THE

AMERICAN LAW REGISTER.

MAY 1885.

VALIDITY OF CONTRACTS IN RESTRAINT OF
TRADE.

(Concluded from April Number.)

V. CLASSIFICATION.-Chief Justice PARKER (Mitchel v. Reynolds, 1 P. Wms. 181), divides contracts in restraint of trade into two classes, namely: involuntary and voluntary; the former restraints arising from, first, grants or charters from the crown; second, customs; and third, by-laws; and the latter comprising those restraints which arise from the agreement of the parties. Only voluntary restraints will be treated in this article. Voluntary restraints are sub-divided into, first, general, and second, particular or limited restraints, which sub-division will be followed.

VI. GENERAL RESTRAINTS.

(a) Criterion of Validity.-It is exceedingly difficult to lay down a general rule to cover all classes of cases.

Each contract

must rest upon its own peculiar circumstances. The reasonableness of the limitation is the criterion of validity. Many cases have made the extent of territory covered by the prohibition the final and conclusive test. Yet this is not always infallible. If the extent of the restraint upon one party is not greater than the protection. to the other party requires, the contract is reasonable and valid: Roussillon v. Roussillon, 14 Ch. Div. 351; s. c. 19 Am. Law Reg. 748. Thus, an agreement of a solicitor to relinquish the practice of his profession in London, or within one hundred and VOL. XXXIII.—36

(281)

fifty miles thereof (Bunn v. Guy, 4 East 190), or even if the prohibition extends throughout the whole kingdom (Whittaker v. Howe, 3 Beav. 383), is valid; while an agreement of a dentist to abstain from the practice of dentistry within a circuit of one hundred miles was held void: Horner v. Graves, 7 Bing. 735; s. c. 5 Moore & Payne 768.

(b) Rule Stated.-Subject to the exceptions which will hereafter appear, the general principle may be thus stated: All contracts in restraint of trade whose operation is general, are void. The application of the rule is more difficult than a clear understanding of it. Contracts to abstain from a business everywhere, or throughout the realm, and, usually, contracts whose prohibition covers an entire state, or a large part thereof, come within this principle. (c) Application of the Rule.

(1.) Restraints extending everywhere.-A contract not to carry on a business anywhere is clearly unreasonable, for its operation is general. It can be of no benefit to either party. And if one agrees to abstain from a certain business at any place where the vendee might carry on the same business, the agreement is unenforceable. Thomas v. Miles's Admrs., 3 Ohio St. 274 (1854; Hedge v. Lowe, 47 Iowa 137 (1877); Gale v. Reed, 8 East 80 (1806); Mossop v. Mason, 18 Gr. Ch. (Ont.) 453 (1871); Kennedy v. Lee, 3 Mer. 440, 451, 452 (1817); Lange v. Werk, 2 Ohio St. 519 (1853). So is an agreement to abstain from the business of brewing at P. or elsewhere: Hinde v. Gray, 1 M. & G. 195 (1840); s. c. 1 Scott (N. S.) 123; see Curtiss v. Gokey, 68 N. Y. 300 (1877); s. c. 5 Hun 555 (1875); Bank v. King, 44 N. Y. 87 (1870); Peltz v. Eichele, 62 Mo. 171 (1876); or coal merchant for nine months: Ward v. Byrne, 5 M. & G. 548, 562 (1839); 13 Jur. 1175; or a stipulation by one partner, on selling out his share, "to cease being in that trade;" Maier v. Hoofman, 4 Daly (N. Y.) 168 (1871); or a bond conditioned that the obligor shall never conduct or be engaged in the yeast powder business; Callahan v. Donnolly, 45 Cal. 152 (1872); or in the business of founding iron; Alger v. Phacher, 19 Pick. (Mass.) 51 (1837).

(2.) Same. Throughout the Realm.-It is evident that a contract not to pursue one's trade in the entire realm or country is void, because the country suffers the loss of being deprived of the restricted party's industry; and the party is deprived of his occupation, or is obliged to expatriate himself in order to follow it. Oregon

Steam Navigation Co. v. Winsor, 20 Wall. 68 (1873). Thus, a stipulation not to be connected either "directly or indirectly" in the manufacture of stearin candles for a specified time in any part of the United States is void: Lange v. Werk, 2 Ohio St. 519 (1853). So is an agreement between partners engaged in manufacturing daguerreotype materials, on dissolution, that one shall never engage in that business again in any part of the United States. Dean v. Emerson, 102 Mass. 480 (1869).

(3.) Same. Throughout a State.-It has been held that a bond not to engage in the business of asphaltum roofing and pavementlaying in the city or county of San Francisco, or state of California," is void: Moore v. Bonnett, 40 Cal. 251 (1870); or never to engage in the business of manufacturing and selling shoe-cutters at any place within the state of Massachusetts: Taylor v. Blanchard, 13 Allen 370 (1866); or to abstain from running a steamboat on any of the waters of California: Wright v. Ryder, 36 Cal. 357 (1868). These cases proceed upon the theory that if such contracts were upheld, the one bound would be compelled to transfer his residence and allegiance to another state in order to pursue his avocation. Judge SELDEN, of the New York Supreme Court, in answer to the contention that no restraint could be general which operated in a single state only, denounced it to be repugnant to "the general frame and policy of our government to regard the Union, in respect to our ordinary internal and domestic interests, as one consolidated nation. For all these purposes, each state is a separate community, with separate and independent public interests." Lawrence v. Kidder, 10 Barb. 641 (1851). "But this mode of applying the rule," says BRADLEY, J., (Oregon Steam Navigation Co. v. Winsor, supra,) "must be received with some caution. This country is substantially one country, especially in all matters of trade and business, and it is manifest that cases may arise in which it would involve too narrow a view of the subject to condemn as invalid a contract not to carry on a particular trade or business within a particular state. Suppose the case of two persons associated in business as partners, and engaged in a manufacture by which they supply the country, but the process of manufacture is a secret; and they agree to separate, and one of the terms of their separation is, that one of the parties shall not sell the manufactured article in Massachusetts, where the other resides and carries on business; and that the latter shall not sell the article in New

York, where his associate is to reside and carry on business. Can any one doubt that such an agreement would be valid? Stearns v. Barrett, 1 Pick. (Mass.) 442 (1823). Contracts in sale of process of secret manufacture of articles which restrain the vendor from engaging in the manufacture of them are valid. Cases must be adjudged according to their circumstances, and can only be rightly judged when the reasons and grounds of the rule are carefully considered." Accordingly, upon the sale of a steamboat, a covenant not to run it on the waters of the state of California was sustained. Oregon, &c., Co. v. Winsor, supra.

Judge CHRISTIANCY's views on this question fully accord with those of the Supreme Court of the United States. And he sustained a bond given by a printer and publisher, whose business extended throughout the state of Michigan, stipulating never to carry on that business within that state. Beal v. Chase, supra. See remarks of this judge, ante. Upon principle, the latter view is undoubtedly the correct one. Contracts which embrace the entire state must be determined upon the same principle as those which contemplate a general restraint.

(4.) Same. Throughout a large portion of a State or Country.— The same reasons which have been given for declaring contracts in general restraint of trade void, apply with equal force to those which seek to deprive a large portion of a state or country of the restricted party's labor. The same evils follow in both cases. Thus, a stipulation of a dentist not to practise dentistry within a circuit of 200 miles in diameter, in England, is void: Horner v. Graves, 7 Bing. 735 (1831). So is a contract that the vendor will not carry on the perfume business at any place within 600 miles of London: Price v. Green, 16 M. & W. 346 (1847); s. c. 13 M. & W. 695; or that he will not engage in manufacturing or trading in palm-leaf beds or mattrasses, in all the territory of the state of New York, west of Albany: Lawrence v. Kidder, 10 Barb. 641 (1851).

(5.) Same Commerce upon the High Seas.-If these contracts restrain, or tend to restrain, unreasonably, commerce upon the bigh seas, they are equally void for the same reasons that declare them invalid on land. For the benefit of all nations that strive for commercial supremacy, this enterprise should be free from restrictions. Therefore, if one ocean steamship company agrees with another to abstain from running ships between North and South America, the contract is invalid: Murray v. Vanderbilt, 39 Barb. 140 (1863).

(6.) Same. Confined to Locality, but subject to Covenantee's selection.-In Thomas v. Miles's Administrator, 3 Ohio St. 274 (1854), one party covenanted not to carry on a certain business at any place where the other party might carry on the same business. This case decided that where the restraint is confined to localities, if they are not definitely ascertained, and their location is subject to the vendee's selection, the contract is void because of its too general operation.

(7.) Time.-A limitation as to time is never a necessary element in determining the validity of these contracts. If the restraint is unreasonable as to space, the contract is void, however limited as to time. There are good reasons for this. The public is injured during the continuance of the restriction. Between a perpetual and limited restraint the only difference is the degree of mischief. It is well to remember that if the public is injured in the least, this is sufficient to nullify the agreement. On principle, the degree of injury, as affecting the validity or invalidity, ought never be considered. Thus, a contract of an innkeeper, upon selling his inn, to abstain from business for ten years (Mossop v. Mason, 18 Grant Ch. R. (Ont.) 453 (1871)), or a coal merchant, not to follow his business for twenty years (Ward v. Byrne, 5 M. & W. 548, 562 (1839); 3 Jur. 1175), or a manufacturer not to manufacture certain kinds of articles for a period of thirty years, have been condemned (The Saratoga Co. Bank v. Bank, 44 N. Y. 87 (1870)). See, also, Bowser v. Bliss, 7 Blackford (Ind.) 344; s. c. 43 Am. Dec. 93, with note, which holds that if the duration is indefinite as to time, this will not invalidate the contract.

8. Restraints removable at the Option of the Party bound.— It has been questioned whether agreements should be declared void which reserve to the party bound the power to remove the restraint upon paying a bonus to the other party, and it was decided that they were equally void: Keeler v. Taylor, 53 Penn. St. 467. No one has a right to consent to the payment of tribute for the purpose of exercising a calling. Every man holds his freedom in trust for the public. Society is entitled to the fruits of his toil. In referring to the restraint in the above case, the court said: "Is it reasonable to impose such a tribute upon the labor of a mechanic? Is not its direct tendency to restrain his skill in a useful art? And even if at law damages might be recovered for breach of such a contract, ought a court of equity to enforce it? According to the