to this test, being whether the restriction results (or tends to plant of the other. The agreement provided that the flume company should appoint the water company its sole agent for the exclusive sale of its water within the city, all such sales to be subject to the approval of the flume company, two trustees, one selected from each of the companies, being invested with control of the properties within the city, and a distribution of profits being provided for. The city authorities had constitutional power to fix reasonable rates for water supplied to it. The court said (108 Cal. 559; 41 Pac. 497; 29 L. R. A. 843): "A monopoly is usually, though not necessarily, harmful or injurious to public interests, though, as that term is generally used, injury to the public is implied, and competition is therefore regarded as favorable to the public interest. But there is a competition which tends to monopoly, by driving out all but the stronger competitor, when prices are again increased so as not only to yield a profit upon the original investment, but to recoup the losses incurred in breaking down competitors; or, where the competitors are of equal strength and tenacity of purpose, it may result in the destruction of the public service by the collapse of all of them." And again (108 Cal. 561; 41 Pac. 498; 29 L. R. A. 844): "Public policy does not condemn nor prohibit an arrangement intended to prevent a competition between these corporations, which would inevitably result in the financial ruin of one or both of them, and which could not, in any event, benefit the city or its inhabitants." The test was also applied in Man chester & Lawrence R. R. v. Concord R. R., 66 N. H. 100, 127; 20 Atl. 383, 384; 9 L. R. A. 689, 693; 49 Am. St. Rep. 582 (1890), where an agreement between two rival and competing railroad companies, having the purpose and effect of destroying and preventing competition, was sustained as valid, it not appearing that the purpose or effect was to raise the prices of transportation above a reasonable standard, or that the public were prejudiced by their operation in any manner. The court said: "The naked question presented then is, whether all contracts between rival railway corporations which prevent competition, are necessarily contrary to public policy, and therefore mala prohibita and illegal in themselves. To state this question is to answer it in the negative, because it is obvious that the answer depends upon circumstances. While without doubt contracts which have a direct tendency to prevent a healthy competition, are detrimental to the public, and consequently against public policy, it is equally free from doubt that when such contracts prevent an unhealthy competition, and yet furnish the public with adequate facilities, at fixed and reasonable rates, they are beneficial and in accord with sound principles of public policy. For the lessons of experience, as well as the deductions of reason, amply demonstrate that the public interest is not subserved by competition which reduces the rate of transportation below the standard of fair compensation; and the theory which formerly obtained, that the public is benefited by unrestricted competition between rail result) in the substantial control of the supply of a given com roads, has been so emphatically disproved by the results which have generally followed its adoption in practice, that the hope of any permanent relief from excessive rates, through the competition of a parallel or rival road, may, as a rule, be justly characterized as illusory and fallacious." Of the case at bar it was said (66 N. H. 129; 20 Atl. 385; 9 L. R. A. 694): "The geographical location and relative resources of the two roads were such as to render it obvious that the plaintiffs could not reasonably hope successfully to compete with their more powerful rival. The alternatives presented, it may be safely assumed, were combination or ruinous competition." Of cases cited as showing the illegality of such a combination, it was said: "They are cases of contracts in restraint of mercantile business; or cases of contracts which attempt to derogate from the right of eminent domain inherent in the State; or cases where contracts between railroad companies were held contrary to public policy, because one of the parties attempted to bind itself not to perform duties incident to the legal character of common carriers or public servants; or cases where contracts between railroad companies were held contrary to public policy, because one of the parties agreed not to build, or to cease to operate, a road which they were chartered to build or operate; or cases where contracts between railroad companies have been held illegal merely on the ground that they were ultra vires." The test was also applied in Ives v. Smith, 3 N. Y. Suppl. 645, 654; affirmed in 8 Id. 46 (Supm. Ct., Gen. T., 1889), where was sustained an agreement thus characterized: "The Oregon Railway & Navigation Company and the Northern Pacific Company have each the right to build branches in a great and widelyextended territory, unsettled, remote and undeveloped. The main lines of each company penetrate territory naturally tributary to them. From each of these main lines, branches or extensions from time to time become necessary, as the progress and development of the country may require. Instead of engaging in a strife which may cripple both corporations and obstruct the development of all the country through which the lines are to pass, they agree that each shall open up for the public certain parts of the country through which their lines are authorized to be built; that each shall pursue a plan, harmonious and consistent with its own system, affording to the public means of communication and travel, the one north and the other south of a certain line; that each may go on developing its enterprise and providing for the public, within certain prescribed territory, without the constant necessity of anticipating or avoiding the effects of the action of the other. How does this course infringe a sound dictate of public policy? It rather tends to promote than to defeat the opening of new districts to travel and commerce. It does not deprive the public of an advantage, but tends to secure it by leaving each company to the work of development in a certain district, without the necessity of confining itself to counter modity (or of services of a given kind) within a given area. acting or countervailing the efforts of one to occupy a certain locality to the exclusion of the other." See also as to the validity of traffic agreements among competing railroad corporations, 2 Morawetz on Corporations (2d Ed.), §§ 1130, 1131; Cleveland, Columbus, Cincinnati, etc., Ry. Co. v. Closser, 126 Ind. 348, 360; 26 N. E. 159, 163; 9 L. R. A. 754, 760; 22 Am. St. Rep. 593, 603 (1890). The test seems to have been applied in Trust Co. of Georgia v. State, 109 Ga. 736; 35 S. E. 323; 48 L. R. A. 520 (1900), where, in denying the application of the attorney-general for an injunction against a combination among street railroad corporations alleged to produce an illegal restriction upon competition, it was said (109 Ga. 758; 35 S. E. 330; 48 L. R. A. 529): "We think the evidence fully sustains the conclusion that the consolidation of these two lines would probably lead to granting the public generally along their routes greater and less expensive facilities and conveniences of transportation." And there was here rejected the test applied by the court below (109 Ga. 760; 35 S. E. 331; 48 L. R. A. 530), that if the consolidation defeated competition at any point on any of the lines, "or tended to defeat such competition or lessen it," relief by injunction should be granted. See also State v. Central of Georgia Ry. Co., 109 Ga. 716, 727, 728; 35 S. E. 37, 40, 41; 48 L. R. A. 351, 355, 356 (1900). In Jones V. Clifford's Executor (Fell), 5 Fla. 510, 515 (1854), a combination among the three pilots of the harbor of Pensacola for an equal sharing in the profits was sustained, as it seems, on evidence that the arrangement had worked well in practice. In the following decisions, where, on the whole, the test applied has been that of extent, with the result of condemning the restrictions under consideration, there is observable an inclination to apply the test of reasonableness, though under the erroneous impression that the doctrine against restrictions upon competition is based on that against contracts in restraint of trade. Pacific Factor Co. v. Adler, 90 Cal. 110, 117; 27 Pac. 36, 37; 25 Am. St. Rep. 102, 106 (1891); Craft v. McConoughy, 79 Ill. 346; 22 Am. Rep. 171 (1875); Morris Run Coal Co. v. Barclay Coal Co., 68 Pa. St. 173, 185; 8 Am. Rep. 159, 164 (1871); Texas Standard Oil Co. v. Adoue, 83 Tex. 650; 19 S. W. 274; 15 L. R. A. 598; 29 Am. St. Rep. 690 (1892); Milwaukee Masons & Builders' Assoc. v. Niezerowski, 95 Wis. 129; 70 N. W. 166; 37 L. R. A. 127; 60 Am. St. Rep. 97 (1897). In Stewart v. Stearns & Culver Lumber Co., 48 So. 19, 26 (Supm. Ct. Fla., 1908), where the restriction was in the business of keeping a general store in a village (see § 173), the test was said to be "whether the agreement in full operation will be injurious to the public welfare," so that it was illegal "if injurious in any percep tible degree to any considerable portion of the public." For instances of statutes aimed at restrictions upon competition and interpreted as including reasonable as well as unreasonable restrictions, see cc. XIX, XX. Particularly, however, in case of restriction upon competition in business of a public character,"1 there has been manifest a strong disposition to apply what we here call the test of reasonableness. The proper answer to the further question what constitutes reasonableness may be that the restriction is reasonable and therefore not illegal if "the public is not injured" thereby."2 Obviously, however, so broad and general a test is incapable of very close application, each case that arises being left to "be decided upon its own merits and upon the particular circumstances developed." 72 Unsatisfactory as this test may be, it would seem, on the whole, preferable to the test of extent. The English decisions, so far as they recognize at all the doctrine condemning restrictions upon competition, seem to apply the test of reasonableness, rather than that of extent.73 Any restriction, 71 See § 132. 72 See § 132. As to test being "whether or not the public interests have been injuriously affected," see under Ga. (§ 207). 73 In Collins v. Locke, 4 App. Cas. 674 (1879), an agreement among four individuals and firms carrying on the business of stevedores in the port of Melbourne, for parceling out the stevedoring business, and preventing competition, at least among themselves, "and it may be to keep up the price," was held not unlawful as in restraint of trade, if carried into effect by proper means. The question then was as to the means. However, the test of reasonableness or "propriety" was not applied to the restriction itself, the validity of which seems assumed, but to the means, the validity of which was determined by the rules applicable to contracts in restraint of trade. The decision strikingly shows how little foothold what we must regard as the American doctrine condemning restrictions upon competition arising from the acts of mere individuals, has obtained in England. It was pointed out in U. S. v. Addyston Pipe & Steel Co., 85 Fed. 271, 285; 29 C. C. A. 141, 154; 46 L. R. A. 122, 132 (6th C., 1898), that it is at variance with many decisions in this country. In Hoffman v. Brooks, 23 Am. Law Reg. (N. S.) 648 (Super. Ct. Cin., 1884), however, the court, while applying the test as one common to contracts in restraint of trade, and restrictions upon competition, carefully distinguished between the two, thus avoiding the error above indicated. Here it was said: "In the first class of cases the interests of the public and those of the party are, to a great extent, the same. Both forbid any restriction of his earning power without an equivalent, and this is the reason why only a partial restriction is permitted, and that only for a valuable consideration. In the second class of cases, the immediate interests of the public and those of the contracting parties, are in conflict. The former desire lower, the latter high legal according to the test of extent, would probably be held legal according to the test of reasonableness. But the application of the test of reasonableness has resulted in holding legal many restrictions that would have been held illegal under the test of extent. It does not seem necessary to refer for such test to the doctrine against contracts in restraint of trade, though it may be that a useful analogy is furnished by the circumstance of the application of such test to that doctrine. § 134. Agreements in restriction upon competition.-A restriction upon competition is commonly, but not necessarily, the result of an agreement between two or more persons. We say, not necessarily, because it is obvious that there is in the nature of things no reason why a restriction upon competition, amounting even to an absolute monopoly, should not result from the efforts of a single individual. The precise legal status of an individual in this situation has not been clearly defined, save so far as it may be inferred from the doctrines declared with reference to corporations, the legal status of which we shall consider hereafter. But if the restriction results from the joint efforts of two or more individuals, it seems a necessary conclusion that it also results from some agreement between er, prices. Any prevention of competition injures the public in this regard. But when competition becomes so great that those engaged in a business cannot carry it on without loss, the public becomes exposed to the same danger as in the first class. The law, therefore, applies an analogous rule. Those engaged in any trade or business may, to such limited extent as may be fairly necessary to protect their interests, enter into agreements which will result in diminishing competition and so increasing prices. Just the extent to which this may be done, courts have been careful not to define, just as they have refused to set monuments along the line between fairness and fraud." 74 See, however, Ontario Salt Co. v. Merchants' Salt Co., 18 Grant (Ontario), 540 (1871), where, assuming the legality of the doctrine condemning the enhancing of prices, it was held that it did not apply to an agreement among manufacturers. The court said (p. 544): "The article was not to be purchased in the market, but was actually to be produced by the parties themselves, and this product they could not be compelled to part with, except on their own terms." The so-called anti-trust acts are not, however, ordinarily directed against acts resulting from the efforts of a single individual. |