within bounds that one would hazard nothing in saying that, within the territory whose business is naturally affected by the competition of the trunk lines, the period when rates can be controlled by combinations and kept at figures limited only by the discretion or the greed of the managers, is gone forever.

THE LEGALITY OF RAILROAD POOLS.

But it is said that all contracts which have for their object to restrain competition are illegal at the common law, because they are in conflict with a general principle of public policy. The term illegal is somewhat ambiguous. A contract may be illegal in the sense that it is forbidden by a law which imposes some penalty for entering into, or it may be illegal because, though not forbidden, it is considered to be of an injurious and demoralizing tendency, and therefore the law will not favor it, but will refuse to lend its aid in enforcement. If a contract is only illegal in this last sense, parties are at perfect liberty to enter into it if they please, but performance of its conditions must be entirely voluntary. It is under this head that pooling contracts are supposed to come.

It is a familiar principle of the law that contracts in general restraint of trade are void. Therefore if a man contracts with his rival in business that for any agreed consideration he will no longer pursue his customary calling within the State in which he resides, the promise is one he may keep at pleasure or break with impunity. The reasons are that such a contract if enforced would deprive the public of the benefits of competition, and at the same time impose restraints going far beyond what would be needful for protection to the party bargaining for them. But it was always agreed that competition, in so far as it operated injuriously to individuals might with entire competency be limited by contract; and in a great variety of cases it has been held that a man may lawfully bargain to put an end to an injurious competition in his business in the locality where he carries it on, or that he may bargain to prevent the establishment in that locality of a competing business which he fears may be injurious. It is only when he exacts terms that go beyond giving him protection that the law holds his contract to be unreasonable, injurious to the public, and therefore illegal. The reader unfamiliar with the law reports will find many of the cases referred to in the note; and it will appear on an examination that in all of them the legality of bargaining to limit competition, when it is kept within the bounds of reasonable protection, is either assumed or expressly affirmed.(1) The principle upon which these cases are decided is that by which pooling (1) The following cases are selected from the great number which recognize the principle, because the republication in the volumes here given is accompanied by valuable notes and references: Mitchell v. Reynolds, Smith's Leading Cases, 508; Perkins v. Lyman, 6 American Decisions, 158; Pierce v. Fuller, 5 American Decisions, 102; Bowers v. Bliss, 43 American Decisions, 93; Grundy vs. Edwards, 23 American Decisions, 402; Morgan v. Perhamus, 38 American Reports, 607; Pike v. Thomas, 7 American Decisions, 741; Drill Company v. Morse, 4 American Reports, 513; Hoyt v. Holly, 12 American Reports, 390; Hubbard v. Miller, 15 American Reports, 153; Cook v. Johnson, 36 American Reports, 64.

arrangements, so far as concerns their legality, must stand or fall. If they are illegal it is because they establish unreasonable restraints upon competition in business; if they can be supported in law, it must be upon the ground that they only give to the parties concerned that reasonable protection against competition which is needful to their prosperity. Having this in mind it may be useful to refer to such judicial decisions as seem to bear most directly upon this peculiar class of contracts.

It has already been said that pooling arrangements have been sustained in Great Britain. One of the cases passed upon was a pooling arrangement between stevedors; another was between competing railroads; and in neither case was it deemed an objection that the effect of the contract was to limit competition, or that this was to be accomplished by a combination. In the railroad case (2) Vice Chancellor W. Page Wood said among other things: “It is a mistaken notion that the public is benefited by putting two railroad companies against each other until one is ruined; the result being at least to raise the fares to the highest possible standard."

Before either of these cases was decided it had been held by the Supreme Court of New York [in 1847] that a contract between the proprietors of canal boats for fixing rates and for a division of net earnings was void, though the object was expressed to be "to establish and maintain fair and uniform rates of freight, and to equalize the business of forwarding on the Erie and Oswego canals among themselves, and to avoid all unnecessary expenses in doing the same." The argument of the court is brief, and is summed up in two short sentences: "The object of this combination was obviously to destroy competition between the several lines in the business engaged in. It was a conspiracy, between the individuals contracting, to prevent a free competition among themselves, in the business of transporting merchandise, property and passengers upon the public canals." "It is a familiar maxim that competition is the life of trade. It follows that whatever destroys or even relaxes competition in trade is injurious if not fatal to it." (1) Thus it will be seen that by giving a bad name to the arrangement, and quoting the old maxim, the court was supposed to have sufficiently reasoned the case out, and the judgment followed as of course. A similar agreement was shortly afterward condemned by the same court, in the case of Stanton against Allen, (2) as being designed to exempt the standard of freights, etc., “from the wholesome influence of rivalry and competition."

These cases have not passed entirely without criticism in this country. They were cited to the Supreme Court of Wisconsin not long after they were made, and were there dissented from in very vigorous terms.(3) Referring to the maxim that competition is the life of trade, Judge Howe, speaking for the court, said that it "is one of the least reliable of the host that (*) Hare v. Railway Co., 2 Johnson & Hemming's Reports, 80.

(1) Hooker v. Vandewater, 4 Denio's Reports, 349.

(*) 5 Denio's Reports, 434.

(3) In Kellogg v. Larkin, 3 Chandler's Reports, 133.

may be picked up in every market place. It is in fact the shibboleth of mere gambling speculation; and is hardly entitled to take rank as an axiom in the jurisprudence of this country. I believe universal observation will attest that for the last quarter of a century competition in the trade has caused more individual distress, if not more public injury, than the want of competition. Indeed, by reducing prices below or raising them above values -as the nature of the trade prompted-competition has done more to monopolize trade, or to secure exclusive advantages in it, than has been done by contract. Rivalry in trade will destroy itself, and rival tradesmen, seeking to remove each other, rarely resort to contract, unless they find it the cheapest mode of putting an end to the strife. And it seems to me not a little remarkable that in the case of Stanton v. Allen it should have been urged against the agreement that its object was to exempt the standard of freights, etc, from the wholesome influence of rivalry and competition.' For it is very certain because of that very purpose-because they did tend to protect the party against the influence of rivalry and competition-courts of law have upheld like agreements in partial restraint of trade, ever since the case of Mitchell v. Reynolds."(*)

But there are several other American cases which, in their general reasoning, must be conceded to give some support to the cases decided in New York. Among these are the cases in which combinations between coal companies to control the production of coal and its price in the market have been held illegal.(5) An agreement between dealers in a certain line of goods not to put any upon the market for three months has also been held to be illegal (") So has a combination which had for its purpose to effect a corner in the wheat market.(7) So has a combination between parties furnishing recruits in time of war, whereby they agree not to furnish them for less than a fixed price.(8) So have agreements not to compete in bids for public contracts (9) So have combinations to keep up the price of salt (10) And combinations to put up or to put down the wages of laborers, whether entered into by laborers or by employers, must in general depend for their observance upon the good faith of those who make them.(1) It would be easy to show (4) This is the leading case on contracts in restraint of trade, and was decided in 1711 : 1 P. Williams' Reports, 181; 1 Smith's Leading Cases, 508.

(5) Morris Run Coal Co. v. Barclay Coal Co., 68 Penn. State Reports, 173; Arnot v. Coal Co., 68 New York Reports, 558.

(6) India Association v. Kock, 14 Louisiana Reports, 168.

(7) Raymond v. Leavitt, 46 Michigan Reports, 447.

(8) Marsh v. Russell, 66 New York Reports, 288.

(9) Atcheson v. Mallon, 43 New York Reports, 147; People v. Stepbens, 71 New York Reports, 527; Ray v. Mackin, 100 Illinois Reports, 246; Swan v. Chorpenning, 20 California Reports, 182.

(10) Salt Co. v. Guthrie, 35 Ohio State Reports, 666.

(11) Journeymen Tailors' Case, 8 Modern Reports, 10; Commonwealth v. Hunt, 4 Metcalf's Reports, 111; The Queen v. Rowlands, 17 Queen's Bench Reports, 671; Hilton v. Eckersley, 6 Ellis and Blackburn's Reports, 47.

that many of these cases have no important bearing upon the question of the legality of railroad pools, but they are likely to be brought under consideration in any legal controversy on that subject, and the propriety of their being here referred to will therefore be apparent.

In the light of the judicial decisions, as they now stand in this country, it cannot safely be affirmed that the law will lend its aid to enforce the pooling contracts between railroads. It seems on the other hand more than probable that the courts will declare that such contracts are not sanctioned by the law. This is said irrespective of any opinion upon the question whether, as an original proposition, such ought to be the result. The early decisions in New York, which have given a certain tendency to subsequent judicial thought and action, were made with little or no investigation of the subject involved, and without any attempt whatever to show that the principle by which the legality of the arrangements to avoid injurious competition must be tested had been overlooked or disregarded in the contracts before the courts. But they have stood without much question to the present day; in their conclusions they fall in with prevailing notions of what is public policy on the subject, there is, a priori, a strong presumption, legal as well as popular, that they are correct; and they are likely for all these reasons, whether sound or not, to stand as precedents which courts will expect to follow. If that shall be the result of any litigation, or if the companies themselves shall look upon such a result as possible, and therefore decline litigation, the companies entering into pools must rely for the enforcement of their contracts upon the honor of the corporate officers and agents, and upon the methods that may be devised for making it to the interest of the several contracting parties to observe their agreements.

SANCTIONS FOR POOLING CONTRACTS.

Penalties to be imposed by the association will be out of the question. They will not be paid voluntarily by parties who will not voluntarily observe their agreements, and they cannot be collected by law. No doubt it might be made part of the pooling arrangement that a fund should be provided by proportionate contributions, and that from the sum paid in by any member a penalty assessed against it should be paid; but it would be easy for such member, if dissatisfied, to enjoin the payment, or in case of its failure to take steps for that purpose, for any of its stockholders to do so. Penalties, therefore, cannot constitute a reliance.

The principal danger to be guarded against is the cutting of rates. In the unregulated and unreasoning strife between railroad companies this cutting is not only carried on to an extent that is ruinous to the companies themselves, but it becomes a disturbing factor in all commerce; and it is perfectly correct for the railroad companies to say, as they do when defending pooling, that unjust discriminations are a necessary result. The sort of competition which is "the life of trade" in a war of rates, incites every agent to make secretly and by every form of indirection such terms as will secure the business; it is inevitable that these shall be without uniformity, and

that those who push hardest and bargain most-which will generally be the large shippers-will be most favored. Low rates, when they can be depended upon for any considerable time, increase the prices of grain and other market commodities in the hands of producers; but they affect prices little if at all when it is uncertain from day to day and from hour to hour what they are to be, and consequently such benefits as come from the hostile cutting of rates are reaped principally by speculators and other large shippers. It is doubtful if the shipping interest ever receives benefits equivlent to the losses which the railroad interest suffers in a war of rates, and the benefits to the general public will seldom equal the incidental injuries. Nothing, therefore, can be plainer than the desirability that reasonable rates should be maintained with general uniformity, so that they may be calculated upon in the making of contracts and purchases, and so that small shippers as well as large, the man who merely sends his household goods as well as the speculator in grain and provisions, may have the benefit of them.

So far as the steadiness in rates tends to the benefit of the railroads, it is also particularly desirable for a reason not often mentioned. It is a great misfortune to the country that so many of its roads pay no dividends. Though worthless to the stockholders such roads have in the stock market a speculative value, and in the hands of speculating men the stocks become mere implements of gambling, and the roads are managed with a purpose alternately to put up and put down the quotations on the stock board, that the managers may make profit from the sales and purchases. It is beyond doubt that larger fortunes have been made in the manipulation of some worthless roads with a view to deceptive appearances for stock jobbing purposes than would have been derived from dividends equal to the current rate of interest. This is an evil, not solely because of its fostering the prevailing tendency to demoralizing and ruinous speculation, but also for the further reason that it increases and strengthens among the people at large a widespread prejudice against railroad managers as men who contrive to accumulate great fortunes at the public cost. Under the influence of this prejudice it may well happen that the charges a railroad makes for transportation, though barely sufficient to cover all the items of expense, will be thought exorbitant by the community, who see the members of the managing board acquiring wealth through the ownership and management of the stock. Nor are the community to be blamed for this, for they have a right to assume that all the profits made by managers are derived from the earnings of the roads. Thus, non-paying roads not only foster speculative gambling, which is one of the most demoralizing of existing evils, but they also tend to excite in the community a feeling against railroad managers and railroad property, which gradually extends to embrace all forms of aggregate and especially of corporate wealth; and this feeling in any time of unusual excitement or distress is liable to break out into uncontrollable fury, and to seek gratification in destruction. All property owners, and all law-abiding and patriotic people, are therefore directly concerned in remov