home | authors | books | about

Home -> Essel R. Dillavou -> Principles Of Business Law -> BOOK VIII CHAPTER I

Principles Of Business Law - BOOK VIII CHAPTER I

1. CHAPTER I

2. CHAPTER II

3. CHAPTER III

4. BOOK I CHAPTER I

5. CHAPTER II

6. CHAPTER III

7. CHAPTER IV

8. CHAPTER V

9. CHAPTER VI

10. CHAPTER VII

11. CHAPTER VIII

12. BOOK II CHAPTER I

13. CHAPTER II

14. CHAPTER III

15. CHAPTER IV

16. BOOK III CHAPTER I

17. CHAPTER II

18. CHAPTER III

19. CHAPTER IV

20. CHAPTER V

21. CHAPTER VI

22. CHAPTER VII

23. CHAPTER VIII

24. CHAPTER IX

25. CHAPTER X

26. BOOK IV CHAPTER I

27. CHAPTER II

28. CHAPTER III

29. CHAPTER IV

30. CHAPTER V

31. CHAPTER VI

32. CHAPTER VII

33. CHAPTER VIII

34. CHAPTER IX

35. CHAPTER X

36. CHAPTER XI

37. CHAPTER XII

38. CHAPTER XIII

39. BOOK V CHAPTER I

40. CHAPTER II

41. CHAPTER III

42. BOOK VI CHAPTER I

43. CHAPTER II

44. CHAPTER III

45. CHAPTER IV

46. CHAPTER V

47. BOOK VII CHAPTER I

48. CHAPTER II

49. CHAPTER III

50. CHAPTER IV

51. BOOK VIII CHAPTER I

52. CHAPTER II

53. CHAPTER III







BOOK VIII
TRADE REGULATIONS

CHAPTER I
GOVERNMENT AND BUSINESS FREEDOM

Sec. 1. Introduction. During the Middle Ages and up until
the middle of the eighteenth century, the business and economic
life of the people was regulated by the church, by guilds, by cus-
toms, and by legislation against forestalling, regrating, and engross-
ing. These regulations applied to corners on commodities and the
creation of monopolies. An early English statute defined fore-
stallers as: ". . . those that buy anything before the due hour, or
that pass out of town to meet such things as come to the market, to
the intent they may sell the same in the town to regraters (resell-
ers)." Punishment for the violation of the statute was the pillory,
forfeiture of the goods, or, if the violation was repeated, banishment.
Old statutes regulated prices, wages, weights and measures, and
quantity and quality of commodities. Legislation regulated meat
markets, wool buyers, corn merchants, clothiers, and butter and
cheese merchants. The church punished by excommunication for
unreasonable profits and usury. The American colonies followed
the English idea of governmental economic control. Early Massa-
chusetts and New York statutes fixed prices for commodities, regu-
lated wages and hours of carpenters, bricklayers, and laborers, and
set limits upon the percentage of profits. Standards of quality were
laid down for bread and beer by weight and measure, and many
rules and regulations pertaining to adulterations and methods of
marketing were prescribed. From these illustrations, it can be seen
that in our economic life during the Colonial period controls and
restraints were imposed upon business.

In the United States, beginning with the middle of the nineteenth
century, business and industrial expansion, under the impetus of
the competitive system, brought into play a broader idea of the
terms "liberty" and "due process." Early state regulatory legisla-
tion met constitutional barriers, because freedom of contract by ju-
dicial interpretation was read into the phrase "life, liberty, or prop-
erty without due process of law." Hence, many early legislative
attempts at government regulation were declared unconstitutional.
Under this view, the duties of government are limited to the small-
est possible activity and confined to the maintenance of order, en-
forcement of contract rights, and the preservation and protection
of private property.

Unfettered free competition and extended "business liberty/

431



432 TRADE REGULATIONS

however, led to abuses arid predatory practices which tended to be-
come destructive of competition itself. Hence, courts and legisla-
tive bodies over the past few decades have been modifying their
concept of the extent to which business should be free of gov-
ernmental control. It is those limitations which are at present
imposed upon business with which we are to be concerned in the
sections which follow.

Sec. 2. Police power. Police power is that power which inher-
ently resides in any governmental body to protect by legislation the
property, health, 1 life, and well-being of its citizens. State laws or
city ordinances which provide against the adulteration of food prod-
ucts or the care to be taken of food displayed for sale, or which pro-
vide for the abatement of nuisances or building restrictions, are il-
lustrations of state regulations justified as a proper exercise of the
police power.

Under this police power, certain businesses and professions are li-
censed, and only those persons obtaining licenses are authorized to
practice such professions. Lawyers, doctors, barbers, real estate
brokers, and others fall within this group.

It is this same police power which makes it possible, by proper
legislation, for the state to protect the position of labor or to pro-
tect the public against monopolistic tendencies and their effects.
However, the extent of state regulation may become so broad as to
infringe upon those personal liberties and freedoms protected by the
Fourteenth Amendment to the United States Constitution and the
state constitutions. A point is finally reached at which it is both
unwise and unconstitutional to proceed further to restrict business
activities as an aid to society as a whole.

The power of the Congress of the United States to pass legisla-
tion regulating and controlling business activities is found in the
Constitution, wherein is enumerated the grant of powers to the fed-
eral government and those powers implied therefrom. The power
of Congress to pass federal regulatory legislation is not a police
power; it is a granted power from the several states. Under the
Constitution of the United States, Congress has power "to regulate
commerce with foreign nations and among the several states and
with Indian tribes." Under this power, federal legislation regulat-
ing combinations and monopolies in restraint of trade or commerce
among the several states was enacted. Such legislation as the
Sherman Act, the Clayton Act, the Robinson-Patman Price Dis-
crimination Act, the Federal Trade Commission Act, and other acts
regulating and controlling the production and sale of commodities,
are illustrations. Likewise, the National Labor Relations Act, pro-

1 State ex rel. v. Farmers Union Creamery, 1938, 160 Or. 205, 84 P.(2d) 471;
p. 829.



GOVERNMENT AND BUSINESS FREEDOM 433

viding for collective bargaining between employers and employees,
was enacted under an extension of the power of the commerce
clause to prevent the disruption of interstate and foreign commerce,
because labor disputes "are likely to substantially impair or disrupt
the marketing of goods from, to, or into the channels of commerce."
Also the Fair Labor Standards Act was enacted, under the power of
Congress to regulate interstate commerce, to exclude from inter-
state commerce goods produced, in industries engaged in commerce
or in production of goods for commerce, under labor conditions det-
rimental to the maintenance of the minimum of standards of liv-
ing necessary for the health, efficiency, and general well-being of
workers.

Also under the power of Congress "to borrow money on the credit
of the United States, to coin money and regulate the value thereof/'
Congress has passed legislation regulating banks, banking, and cur-
rency. Under its power to establish post offices and post roads,
Congress has enacted the Federal Communications Act regulating
radios and broadcasting.

As police power of the states to pass regulatory legislation is lim-
ited by state constitutions and the Fourteenth Amendment to the
United States Constitution, likewise the power of the federal Con-
gress to pass regulatory legislation is limited by the Fifth Amend-
ment to the Constitution, which provides that such regulation shall
not go so far as to deprive persons "of life, liberty or property
without due process of law, nor shall private property be taken for
public purposes without just compensation."

Monopolistic Practices

Sec. 3. Contracts in restraint of trade. Competition, usually
relied upon to encourage maximum production and to maintain rea-
sonably low prices, can produce that result only if it is permitted
to operate. It is because of this fact that the courts hold contracts
which provide for the restraint of trade or the limitation of compe-
tition to be illegal. A person who has agreed not to compete with
another is free to disregard his contract, or a retailer who has agreed
with others to maintain a certain retail price for a specific article
of merchandise is not bound, because such agreement is illegal and
void.

Such contracts, which have as their primary purpose the restraint
of free competition, may take many forms. Agreements not to
compete, to divide the market, 2 to maintain prices, 3 to limit produc-
tion, to pool the business, to divide the profits, for exclusive deal-



2 Clark et al. v. Needham ct al., 1900, 125 Mich. 84, 83 N.W. 1027; p. 831.
3 United States v. General Electric Co., 1926, 272 U.S. 476, 47 Sup. Ct. 192;
p. 832.



434 TRADE REGULATIONS

ing, or for tie-in sales are all of this character. Unless they fall
within the exceptions noted later they are considered contrary to
public policy and are unenforceable.

Sec. 4. Exceptions. Contracts in partial restraint of trade are
valid if such restraint has reference to and is ancillary to the sale of
property, a business, a profession, or to the discontinuance of em-
ployment, and if such restraint is reasonably necessary for the pro-
tection of the purchaser. For example, a contract in which A sells
his grocery business to B and as part of the consideration A prom-
ises not to go into the grocery business in the same locality for a pe-
riod of five years is a legal contract even though there is a partial
restraint of trade. Since the purchaser of good will has very lim-
ited protection as such, it has become customary to insert certain
restrictions by contract upon the seller. Any restriction upon the
future conduct of the seller which is essential to protect fully the
buyer in the fruits of his purchase is legal. The restriction should
be no greater in time or territory than is required to protect the
buyer. 4 If the restriction exceeds what is reasonably necessary, the
entire limiting clause becomes illegal, thus leaving the buyer with-
out much protection. In the absence of an effective restrictive
agreement, one who sells his good will limits his future business con-
duct only slightly. He must not thereafter directly or by circular
solicit business from his old customers, although he may advertise
generally.

An employee in his contract of employment may agree that at
the termination of his employment, he will not enter into business
for himself or with a competitor in the territory where he has built
up his acquaintance in the service of the principal. Such a con-
tract forbids him to carry away from his principal that good will
which he builds up in his principal's service.

Similar restrictions are often imposed in leases and sales of real
estate. 5 So long as the vendor or lessor does not desire to have
competition on property which he controls, he may avoid such com-
petition by contract. Since other property in the community may
be used for competitive purposes, the agreement is binding. If a
lease is made, however, for the express purpose of taking an indus-
try out of competition, the lease is unenforceable in that it limits
competition.

Sec. 5. Federal and state laws. Since at common law the only
penalty attaching to contracts in restraint of trade was their unen-
forceability between the parties, they continued to be made and
carried out at the expense of the public. Their creation and per-

4 Brecher v. Brown, 1945, 235 Iowa 627, 17 N.W.(2) 377; p. 833.
5 Wittenberg v. Mollyneaux, 1900, 60 Neb. 583, 83 N.W. 842; p. 835.



GOVERNMENT AND BUSINESS FREEDOM 435

formance were not criminal and they violated no statute. The in-
creasing growth of combinations, trusts, and monopolies hampered
severely the functioning of our competitive system and the protec-
tion which it was expected to afford society. Consequently, federal
and state legislation have been enacted to correct the evils growing
out of agreements to restrain trade and to limit competition. The
Sherman Act, passed in 1890, was the first significant attempt to
control the matter so far as interstate trade is concerned. It pro-
vides that those who enter into contracts, combinations, or con-
spiracies in restraint of trade or who create monopolies, are subject
to fine or imprisonment. It further provides that any person who
is injured as a consequence of such action shall be permitted to re-
cover three times the amount of the damages sustained.

The Sherman Act has for its purpose the preservation and main-
tenance of free competition in interstate commerce by thwarting
monopolistic control of large corporations. Since the Act does not
apply until monopolies in fact exist, it cannot effectively reach un-
fair trade conduct which produces combinations and monopolies in
restraint of trade. In order to define more definitely what unfair
competitive acts are in restraint of trade and to regulate unfair
trade practices, particularly price discrimination, Congress passed
the Clayton Act in 1914. Section 2 of the Clayton Act was amended
in 1937 by Section 1(2) of the Robinson-Patman Act, which amend-
ment more specifically defines what commodities are subject to
lawful and unlawful price discrimination. In 1914, Congress also
passed the Federal Trade Commission Act, which Act creates the
Federal Trade Commission and authorizes it to issue complaints
when it has reason to believe that "unfair methods of competition
in commerce and unfair and deceptive acts in practice in commerce"
are being carried on to the detriment of the public and competition.
This legislation permits regulation and control of unfair competi-
tive conduct at its inception, before monopolistic power has devel-
oped. Unfair and deceptive practices in commerce include price
cutting; misbranding; secret rebates; interference with competi-
tors; boycotting; espionage; bribery; disparagement of goods ; pat-
ent infringement; palming off goods with trade names; use of mis-
leading names, false advertising of food, drugs, devices, or cosmetics;
and other predatory practices. The Commission, upon the issu-
ance of a complaint, may order a hearing directing the one com-
plained of to appear and show cause why such person or firm should
not cease and desist from engaging in such unfair trade practice.
Violations of the act and noncompliance with orders of the Com-
mission are punished by fine and imprisonment. Appeals from or-
ders of the Commission may be made to the federal courts.



436 TRADE REGULATIONS

Statutes have been enacted in many of the states which follow
the pattern established by federal legislation. In this manner, in-
trastate trade is protected as well as interstate commerce against
the evil effects of monopolistic practices.

Sec. 6. Exclusive dealing contracts. Exclusive dealing con-
tracts are of two types. Under one form of arrangement, the pro-
ducer contracts to sell his products exclusively through a particular
dealer in a certain community, binding himself not to sell to other
retailers in that area. 6 Such an agreement may enhance or curtail
competition, depending on the circumstances. An agreement to
give a dealer the exclusive sale of a new commodity, or of an item
which, like automobiles, is large enough to sustain an independent
retail outlet, may promote competition rather than destroy it. The
dealer is encouraged thereby to work the market diligently, know-
ing that he will receive the full reward of his efforts. The new arti-
cle comes into definite competition with previously existing items
and the public benefits. In such cases the agreement is not unrea-
sonable and may be enforced by the parties. However, if the arti-
cle is one which has little or no competition in its field, an exclusive
dealing arrangement gives the particular retailer a monopoly in his
area. Such an agreement may prove detrimental to the public and
is illegal. 7

The second type of contract is one in which the retailer agrees not
to sell a competitive article. Such an agreement is legal provided
the commodity or line is of sufficient importance to sustain an in-
dependent retail establishment, as in the case of gasoline products.
An agreement by a filling station to sell a certain brand of gasoline
exclusively would be quite proper. 8 On the other hand, if the com-
modity in question is one which is sold by retailers along with nu-
merous other items, quite a different problem is involved. If the
article is one which dominates a field, the producer thereof may
preempt all retail outlets in a community by getting them to agree
not to handle any item made by a competitor. Such an agreement
may have the effect of driving the competitive article off the market
because retail outlets are closed to it. Agreements of this character
are illegal and are in violation of federal and state legislation.

Sec. 7. Price discrimination. Price discrimination which has
for its purpose the elimination of competition may take either of
two forms. It *may be such as to eliminate competition on the
level at which the seller is doing business, or it may be such as to aid
the buyer to eliminate competition in his field. Price discrimina-

6 Newell v. Meyerdorff, 1890, 9 Mont. 254, 23 Pac. 333; p. 837.

7 Standard Fashion Co. v. Magrane Houston Co., 1922, 258 U.S. 346; p. 838.

8 Federal Trade Commission v. Sinclair Refining Co., 1923, 261 U.S. 463; p. 840.



GOVERNMENT AND BUSINESS FREEDOM 437

tion in either area which tends to restrict competition is illegal and
subject to such penalties as the law provides. Illustrative of the
first type is the producer who sells his product at a certain price in
one area but cuts that price materially in another locality in an
attempt to drive out competitors. It is permissible to discriminate
in price to meet competition or to care for difference in transporta-
tion costs, but it is no longer proper to use price reductions to de-
stroy a competitor.

It is likewise improper for a producer to offer attractive prices to
one buyer in a given area and not to make those prices available to
other dealers in the same territory. To give one retailer a material
advantage over his competitors, thus making it possible for him
to undersell them, tends to force the competitors off the market.
Here, again, the manufacturer or producer is allowed to make price
concessions in certain instances. He may make different prices to
different classes of customers. A jobber may obtain a lower price
than a retailer, although the latter is willing to buy as much as the
former. It is also proper to make quantity concessions to the large
user, provided those concessions are also available to other custom-
ers who are willing to purchase in similar quantities. The producer
must be in a position to justify the discrimination in price because
of the difference in the cost of servicing the quantity user over the
occasional buyer. The question remains pertinent in all price dis-
crimination cases: has the reduced price a tendency to eliminate
competition?

Sec. 8. Tie-in sales. In a broad sense, a tie-in sale takes place
whenever the purchaser of a certain article is compelled to purchase
other articles of the seller in order to buy the particular item he de-
sires. It usually takes the form of an agreement to use only a sell-
er's supplies with a machine purchased from the seller, or not to use
the machine in the same plant in which competitive machines arc
in use, thus making it necessary for the purchaser to use nothing
but the seller's machines in his plant. Through contracts of this
character, the seller attempts to eliminate competition in his field
by denying a market for competitive products. Monopoly with its
evils tends to be the result. Contracts of the tie-in type have been
made illegal and now legislation makes it illegal also to lease prop-
erty with tie-in provisions made a part of the lease, if the effect is
to restrict competition. 9

Sec. 9. Patents. At common law, a person who first developed
a new article or process, possessed a monopoly on it only as long as
he was able to keep secret the mechanical device or process used.

9 International Business Machines Corp. v. United States, 1936, 298 U.S. 131; p.
841.



438 TRADE REGULATIONS

As soon as a competitor learned to duplicate the product, a com-
petitive article could be placed on the market. To encourage new
inventions, processes, and materials, the federal government was
authorized to grant patents. A person who perfects a new machine
or improvement thereof, a new process or some new material, may
make application and obtain a patent therefor, if the idea has not
been known to, or used by, another person before it became known
to the person making the application. The patent gives to the
holder the exclusive right to produce the new article for the period
provided by statute, at present seventeen years. Anyone who is
found guilty of making use of the patent without the owner's con-
sent is guilty of infringement and may be compelled to pay dam-
ages. Injunction is also a proper remedy in such cases.

The person to whom the patent is granted may, if he desires, sell
and assign the patent to such buyer as he can find. The assignee
in such a case, has all the rights possessed by the former holder of
the patent. It is also possible for the holder of the patent to license
its use by others and exact a license or royalty fee for such use.

Sec, 10. Retail price control. Attempts have often been made
by producers to control the price at which their article is sold at the
retail level. A contract between the producer and retailer to the
effect that the article will not be sold for less than a certain price is
illegal under our common law. Such an agreement was thought to
be contrary to public policy because it eliminated price as a factor
in competition between the retailers selling identical products and,
hence, robbed society of potentially lower prices. It was also in-
consistent to say that title to the article sold passed to the retailer
and at the same time to permit the seller to have control of the
article sold.

Although a contract containing a retail price-maintenance clause
was illegal, manufacturers were able to control prices by selling only
to those who maintained the advertised price, since the sellers were
at liberty to select their own buyers. If a retailer was discovered
cutting the retail price, the manufacturer, by refusing him the privi-
lege of making further purchases, cut off his supply of commodities,
thus exercising power to control the resale price. If, however,
manufacturers by organization provided for a scheme that caused
all price cutters to be reported to a central office and maintained
a list of such retailers, such organization was an illegal combination
and subject to criminal prosecution.

However, since price cutting often has an injurious effect upon
the public as well as upon the good will of the manufacturer's prod-
uct, the states have passed what are generally called fair trade or
price-maintenance statutes, which protect the distributors and the
public against the unfair trade practice of price cutting in the dis-



GOVERNMENT AND BUSINESS FREEDOM 439

tribution of articles of standard quality having a trade-mark, patent,
or name. The acts have for their purpose the regulation of such
unfair competition as price cutting and the elimination of price wars
by prohibiting "Willfully and knowingly advertising, offering for
sale or selling any commodity at less than the prices stipulated in
any contract entered into pursuant to the provisions of the Act
whether the person so advertising, offering for sale, or selling is or
is not a party to such contract." 10 Such conduct is unfair compe-
tition and is actionable at the suit of any person damaged. Such
act has no application, however, to contracts or agreements which
attempt to control prices between groups of wholesalers or between
groups of retailers. These contracts are still illegal.
These fair trade laws usually provide as follows:
No contract relating to the sale or resale of a commodity which
bears, or the label or content of which bears, the trade-mark, brand,
or name of the producer or owner of such commodity, and which is
in fair and open competition with commodities of the same general
class produced by others shall be deemed in violation of any law of
the state by reason of any of the following provisions which may be
contained in such contract:

1. That the buyer will not resell such commodity except at the
price stipulated by the vendor.

2. That the producer or vendee of a commodity require upon the
sale of such commodity to another, that such purchaser agree that
he will not, in turn, resell except at, the price stipulated by such
producer or vendee. Such provisions in any contract shall be
deemed to contain or imply conditions that such commodity may
be resold without reference to such agreement in the following
cases :

a. In closing out the owner's stock for the purpose of discon-
tinuing delivery of any such commodity: provided, however, that
such stock is first offered to the manufacturer of such stock at the
original invoice price, at least ten (10) days before such stock shall
be offered for sale to the public.

b. When the goods are damaged or deteriorated in quality, and
notice is given to the public thereof.

c. By an officer acting under the orders of any court.

To remove such contracts from illegality at common law and the
Sherman Act, the Sherman Act was amended in 1937 by the Miller-
Tydings Act.

Sec. 11. Public utilities. Public utilities are those business
enterprises which have been granted by law the right to operate as
monopolies in their field. They include railroads, bus lines, gas and

10 Revlon Nail Enamel Corp. v. Charmley Drug Shop, 1938, 123 N.J. Eq. SOI,
197 All. 661; p. 843.



440 TRADE REGULATIONS

electric companies, and other enterprises which society feels can
function best where direct competition does not exist. The Inter-
state Commerce Commission has been established to regulate rail-
roads and related interstate activities, whereas for other public
utilities state commerce or utility commissions have been created.

No new business unit may enter the public utility field or extend
its business into a new territory without first obtaining a certificate
of convenience and necessity from the proper regulating body. In
order to obtain such a certificate, it is necessary to show that service
of the particular kind involved is not being rendered in the territory
sought to be served, that such service should be offered, and that the
applicant is the proper one to furnish it. If there are several ap-
plicants, the one who is best equipped and whose record for past
service is good and who can serve more efficiently than the others,
is in a better position than the applicant who merely filed his appli-
cation first.

The regulatory body has the right to order extensions of service
and to establish the standards of service to be rendered. Com-
plaints of customers because of inadequate service are properly filed
with the state or federal regulatory body.

The rates charged by a public utility are fixed by the state com-
mission after a hearing at which all interested parties are repre-
sented. Once fixed, the utility has no right to discriminate in rates
between customers who receive the same service. The rates estab-
lished must be reasonable and high enough to permit the operating
company to earn a fair return upon the value of the property de-
voted to the service of the public. They are adjusted from time
to time in order to make certain that the utility does not earn an
unreasonable return or, in the event costs increase, to avoid the
possibility that property is being confiscated.

Sec. 12. Enforcement of legislative regulations. In order to
administer and enforce regulatory laws, federal and state adminis-
trative boards or commissions have been created. Most federal
regulatory statutes create commissions or boards to carry out the
purpose of the legislation. For example, the National Labor Rela-
tions Board administers and enforces the National Labor Relations
Act. The Federal Trade Commission administers and enforces the
Clayton Act and the Robinson-Patman Act. The Interstate Com-
merce Commission administers and enforces the Railroad Reorgan-
ization Act, the Railroad Retirement Act, and the Motor Carriers
Act. The Social Security Board administers and enforces the Social
Security Act. State Public Utility Commissions administer and
enforce public utility acts; State Milk Control Boards administer
and enforce legislative regulations of the milk industry. These



GOVERNMENT AND BUSINESS FREEDOM 441

boards and commissions have power to receive complaints by any
injured person, to order hearings, to take evidence, and, upon a find-
ing that regulatory legislation has been violated, to issue cease and
desist orders forbidding the unlawful conduct. If such orders are
not complied with, the board or commission may appeal to the
courts to the federal courts if it is a federal board or to the state
courts if it is a state board for the enforcement of its orders and
decrees. Likewise, the person against whom the order is issued
has the right to appeal to the federal or state courts, as the case may
be, for a review and adjudication of the order issued.

Most of the state and federal regulatory statutes provide addi-
tional penalties for violations. Statutory tort actions permitting a
recovery of triple damages are given to the person injured because
of violation of the statute. Actions for a breach of contract and
equitable injunction proceedings are also permitted to the injured
party. Violations of regulatory statutes are made criminal acts,
and the attorney of a state is authorized to prosecute for such viola-
tions by enforcing penalties of fines and imprisonment.

The orders and decrees of these administrative boards are effec-
tive as rules of law in controlling business. Therefore, a business-
man must not only satisfy the law of contracts, negotiable instru-
ments, corporations, partnerships, and so forth, in carrying out his
business, but he must operate his business in compliance with the
orders and decrees of both federal and state administrative boards.

Review Questions and Problems

1. State broadly how business was regulated during the Middle Ages
and down to about the middle of the eighteenth century.

2. What is meant by the police power of the state?

3. Jones has a good retail grocery business in a small community, but
Smith is planning to open a competitive store. Will a contract whereby
the latter agrees to refrain from entering competition upon the payment
of $1,500 be enforceable?

4. Enumerate three situations in which contracts in restraint of trade
are legal.

5. Name several devices which have been used to restrain trade im-
properly.

6. A y B, and C each operated a coal mine in a certain territory. C
agreed with A and B to close his mine for five years, the latter parties
to pay to C one-fourth of the net profits realized from the operation of
their mines each year. If C opens his mine before the expiration of the
fifth year, may A and B recover damages for breach of the contract?

7. A sold his retail hardware store in a certain community and agreed
with B } the buyer, not to re-enter the hardware business in that com-
munity for the next five years. Is the agreement enforceable?



442 TRADE REGULATIONS

8. The R Company manufactures tabulation machines and distributes
them under a lease which provides that the lessee shall use therein only
tabulating cards manufactured by R Company. The federal government
sought to enjoin the use of such a lease. Has it the right to do so?

9. Did the illegality and unenforceability of contracts in restraint of
trade at common law effectively control unfair trade practices? What
laws were enacted to aid the functioning of the competitive system?

10. X Company began the manufacture of a new cigar and agreed that
R, a jobber, might have the exclusive sale of the article in a certain ter-
ritory. X Company later violated the agreement and sold through other
jobbers. R brought suit for damages. Should he have recovered?

11. X Company, a manufacturer of blankets, advertised them as being
100% wool, whereas they were only 3Q% wool. Competitors enlisted the
aid of the Federal Trade Commission in an attempt to obtain a' cease
and desist order against X Company. Should they have been successful?

12. B Company operates a bus line in a certain community and the
state utility commission established a 5^ fare. At the end of the first
year, B Company received revenues sufficient to meet expenses and to
earn 2% on its investment. The company requested an increase in fare
to 6(. Was it entitled to an increase?

13. G & R Company, a large tire manufacturer, contracted to furnish
a large mail order house with all of its requirements for automobile tires
at cost of manufacture, plus 6% profit. The G & R Company also dis-
tributed its tires through independent dealers who purchased in small
quantities at a much higher price. Over a period of seven years the tire
manufacturing company realized a net profit of seven million dollars on
its contract with the mail order house. During the same period, on an
equal volume of sales to the independent dealers, the tire manufacturing
company made a net profit of twenty million dollars. Is the price dis-
crimination practiced by G & R Company improper?




© Art Branch Inc. | English Dictionary