§ 156. Consolidation of corporations.-The power of corporations to consolidate is purely a creation of statute.13 Statutes conferring such power frequently exclude consolidation of competing corporations, particularly railroad corporations.14 But save, of course, in case of the existence of a constitutional prohibition, the consolidation of competing corporations is, if authorized by statute, open to no objection on the ground of public policy.15

§ 157. Acts of stockholders as acts of corporation.-Notwithstanding the well-established technical distinction between a corporation and its members, as legal entities, there has developed a strong tendency to regard acts of a combination of stockholders in restriction upon competition, as in effect the

by the legislature to corporations such exercise of power cannot be enjoined." As to effect of general prohibition of anti-trust act, in view of express authority to hold stock in another corporation, see under Mich. (§ 217); N. Y. (§ 224).

13 See 3 Cook on Corporations, 5th ed., § 892.

14 In nearly all the States there are statutes or constitutional provisions expressly prohibiting the consolidation, sale, lease or the like, of competing railroad lines, in some instances of telegraph, telephone and other lines. For numerous decisions construing such provisions, see 3 Cook on Corporations, 5th ed., §§ 892 et seq.; Noyes on Intercorporate Relations, §§ 32 et seq. See article in 27 Am. Law Rev. 330 (1893) by J. C. Thomson.

As to effect of general prohibition of anti-trust act, in view of express authority to hold stock in another corporation, see Attorney-General v. Consolidated Gas Co., 124 App. D. 401; 108 N. Y. Suppl. 823 (1908); Matter of Attorney-General, 125

App. D. 804; 110 N. Y. Suppl. 186 (1908).

15 In Cameron v. N. Y. & Mt. Vernon Water Co., 62 Hun, 269; 16 N. Y. Suppl. 757 (1891), it was said: "The consolidation of corporations engaged in the same general line of business is not against public policy. The legislature has permitted it for years and still permits it. There is a great difference between the consolidation of two corporations into one new corporation, and the combination between two existing corporations for the prevention of competition. The former is permitted and the latter is condemned. It is not necessary to point out the distinction so far as the public or private good is concerned. It is enough that the legislature has drawn the distinction." See People ex rel. v. People's Gas Light & Coke Co., 205 Ill. 482; 68 N. E. 950; 98 Am. St. Rep. 244 (1903).

As to prohibition of Ohio statute against sale of property of corporation for the formation of a trust, etc., see § 227.

act of the corporation, so far as legal consequences are concerned, though technically there has been no corporate act whatever. Thus it is said: "Where all, or a majority, of the stockholders comprising a corporation, do an act which is designed to affect the property and business of the company, and which, through the control their numbers give them over the selection and conduct of the corporate agencies, does affect the property and business of the company in the same manner as if it had been a formal resolution of its board of directors; and the act so done is ultra vires of the corporation and against public policy, and was done by them in their individual capacity for the purpose of concealing their real purpose and object, the act should be regarded as the act of the corporation; and, to prevent the abuse of corporate power, may be challenged as such by the State in a proceeding in quo warranto.” 16

§ 158. Foreign corporations.-The general power of a State to exclude a foreign corporation from the right to transact business therein, unquestionably includes the power to exclude on the ground of engaging in transactions that produce, or tend to produce, an illegal restriction upon competition.17 It may

16 State ex rel. v. Standard Oil Co., 49 Ohio St. 137, 184; 30 N. E. 279, 289; 15 L. R. A. 145, 158; 34 Am. St. Rep. 541, 551 (1892), where the agreement held illegal was not executed by the corporation itself, but by all the stockholders. It was contended that the corporation was a legal entity separate from its stockholders, and that their acts could not be ascribed to the corporation. Under similar conditions an agreement was held illegal in American Handle Co. v. Standard Handle Co., 59 S. W. 709, 720 (Tenn. Ch. App., 1900). The general rule was also applied in Southern Electric Securities Co. v. State, 91 Miss. 195; 44 So. 785; 124 Am. St. Rep. 638 (1907). Compare First National Bank of Chicago v. Trebein

Co., 59 Ohio St. 316, 326; 52 N. E. 834, 837 (1898). Similarly the unlawfully becoming a member of a partnership was, in 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), held to be the action of the corporation itself, and not of the stockholders as mere individuals. See also People ex rel. v. American Sugar Refining Co., 7 Ry. & Corp. L. J. 83 (Super. Ct. San Francisco, 1890). See under Federal act (§ 197); under Ill. (§ 209).

17 Thus violation of an "antitrust" law; Waters-Pierce Oil Co. v. Texas, 177 U. S. 28; 20 Supm. 518; 44 L. Ed. 657 (1900); affirming 19 Tex. Civ. App. 1; 44 S. W. 936 (1898); Hammond Packing

not be clear, however, that this includes the power to prevent a foreign corporation from engaging in transactions that con

stitute commerce within the scope of the commerce clause of the Federal constitution, even though such transactions produce, or tend to produce, an illegal restriction upon competition.1

CHAPTER XVI

CONTRACTS IN RESTRAINT OF TRADE

§ 159. The doctrine against contracts in restraint of trade.

160. Prevention of restriction upon competition, not basis of doctrine. 161. Inapplicability of test of space limit to restrictions upon competition.

$159. The doctrine against contracts in restraint of trade.Generally speaking, though with important exceptions presently to be considered, what are commonly known as contracts in restraint of trade have always been regarded as illegal at common law. This doctrine was established as early as the beginning of the fifteenth century, in its original form condemning any agreement whereby any person bound himself not to exercise his trade.1 It seems clear that the doctrine, in its origin, being based on grounds of public policy,2 had reference simply to the supposed evil resulting from the withdrawal from trade of one actively engaged therein, whether such evil be regarded as

1 Thus, a contract not to use the art of a dyer's craft within a certain city for half a year was condemned with the exclamation by Hull, J.: "And, by G-d, if the plaintiff were here he should go to prison until he paid a fine." Year Book, 2 Henry 5, fol. 5, pl. 26 (1415).

See generally, as to the doctrine and its application, article on "Restraint of Trade" in 24 Am. & Eng. Enc. of Law, 2d ed., p. 841. For a statutory declaration of the doctrine, see Cal. Civil Code, § 1673, which has in several instances been adopted elsewhere. See Merchants' Ad-Sign Co. v. Sterling, 124 Cal.

429; 57 Pac. 468; 46 L. R. A. 142; 71 Am. St. Rep. 94 (1899); Getz v. Federal Salt Co., 147 Cal. 115; 81 Pac. 416; 109 Am. St. Rep. 114 (1905); U. S. Consolidated Seeded Raisin Co. v. Griffin & Skelley Co., 126 Fed. 364; 61 C. C. A. 334 (9th C., 1903). See also under Mich. (§ 217).

2 The interest of the public alone, and not of the parties to the contract, being considered, according to Lawrence v. Kidder, 10 Barb. (N. Y.) 641, 648 (1851); and see Greenhood on Public Policy, p. 686; but see Beal v. Chase, 31 Mich. 490, 521 (1875).