them, express or implied. At any rate, we shall for the present confine our attention to restrictions upon competition resulting from agreement. An agreement resulting in such a restriction seems governed by the rules applicable to agreements generally, as to form and construction.75 Thus it "may be a verbal agree 75 Thus, the agreement held ille gal as in restriction upon competition was in form a lease, in Field Cordage Co. v. National Cordage Co., 6 Ohio Cir. Ct. 615 (1892); Clancey v. Onondaga Salt Manuf. Co., 62 Barb. (N. Y.) 395 (1862); Anderson v. Shawnee Compress Co., 17 Okla. 231; 87 Pac. 315; 15 L. R. A. N. S. 846 (1906); a covenant in a deed against the sale of liquor, in Chippewa Lumber Co. v. Tremper, 75 Mich. 36; 42 N. W. 532; 4 L. R. A. 373; 13 Am. St. Rep. 420 (1889); Burdell v. Grandi, 152 Cal. 376; 92 Pac. 1022; 14 L. R. A. N. S. 909 (1907). So the agreement consisted of a by-law (or by-laws) or a rule (or rules) of an association, in Sayre v. Louisville Union Benev. Assoc., 1 Duvall (Ky.), 143; 85 Am. Dec. 613 (1863); More v. Bennett, 140 Ill. 69; 29 N. E. 888; 15 L. R. A. 361; 33 Am. St. Rep. 216 (1892); Urmston v. Whitelegg, 63 L. T. R. N. S. 455 (1890); Milwaukee Masons & Builders' Assoc. v. Niezerowski, 95 Wis. 129; 70 N. W. 166; 37 L. R. A. 127; 60 Am. St. Rep. 97 (1897); Bailey v. Master Plumbers, 103 Tenn. 99; 52 N. W. 853; 46 L. R. A. 561 (1899). See People ex rel. v. N. Y. Board of Underwriters, 54 How. Pr. (N. Y.) 240 (Supm. Ct., Sp. T., 1875). So of articles of voluntary association. Central Ohio Salt Co. v. Guthrie, 35 Ohio St. 666 (1880). So of regulations of "exchange" composed of dealers. People v. Sheldon, 139 N. Y. 251; 34 N. E. 785; 23 L. R. A. 221; 36 Am. St. Rep. 690 (1893); Drake v. Siebold, 81 Hun, 178; 30 N. Y. Suppl. 697 (1894). So of the constitution and by-laws of an association of dealers. U. S. v. Coal Dealers' Assoc., 85 Fed. 252 (C. C. Cal., 1898). For an application of the rule allowing a resort to the surrounding circumstances, for the purpose of construing an agreement in writing, see People v. North River Sugar Refining Co., 54 Hun, 354, 377; 7 N. Y. Suppl. 406, 410; 5 L. R. A. 386, 389 (1889). In U. S. v. Hopkins, 82 Fed. 529 (C. C. Kan., 1897), the monopoly condemned resulted mainly from the enforcement of a "rule of an exchange" composed of persons engaged in the live-stock commission business. Such rule prohibited any member from dealing with any person violating any of the rules or regulations of the exchange, or an expelled or suspended member, after notice of such suspension had been issued by the secretary or board of directors. The court, in determining the question of the existence of an illegal monopoly, considered not only "what appeared upon the face of its (the exchange's) preamble, rules and bylaws," but "the entire situation and the practical working and results of the defendants' methods of doing business." It appeared that the enforcement of such rule operated as a "boycott," to drive out of business all independent dealers. In Detroit Salt Co. v. National Salt Co., ment or understanding or a scheme not embodied in writing, but evidenced by the action of the parties." 76 So far as the na 134 Mich. 103, 120; 96 N. W. 1, 7 (1903), in a proceeding to enforce a written contract concededly not illegal on its face, it was held "proper to show the circumstances attending the making of the contract, the object and purpose in view and the construction placed upon it by the parties as evidenced by their dealings under it." In Field Cordage Co. v. National Cordage Co., 6 Ohio Cir. Ct. 615 (1892), similar agreements with others engaged in the same business, were considered. Compare Hartz v. Eddy, 140 Mich. 479; 103 N. W. 852 (1905). See also as to reading different instruments together, Judd v. Harrington, 139 N. Y. 105; 34 N. E. 790 (1893). As to the relative functions of court and jury in determining the legality of an agreement, see Cohen v. Berlin & Jones Envelope Co., 166 N. Y. 292; 59 N. E. 906 (1901), holding it error to leave it to the jury whether the agreement in suit "was entered into by the parties to it in good faith and without any intention to prevent competition or duly enhance or maintain the price of" the article in question. In Detroit Salt Co. v. National Salt Co., supra, while conceded that "when there is dispute and uncertainty as to the object, purpose, intent and knowledge of the parties to a contract not illegal upon its face, the question must go to the jury," held that it is otherwise "where all of the evidence is consistent only with an unlawful object and purpose on the part of all parties to the transaction." That a contract in restriction upon competition is to be strictly construed as against a party complaining of violation, see Wiggins Ferry Co. v. Ohio & Mississippi Ry. Co., 72 Ill. 360 (1874). In Standard Oil Co. v. Scofield, 16 Abb. N. C. (N. Y.) 372 (Supm. Ct., Sp. T., 1885), the rule that all reasonable intendments are to be indulged in, in support of a pleading demurred to, was applied, sustaining the complaint in an action based on a contract claimed to be illegal as "in restraint of trade,” i. e., as creating an unlawful restriction upon competition. 76 Harding v. American Glucose Co., 182 Ill. 551, 617; 55 N. E. 577, 599; 64 L. R. A. 738, 764; 74 Am. St. Rep. 189 (1899). See also Pocahontas Coke Co. v. Powhatan Coal & Coke Co., 60 W. Va. 508, 520; 56 S. E. 264, 269; 10 L. R. A. N. S. 268, 280; 116 Am. St. Rep. 901 (1907). Harding v. American Glucose Co. was the case of each of several corporations conveying its property to a new corporation organized to conduct the same kind of business; this being done "with the knowledge and understanding that each of five other competing corporations was making the same kind of contract, and executing the same kind of conveyance in respect to their own respective properties, all to be consummated and delivered at the same time and under the direction and management of agents and promoters employed by all the corporations." See also Chicago, Wilmington, etc., Coal Co. v. People, 214 Ill. 421, 453; 73 N. E. 770, 780 (1905); State v. Virginia-Carolina Chemical Co., 71 S. C. 544; 51 S. E. 455 (1905). ture of things is concerned, there might be an infinite variety in such agreements, as to form. Nevertheless, the conditions of business have in practice reduced such agreements to a few generally recognized forms, prominently what are known as "pools" and "trusts." 77 § 135. Agreement in restriction upon competition, whether necessarily illegal.-It has already been seen that a restriction upon competition is not necessarily illegal,78 also that the existence of the element of combination in no way necessarily involves the existence of an illegal restriction upon competition.79 It follows that there is nothing necessarily illegal in a mere agreement in restriction upon competition, whatever be its form. § 136. Trusts.-In its original signification the term "trust" simply involves the idea of one person holding property, not for his own benefit, but for that of another, called the beneficiary. But the special application of such term, now to be considered, is based on what was for a time a practice of parties to an agreement in restriction upon competition (commonly, but not necessarily, corporations or stockholders therein) surrendering the direct control of the management of the business covered by the agreement, to a central board of "trustees," 80 the interest of 77 As to restrictions resulting from acts of corporations, see C. XV. 78 See § 118. 79 See § 129. 80 See Cook on Stock, Stockholders, etc., § 503a, quoted and applied in State ex rel. v. Standard Oil Co., 49 Ohio St. 137, 185; 30 N. E. 279, 290; 15 L. R. A. 145, 159; 34 Am. St. Rep. 541, 553 (1892); also articles in 3 Pol. Sci. Quart. 592, 611 (1888) by T. W. Dwight, with a discussion of the "Sugar Trust" deed; 27 Am. Law Rev. 708 (1893) by U. M. Rose; 7 Harv. Law Rev. 157 (1893) by S. C. T. Dodd; 16 Id. 79 (1902-3) by R. L. Raymond; 3 Va. Law Reg. 163, 164 (1897-8) by W. L. Royall. In 1 Harv. Law Rev. 133 (1887), F. J. Stimson defines a trust as "a combination of property, real or personal, with powers of management or absolute disposal, or of stock in corporations, in the hands of a few persons," and says that "the origin of the word 'trust' seems to have been the well-known Standard Oil monopoly." The so-called "trust" agreements were all essentially similar in form. The following, under consideration and thus described in Bishop v. American Preservers' Co., 157 Ill. 284, 311; 41 N. E. 765, 774; 48 Am. St. Rep. 317 (1895), is here presented by way of illus tration: "The agreement recites that it is designed by its signers to form a trust for the purpose of se such parties being commonly represented by "trust certificates" curing co-operation in the business of manufacturing preserves, etc., and of selling and dealing in the same in home and foreign markets." There were nine trustees, six designated by name and authorized to elect three others. "Such trustees are empowered to organize corporations with all or any of the powers specified in the purposes of the agreement; and the stock of such corporations is to be issued to or purchased by said trustees. For this stock the trustees are to issue certificates of trust. The agreement is to go into effect within sixty days from the time those holding the majority of the stock in seven specified corporations, formed or to be formed, shall transfer the same to the trustees. Each signer of the agreement agrees to assign and transfer to said trustees absolutely, all the shares which he may own in said corporations formed or to be formed, and is to receive therefor, not money, but trust certificates, equal to the appraised amount of the earning capacity of his stock, as fixed by the trustees and the stockholder. The trustees are authorized to purchase in the same way, by the issue of trust certificates, other stocks of the same companies, and also the property and business of any firm or individual engaged in the business of manufacturing and dealing in said products. The trustees are to exercise supervision over the corporations whose stocks are transferred to them, and are empowered to elect themselves directors and officers in such corporations, and procure such management of the same as will be conducive to the inter ests of the holders of the trust certificates. These trust certificates are divided into shares of the par value of $100 each and are prepared by the trustees. They provide that the holders thereof shall be bound by the terms of the trust agreement, and of the by-laws passed in pursuance thereof, and are intended to show the interest of each beneficiary in the trust. The trustees hold the stocks transferred to them, in trust for the holders of the certificates, and are to receive and hold the dividends or interest upon said stocks, and are to distribute the same by declaring dividends upon the certificates. The stocks SO transferred to the trustees are to be held by them for the benefit of all the owners of the trust certificates. The trust is to continue for twenty-five years, subject to the right of seventy-five per cent. of the holders of the certificates to terminate it after the expiration of one year, and of sixty-five and twothirds per cent. of such holders to terminate it at the end of five years; and the trustees cannot sell or surrender any of the stocks held by them, during the continuance of the trust, without the consent of a majority in number and value of the holders of the trust certificates." See also descriptions of the agreements under consideration in Distilling & Cattle Feeding Co. v. People, 156 Ill. 448; 41 N. E. 188; 47 Am. St. Rep. 200 (1895); National Lead Co. v. Grote Paint Store Co., 80 Mo. App. 247, 266 (1899); People v. North River Sugar Refining Co., 121 N. Y. 582; 24 N. E. 834; 9 L. R. A. 33; 18 Am. St. Rep. 843 (1890); State ex rel. v. received in lieu of stock in the corporations.81 Trusts in this form, however, have come to be mainly of historic interest merely, for the legal difficulties experienced in their organization and conduct have led to their disuse, and combined action to restrict competition is now commonly through the medium of corporate organization. But the term "trust" continues in common use, being applied without much discrimination to any business conducted on a large scale, particularly if conducted by a corporation.82 Thus it is defined as "a contract, combination, confederation, or understanding, express or implied, between two or more persons, to control the price of a commodity or service for the benefit of the parties thereto, and to the injury of the Standard Oil Co., 49 Ohio St. 137; 30 N. E. 279; 15 L. R. A. 145; 34 Am. St. Rep. 541 (1892); Gould v. Head, 38 Fed. 886 (C. C. Colo., 1889); Same v. Same, 41 Id. 240 (C. C. Colo., 1890); and see Spelling on Trusts and Monopolies, c. 12. What are known as "car trusts" resemble in name only the trusts now under consideration. See, generally, Ray on Contractual Limitations, p. 248. There are in some instances statutory prohibitions especially directed against this now disused form of organization. See under the anti-trust acts, c. XX. 81 In State v. American Cotton Oil Trust, 40 La. Ann. 8; 3 So. 409 (1888), an injunction was refused against dealing in the shares of the American Cotton Oil Trust, the court saying: "If these certificates have been taken as the price or in exchange for $10,000,000 of property transferred to the trust, then, whatever be their validity and effect as shares of stock, whether or not they confer on the holders the privileges of corporate stock holders, and whether or not they confer any right to participate in the carrying on of any illegal business, yet they undoubtedly do represent an interest in the property referred to, and as such have a legal and real value, and we cannot understand how such property rights can be placed hors de commerce by an injunction." See also, as to the rights of a transferee of a Standard Oil Trust certificate, Rice v. Rockefeller, 134 N. Y. 174; 31 N. E. 907; 17 L. R. A. 237; 30 Am. St. Rep. 658 (1892). 82 In Harding v. American Glucose Co., 182 Ill. 551, 615; 55 N. E. 577, 598; 64 L. R. A. 738, 763; 74 Am. St. Rep. 189 (1899), it was said: "It makes no difference whether the combination is effected through the instrumentality of trustees and trust certificates or whether it is effected by creating a new corporation and conveying to it all the property of the competing corporations." See generally, as to restrictions upon competition, as resulting from acts of corporations, c. XV. |