in Red. Railroads, § 146, 2, it is said, "There is no principle of public policy which renders void a traffic arrangement between two lines of railway for the purpose of avoiding competition." And Mr. Morawetz says, in his admirable treatise on corporations, "Public policy clearly does not demand that railroad companies operating competing lines shall engage in strife, causing their financial ruin; and, so far as agreements among companies are designed to effect this result, their purpose is not injurious to the public or illegal. Moreover, such agreements are positively beneficial to the public so far as they prevent the fluctuation of rates and unjust discriminations among shippers, which invariably attend the unrestricted competition of rival companies. It is therefore impossible to support the proposition that all agreements among railroad companies which restrict competition are condemned by law. Some such agreements may be contrary to public policy and unlawful; but if an agreement of this character is a reasonable business arrangement to protect the shareholders and creditors of the companies from loss, and does not cause unreasonably high charges or violate any duty which the companies owe to the public, it should be sustained and enforced by the courts." Mor. Corp. (2d ed.), § 1131. In the same section, in speaking of contracts in restraint of trade (to which many of the authorities and much of the argument for the defendants relate) he says: "Even if there were such a rule as has been claimed applicable to competition in trade, the principle and policy of the rule would not be applicable to traffic arrangements designed merely to prevent ruinous competition and 'wars' among railroad companies. The main objection which has been urged against combinations restraining competition in trade, namely, that such combinations tend to produce monopolies and cause extortion, has no application to combinations among railroad companies, for railroad companies are prohibited by law to charge more than reasonable rates. It should be observed, also, that competition among railroad companies has not the same safeguards as competition in trade. Persons will ordinarily do business only when they think they see a fair chance of profit; and if press of competition renders a particular trade unprofitable, those engaged in that trade will suspend or reduce their operations, and apply their capital and labor to other uses until a reasonable margin of profit has been reached. But the capital invested in the construction of a railroad can not be withdrawn when competition renders the operation of the road unprofitable. A railroad is of no use except for railroad purposes, and if the operation of the road were stopped, the capital invested in its construction would be wholly lost. Hence it is for the interest of a railroad company to operate its road, though the earnings are barely sufficient to pay the operating expenses. The ownership of the road may pass from the shareholders to the bondholders and be of no benefit to the latter; but the struggle for traffic will continue so long as the means of paying operating expenses can be raised. Unrestricted competition will thus render the competitive traffic wholly unremunerative, and will cause the ultimate bankruptcy of the company

unless the portion of their traffic which is not the subject of competition can be made to bear the entire burden of the interest and fixed charges."

The application of these principles to the plea under consideration is patent and decisive. 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. They accepted the former; and as the combination did not, so far as appears by the pleadings, raise the rate of transportation above the standard of fair compensation, or violate any duty that is owing to the public from roads which are non-competing, there is nothing averred in the plea which bars the right of the plaintiffs to an accounting with the defend

ants.

Numerous cases have been cited in behalf of the defendants in support of their proposition that the combination between the parties must be regarded as void at common law because against public pol icy. It is quite impossible, without extending this opinion beyond all reasonable limits, to go through and comment upon these cases in detail, as has been done in the last brief for the plaintiffs; but it is sufficient to say, in general terms, as is there said, that 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; in short, they do not estab lish a rule which fairly includes a case like the one at bar. The demurrer to the second plea is sustained.

Plaintiffs' demurrers sustained, and defendants' overruled.

Note. The following cases hold pools to be valid, or at least not void under all circumstances: 1861, Hare v. London & N. W. R. Co., 2 J. & H. 80;1865. Hartford, etc., R. v. N. Y., etc., R., 3 Rob. (N._Y.) 411; 1868, Sussex R. Co, v. Morris and Essex R., 19 N. J. Eq. 13; 1882, Elkins v. Camden & A. R., 36 N. J. Eq. 234, 244; 1885, Central T. Co. v. Ohio Cent. R. Co., 23 Fed. Rep. 306; 1886, Dolph v. Troy Laundry M. Co., 28 Fed. Rep. 553; 1888, Ives v. Smith, 3 N. Y. Supp. 645; 1892, Mogul Steamship v. McGregor, App. Cas. 25; 1892, U. S. v. Trans-Mo. Frt. Assn., 53 Fed. Rep. 440; 1893, U. S. v. TransMo. Frt. Assn., 58 Fed. Rep. 58, 19 U. S. App. 36, 7 C. C. A. 15 (these being overruled by the supreme court, 166 U. S. 290); 1899, Post v. Southern R. Co., 103 Tenn. 184, 16 Am. & E. R. Cas. (N. S.) 201.

Sec. 278. Same. (b) Contracts restraining trade and competition.

UNITED STATES v. ADDYSTON PIPE AND STEEL COMPANY ET AL.

1898. IN THE U. S. CIRCUIT COURT OF APPEALS, E. D. TENNESSEE. 85 Fed. Rep. 271.

[Appeal from the circuit court. Suit in equity by the attorney-general of the United States against six corporations engaged in manufacturing cast iron pipe, charging them with a combination and conspiracy in restraint of inter-state commerce, contrary to the anti-trust law passed by congress July 2, 1890.2 The defendants were the Addyston Co., of Cincinnati, Ohio, Long & Co., of Louisville, Ky., Howard-Harrison & Co., of Bessemer, Ala., Anniston Co., of Anniston, Ala., South Pittsburgh Co., of South Pittsburgh, Tenn., and the Chattanooga Co., of Chattanooga, Tenn. The petition prayed for a seizure and confiscation of the pipe, a dissolution of the conspiracy and a perpetual injunction against the same. Defendants admitted the existence of an association for the purpose of avoiding ruinous competition, but denied that it was in restraint of trade, created a monopoly or violated the anti-trust law. The circuit court dismissed the petition. The evidence showed that the association had divided up the United States into "pay" and "free" territory; the capacity of the mills in the pay territory was 392,500 tons, 220,000 tons being represented by the association, the other mills in the pay territory being located in Colorado, Texas, Oregon and St. Louis, with an aggregate capacity of 57,500 tons, and at Columbus, Cleveland and New Comerstown, Ohio, and Detroit, Mich., with an aggregate capacity of 113,000 tons; the capacity of mills in the "free" territory was 348,000 tons, and they were located in eastern Virginia (14,000 tons), four in eastern Pennsylvania (87,000 tons), three in New Jersey (210,000 tons), and two in New York (35,000 tons); from these "free" mills to the "pay" territory the freight rates varied from $2 to $6 per ton. Within the "pay" territory of thirty-four states certain cities were reserved to be supplied exclusively by a certain company, as, e. g., the Addyston Company was to have the exclusive right to handle the business of Cincinnati, Ohio, Covington and Newport, Ky. The plan contemplated was as follows: "All competition or pipe lettings shall take place among the various pipe shops prior to said letting. To accomplish this purpose it is proposed that the six competitive shops have a representative board located at some central city, to whom all inquiries for pipe shall be referred, and said board shall fix the price at which said pipe shall be sold, and bids taken from the respective shops for the privilege of handling the order, and the party securing

1 Statement abridged and much of opinion omitted. This opinion should be read in full, and carefully studied. It was affirmed, though the decree was slightly modified by the United States Supreme Court. See 175 U. S. 211. 'See note, infra p. 977.

the order shall have the protection of all the other shops." This board proceeded as follows: "It was moved to sell the 519 pieces of 20-inch pipe for Omaha, Neb., for $23.40 delivered. Carried. It was moved that Anniston participate in the bonus, and the job be sold over the table. Carried. Pursuant to the motion, the 519 pieces 20inch pipe for Omaha was sold to Bessemer at a premium of $8.20." In a case of a letting at St. Louis, this city being reserved to the Bessemer (Ala.) Company, the price was fixed by the association at $24 per ton on 2,800 tons, and the bonus at $6.50. Before the letting, the vice-president of the Bessemer Company wrote to the other members of the association saying, "I prefer that if any of you find it necessary to put in a bid without going to St. Louis, please bid not less than $27 for the pipe. I would also like to know as to which of you would find it convenient to have a representative at the letting. It will be necessary to have two outside bidders." At the letting the Addyston Company bid $24.37 and the Louisville Company $24.57. The contract being let to the Bessemer Company at $24; the evidence showed that the Chattanooga Company could have furnished the same at from $17 to $18 per ton at a profit. The bonus or premium bid was to be paid to the other companies in proportion to the capacities of the various mills. There was much other evidence of a similar and confirmatory character.] TAFT, C. J. Two questions are presented in this case for our decision: 1. Was the association of the defendants a contract, combination, or conspiracy in restraint of trade, as the terms are to be understood in the act? 2. Was the trade thus restrained between the states?

The contention on behalf of defendants is that the association would have been valid at common law, and that the federal anti-trust law was not intended to reach any agreements that were not void and unenforcible at common law. It might be a sufficient answer to this contention to point to the decision of the supreme court of the United States in the United States v. Trans-Missouri Freight Assn., 166 U. S. 290, 17 Sup. Ct. 540, in which it was held that contracts in restraint of interstate transportation were within the statute, whether the restraints would be regarded as reasonable at common law or not. It is suggested, however, that that case related to a quasi-public employment, necessarily under public control and affecting public interests, and that a less stringent rule of construction applies to contracts restricting parties in sales of merchandise, which is purely a private business, having in it no element of a public or quasi-public character. Whether or not there is substance in such a distinction—a question we do not decide-it is certain that, if the contract of association which bound the defendants was void and unenforcible at the common law because in restraint of trade, it is within the inhibition of the statute if the trade it restrained was interstate. Contracts that were in unreasonable restraint of trade at common law were not unlawful in the sense of being criminal, or giving rise to a civil action for damages in favor of one prejudicially affected thereby, but were simply

void, and were not enforced by the courts. Mogul Steamship Co. v. McGregor, Gow & Co. (1892), App. Cas. 25; Hornby v. Close, L. R. 2 Q. B. 153; Lord Campbell, C. J., in Hilton v. Eckersley, 6 El. & Bl. 47, 66; Hannen, J., in Farrer v. Close, L. R. 4 Q. B. 602, 612. The effect of the act of 1890 is to render such contracts unlawful in an affirmative or positive sense, and punishable as a misdemeanor, and to create a right of civil action for damages in favor of those injured thereby, and a civil remedy by injunction in favor of both private persons and the public against the execution of such contracts and the maintenance of such trade restraints.

The argument for defendants is that their contract of association was not, and could not be, a monopoly, because their aggregate tonnage capacity did not exceed 30 per cent. of the total tonnage capacity of the country; that the restraints upon the members of the association, if restraints they could be called, did not embrace all the states, and were not unlimited in space; that such partial restraints were justified and upheld at common law if reasonable, and only proportioned to the necessary protection of the parties; that in this case the partial restraints were reasonable, because without them each member would be subjected to ruinous competition by the other, and did not exceed in degree of stringency or scope what was necessary to protect the parties in securing prices for their product that were fair and reasonable to themselves and the public; that competition was not stifled by the association, because the prices fixed by it had to be fixed with reference to the very active competition of pipe companies which were not members of the association, and which had more than double the defendant's capacity; that in this way the association only modified and restrained the evils of ruinous competition, while the public had all the benefit from competition which public policy demanded.

From early times it was the policy of Englishmen to encourage trade in England, and to discourage those voluntary restraints which tradesmen were often induced to impose on themselves by contracts. Courts recognized this public policy by refusing to enforce stipulations of this character. The objections to such restraints were mainly two. One was that by such contracts a man disabled himself from earning a livelihood, with the risk of becoming a public charge, and deprived the community of the benefit of his labor. The other was that such restraints tended to give to the covenantee, the beneficiary of such restraints, a monopoly of the trade, from which he had thus excluded one competitor, and by the same means might exclude others.

The inhibition against restraints of trade at common law seems at first to have had no exception. See language of Justice Hull, Year Book, 2 Hen. V., folio 5, pl. 26. After a time it became apparent to the people and the courts that it was in the interest of trade that certain covenants in restraint of trade should be enforced. It was of importance, as an incentive to industry and honest dealing in trade, that, after a man had built up a business with an extensive good-will, he should be able to sell his business and good-will to the best of advantage, and he could not do so unless he could bind himself by an