buyer unless the covenant were such that the benefit of it would run at common law. The rule adopted as to the running of the benefit at common law was that, to run, the covenant must be one to do, or refrain from doing, something physically on the covenantor's own land for the physical benefit of related land of the covenantee. Hodge v. Sloan only differs from Norcross v. James in holding that equity will give specific performance against the grantee of the buyer with notice when the covenant is to refrain from doing something physically on the covenantor's land for the financial (as distinguished from physical) benefit of the related land of the covenantee.

CHAPTER III

EXCLUSIVE CONTRACTS OF SALE AND PURCHASE

826. Exclusive contracts of sale and purchase between business units are in reality a method of combination. If A agrees to sell and B to buy A's product exclusively in a given territory, A and B have really combined for the purpose of doing business in A's product in that territory. Competition between B and others in dealing with A's commodity in the particular territory is eliminated just as if B had become a part of A's business by merger and organization as a selling department or agent. The legality of such exclusive arrangements really depend upon the principles which govern the validity of combinations by merger or purchase. These are set out hereafter. But for the sake of dealing with exclusive contracts by themselves, the application of those principles will here be made to such contracts.

§ 27. If A and B are not competitors, and the exclusive contract between them does not result in a combination which occupies a preponderant position in the business it is legal. Such is the case where a producer or wholesaler who is merely one unit among many competitors makes exclusive selling or purchasing arrangements with territorial distributors or retailers of his product.2 Even where B was a railroad and agreed to run the sleeping cars of a single company exclusively for 15 years, the contract was valid. Looked at as an isolated transaction, the railroad was a legal organization and no consideration overcame the public interest in its freedom to contract for facilities. The fact that the exclusive contract is made with a competitor should be no more offensive than any other union of competitors. If the

1-Post $$ 48-92.

2-Newell v. Meyendorff, 9 Mont. 254 (1890) [221]. See also Houck & Co. v. Wright, 77 Miss. 476 (1899); Walsh v. Dwight, 40 N. Y. App. Div. 513 (1899).

3-Chicago, St. Louis & N. O. R. Co. v. Pullman Southern Car Co., 139 U. S. 79 (1891) [237].

combination of competitors does not result in a unit occupying a preponderant position in the business it is valid.*

§ 28. So where there are mutual exclusive contracts of sale and purchase entered into by parties who are combining different resources-i. e., one possessing mines for the raw material, another skill and labor, and a third the manufacturing plant using the raw material-the contracts are valid though they eliminate a possible competition between the units so combining and to that extent, at least, tend toward monopoly. The considerations in favor of permitting a combination of the resources of several in a common enterprise which is necessary to the fostering and developing of trade and industry overcome such objections as inhere in the elimination of competition and tendency toward monopoly in the case put, provided always that there is no' exclusion of others from the business by a unit holding a preponderant position.5

§ 29. If, however, the exclusive contract of sale and purchase is part of a scheme of so many similar contracts that a combination is effected occupying a preponderant position in the entire business, there is at least a prima facie inference of an intent to monopolize by excluding others from the business and the contract and combination are illegal."

§30. Suppose now that a local telephone company, depending upon special franchises for its operation, makes an exclusive connecting arrangement with a long distance company which also operates under special franchises. This is a combination between the local and long distance companies. Its tendency is to keep out of the field any other long distance company because such a company cannot secure the local connection which it needs. Its tendency is also to keep out of the field any other local company operating in the same place because such local

4-Post 8853-59. As applied to exclusive contracts to sell a product to a competitor see Van Marter v. Babcock, 23 Barb. (N. Y.) 633 (1857).

5-Southern Fire Brick & Clay Co. v. Garden City Sand Co., 223 Ill. 616 (1906) [230].

6-Continental Wall Paper Co. v. Voight & Sons Co., 212 U. S. 227 (1909) [799, 1211]; Arnot v. Pittston & Elmira Coal Co., 68 N. Y. 558 (1877) [224]. See post § 49.

company cannot secure the long distance facilities which it needs. These tendencies, which in an ordinary trading and manufacturing business, free to all to enter, would be too slight to outweigh the desirability of maintaining the freedom to contract, are decisive against the validity of the contract between the telephone companies. The same reasoning makes exclusive contracts between the local telephone company and its subscribers illegal. The local telephone business being necessarily unfree to the public to enter, any exclusive contract with a subscriber which would tend to keep out of the telephone business any other company admitted to do business by the public authorities would be an illegal attempt at monopoly.8

The difference between these cases and the Pullman Palace Car case is this: In the Pullman case the business of making sleeping cars was free to others to enter and the single contract in question did not make it appreciably less so, nor did it tend to exclude from the field other railroad companies to which the public authorities might choose to give a franchise to build and operate a railroad.

V.

7-Union Trust & Savings Bank

Kinloch Long Distance Telephone Co., 258 Ill. 202 (1913) [242]; United States Telephone Co. v. Central Union Co., 171 Fed. 130 (1909), 202 Fed. 66 (1913). Of course, the exclusive contract is also illegal, because it prevents the local company from performing its duty

to the public by connecting with other companies and giving the service to the public which such connections would have enabled it to do.

8-Central New York Telephone & Telegraph Co. v. Averill, 199 N. Y. 128 (1910) [249]. 9-Ante § 27.

CHAPTER IV

CONTRACTS (1) TO KEEP UP THE PRICE ON RESALE AND (2) TO BUY OR USE OTHER ARTICLES IN CONNECTION WITH THOSE SOLD

SECTION 1

CONTRACTS TO KEEP UP THE PRICE ON RESALE

§ 31. Suppose a manufacturer, whose goods are neither patented nor subject to any copyright and are in competition with similar goods of other manufacturers and not the subject of any public necessity, and who does not occupy any preponderant position in the business in which he is thus engaged, sells his commodity to retail distributors with the covenant by them not to sell, and that the goods are not to be sold by anyone, for less than certain prices. If such a contract is valid, is it enforceable between the parties by injunction? If so, is it enforceable specifically in equity against third parties who take with notice of the restrictive covenant? These are important questions, but they are subordinate to the settlement of the validity of the contract as between the parties.

§32. Before the decision in the United States Supreme Court of the Dr. Miles Medical Co. case,1 it had been held in England and in several states of the Union-that is to say, in a number of common law jurisdictions where the question arose-that such a contract was valid as between the parties so that damages for the breach might be recovered 2 or an injunction against the breach obtained. In one case, at least, the injunction was

1-Dr. Miles Medical Co. v. Park & Sons Co., 220 U. S. 373 (1911) [838].

2-Elliman Sons & Co. v. Carrington & Son, L. R. [1901] 2 Ch. 275; Garst v. Harris, 177 Mass. 72 (1900).

3-Grogan v. Chaffee, 156 Cal. 611 (1909) [251]; Garst v. Charles, 187 Mass. 144 (1905). See also Clark v. Frank, 17 Mo. App. 602 (1885); New York Ice Co. V. Parker, 21 How. Pr. (N. Y.) 302 (1861).