Harbison-Walker Refractories Co. v. Stanton

Opinion by Mr. Justice Elkin, January 3, 1910: The final decree entered by the court below is in the precise terms of the covenant to enforce which this bill was filed. It necessarily follows that if the parties were competent to make the covenant in the first instance and the subject-matter thereof is lawful, and no policy of the law or statutory requirement is violated, the court committed no error in enjoining the defendant from doing those things which he had covenanted not to do during the period fixed by the contract. The learned counsel for appellant ask if a contract to refrain from business is valid and enforceable in equity, where the scope of the covenant is broader than is necessary to protect the business sold. As an abstract proposition of law this inquiry may be answered in the negative, but it does not follow that the rule invoked should be applied under the facts of a particular case. In the case at bar there does not seem to be any valid ground to sustain the rule relied on. The learned judge who heard the case in the first instance and who considered all of these questions with painstaking care has clearly pointed out that the scope of the covenant was not broader than was reasonably necessary to protect the business sold, and in this conclusion we all concur. We have examined the cases relied on by appellant which hold that contracts in partial restraint of trade to be valid must be no more extensive than is necessary for the protection of the purchaser in the enjoyment of the business purchased, but find nothing therein stated or decided which would deny to the appellee company the benefit of the covenant for which it gave an ample consideration, and which appellant in good conscience as well as legal right should observe. It is further contended for appellant that the contract of which the covenant sought to be enforced is a part ivas intended to and in point of fact does create a monopoly in the business affected and is therefore void as [62] against public policy and not enforceable in equity. The answer to this position by the court below was that neither in contemplation of law nor as a matter of fact did the contract in question create a monopoly in the sense of being an unlawful combination in restraint of trade. In this conclusion we also concur. Under the facts found by the chancellor and fully sustained by the evidence there was no monopoly of the business affected by the absolute purchase of the properties which passed to the consolidated company either in the etymological or legal sense. On this question the present case is absolutely ruled, as we view the facts, by Monongahela River Consol. Coal & Coke Company v. Jutte, 210 Pa. 288. That case was ably presented by counsel and fully considered by this court, with the result that the contention of the appellant there on the question of monopoly was not sustained. The rule there announced is sound, and we have not been convinced that there is any sufficient reason for disturbing it. An attempt is made to distinguish that case from the one at bar on the question of monopoly, but it is a distinction without a difference in the application of the principles involved and does not carry conviction to the mind of the court. The last position taken by the learned counsel for appellant is that the covenant involved in the present case is in violation of the anti-trust law known as the Sherman act, and this defense is strongly and ably pressed upon us. The statute relied on was passed for the purpose of protecting trade and commerce among the several states or with foreign nations from unlawful restraints and monopolies, and has been the subject of such a wide range of judicial construction in so many cases in recent years that for the purposes of the present case nothing will be gained by elaborating the discussion. The writer of this opinion, speaking for himself, cannot understand why in any proper legal sense it should be considered an unlawful restraint of trade and commerce among the several states for the owner of a brick plant who sells its products and the products of other plants, in sections of two or three different states, to sell his plant, property and business to a proper purchaser for a large sum of money and at the same time and as [63] part of the contract between the parties make a covenant with the purchaser not to engage in the same kind of business in the same territory during a fixed period. The rule of common honesty should require the seller with his large profits in his pocket to keep his covenant, and it seems to me courts should not be astute to raise up broad questions of public policy in aid of one whose sole purpose is to avoid the obligations of his contract. The trend of decisions in recent cases is in this direction, and it is a wholesome tendency in the interest of fair and honest dealings among men. There should be and is a distinction between a consolidation of properties by purchase for legitimate business reasons in order to increase production and reduce cost, and a combination of owners and properties under one management which in many instances stifles competition and arbitrarily increases prices. As we read the cases construing the anti-trust statute the rule established seems to be that it has no application where the contract sought to be declared illegal concerns a legitimate business transaction and the unlawful restraint complained of is only incidental or collateral. In the present case the contract concerns a legitimate business transaction, and nothing on the face of it imposes any restraints upon trade and commerce among the states unless the covenant of appellant not to engage in buying or selling in the states named should be so construed. This at most is only incidental to the general purpose of the contract and should not, in the opinion of this court, be permitted to defeat the rights of the contracting parties. The presumption is that contracts are legal, not illegal, and the burden is on him who sets up illegality a's a defense on a suit to enforce a contract, to show how and why it is unlawful. The contract may in terms or by necessary implication be violative of a declared public policy of the law or of a positive statutory requirement, or the established facts may show that such results follow its enforcement. In the case at bar the covenant sued on does not necessarily impose any restraints on interstate commerce because the product of each plant may be sold in the state of its domicile, and the established facts are not sufficient to show an unlawful interference with commerce among the states. As was [64] said by Mr. Justice Holmes in Cincinnati, etc., Packet Company v. Bay, 200 U. S. 179, “A contract is not assumed to contemplate unlawful results unless a fair construction requires it upon established facts.” This case holds in substance that a covenant made, by the seller upon sufficient consideration not to engage in the business sold for a limited period within reasonable territorial limits as a part of the contract of sale and not as a device to control commerce does not fall within the operation of the anti-trust act of July 2,1890. This doctrine is recognized in United States v. Trans-Missouri Freight Assn., 166 U. S. 290; United States v. Joint-Traffic Assn., 171 U. S. 505; Robinson v. Suburban Brick Co., 127 Fed. Repr. 804; Metcalf v. American School Furniture Co., 122 Fed. Repr. 115. It has been frequently held by the federal courts that the anti-trust statute was hot intended to affect contracts which have a remote and indirect bearing upon commerce between the states: Field v. Barber Asphalt Paving Co., 192 U. S. 618; Hopkins v. United States, 171 U. S. 578; Addyston Pipe & Steel Company v. United States, 175 U. S. 211. The case at bar is within the spirit of the rule of this class of cases. The enforcement of the covenant against the covenantor, if in any proper legal sense it can be said to place a restraint upon interstate commerce at all, can only affect trade and commerce among the states in a remote, indirect and incidental manner. After careful consideration we have concluded that there is no rule of public policy, or of law, and no statutory restraint, the effect of which will be to deny appellee company the benefit of the covenant in question, and that the learned court below committed no- error in entering a decree enjoining appellant from doing those things which he hád agreed not to do. Assignments of error overruled and decree affirmed at the cost of appellant.