UNITED STATES v. TRANS-MISSOURI FREIGHT ASSOCIATION et al., 58 F. 58

SANBORN, Circuit Judge, after stating the facts as above, delivered the opinion of the court. Contracts between competing corporations, commonly tenued “pooling contracts,” to- divide their earnings from the transportation of freight in fixed proportions, have long been held void by the courts as against public policy. Such contracts do not simply restrict competition, they tend to destroy it; and, if they do not effect that result, it is only because they do not completely accomplish their main purpose.

When acting independently, the spur of self-interest drives each corporation to furnish the people with the best accommodations and the safest and most rapid transportation at the lowest profitable rates, in order that it may attract larger patronage and gather increased gain. But under the operation of a pool this incentive to exertion is withdrawn. Each carrier finds it to its interest to enhance the price of carriage, and finds that its profits are not sensibly diminished by furnishing poor facilities for transportation and inexpensive and mean accommodations.

In 1887 congress recognized and adopted this rule of public policy, and by

section 5 of “An act to regulate commerce,” commonly called the “Interstate Commerce Act,” (24 Stat. 379, c. 104; Bev. St. Supp. 529,) prohibited such contracts between common carriers engaged in interstate or international commerce. That act, however, prohibited contracts for the pooling of freights of different and competing railroads only; it prohibited contracts that thus destroyed competition; it did not prohibit all contracts that in any way restricted or regulated competition.

By the act of July 2, 1890, entitled “An act to protect trade and commerce against unlawful restraints and monopolies,” commonly called the “Anti-Trust Act,” (26 Stat. 209, c. 647; Rev. St. Supp. 762,) congress provided that: “Section 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal. Every person who shall malee any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor. “Sec. 2.

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize, any part of the trade or commerce among the several states, or with foreign nations, shall be deemed guilty of a misdemeanor.” “Sec. 4. The several circuit courts of the United States are hereby invested with jurisdiction to prevent and restrain violations of this act.” The government bases this suit on these provisions of the latter act.

It claims that the contract in question, and the association formed under it, are illegal on three grounds: First, because the contract prevents free and unrestricted competition between competing lines of railroad; second, because it tends to create a monopoly; and, third, because the railroad corporations have through this contract abandoned the discharge of some of the'ir duties to the public. The first ground stated is chiefly relied on, and it presents questions of deep interest, the decision of which must have a far-reaching and important influence on the transportation system of the nation.

The government does not claim that the contract and association assailed effected a pooling of freights, or that they tend to retard improvement in the facilities afforded for safe, quick, and convenient transportation, or that they are obnoxious to any of the provisions of the interstate commerce act; but it insists that the anti-trust act prohibits all contracts and combinations between competing railroad corporations which in any manner restrict free competition. The argument is, the anti-trust act prohibits any contract between competing railroad companies that restricts competition.

This contract restricts competition; therefore it is illegal. Is, then, every contract between competing railroad companies that in any manner imposes a restriction upon competition a “contract in restraint of trade” and illegal within the meaning of the antitrust act? Is the existence of restriction upon competition the standard by which the legality of these and all oilier contracts must be measured under that act? and, if not, by what standard shall 1heir legality be deteraiined?

These are questions that the position of the government compels us to consider before we can determine whether or not this contract is void. Their determination demands a careful examination and construction of that pari; of the anti-trust act which declares that “every contract, combination in the form, of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states,” is illegal. No definition of these terms is found in this act, hut the terms are not new.

For more (han 200 years before it was passed the courts of England and America had from time to time declared that certain classes of contracts in restraint of trade were against public policy, and therefore illegal and void under the common law. The line of demarcation between these illegal contract's and the innumerable valid agreements that are daily made in the business world had been drawn by long lines of decisions, and had been repeatedly pointed out by the supreme .court of the United States. Gibbs v. Gas Go., ISO IT. 0. SOS. 409, !) Sup. Ct. Rep. 553; Fowle v. Park, 131 IT. S. 88,' 9 Sup. Ct. Rep. 658.

Two years before its passage congress had enacted the interstate commerce law. They had there provided a code of rules and established a commission for (he express purpose of regulating that part of interstate and international commerce ■which relates to transportation. Under these circumstances, three well-settled rules of construction must be applied to ascertain the meaning and scope of the act;

(1) It must he read in the light of all general laws upon the same subject in force at the time of the passage of the act.

(2) Where words have acquired a well-understood meaning by judicial

interpretation, it is io be presumed that they are used in that sense in a subsequent statute, unless the contrary clearly appears.

(3) Where congress creates an offense, and uses common-law terms, the courts may properly look to that body of jurisprudence for the true meaning of the terms used, and, if it is a common-law offense, for the definition of the offense if it is not clearly defined in (.he'act adopting or creating it. U. S. v. Armstrong, 2 Curt. 446; U. S. v. Coppersmith, 4 Fed. Rep. 198; In re Greene, 52 Fed. Rep. 104, 111; McCool v. Smith, 1 Black, 459, 469; McDonald v. Hovey, 110 U. S. 619, 628, 4 Sup. Ct. Rep. 142.

Thus we are brought to a consideration of the statutes in force and the decisions that had been rendered when this act was passed to determine what contracts in restraint of trade were then illegal, for it is clear both from the rales to which we have referred and from the title of the act, viz. “An act to protect trade and commerce against unlawful restraints and monopolies,” that it was such, contracts, and such, contracts only, that congress intended to declare unlawful and criminal in interstate commerce.

Under the common law, the' ground on which contracts in restraint of trade were declared unlawful was that they were against public policy. But when it becomes necessary to consider grounds of public policy in the determination of a case, it is well to bear in mind the oft-quoted remarks of Justice Burrough in Richardson v. Mellish, 2 Bing. 252, that public policy “is a very unruly horse, and when you once get astride of it you never know where it will carry you. It may lead you from the sound law.” Public policy changes with the changing conditions of the times.

It is hardly to be expected that a people who are transported by steam with a rapidity hardly conceived of a century ago, who are in constant and instant communication with each other by electricity, and who carry on the most important commercial transactions by the use of the telegraph while separated by thousands of miles, will entertain precisely the same views of what is conducive to the public welfare in commercial and business transactions as the people of the last century, who lived when commerce crept slowly along the coasts, shut out of the interior by the absence of roads, and hampered by an almost impassable ocean.

In 1415 a writ of debt was brought on an obligation by one John Dier, in which the defendant alleged the obligation in a certain indenture which he put forth, and on condition that if the defendant did not use his art of a dyer’s craft, within the city where the plaintiff, etc., for half a year, the obligation to lose its force, and said that he did not use his art within the time limited.

Hull, J., said: “In my opinion, you might have demurred upon him that the obligation is void, inasmuch as the condition is against the common law; and, per Dieu, if the plaintiff were here, he should go to prison till he paid a fine to the king.” Y. B., 2 Hen. V. fol. 5, pl. 26. In 1841, Lord Langdale, master of the rolls, held that a contract made by a lawyer not to practice his profession in Great Britain for 20 years was not against public policy, and that it was valid. Whittaker v. Howe, 3 Beav. 383.

In 1843, the court of exchequer held that an agreement not to practice as a surgeon dentist in London or in any other town where the plaintiffs might have been practicing was reasonable and lawful so far as it related to London, but against public policy and void as to the other towns. Malian v. May, 11 Mees. & W. 652, 667.

In 1869, Vice Chancellor James sustained a contract by vendors not to carry on or allow others to carry on in any part of Europe the manufacture or sale of certain kinds of leather so as in any way to interfere with the exclusive enjoyment by the purchasing company of the manufacture and sale thereof, and issued an injunction to enforce it. Cloth Co. v. Lorsont, L. R. 9 Eq. 345. In 1889 the supreme court of New York sustained a contract not to manufacture or sell thermometers' or storm glasses throughout the United States for 10 years. Thermometer Co. v. Pool, 51 Hun, 157, 163, 4 N. Y. Supp. 861.

And in 1891 the supreme court held that a contract of a railroad corporation giving the Pullman Southern Car Company the exclusive right to furnish all drawing room and sleeping cars required by that road during a period of 15 years was not an illegal restraint of trade, and sustained it. Chicago, etc., R. Co. v. Pullman Southern Car Co., 139 U. S. 79, 31 Sup. Ct. Rep. 490. It is with the public policy of to-day, as illustrated by public statutes and judicial decisions, that we have now to deal.

In considering that subject, we are not to be governed by our own views of the interests of the people, or by general considerations tending to show what policy would probably be wise or unwise. Such a standard of determination might be unconsciously varied by the personal views of the judges who constitute the court. The public policy of the nation must be determined by its constitution, laws, and judicial decisions. So far as they disclose it, it is our province to learn and enforce it; beyond that it is unnecessary and unwise to pursue our inquiries. Vidal v. Girard’s Ex’rs, 2 How. 127, 197; Swann v.

Swann, 21 Fed. Rep. 299.

Turning first, then, to the decisions, we find that it has long been settled that contracts or combinations of the producers or dealers in staple commodities of prime necessity to the people, to restrict or monopolize their supply or enhance their price, pooling contracts, or combinations between such producers or dealers to divide their profits in certain fixed proportions, and pooling contracts or combinations between competing common carriers, are illegal restraints of trade, and void; while contracts or combinations between employers or workmen to fix and abide by certain prices for labor or services may be valid in their inception, but become illegal restraints of trade whenever the associations •formed under them interfere with the freedom of those who are not, members to refuse to abide by their prices, or to employ or he employed at other rates, or whenever such associations undertake to prevent nonmembers from using their property or their labor aa they see fit.

The main purpose of contracts of these classes that are thus held illegal is to suppress, not simply to regulate, competition; and, if suppression is not eifected, it is because the contracts fail to accomplish their purpose. It is evident, that there is a wide difference between such contracts and those the purpose of which is to so regulate competition that it may be fair, op<m, and healthy, and whose restriction upon it is slight, and only that which is necessary to accomplish this purpose.

It does not necessarily follow that contracts of the latter class constitute illegal restraints of trade because those of the former classes do.

To maintain his proposition that any contract between common carriers that restricts competition in any degree is an illegal restraint of trade, the counsel for the government has cited numerous cases where such expressions as the following are found in the opinions of the courts: ‘The people have a right to the necessaries and conveniences of life at a price determined by the relation of supply and demand, and the law forbids any agreement or combination whereby that price is removed beyond the salutary influence of legitimate competition.” De Witt Wire-Cloth Co. v. New Jersey Wire-Cloth Co., (Com. Pl. N.

Y.) 14 N. Y. Supp. 277. “It is against, the general policy of the law to destroy or interfere with free competition, or to permit such interference or destruction.” Stewart v. Transportation Co., 17 Minn. 872, (Gil. 348.) "Combinations and conspiracies to enhance the price of any

article of trade and commerce are injurious to the public.” People v. Fisher, 14 Wend. 9. “Whatever destroys, or even restricts, competition in trade is injurious, if not fatal, to it.” Hooker v. Vandewater, 4 Denio, 349, 353. A careful and patient examination of the cases cited, however, discloses the fact that the contracts considered in those cases, which are not of doubtful authority, were of one of the classes to which we have referred, or rest upon some other ground, than the existence of restriction upon competition.

They were cases involving contracts of competing producers or dealers to limit the supply and enhance the price of, or to monopolize, staple , commodities, like Morris Run Coal Co. v. Barclay Coal Co., 68 Pa. St. 173; India Bagging Ass’n v. B. Kock & Co., 14 La. Ann. 168; U. S. v. Jellico Mountain Coal & Coke Co., 46 Fed. Rep. 432; Lumber Co. v. Hayes, 76 Cal. 387, 18 Pac. Rep. 391; De Witt Wire-Cloth Co. v. New Jersey Wire-Cloth Co., (Com. Pl. N. Y.) 14 N. Y. Supp. 277; Salt Co. v. Guthrie, 35 Ohio St. 666; and People v. North River Sugar Refining Co., 54 Hun, 354, 7 N. Y.

Supp. 406; or cases involving pooling contracts, like Craft v. McConoughy, 79 Ill. 346; Hooker v. Vandewater, 4 Denio, 349; Stanton v. Allen, 5 Denio, 434; Anderson v. Jett, (Ky.) 12 S. W. Rep. 670; Gibbs v. Gas Co., 130 U. S. 396, 9 Sup. Ct. Rep. 553; Morrill v. Railroad Co., 55 N. H. 531; Denver & N. O. Ry. Co. v. Atchison, T. & S. F. R. Co., 15 Fed. Rep. 650; and Woodruff v. Berry, 40 Ark. 252; or cases involving combinations of workmen which compelled nonmembers to abide by the prices for labor which they had fixed or to abandon their employment, like People v. Fisher, 14 Wend. 9, and U. S. v.

Workingmen’s Amalgamated Council, 54 Fed. Rep. 994, 1000; or cases where the contracts were ultra vires the corporations, and their purpose and effect was to monopolize trade, like Railroad Co. v. Collins, 40 Ga. 582; Hazlehurst v. Railroad Co., 43 Ga. 13; and W. U. Tel. Co. v. American Union Tel. Co., 65 Ga. 160; or cases of questionable authority, like Com. v. Carlisle, Brightly, N. P. 36, 39. See, contra, Snow v. Wheeler, 113 Mass. 179, 185; Bowen v. Matheson, 14 Allen, 499; Skrainka v. Scharringhausen, 8 Mo. App. 522; and Carew v. Rutherford, 106 Mass. 1, 14.

It was natural that in the discussion of contracts of these classes the courts should condemn in unmeasured terms the suppression of - competition, but in none of these cases were they required to hold, and in none of them did they hold, as we understand the opinions when read in relation to the facts of the cases respectively, that every restriction of competition by contracts of competing' dealers or carriers was illegal.

These decisions rest upon broader ground, — on the ground that the main purpose of the obnoxious contracts was to suppress competition, and that they thus tended to effect an unreasonable and unlawful restraint of trade; they rest on the well-settled rules, and come within the well-defined classes, to which we have above referred. A more extended view of fhe authorities strengthens this conclusion, and makes plain the line of demarcation which separates legal contracts that incidentally restrict competition from illegal contracts in restraint of trade.

The decision in tin1 leading case upon (Ms subject, (Mitchel v. Reynolds, 1 P. Wins. 181, 1 Smith, Lead, Cas. [7th Amer. Ed.] pt. 2, p. 708,) the case which Chief Justice Fuller sa.ys is the foundation of the rule in relation to the invalidity of contracts in restraint of trade, (Gibbs v. Gas Co., 130 U. S. 409, 9 Sup. Ct. Rep. 553.) held (hat a contract, that clearly restricted competition was not an illegal restraint of trade. The action was upon a bond the condition of which was that the obligor, who was the assignor of a lease of a bakehouse and messuage in the parish of St.

Andrews, Holhorn, would not exercise his trade of a baker within that parish for three years. The contract was held valid, and the action sustained. This decision was rendered in 1711. Chief Justice; Parker, in delivering it, declared that contracts in partial restraint oí trade were valid if made upon sufficient consideration, but that contracts in general restraint of trade were illegal, because they deprived the party restrained of his livelihood and the subsistence of Ms family, and the public of a useful member.

The point, actually decided, that contracts in partial restraint of trade may be sustained, has been uniformly approved, hut in (he development of the law applicable to this subject there has been added to it the further condition (hat the restriction imposed must he reasonable in view of ail tin; facts and circumstances of each particular case. The remark of Chief Justice Parker that contracts 'in general -restraint of trade are illegal- — a remark that was not necessary to the determination of flu; question before him — has been, to say the least, greatly modified by subsequent decisions.

There is a plain tendency in the la(er authorities to repudiate the proposition that there is any hard and fast rule that contracts in general restraint of trade are illegal, and to apply the test of reasonableness to all contracts, whether the restraint he general or partial. In Tallis v.

Tallis, 1 El. & Bl. 391, the court of queen’s bench held, in 1853, that a covenant restricting competition, which bound the covenantor not to exercise his trade of a canvassing publisher in London or within 150 miles of the general post office, or in Dublin or Edinburgh, or within 50 miles of either, or in any other town where the, covenantee or his successors had an establishment or might have had oik; within six months preceding, was not an illegal restraint of trade;, and enforced it. In Mogul Steamship Co. v. McGregor, Gow & Co., 21 Q. B.

Div. 544, certain shipowners engaged in the carrying (rade between London and Ohinahad formed an association for the purpose of keeping up the rate of freights in the tea trade, and securing that trade to themselves. They accomplished this purpose by allowing a rebate of 5 per cent, on all freights paid by shippers who shipped in their vessels only, and thus partially or entirely excluded the plaintiffs, who were competing shipowners, from the tea-carrying trade.

The latter brought suit for an injunction and damages, hut, notwithsl anding the obvious restriction upon free competition, Lord Coleridge held that the association was not an unlawful combination in restraint of trade, and gave judgment for tbe defendants. This decision was rendered in 1888. It was sustained on appeal, (23 Q. B. Div. 598,) and finally affirmed by the house of lords, (App. Cas. 1892, p. 25.) In Perkins v.

Lyman, 9 Mass. 522, the supreme judicial court of Massachusetts held, in 1813, that a contract by a merchant not to be interested in any voyage to the northwest coast of America was not invalid as in restraint of trade. In Match Co. v. Roeber, 106 N. Y. 473, 13 N. E. Rep. 419, a contract of a match manufacturer never to manufacture or sell any friction matches in the District of Columbia, or in any part of the United States except Idaho and Montana, was sustained and enforced. In Navigation Co. v.

Winsor, 20 Wall. 64, decided in 1873, a contract between two steam navigation companies engaged in the business of transportation on the riveis, bays, and waters of California, and on the Columbia river and its tributaries, respectively, was declared by the supreme court not to be in restraint of trade, although it prohibited the use of a certain steamer in the waters of California for 10 years.

And in 1890 the supreme court of New Hampshire in an exhaustive and persuasive opinion held that contracts by which a railroad corporation leased its road and rolling stock to a competitor for many years were not necessarily against public policy or void at common law, when the purpose of the contracts and combinations did not appear to be to raise the rate of transportation above the standard of fair compensation, or to violate any duty owing to the public by noncompeting companies. Manchester, etc., R. Co. v. Concord R. Co., (N. H.) 20 Atl. Rep. 383.

If further authority is wanted for the proposition that it is not the existence of the restriction of competition, but the reasonableness of tha.t restriction, that is the test of the validity of contracts that are claimed to be in restraint of trade, it will be found in Fowle v. Park, 131 U. S. 88, 97, 9 Sup. Ct. Rep. 658; Gibbs v. Gas Co., 130 U. S. 396, 9 Sup. Ct. Rep. 553; In re Greene, 52 Fed. Rep. 104, 118; Horner v. Graves, 7 Bing. 735, 743; Hubbard v. Miller, 27 Mich. 15, 19; Rousillon v. Rousillon, 14 Ch. Div. 351, 363; Cloth Co. v. Lorsont, L. R. 9 Eq. 345, 354; Wickens v.

Evans, 3 Younge & J. 318; Ontario Salt Co. v. Merchants Salt Co., 18 Grant, Ch. 540; Mallan v. May, 11 Mees. & W. 652, 657; Whittaker v. Howe, 3 Beav. 383; Kellogg v. Larkin, 3 Pin. 123, 150; Beal v. Chase, 31 Mich. 490; Skrainka v. Scharringhausen, 8 Mo. App. 522, 525; Wiggins Ferry Co. v. Chicago & A. R. Co., 73 Mo. 389; Gloucester Isinglass & Glue Co. v. Russia Cement Co., 154 Mass. 92, 94, 27 N. E. Rep. 1005; Thermometer Co. v. Pool, 51 Hun, 157, 163, 4 N. Y. Supp. 861; Association v. Walsh, 2 Daly, 1; Hodge v. Sloan, 107 N. Y. 244; 17 N. E. Rep. 335; Brown v. Rounsavell, 78 Ill. 589; Jones v.

Clifford's Ex’r, 5 Fla. 510, 515. From a review of these and other authorities, it clearly appears that when the anti-trust act was passed the rule had become firmly established in the jurisprudence of England and the United States that the validity of contracts restricting competition was to be determined by the reasonableness of the restriction. If the main purpose or natural and inevitable effect of a contract was to suppress competition or créate; a monopoly, it was illegal.

If a contract imposed a restriction that was unreasonably injurious to the public 'interest, or a restriñí ion that was greater than the interest oí the party in whose favor it was imposed demanded, it was illegal, lint; contracts made for a lawful purpose, which were not unreasonably injurious to the public welfare, and which imposed no heavier restraint upon trade than the interest- of the favored party required, had been uniformly sustained, notwithstanding their tendency to some extent to check competition.

The public welfare was first considered, and the reasonableness of the restriction determined under these rules in the light of all the facts and circumstances of each particular case. But it is said that railroad corporations are qua,si public corporations, and any restriction upon their competition is against the public policy of the nation. It is not to be denied that there are some expressions to be found in adjudged cases, notably in Gibbs v. Gas Co., 130 U. S. 396, 469, 9 Sup. Ct. Rep. 553; West Virginia Transp. Co. v. Ohio River Pipe Line Co., 22 W. Va. 600, 625; Chicago Gaslight & Coke Co. v.

People’s Gaslight & Coke Co., 121 Ill. 530, 13 N. E. Rep. 169; and W. U. Tel. Co. v. American Union Tel. Co., 65 Ga. 160,—to the effect that where a business is of such character that it cannot be restrained to any extent whatever without prejudice to the public interests, the courts decline to enforce or sustain contracts imposing such restraint, however partial. Rut the language employed by the courts in these cases should be read in the fight of tin; circumstances under which it was uttered, and with due reference to the point actually adjudicated. Thus in the earliest of these cases (W. U. Tel. Co. v.

American Union Tel. Co.) it was held that a contract between a railroad company and a telegraph company by which the former granted to the latter the exclusive right to construct a telegraph line along its right of way, necessarily excluded all other telegraph lines from the use of a right of way that by condemnation had been devoted to public uses, and was void, because it was in restraint of trade, and tended to create a. monopoly. In West Virginia Transp. Co. v.

Ohio River Pipe line Co. it was held that an owner of 2,000 acres of oil land could not grant to one pipe line company an exclusive right to lay a pipe line across said lauds, because the legislature, by authorizing pipí' line companies to condemn lands for the construction of such lines, had thereby declared that the public had an interest in their construction, and that a contract which precluded such companies irosa laying a line across an extensive tract of land was necessarily opposed to public policy. In Chicago Gaslight & Coke Co. v.

People’s Gaslight & Coke Co. ihe court held that a gas company, which had accepted a charter authorizing it to lay pipes and to supply gas throughout the entire limits of the city, could not disable itself from the performance of the public duty it had undertaken by entering into a contract with another (company not to lay pipes and supply gas 'in a large

section of said city. And in Gibbs v.

Gas Co. a like contract by one gas company with a no flier to abandon the discharge of public duties which had been devolved upon it by its charter was Reid, on that account, to be against public policy, and void, and to be void on the further ground that the contract was in open violation of a statute which prevented the company from “entering into a * * * contract with any other gas company whatever.” Rio doubt can be entertained that the contract involved in each of the cases last referred to was against public policy for its marked tendency to create a- monopoly, and to suppress healthy competition.

Two of the contracts were also vicious in the respect that the corporation had attempted to disable itself from exercising powers which had been conferred upon it for the public advantage. ¡But we think, in view of the state of facts on which the decisions were predicated, and the. points actually adjudicated, it would be unwise to deduce an unbending rule that any and every contract between two railway companies which enjoins or contemplates concert of action in the matter of establishing freight or passenger rates between competitive points is against public policy, and an unlawful restraint of trade..

No case, we believe, has yet gone to that extent, or has declared that the business of transporting freight and passengers by rail is of such character that no restraint whatever upon competition therein is permissible. On the contrary, contracts between common carriers which imposed some restrictions upon competition have been frequently sustained by our highest courts, and the rule has been often applied that the test of their validity was not the existence, but the reasonableness, of the restriction imposed. Navigation Co. v. Winsor, 20 Wall. 64; Chicago, etc., R. Co. v. Pullman Southern Car Co., 139 U.

S. 79, 11 Sup. Ct. Rep. 490; Mogul Steamship Co. v. McGegor, Gow & Co., 21 Q. B. Div. 544; Manchester, etc., R. Co. v. Concord R. Co., (N. H.) 20 Atl. Rep. 383; Wiggins Perry Co. v. Chicago & A. R. Co., 73 Mo. 389. But even if such an extreme view, as is above indicated, was once tenable, we fail to see how it can well be maintained since the passage of the interstate commerce law, and the action that has been taken thereunder by the government commission which was created to enforce its provisions.

The interstate commerce law imposes several important restrictions upon the right of railway companies to do as they please in the matter of- making and altering rates, and congress has thereby expressed its conviction that unrestrained competition between carriers is not, at the present time, and under existing conditions, most conducive to the public welfare, but that other things are quite as essential to the public good. Mark the difference in public policy towards merchants and railroad companies exhibited by the common law and by the interstate commerce act.

Merchants may refuse to sell their wares at all, they may refuse to transact any business; but railroad companies are common carriers; they must furnish transportation when requested; they must operate their roads or forfeit their franchises; merchants may charge any price they see fit for their wares, but railroad companies are restricted to reasonable and just charges for transportation, (Interstate Commerce Act, § 1;) merchants may sell articles of like character and value for as many different prices as they have different customers, hut, railroad companies are restricted to the same charges to all their customers for like services, (Id. § 2;) merchants may give to any customers or any localities any preference or advantage they choose over other customers or localities, hut railroad companies are prohibited from giving any undue preference or advantage to any parly or place, (Id. § .3;) merchants may sell articles of inferior value for higher prices than those they charge and receive for those of greater value, but railroad companies are prohibited from charging or receiving a greater compensation for a short haul than for a long haul, (Id. § 4;) merchants may keep their prices secret; railroad companies must publish their rai.es for transportation, and are prohibited from charging or receiving a greater or less compensation than that specified in the published schedules, (Id. § 6;) merchants may change their prices instantly and without notice, railroad companies are prohibited from increasing their rains except after 10 days’ public notice or from decreasing them except after three days’ public notice, (Id. § 6;) merchants may trans-ad, their business free from the supervision or interference of the government; but railroad companies are subject to the supervision of a commission, established by the government, authorized to take the necessary proceedings for the enforcement of these restrictions, (Id. § 12.) These restrictions relate almost exclusively to rates for the transportation of freight and passengers.

They are numerous, radical, and effective. They became operative by

an act of congress three years before the anti-trust act was passed, and they establish beyond cavil that from that date the public policy of the nation was that competition between railroad companies engaged in interstate commerce should not go wholly unrestricted.

If we turn now to the published reports of the interstate commerce commission, whose opinion on such matters is certainly entitled to great consideration, we find the view even more clearly expressed that; it was the purpose of congress to place important restraints upon competition, that uncontrolled struggles for patronage by railway carriers are frequently detrimental ,to the pub: lie welfare, that rate wars are especially injurious to the business interests of the country and contrary to the spirit of existing laws, that, the interstate commerce act invites conferences between railway managers, and that concert of action in certain matters by railway companies is absolutely essential to enable it to accomplish its true purpose.

In the fourth annual report of the commission, at page 19, we find the following statement: “It is thus seen at every turn that the regulation o£ rates on a consideration of the pecuniary or other situation o£ any single road, and without a survey of the whole field of operations wlierehy its business may be affected, and under a supposition that what is done in respect to that road may be limited in its consequences, is entirely antagonistic to all principles of railroad transportation.

The railroad managers have perceived this from the very first, and it is because they have perceived this t hat they have been compelled to organize'themselves into railroad associations, for the purpose of agreeing upon classifications and rates, and upon a great variety of other matters pertaining to the methods of conducting interlocking and overlapping business, and all business affected by competitive forces.” And on page 21. of the same report the following: “In. former reports the commission has referred to the undoubted fact that competition for business between railroad companies is often pushed to ruinous extremes, and that the most serious difficulties in the way of securing obedience to the law may be traced to this fact.

When competition degenerates to rate wars, they are as unsettling to the business of the country as they are mischievous to the carriers, and the spirit of the existing law is against them.” In the second annual report on page 25, when speaking of the unity of railroad interests, the commission uses this language: ‘‘But the voluntary establishment of such extensive responsibility would require such mutual arrangements between the carriers as would establish a common authority, which should be vested with power to make traffic arrangements, to fix rates, and to provide for their steady maintenance, to compel the performance of mutual duties among the members, and to enforce promptly and efficiently such sanctions to their mutual understandings as might be agreed upon.” And in the same report, on page 23, we find the following: “A short road may sometimes make itself little better than a public nuisance by simply abstaining from all accommodation that' could not by law be forced from it.

It would not be likely to do this unless for some purpose of extortion from other roads, but the existence of a power to annoy and embarrass is a fact of large importance. The public has an interest in being protected against the probable exercise of any such power.

But its interest goes further than this; it goes to the establishment of such relations among the managers of -roads as will lead to the extension of their traffic arrangements with mutual responsibilities, just as far as may be possible, so that the public may have, in the services performed, all the benefits and conveniences that might he expected to follow from general federation. There is nothing in the existence of such arrangements which is at all' inconsistent with earnest competition.

They are of general convenience to the carriers as well as to the public, and their voluntary extension may be looked for until, in the strife between roads, the limits of competition are passed, and warfare is entered upon.

But, in order to form them, great mutual concessions are often indispensable, and such concessions are likely to be made when relations are friendly, but are not to be looked for when hostile relations have been inaugurated.” In the first annual report, on page 33, the commission further said: “To make railroads of the greatest possible service to the country, contract relations would be essential, because there would need to be joint tariffs, joint running arrangements and interchange of cars, and a giving of credit to a large extent, some of which were obviously beyond the reach of compulsory legislation, and, even if they were not, could be best settled, and all the incidents and qualifications fixed, by the voluntary action of the parties in control of the roads respectively.

Agreement upon these and kindred matters became, therefore, a settled policy, and short independent lines of road seemed to lose their identity, and to become parts of great trunk lines, and associations were formed which embraced all the managers of roads in a state or

section of the country. To these associations were remitted many questions of common interest, including such as are above referred to. Classification was also confided to such associations, it being evident that differences in classification were serious obstacles to a harmonious and satisfactory interchange of traffic.

But what perhaps more than anything else influenced the formation of such associations, and the conferring npon them of large authority, was tho liability, wliich was constantly imminent, that destructive wars of rates would spring up between competing roads to the serious injury of the parties and the general disturbance of business.

Accordingly, one of the chief functions of such associations has been the fixing of rates, and the devising of means whereby their several members can be compelled or induced to observe the rates when fixed.” It would extend this opinion to an unreasonable length if we assumed to state the reasons which probably influenced congress to impose some restrictions upon competition in the matter of railway transportation, and to place railway carriers under the operation of a law which, for its successful execution, as pointed out by the interstate commerce commission, seems to some extent to invite conference and concert of action.

It is likewise unnecessary for us to state the reasons why railroad companies should be accorded the privilege of entering into arrangements with other companies which may, to some extent, regulate competition. Reasons to that effect have been stated with great ability and persuasive force in some of the cases to which we have already referred, notably in Manchester, etc., R. Co. v. Concord R. Co., supra.

But, without entering .into that discussion, it is sufficient to say that, in our judgment, there was no hard and fast rule in force when the anti-trust act wa.s enacted which made every contract between railroad companies void on grounds of public policy if it in any wise checked competitién. In our judgment, the more reasonable doctrine then, prevailed, especially in view of the recent passage of the interstate commerce act, that such contracts were void, if, judged in the light of all the circumstances and conditions under which they were made, they unreasonably restricted competition.

In view of the foregoing principles, it remains for us to examine the contract which is alleged to be in violation of the anti-trust act, but before doing so a preliminary observation will not be out of place. The anti-trust act is a criminal statute, and it should not be so construed as to subject persons to,the penalties thereby imposed unless the contract complained of is one that is clearly within the provisions of the statute. It is also well to note that the case comes before us simply on bill and answer.

The bill alleges that its purpose, and that of the association formed under it, was to suppress competition, enhance rates of freight, and monopolize the trafile. The answers deny these averments, and allege that the purpose of the contract and association was to carry into effect the provisions of the interstate commerce act, and to make rates public and steady. The bill alleges that the effect of the contract and association has been to raise the rates of freight above those which, the public might have reasonably expected to obtain from free competition.

The answers deny this allegation, and aver that the effect has been to maintain reasonable rates, and that more than 200 reductions of rates have been effected through the association. Upon a hearing on bill and answer the averments of fact contained in the bill are overcome by the denials of the answer, and the averments of fact in the answer stand ad-1 mitted. Tainter v. Clark, 5 Allen, 66; Brinckerhoff v. Brown, 7 ; Johns. Ch. 217; Perkins v. Mchols, 11 Allen, 542.

The result is that the government’s right to relief here rests upon the' contract itself, and the fact that the rates maintained under it have not been unreasonable, and that many reductions have been made under its operation. The ordinary rules of

interpretation must then be applied to the language of this contract, and, if it appears that its purpose and tendency were to unreasonably restrict competition, it must be declared illegal. Dillon v. Barnard, 21 Wall. 430, 437; Interstate Land Co. v. Maxwell Land Grant Co., 139 U. S. 569, 577, 11 Sup. Ct. Rep. 656. In construing the contract it must also be remembered that fraud and illegality are not to be presumed, and that the purpose of the contract is that which is clearly manifest by its terms. In Mitchel v.

Reynolds, supra, the unfortunate remark “that where-ever such contract stat indifferenter, and for aught appears, may be either good or bad, the law presumes it prima facie to be bad,” fell from Chief Justice Parker. This seems to be the reverse of the proposition that every man is presumed to be innocent until he is proved to be guilty. It has long been repudiated by the courts of England and America.

The burden is on the party who seeks to put a restraint upon the freedom of contract to make it plainly and obviously clear that the contract is against public policy, and the true rule of construction is that neither fraud nor illegality is to be presumed, but the contract is to be assumed to have been made in good faith for the purpose which appeal’s on the face of it, and not colorably for any other. Registering Co. v. Sampson, L. R. 19 Eq. 462; Tallis v. Tallis, 1 El. & Bl. 391; Rousillon v. Rousillon, 14 Ch. Div. 351, 365; Stewart v. Transportation Co., 17 Minn. 372, 391, (Gil. 348;) Marsh v. Russell, 66 (N.

Y. 288; Phippen v. Stickney, 3 Metc. (Mass.) 384, 389. 1 Proceeding, then, to an examination of the contract, we find it to be substantially as follows: In the

preamble there is a declaration that the association is formed for “mutual protection by establishing and maintaining reasonable rates, rules, and regulation, both through and local.”

Article 1 declares that substantially all traffic competitive between two or more members in that part of the United States between the Mississippi and Missouri rivers and the Pacific ocean shall be governed by the association. It is provided by

article 2 that the association shall choose a chairman by unanimous vote; that there shall be regular monthly meetings of the association, in which each member must be represented by some responsible officer authorized to act definitely on all questions to be considered; that a committee shall be appointed to establish rates, rules, and regulations for the traffic, and that these shall be put into effect; that any railroad company may give five days’ written notice prior to any monthly meeting of any proposed reduction of rates or change of rules, and eight days’ notice as to the traffic of Colorado or Utah; that thereupon the reduction or change shall be considered and voted upon by the association at the next monthly meeting, and all members shall be bound by the decision of (he association, “unless then and there the parties shall give the association definite written no (ice that in ten days thereafter they' shall make such modification notwithstanding the vote of the association;” that any member may without notice, at its peril, make any rate, rule, or regulation necessary to meet the competition of outside lines, subject to a liability to pay a penalty of §100 if the association decides by a two-thirds vote that the rate, rule, or regulation was not necessary for that purpose; that all arrangements with connecting lines for the division of through rates relating to traffic covered by the agreement shall be made by authority of the association, and that the chairman of the association shall punish violations of the agreement by fines not exceeding §100 in any case.

Article 3 makes the chairman the executive officer of the association, requires him to publish and furnish to the members of the association the rates, rules, and regulations established, and all changes in them, and requires him to enforce the provisions of the contract.

Article 4 prohibits under-billing or billing at a wrong classification. Articles 5 and (5 provide for the appointment of the necessary employes and the payment of the necessary expenses of (lie association.

Article 7 provides for arbitration in case the managers of the parties to the agreement fail to agree upon any question arising under it; and

article 8 provides that any member may withdraw from the association on 30 days’ notice. It is obvious at a glance that this agreement is not affected by any of the vices of an ordinary pooling contract.* The income of each member of the association under the terms of the agreement. is si ill measured by the amount of freight and the number of passengers it carries, and it is still to the interest of each member of the association to make that patronage as great as possible, by affording to the public superior facilities for safe, speedy, and convenient transportation.

Under the operation of the agreement, each company must still compete with its associate members in the character of its roadbed, quality of its equipments, length of route, convenience of its terminal facilities, and in the efficiency of its management, for all of these considerations will necessarily have a marked influence upon the amount of its patronage. In other of its features, also, the contract is not subject to criticism.

In these days, when persons engaged in many other callings and avocations are in the habit of meeting at intervals, as associations, for the purpose of culi.ivating more iiiendlv relations and establishing regulations conducive to the general welfare of the trade, it is difficult, to see upon what just grounds representatives of railway companies can be denied the right of forming associations for the purpose of friendly conference and to formulate rules and regulations to govern railway traffic.

The fact that the business of railway companies is irretrievably interwoven, that they interchange cars and traffic, that they act as agents for each other in the delivery and receipt of freight and in paying and collecting freight charges, and that commodities received for transportation generally pass through the hands of several carriers, renders it of vital importance to the public that uniform rules and 'regulations governing railway traffic should be framed by those who have a practical acquaintance with the subject, and that they should be promulgated and faithfully observed.

The advisability of establishing such rules and regulations in the mode above indicated, particularly for the uniform classification of freight, has been frequently pointed out in the reports of the interstate commerce commission. Indeed, the benefits that would result from uniform rules and regulations, and from uniformity in the classification of freight, seem to us so obvious that we need not stop to enumerate them.

We are of the opinion, therefore, that the stipulations of this agreement enjoining a monthly conference between representatives of the various members of the association, and the appointment of a committee to formulate rules and regulations governing the traffic embraced by the agreement, are not only not opposed to public policy, but, if faithfully carried out, will tend to promote the public interests. It is also obvious, we think, that the stipulation requiring five days’ wiitten notice of a proposed reduction in rates does not, in and of itself, render the contract unlawful.

It is certain that a contract not to reduce established rates without a public notice of three days, and not to increase them without a notice of ten days, would not be against public policy, because the interstate commerce act has prohibited such changes with less notice. The plain object of this provision was to prevent competitors from resorting to secret, unfair, and ruinous methods of warfare, to make competition fair and open, and to enable shippers to modify their action to suit the coming changes.

There is no purpose of the provision, or of the policy that dictated it, that would not be as well, if not better, served by a notice of fifteen or forty days, as one of three days. But it is urged that the contract in question restrains competition in rates, and is therefore unlawful.

That it does have some tendency to check competition in that respect will not be denied; but that the restraint imposed isi slight, that there is abundant room within the terms of the agreement for the play of all the healthy forces of competition, and that it has a pronounced tendency to prevent, sudden and violent fluctuations in rates, commonly termed “rate wars,” seems to us to be equally manifest.

It is not reasonable to suppose that any member of the association which, by virtue of its situation, can really afford to transport freight or passengers between any two competitive points for a substantially less sum than its competitors, will be likely to forego the advantage that its situation gives it, even under the operation of the agreement.

It is much more probable that under the operation of the agreement, as under the influence of free competition, the rates between competitive points will be largety, if not entirety, based upon the rate which the road having the shortest line and best facilities esteems fair and reasonable compensation.

It will lie observed that under the terms oí the agreement no member of the association has hound itself to be governed by a rate fixed by a vote of the majority for a longer period than 10 days after the monthly meeting next succeeding its notification of a proposed change in rates; and for that reason the limitation imposed by the contract upon the right of a member of the association to adopt such a rate as it sees fit is very slight, and the power reposed in the association is correspondingly small.

We fail to see, therefore, that the natural or probable effect of this contract will be to sensibly raise either freight or passenger rates above the level which they would attain under the influence of what is termed “unrestricted competition.” On the other hand, it seems highly probable that the contract in question will prevent sudden and violent fluctuations in freight rates, such as often upset the business calculations of entire communities, and that lids was one of the main reasons which led to the formation of the association.

We are also persuaded that it will have a sensible tendency to induce a more uniform system of classification throughout the great region where the association operates, and also to induce the establishment of a more perfect code of rules and regulations governing freight traffic. It may also tend to prevent stealthy, secret, and unfair methods of warfare, and to make the strife for patronage among the members of the association open, fair, and honorable. All of these are objects that are in line with the true spirit of the interstate commerce act and an intelligent public policy.

The result is that this contract, in view of all the circumstances of the case and the situation of the parties thereto, does not impose such unreasonable restraints on competition as will warrant us in holding that it is one of those contracts or consjnraeies in restraint of trade find commerce among the several states which fall within the inhibition of the anti-trust act of July 2,1890. Xor is there any monopoly of trade, or any attempt to monopolize trade, within the meaning of that act, evidenced by this contract.

So far as can he learned from it, the association has never intended to have, and never has had or attempted to have, any trade. It has not held or attempted to obtain or hold any property except the moneys necessary for the bare expenses required to pay its officers and employes. It lias been and is a mere adviser with its members upon disputed questions submitted by the contract to its consideration.

So far as can be learned from the contract, each member of the association is striving with every other in iis territ ory, whether a member of the association or not, to divert from the latter and gather to itself all possible trade. There are provisions in the contract that the chairman may authorize members to meet the rates of competitors who are not members of the association, and that any member may meet the rates of such a competitor at its peril; hut these provisions were necessary for the protection of members of the association against the attacks of nonmembers.

Without such provisions unreasonably low rates established by the latter wonld draw away the bnsi-iiess of the members, and deprive them of the opportunity to compete on equal terms. These provisions give no company any higher right or greater power than it had before the contract was made, but simply reserved to each the privilege of exercising its original right to meet competition without giving the 15 days' notice in case of a warfare upon it by a nonmember. A monopoly of trade embraces two essential elements:

(1) The acquisition of an exclusive right to, or the exclusive control of, that trade; and (2) the exclusion of all others from that right and control. There is nothing in this contract indicating any purpose or attempt to obtain such a monopoly.

The great transportation systems of the Great Northern Railway Company, the Northern Pacific Railroad Company, the Southern Pacific Railroad Company, and the Texas Pacific Railroad Company were operated in the region subject to the regulation of this association, but none of these companies were members of it; and, even if they had been, there would still have been no evidence of any attempt to monopolize trade here, because each member is left to compete with every other for its share of the traffic. In re Greene, 52 Red. Rep. 104, 115.

The' position that these railroad companies have so far disabled themselves from the performance of their public duties by the execution of this contract as to give ground for the avoidance of the contract, and for a forfeiture of their franchises, cannot be successfully maintained. It is well settled upon principle and authority that, where a corporation by a contract entirely or substantially disables itself from the performance of the duties to the public imposed upon it by the acceptance of its charter, the contract is void, and its franchise may be forfeited.

The reasons for this rule, and some of the limitations of it, were stated by this court in Union Pac. Ry. Co. v. Chicago, R. I. & P. Ry. Co., 51 Fed. Rep. 309, 317-321, 2 C. C. A. 174, 230-235; and it is unnecessary to repeat them here. It goes without saying that this rule in no way limits the power of a corporation to discharge its ,duties through agents of its own selection.

There is no doubt that each of these corporations could lawfully appoint an expert or a committee of experts upon the subject of classification and rates of freight upon its road, .empower him or them to fix the rates, and then maintain them for 40 days unchanged.

Practically the 15 representatives of these companies, at a meeting of the association, their chairman, and their committee that originally fixed the rates and rules, together constitute an advisory committee on rates and rules of traffic, composed of men whose intimate knowledge of the needs of the shippers, and of the character .and quantities of the commodities transported through the different portions of the wide area traversed by these railroads, and whose wide experience in the effect of various rates upon the accommodation of the public and the business of the companies fit them well to carefully consider and wisely establish just and reasonable rates throughout this territory.

Such a committee each company acting independently might have appointed, and it is not per-reived tli.it the fact ¡hat two or more companies appoint the same men to establish rates and rules for the traffic upon their respective roads in any way invalida,tes the appointment of either. Moreover, the power delegated to the association, its committee and chairman, is so limited in extent and so restricted in time that it is hardly worthy of serious consideration as the ground for the avoidance of a contract and the forfeiture of a franchise.

The power granted to the committee originally chosen to establish the rates and rules expired by limitation upon a 30 days notice of withdrawal from the association; the power of the association itself to prevent modifications and changes in the rules and rates established ceases after 15 days’ notice of an intention to make the modifications and changes notwithstanding its action. It is true that there is a provision in ihe second

article of the agreement that regular meetings of the association shall he held, “unless notice shall he given by the chairman that the business to be transacted does not warrant calling the members together,” but the remark of the counsel for the government that this gives the chairman power to prevent the consideration of proposed changes in rates, a,nd thus to maintain them indefinitely by preventing a meeting of the association, cannot: be; seriously considered. The effect of the con tract is that, when a company gives notice of a proposed change of any importance, the meeting shall he; held.

Such a notice presents business to be transacted that does warrant calling the; members together. If, under such circumstances, the chairman gives notice that there is no such business, he violates the contract. The presumption is that he will not violate it; and, if he does do so, that is no ground for an avoidance of the contract. The result is that neither this contract nor the association formed under it can he held to be obnoxious to the provisions of the antitrust act in view of the facts admitted by the pleadings in this suit, and in the absence of other evidence of their consequences and effect.

Many of the considerations to which we have referred are presented upon the argument of the question whether or not the antitrust act applies to or in any way governs transportation companies that are engaged in that part of interstate and international commerce which consists solely of the transportation of per sons and property, in view of the very substantial regulation of this part of commerce provided by the interstate commerce act. The views we have expressed render it, unnecessary to determine this question, and we express no opinion upon it.

We rest this decision on ihe ground that, if the anti-trust act applies to and governs interstate and international transportation and its instrumental-ities, the contract and association here in question do not appear-to be in violation of it. The decree below' is affirmed, without costs. THAYER, District Judge, concurs.