Oregon Steam Navigation Company v. Winsor

• Decision Date: 01 October 1873
• Parties: OREGON STEAM NAVIGATION COMPANY v. WINSOR
• Court: U.S. Supreme Court

87 U.S. 64

22 L.Ed. 315

20 Wall. 64

OREGON STEAM NAVIGATION COMPANY v. WINSOR.

October Term, 1873

ERROR to the Supreme Court of the Territory of Washington.

The Oregon Steam Navigation Company sued Winsor et al. in one of the courts of the Territory of Washington, to recover $75,000 as stipulated damages for the breach of a certain agreement between the parties. The complaint set forth the following facts: That in 1864, the California Steam Navigation Company being engaged in steam and other transportation on the several routes of travel on the rivers, bays, and waters of the State of California, sold to the plaintiff, the said Oregon Steam Navigation Company (being a company engaged in the like business on the Columbia River and its branches, in Oregon and Washington¹), the steamer New World, for $75,000, subject to a stipulation, amongst other things, that the latter company should not run or employ, or suffer to be run or employed, the said steamer upon any of the routes of travel, rivers, bays, or waters of the State of California, for the period of ten years from the 1st day of May, 1864; that on the 18th day of February, 1867, the Oregon company sold the same steamer to Winsor and others for the sum of $75,000, subject to a stipulation and covenant that she should not be run or employed upon any of the routes of travel, or the rivers, bays, or waters of the State of California, or the Columbia River and its tributaries, for the period of ten years from the 1st day of May, 1867; and that for a breach of said covenant the vendees should pay $75,000 as actual liquidated damages. The complaint further averred, that at the time of the second sale of the steamer, and up to the commencement of the suit, the California Steam Navigation Company were engaged with numerous steam and other vessels in navigating the waters of the State of California; and that the Oregon company, the plaintiffs, were likewise engaged in the navigation of the Columbia River and its branches; and that at the time of said sale to the defendants, the latter were engaged in navigating the waters of Puget Sound,² and were in nowise engaged in the navigation of the waters of Oregon or California, or of any of the waters described in the stipulation. The breach complained of was that the steamer had been engaged from the 1st of November, 1868, to the commencement of the suit, in the transportation of passengers and freight from the city of San Francisco to Vallejo, in the State of California, being a route of travel on the waters of the State of California embraced in the stipulation and covenant.

The complaint was demurred to, and the demurrer was sustained and the action dismissed. The plaintiff brought a writ of error to the Supreme Court of the Territory, which affirmed the judgment, and that judgment was now here on the present writ of error.

The sufficiency of the complaint was of course the matter brought up; and the case turned mainly upon the question, whether the covenant entered into by the defendants, whereby they agreed 'not to run or employ, or suffer to be run or employed, the said steamboat New World upon any of the routes of travel, or the rivers, bays, or waters of the State of California, or the Columbia River and its tributaries, for the period of ten years from the first day of May, 1867,' &c., was valid. The objection urged against it was that it was a contract in restraint of trade, and as such contrary to public policy.

Mr. G. H. Williams, for the plaintiff in error; Messrs. B. F. Dennison and L. Holmes, contra.

Mr. Justice BRADLEY delivered the opinion of the court.

It is a well-settled rule of law that an agreement in general restraint of trade is illegal and void; but an agreement which operates merely in partial restraint of trade is good, provided it be not unreasonable and there be a consideration to support it.³ In order that it may not be unreasonable, the restraint imposed must not be larger than is required for the necessary protection of the party with whom the contract is made.⁴ A contract, even on good consideration, not to use a trade anywhere in England, is held void in that country, as being too general a restraint of trade; but a contract not to use a trade at a particular place, if it be founded on a good consideration, and made for a proper and useful purpose, is valid.⁵ Of course, a contract not to exercise a trade generally would be obnoxious to the rule, and would be void.

The application of the rule is more difficult than a clear understanding of it. In this country especially, where State lines interpose such a slight barrier to social and business intercourse, it is often difficult to decide whether a contract not to exercise a trade in a particular State is, or is not, within the rule. It has generally been held to be so, on the ground that it would compel a man thus bound to transfer his residence and allegiance to another State in order to pursue his avocation.⁶

But this mode of applying the rule must be received with some caution. This country is substantially one country, especially in all matters of trade and business; and it is manifest that case may arise in which it would involve too narrow a view of the subject to condemn as invalid a contract not to carry on a particular business within a particular State. Suppose the case of two persons associated in business as partners, and engaged in a manufacture by which they supply the country with a certain article, but the process of manufacture is a secret; and they agree to separate, and one of the terms of their separation is, that one of the parties shall not sell the manufactured article in Massachusetts where the other resides and carries on business; and that the latter shall not sell the article in New York, where his associate is to reside and carry on business. Can there be any doubt that such an agreement would be valid and binding? Cases must be judged according to their circumstances, and can only be rightly judged when the reason and grounds of the rule are carefully considered.

There are two principal grounds on which the doctrine is founded, that a contract in restraint of trade is void as against public policy. One is, the injury to the public by being deprived of the restricted party's industry; the other is, the injury to the party himself by being precluded from pursuing this occupation and thus being prevented from supporting himself and his family. It is evident that both these evils occur when the contract is general, not to pursue one's trade at all, or not to pursue it in the entire realm or country. The country suffers the loss in...