and as the requirements of travel demand, drawing-room and sleeping-cars for use by passengers. It is a stipulation that does not interfere in any degree with its right and duty to disregard the contract whenever the plaintiff fails in furnishing cars that are adequately safe and sufficient in number for the travel on defendant's lines. The suggestion that the agreement is void upon grounds of public policy, or because it is in general restraint of trade, cannot, for the reasons stated, be sustained. Besides, it is not clear that the agreement is so far indivisible that the stipulation giving the plaintiff the exclusive rights in question, and binding the defendant not to make similar contracts with other parties for drawing-room and sleeping-cars to be used on its lines, cannot be separated from the other provisions. If that stipulation were held to be void upon the grounds suggested, we should be inclined to hold that, as between the parties, the provision making the railroad company liable for loss or damage, arising from casualty or accident, to the plaintiff's cars, while in the possession of and subject to use by the defendant, remained in force." § 763. Diamond Match Company v. Roeber (1887).1— In this case the defendant was engaged in the manufacture of matches in the state of New York, and the sale of the same throughout the various states and territories of the Union. He sold his factory, stock, fixtures, trade-marks and good-will to the Diamond Match Company, and covenanted that he would not at any time within ninety-nine years engage in the manufacture and sale of matches,- unless in the service of the purchasing company,- within any of the states and territories of the Union except Nevada and Montana; he executed a bond with a penalty of $15,000 as liquidated damages in case of a breach of the covenant. The conspicuous features of this broad contract are the following: 1. The territory covered embraces the entire United States except the state of Nevada and the territory of Montana, which, so far as the match trade was concerned, were comparatively unimportant. 2. The time covered is ninety-nine years, which, so far as Roeber himself was concerned, extended beyond his life-time and therefore was unlimited. The exception of Nevada and Montana was plainly an at 1106 N. Y. 473, 13 N. E. R. 419. tempt to evade the rule of law heretofore referred to, that a contract in restraint of trade covering the entire country is void for that reason alone. Notwithstanding the obvious intent of this exception, the court of appeals of New York soberly and with great seriousness discussed the effect of the exception, holding that it was impossible to say that it was merely colorable. Inasmuch as this decision is the leading American case in support of the modern rule, and is frequently cited, it is important to follow the reasoning of the court somewhat closely. The fundamental propositions underlying the conclusions reached are as follows: 1. It is an encouragement to industry and enterprise that a man shall be allowed to dispose of the good-will of his business and the fruits of his industry upon the best terms he can. Public policy and the interest of society favor the utmost freedom of contract within the law, and require that business transactions should not be trammeled by unnecessary restrictions. The tendency of recent decisions is in the direction of relaxing the rigor of the doctrine that all contracts in general restraint of trade are void, irrespective of the special circumstances. 2. If a man's business extends over an entire continent and he sells the same, public policy does not forbid his giving with the sale a restraining contract co-extensive with the business which he sells.1 1 The court said: "Steam and electricity have, for the purposes of trade and commerce, almost annihilated distance, and the whole world is now a mart for the distribution of the products of industry. The great diffusion of wealth and the restless activity of mankind striving to better their condition has greatly enlarged the field of human enterprise and created a vast number of new industries, which give scope to ingenuity and employment for capital and labor. The laws no longer favor the granting of exclusive privileges, and, to a great extent, business corporations are practically partnerships and may be organized by any per sons who desire to unite their capital or skill in business, leaving a free field to all others who desire for the same or similar purposes to clothe themselves with a corporate character. The tendency of recent adjudications is marked in the direction of relaxing the rigor of the doctrine that all contracts in general restraint of trade are void irrespective of special circumstances. Indeed, it has of late been denied that a hard-andfast rule of that kind has ever been the law of England. Rousillon v. Rousillon (1880), 14 L. R. Ch. Div. 351. The law has, for centuries, permitted contracts in partial restraint of trade, when reasonable; and in Horner v. 3. Where the restraint is general, but at the same time it is only co-extensive with the interest to be protected and with the benefit meant to be conferred, there is no good reason why the contract is not as reasonable as when the interest is partial and there is a corresponding partial restraint. Such covenants operate simply to prevent the party bound from engaging in the business which he sells, so as to protect the purchaser in the enjoyment of what he has purchased. To the extent that the vendor is prevented from carrying on the particular trade the community is deprived of any benefit it might derive from his entering into competition; but the business is open to all others, and there is little danger that the public will suffer harm from lack of persons to engage in a profitable industry. Such contracts do not create monopolies; they do not confer special or exclusive privileges. If contracts in general restraint of trade, where the trade is general, are void as tending to monopolies, contracts in partial restraint, where the trade is local, are subject to the same objection, because they deprive the local community of the services of the covenantor in the particular trade or calling, and prevent his becoming a competitor with the covenantee. 4. There is no rule of law which makes the motive of the party bound the test of the validity of the contract. 5. A party may legally purchase the trade and business of another for the very purpose of preventing competition, and the validity of the contract, if supported by a consideration, will depend upon its reasonableness as between the parties. Combinations between producers to limit production and enhance prices, wherever they are unlawful, stand on a different footing. 6. While it cannot be said, in view of the present state of the authorities, that the early doctrine that contracts in general restraint of trade are void, without regard to circumstances, has been abrogated, still it is manifest that it has been much weakened, and the foundation upon which it was originally placed has been removed, to a considerable extent at least, by the change of circumstances. Graves (1831), 7 Bing. 735, Chief Justice Tindal considered a true test to be whether the restraint is such only as to afford a fair protection to the interests of the party in favor of whom it is given, and not so large as to interfere with the interests of the public.'" Diamond Match Co. v. Roeber, supra. 7. The rule that a contract in restraint of trade depends upon state lines was an arbitrary rule.1 764. Contract covering seven states for a period of five years void.— It is interesting to compare the opinion of the 1 "The covenant in the present case is partial and not general. It is practically limited as to time, but this, under the authorities, is not an objection, if the contract is otherwise good. Ward v. Byrne (1839), 5 M. & W. 548; Mumford v. Gething (1859), 7 C. B. (N. S.) 305, 317. It is limited as to space, since it excepts the state of Nevada and the territory of Montana from its operation, and therefore is a partial and not a general restraint, unless, as claimed by the defendant, the fact that the covenant applies to the whole of the state of New York constitutes a general restraint within the authorities. In Chappel v. Brockway (1839), 21 Wend. 157, Bronson, J., in stating the general doctrine as to contracts in restraint of trade, remarked that 'contracts which go to the total restraint of trade, as that a man will not pursue his occupation anywhere in the state, are void.' The contract under consideration in that case was one by which the defendant agreed not to run or be interested in a line of packet boats on the canal between Rochester and Buffalo. The attention of the court was not called to the point whether a contract was partial which related to a business extending over the whole country, and which restrained the carrying on of business in the state of New York, but excepted other states from its operation. The remark relied upon was obiter, and in reason cannot be considered a decision upon the point suggested. We are of the opinion that the contention of the defendant is not sound in principle, and should not be sustained. The boundaries of the states are not those of trade and commerce, and business is restrained within no such limit. The country, as a whole, is that of which we are citizens, and our duty and allegiance are due both to the state and nation. Nor is it true, as a general rule, that a business established here cannot extend beyond the state, or that it may not be successfully established outside of the state. There are trades and employments which, from their nature, are localized; but this is not true of manufacturing industries in general. We are unwilling to say that the doctrine as to what is a general restraint of trade depends upon state lines, and we cannot say that the exception of Nevada and Montana was colorable merely. The rule itself is arbitrary, and we are not disposed to put such a construction upon this contract as will make it a contract in general restraint of trade, when upon its face it is only partial. The case of Oregon Steam Co. v. Winsor (1873, 87 U. S. 64, supports the view that a restraint is not necessarily general which embraces an entire state. The defendant entered into the covenant as a consideration in part of the purchase of his property by the Swift & Courtney & Beecher Company, presumably because he considered it for his advantage to make the sale. He realized a large sum in money, and on the completion of the transaction became interested as a stockholder in the very business which he had sold. We are of opinion that the covenant, being supported by a good consideration, and constituting a partial and not a general restraint, and being, in view of the circumstances disclosed, reasonable, is valid and not void." Diamond Match Co. v. Roeber, supra. supreme court of Michigan' in a case wherein a contract covering five states for a period of five years was held void, with the decision of the New York court of appeals in the Diamond Match Co. case. In the Michigan case a domestic firm sold out its business of manufacturing woodenware to an Illinois corporation, and agreed "not to become engaged in the manufacture of tubs and pails during the next five years in the states of Michigan, Wisconsin, Illinois, Minnesota, Iowa, Missouri, Indiana and Ohio, or allow their property at St. Louis, Mich., to be used for that purpose, nor to sell said property to any one for that business, except by the consent of said second parties; and in case any of the parties of the first part violate this agreement, they do hereby agree to pay to said second party $2,000 for damages for violating this contract." On a bill to enjoin the Michigan parties from carrying on a business in violation of the contract a demurrer was filed, and it was urged that the contract was against public policy and void." After reviewing the earlier Michigan cases the supreme court said: "Here a large manufacturing business had been established, and presumably it gave employment to quite a number of people. By the contract these people are thrown out of employment and deprived of a livelihood, and no other of the citizens of Michigan are called in to take their places. The business is no longer to be carried on here, but is removed out of the state. The parties are not only bound by the contract, if valid, not to manufacture here for a period of five years, but in seven other of the states of the great northwest teeming with its millions of people. If the complainant could enforce this contract against Starkey, Ferris and Olmsted, and shut the doors of that shop, and prohibit their again opening them for five years in any one of those states, they could as well make valid and binding contracts to shut the shop of every manu 1 Western Woodenware Ass'n v. Starkie et al. (1890), 84 Mich. 76, 47 N. W. R. 604. In the course of its opinion the court attempts to distinguish the case before it from Hubbard v. Miller (1873), 27 Mich. 15, and Beal v. Chase (1875), 31 Mich. 490. 2 Counsel for complainants relied upon the following Michigan decisions: Hubbard v. Miller (1873), 27 Mich. 15; Beal v. Chase et al. (1875), 31 Mich. 490; Doty v. Martin (1875), 32 Mich. 462; Caswell et al. v. Gibbs (1876), 33 Mich. 331; Grow v. Seligman (1882), 47 Mich. 607, 11 N. W. R. 404; Watrous v. Allen (1885), 57 Mich. 362, 24 N. W. R. 104; Sternberg v. O'Brien (1891), 48 N. J. Eq. 370, 22 Atl. R. 348. |