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THE GREEN BAG

THE SHERMAN LAW AND CONTRACTS IN RESTRAINT OF TRADE BY PAUL EDGAR LESH. AT common law a contract in restraint table, the field of trade from which a man of trade is valid and enforceable if the by contract could bind himself to withdraw restraint is reasonable, but invalid and became larger and larger. To quote the unenforceable if the restraint is unreason modern doctrine from the New York Court able. This test of reasonableness is the of Appeals — " When the restraint is gene outgrowth of a long line of adjudications, ral, but at the same time is co-extensivegradually changing with changes in the only with the interest to be protected and with the benefit meant to be conferred" conditions of trade. It is at least historically interesting to the contract is "as reasonable as when the note that in the earliest reported case upon interest is partial and there is a correspond the subject, found in Year Book, 2 Hen. V ing partial restraint." (Diamond Match fol. 5, pi. 26, decided in the year 1415, where Co. v. Roeber, 106 N. Y. 473, 482.) the obligation sought to be enforced against To the rule that the restraint at common the defendant was that he would not use law must be reasonable, there is this cochis art of a dyer's craft in the city of the rollary, that the covenant of restraint in a plaintiff for one-half year, — an obligation valid contract is usually if not always ancil which in the light of modern common law lary to and in aid of a main contract, and decisions might be held reasonable and not the principal object of the transaction. valid, — the court not only held the obli An example of such an ancillary restraint gation void, but added: "and by G — is that placed upon the vendor of a business (per Dieu), if the plaintiff were here, he with its good will, binding him not to should go to prison till he paid a fine to the engage in a competing business. Judge King." The spirit of this forceful, if Taft, in United States v. Addyston Pipe Co. inelegant remark, was not made into law (87 Fed. 271) says, speaking of the com for three hundred and seventy-five years mon law: "No conventional restraint of after which interval it appeared in the trade can be enforced unless the contract enactment of the criminal clause of the embodying it is merely ancillary to the Sherman Anti-Trust Act. main purpose of a lawful contract." The .case of Mitchel v. Reynolds, (i Whether or not this sweeping statement is P. Wms. 181), is generally conceded to be sound as to the common law, it is undeniable the leading case upon the point that "a that almost all contracts in restraint of bond or promise to restrain oneself from trade held enforceable because reasonable trading in a particular place, if made upon are ancillary to a principal lawful transaction. a reasonable consideration, is good," but These common law doctrines may be where the restraint is general, it is oppresive briefly summarized in this wise: that the and vojd. We cannot, within the limi restraint must be reasonable; that the tations of this article, follow the develop law refuses to enforce a contract unreason ment of the test of reasonableness, and the ably restraining trade because of the injury effect upon the law of the changing con to the public and of the injury to the party ditions of trade. Briefly, as communica himself. A restraint will usually be held tion and commerce to distant markets unreasonable when it is the principal object became more and more possible and profi of the contract, ' for there is then nothing