enforcible contract not to engage in the same business in such a way as to prevent injury to that which he was about to sell. It was equally for the good of the public and trade, when partners dissolved, and one took the business, or they divided the business, that each partner might bind himself not to do anything in trade thereafter which would derogate from his grant of the interest conveyed to his former partner. Again, when two men became partners in a business, although their union might reduce competition, this effect was only an incident to the main purpose of a union of their capital, enterprise, and energy to carry on a successful business, and one useful to the community. Restrictions in the articles of partnership upon the business activity of the members, with a view of securing their entire effort in the common enterprise, were, of course, only ancillary to the main end of the union, and were to be encouraged. Again, when one in business sold property with which the buyer might set up a rival business, it was certainly reasonable that the seller should be able to restrain the buyer from doing him an injury which, but for the sale, the buyer would be unable to inflict. This was not reducing competition, but was only securing the seller against an increase of competition of his own creating. Such an exception was necessary to promote the free purchase and sale of property. Again, it was of importance that business men and professional men should have every motive to employ the ablest assistants, and to instruct them thoroughly; but they would naturally be reluctant to do so unless such assistants were able to bind themselves not to set up a rival business in the vicinity after learning the details and secrets of the business of their employers.

For the reasons given, then, covenants in partial restraint of trade are generally upheld as valid when they are agreements (1) by the seller of property or business not to compete with the buyer in such a way as to derogate from the value of property or business sold; (2) by a retiring partner not to compete with the firm; (3) by a partner pending the partnership not to do anything to interfere, by competition or otherwise, with the business of the firm; (4) by the buyer of property not to use the same in competition with the business retained by the seller; and (5) by an assistant, servant or agent not to compete with his master or employer after the expiration of his time of service. Before such agreements are upheld, however, the court must find that the restraints attempted thereby are reasonably necessary (1, 2 and 3) to the enjoyment by the buyer of the property, good-will or interest in the partnership bought; or (4) to the legitimate ends of the existing partnership; or (5) to the prevention of possible injury to the business of the seller from use by the buyer of the thing sold; or (6) to protection from the danger of loss to the employer's business caused by the unjust use on the part of the employe of the confidential knowledge acquired in such business. Under the first class come the cases of Mitchel v. Reynolds, 1 P. Wms. 181; Fowle v. Parke, 131 U. S. 88, 9 Sup. Ct. 658; Nordenfeldt v. MaximNordenfeldt Co. (1894), App. Cas. 534; Rousillon v. Rousillon, 14 Ch. Div. 351; Cloth Co. v. Lorsont, L. R. 9 Eq. 345; Whittaker v.

Howe, 3 Beav. 383; Match Co. v. Roeber, 106 N. Y. 473, 13 N. E. Rep. 419; Tode v. Gross, 127 N. Y. 480, 28 N. E. Rep. 469; Beal v. Chase, 31 Mich. 490; Hubbard v. Miller, 27 Mich. 15; National Ben. Co. v. Union Hospital Co., 45 Minn. 272, 47 N. W. Rep. 806; Whitney v. Slayton, 40 Maine 224; Pierce v. Fuller, 8 Mass. 223; Richards v. Seating Co., 87 Wis. 503, 58 N. W. Rep. 787. In the second class are Tallis v. Tallis, 1 El. & Bl. 391, and Lange v. Werk, 2 Ohio St. 520. In the third class are Machinery Co. v. Dolph, 138 U. S. 617, 11 Sup. Ct. 412, Machinery Co. v. Dolph, 28 Fed. Rep. 553; and Matthews v. Associated Press, 136 N. Y. 333, 32 N. E. Rep. 981. In the fourth class are American Strawboard Co. v. Haldeman Paper Co., 83 Fed. Rep. 619; and Hitchcock v. Anthony, 83 Fed. Rep. 779, both decisions of this court; Navigation Co. v. Winsor, 20. Wall. 64; Dunlop v. Gregory, 10 N. Y. 241; Hodge v. Sloan, 107 N. Y. 244, 17 N. E. Rep. 335. While in the fifth class are the cases of Homer v. Ashford, 3 Bing. 322; Horner v. Graves, 7 Bing. 735; Hitchcock v. Coker, 6 Adol. & E. 438; Ward v. Byrne, 5 Mees. & W. 547; Dubowski v. Goldstein (1896), I Q. B. 478; Peels v. Saalfeld (1892), 2 Ch. 149; Taylor v. Blanchard, 13 Allen 370; Keeler v. Taylor, 53 Pa. St. 467; Herreshoff v. Boutineau, 17 R. I. 3, 19 Atl. Rep. 712.

It would be stating it too strongly to say that these five classes of covenants in restraint of trade include all of those upheld as valid at the common law; but it would certainly seem to follow from the tests laid down for determining the validity of such an agreement that no conventional restraint of trade can be enforced unless the covenant embodying it is merely ancillary to the main purpose of a lawful contract, and necessary to protect the covenantee in the enjoyment of the legitimate fruits of the contract, or to protect him from the dangers of an unjust use of those fruits by the other party. In Horner v. Graves, 7 Bing. 735, Chief Justice Tindal, who seems to be regarded as the highest English judicial authority on this branch of the law (see Lord Macnaghten's judgment in Nordenfeldt v. Maxim Nordenfeldt Co. (1894), App. Cas. 535, 567), used the following language:

"We do not see how a better test can be applied to the question, whether this is or not a reasonable restraint of trade, than by considering whether the restraint is such only as to afford a fair protection to the interests of the party in favor of whom it is given, and not so large as to interfere with the interests of the public. Whatever restraint is larger than the necessary protection of the party requires can be of no benefit to either. It can only be oppressive. It is, in the eye of the law, unreasonable. Whatever is injurious to the interests of the public is void on the ground of public policy."

This very statement of the rule implies that the contract must be one in which there is a main purpose, to which the covenant in restraint of trade is merely ancillary. The covenant is inserted. only to protect one of the parties from the injury which, in the execution of the contract or enjoyment of its fruits, he may suffer from the unrestrained competition of the other. The main purpose

of the contract suggests the measure of protection needed, and furnishes a sufficiently uniform standard by which the validity of such restraints may be judicially determined. In such a case, if the restraint exceeds the necessity presented by the main purpose of the contract, it is void for two reasons: First, because it oppresses the covenantor without any corresponding benefit to the covenantee; and, second, because it tends to a monopoly. But where the sole object of both parties in making the contract as expressed therein is merely to restrain competition, and enhance or maintain prices, it would seem that there was nothing to justify or excuse the restraint, that it would necessarily have a tendency to monopoly and therefore would be void. In such a case there is no measure of what is necessary to the protection of either party except the vague and varying opinion. of judges as to how much, on principles of political economy, men ought to be allowed to restrain competition. There is in such contracts no main lawful purpose to subserve which partial restraint is permitted, and by which its reasonableness is measured, but the sole object is to restrain trade in order to avoid the competition which it has always been the policy of the common law to foster.

[Reviewing many cases.]

Upon this review of the law and the authorities, we can have no doubt that the association of the defendants, however reasonable the prices they fixed, however great the competition they had to encounter, and however great the necessity for curbing themselves by joint agreement from committing financial suicide by ill-advised competition, was void at common law, because in restraint of trade, and tending to a monopoly. But the facts of the case do not require us to go so far as this, for they show that the attempted justification of this association on the grounds stated is without foundation.

In

Another aspect of this contract of association brings it within the term used in the statute, "a conspiracy in restraint of trade." A conspiracy is a combination of two or more persons to accomplish an unlawful end by lawful means or a lawful end by unlawful means. the answer of the defendants, it is averred that the chief way in which cast-iron pipe is sold is by contracts let after competitive bidding invited by the intending purchaser. It would have much interfered. with the smooth working of defendants' association had its existence and purposes become known to the public. A part of the plan was a deliberate attempt to create in the minds of the members of the public inviting bids the belief that competition existed between the defendants. Several of the defendants were required to bid at every letting, and to make their bids at such prices that the one already selected to obtain the contract should have the lowest bid.

It is well settled that an agreement between intending bidders at a public auction or a public letting not to bid against each other, and thus to prevent competition, is a fraud upon the intending vendor or contractor, and the ensuing sale or contract will be set aside. Breslin v. Brown, 24 Ohio St. 565; Atcheson v. Mallon, 43 N. Y. 147; Loyd v. Malone, 23 Ill. 41; Wooten v. Hinkle, 20 Mo. 290; Phip

pen v. Stickney, 3 Metc. (Mass.) 384; Kearney v. Taylor, 15 How. 494, 519; Wilbur v. How, 8 Johns. 444; Hannah v. Fife, 27 Mich. 172; Gibbs v. Smith, 115 Mass. 592; Swan v. Chorpenning, 20 Cal. 182; Gardiner v. Morse, 25 Maine 140; Ingram v. Ingram, 49 N. C. 188; Brisbane v. Adams, 3 N. Y. 129; Woodruff v. Berry, 40 Ark. 251; Wald Pol. Cont., 310, note by Mr. Wald, and cases cited. The case of Jones v. North, L. R. 19 Eq. 426, to the contrary, can not be supported. The largest purchasers of pipe are municipal corporations, and they are by law required to solicit bids for the sale of pipe in order that the public may get the benefit of competition. One of the means adopted by the defendants in their plan of combination was this illegal and fraudulent effort to evade such laws, and to deceive intending purchasers. No matter what the excuse for the combination by defendants in restraint of trade, the illegality of the means stamps it as a conspiracy, and so brings it within that term of the federal statute.

The second question is whether the trade restrained by the combination of the defendants was interstate trade.

In Robbins v. Taxing Dist., 120 U. S. 489, 7 Sup. Ct. 592, a law of Tennessee, which imposed a tax on all "drummers" who solicited orders on samples, was held unconstitutional in so far as it applied to the drummer of an Ohio firm, who was soliciting orders for goods to be sent from Ohio to the purchasers in Tennessee, on the ground that it was a tax on interstate commerce. In delivering the opinion of the court in that case, Mr. Justice Bradley said (page 497, 120 U. S., and page 596, 7 Sup. Ct.) that a tax on the sale of goods, or the offer to sell them before they are brought into the state, was clearly a tax on interstate commerce. He further said:

for

"The negotiation of sales of goods which are in another state, the purpose of introducing them into the state in which the negotiation is made, is interstate commerce."

If then, the soliciting of orders for, and the sale of, goods in one state, to be delivered from another state, is interstate commerce in its strictest and highest sense-such that the states are excluded by the federal constitution from a right to regulate or tax the same,-it seems clear that contracts in restraint of such solicitations, negotiations, and sales are contracts in restraint of interstate commerce. The anti-trust law is an effort by congress to regulate interstate commerce. Such commerce as the states are excluded from burdening or regulating in any way by tax or otherwise, because of the power of congress to regulate interstate commerce, must, of necessity, be the commerce which congress may regulate, and which, by the terms of the anti-trust law, it has regulated. We can see no escape from the conclusion, therefore, that the contract of the defendants was in restraint of interstate

commerce.

Reversed.

Corporate Combinations.

Note: See decision in supreme court of U. S., 175 U. S. 211, infra, p. 1535. 1. In general. In the discussion of this topic two principles should be kept

constantly in mind,—one based upon the nature of a corporation is, that the grant of corporate power is a franchise granted by the state for a definite purpose, to be exercised in a way prescribed, and subject to forfeiture by the state if it is not carried out in accordance with the grant; the second is based upon public policy, viz., that combination agreements of individuals, partnerships, or corporations, with the purpose and effect (with certain exceptions) of restraining trade, destroying competition, and resulting in monopoly, are unenforcible, and under some circumstances wrongful,-tortious or criminal.

* *

2. The first principle, that a corporation must not abdicate its purpose or prescribed method of management, is well expressed in Whittenton Mills v. Upton, 10 Gray (Mass.) 582 (1858), by Thomas, J., where the question involved was whether a corporation could be a member of a partnership. He said: "An act of the corporation, done either by direct vote or by agents authorized for the purpose, is the manifestation of the collected will of the society. No member of the corporation, as such, can bind the society. In a partnership each member binds the society as a principal. If, then, this corporation may enter into partnership with an individual, there would be two principals, the legal person and the natural person, each having, within the scope of the society's business, full authority to manage its concerns, including even the disposition of its property. The partner may manage and conduct the business of the corporation, and bind it by his acts. In doing so he does not act as an officer or agent of the corporation by authority received from it, but as a principal in a society in which all are equals, and each capable of binding the society by the act of its individual will." This agreement was held void. Such agreements, if valid, would have the effect, as Judge Finch says, in People v. North River Sugar Ref. Co., 121 N. Y. 582 (1890), supra, p. 100, to permit a corporation "to accept from the state the gift of corporate life only to disregard the conditions upon which it was given; to receive its powers and privileges merely to put them in pawn; and to give away to an irresponsible board (or person) its entire independence and self-control." So, too, it would have the effect of conferring upon the partner the capacity of wielding or enjoying corporate power without the states' grant being made to him. The same doctrines are stated in Mallory v. Hanaur Oil Works, 86 Tenn. 598, supra, p. 957:

The above were all cases of purely private business corporations, not those owing any special duty to the public. The rule applies, of course, with more reason and more strictness to quasi-public corporations, or those owing particular duties to the public. As stated by Justice Miller in Thomas v. West Jersey R. Co., 101 U. S. 71 (1879), supra, p. 915; "Where a corporation, like a railroad company, has granted to it by charter a franchise intended, in large measure, to be exercised for the public good, the due performance of those functions being the consideration of the public grant, any contract which disables the corporation from performing those functions, which undertakes, without the consent of the state, to transfer to others the rights and powers conferred by the charter, and to relieve the grantees of the burden which it imposes, is a violation of the contract with the state, and is void as against public policy." While Justice Miller says such contract is void as against public policy, he evidently means that it is void because it is in conflict with a definite rule of law, viz., that corporations are accountable to the state for non-user or mis-user of the franchises granted, and not that only quasi-public corporations are so accountable. (See infra, this note, class d.)

From these principles, therefore, it follows that all contracts of a corporation, either private or quasi-public, to enter into combinations, whether of partnership, pool, restraint of trade, trust, lease, consolidation, sale or otherwise, the necessary effect of which is to destroy its autonomy in the performance of its duty to the state, are, or ought to be, held to be void and unenforcible, and this so, regardless of any other quality of the contract. And it is generally held so, although there are holdings to the contrary (erroneously we think), in the case of leases and sales by purely private corporations. See cases cited in notes to §§ 275, 276, 277, 279-282, and below, class d in this note.