bale sold. The manager of the association brought suit against one of the members for having sold 740 bales of bagging, in contravention of the articles of the association. The Court held that the agreement entered into was palpably and unequivocally a combination in restraint of trade, and to enhance the price of an article of primary necessity to cotton planters; and that it was contrary to public order, and might not therefore be enforced in a court of justice.

Morris Run Coal Company v. Barclay Coal Company.1 Five coal companies in Pennsylvania had entered into an arrangement in New York by which they agreed to divide among themselves in certain proportions the market for the bituminous coal produced in the two coal regions controlled by them; and to appoint a committee to take charge of their business. The committee was empowered to adjust the prices of coal in the different markets, and the rates of freight, and to enter into agreements with the anthracite coal companies. Provision was made for the mining of coal and its delivery in the different markets at such times and to such parties as the committee might direct, and for the sale of the coal through a general sales agent to be appointed by the committee, and to be stationed in New York state. However, the companies were allowed to sell the coal themselves, provided they did not exceed the proportion allotted to them, and provided they sold at the prices fixed by the committee. In an action on a draft, given in furtherance of the agreement, the Court held that the contract was void under the common law, being in restraint of trade and against public policy. It was also held to be void on the ground that

54 Minnesota 223 (1893); Nester v. Continental Brewing Company, 161 Pennsylvania State 473 (1894); Charleston Natural Gas Company v. Kanawha Natural Gas, Light and Fuel Company, 58 West Virginia 22 (1905); Pocahontas Coke Company v. Powhatan Coal and Coke Company, 60 West Virginia 508 (1906).

168 Pennsylvania State 173 (1871).