Oakdale Manuf'g Co. v. Garst

• Decision Date: 27 February 1894
• Citation: 28 A. 973,18 R.I. 484
• Parties: OAKDALE MANUF'G CO. et al. v. GARST.
• Court: Rhode Island Supreme Court

28 A. 973

18 R.I. 484

OAKDALE MANUF'G CO. et al.

v. GARST.

Supreme Court of Rhode Island.

Feb. 27, 1894.

Bill in equity by the Oakdale Manufacturing Company and others against Sebastian Garst for an injunction to restrain the defendant from carrying on business in violation of the following agreement: "And it is further mutually covenanted and agreed by and between the parties hereto, each for himself, however, and not for the others, that they will not engage, directly or indirectly, in any business of the same kind, or for the same purpose or purposes, as that to be carried on by the corporation to be formed; nor will they directly or indirectly be concerned in or be interested in any firm, firms, corporation, or corporations engaged in the same business or business similar to the business of the corporation to be formed for the period of five years from and after the date of this agreement." The complainant the Oakdale Manufacturing Company is the corporation organized by the other parties to the suit, tinder the laws of the state of Kentucky, in pursuance of the agreement referred to in the opinion of the court.

Arnold Green, Richard B. Comstock, and Rathbone Gardner, for complainants.

Simon S. Lapham, for respondent.

STINESS, J. The complainants seek an injunction against the respondent to restrain him from violating his covenant that he would not engage or be concerned in, directly or indirectly, the manufacture or sale of butterine or oleomargarine, for the space of five years from the date of the covenant Prior to April 30, 1891, the parties carried on that business separately, when they agreed to unite and form a corporation for the purpose of carrying on their business together. To this end, all the parties turned in the stock, machinery, accounts, and good will of their respective concerns, at a valuation greatly in excess of the value of the property itself, taking an amount of stock in the corporation represented by such valuation. The corporation has carried on the business since that time. In August, 1892, the defendant sold his stock in the company, to present holders, for $00,000, although, as he says, the property it represented was worth only about $28,000. After this he entered the same business again, and claims the right to do so upon the following grounds, viz.: (1) That he was induced to enter into the contract through false and fraudulent misrepresentations of the complainants; (2) that the contract is void as a combination to raise the price of a necessary and useful commodity in trade, and to stifle competition; (3) that one purpose of the contract was to form a corporation in violation of the laws of this state; (4) that, the contract being in restraint of trade, its enforcement is unreasonable.

As to the first defense, it is sufficient to say that we do not find it to be supported by the evidence. The respondent knew perfectly well what he was doing in making the arrangement, and agreed to it freely. The facts that one of the companies was using a secret process to preserve the freshness of the product, so that it could be exported to tropical climates, and that it was engaged to some extent in such export are shown by the proof.

In support of the second ground of defense, the respondent cites cases of contracts to create a monopoly and to force prices. Such was People v. North River Sugar Refining Co., 54 Hun, 354, 7 N. Y. Supp. 406, a proceeding to vacate the charter of the company because it had become a partner in the "Sugar Trust." The unlawfulness of such a combination was largely dwelt upon, but in the court of appeals (121 N. Y. 582, 24 N. E. 834) the decision was sustained only upon the ground that the company had practically relinquished its corporate functions, and so had forfeited its franchise. Arnot v. Coal Co., 68 N. Y. 558; Craft v. McConoughy, 79 Ill. 346; Morris Run Coal Co. v. Barclay Coal Co., 68 Pa. St. 173; and Emery v. Candle Co., 47 Ohio St. 320, 24 N. E. 660,—were cases where contracts, based upon a monopoly, were held to be invalid. Undoubtedly, there may be combinations so destructive of the right of the people to buy and sell and to pursue their business freely that they must be declared to be void upon the ground of public policy. In such cases the injury to the public is the controlling consideration. But it does not follow that every combination in trade, even though such combination may have the effect to diminish the number of competitors in business, is therefore illegal. Such a rule would produce greater public in jury than that which it would seek to cure. It would be impracticable. It would forbid partnerships and sales by those engaged in a common business. It would cut off consolidations to secure the advantages of united capital and economy of administration. It would prevent all restrictions and exclusive privileges, and hamper the familiar conduct of commerce in many ways. There may be many such arrangements which will be beneficial to the parties, and not injurious to the public. Monopolies are liable to be oppressive, and hence are deemed to be hostile to the public good. But combinations for mutual advantage, which do not amount to a monopoly, but leave the field of competition open to others, are neither within the reason nor the operation of the rule. This is well put in Skrainka v. Scharringhausen, 8 Mo. App. 522, where 24 owners of stone quarries, on account of a ruinous competition, which made it impossible to work their quarries at a profit, made an agreement to sell through a common agent for the space of six months, and the agreement was sustained. The court says: "But not every agreement in restraint of trade is illegal. Where the contract injures the parties making it, by diminishing their means for supporting their families, tends to deprive the public of the services of useful men, discourages...