Story Case

The Bay Transportation Company, a partnership, owned a shipping business on the Ohio River. It operated a line of boats up and down the river from Cincinnati. The company's boats were old and not of great value, but its business and reputation were worth a large amount of money. The Cincinnati Packet Company, a new corporation, made a contract with the Bay company, paying it $100,000 in cash for its entire equipment and good will, and agreeing further to pay $5,000 a year for five years, in consideration that those in control of the Bay company do not offer competition during this period. Two years after this contract was made, Mr. Earl Bay started a new line of boats out of Cincinnati, and when suit was brought against him on the contract, he pleaded its illegality under the Sherman Anti-Trust Act. "Will this give him a valid defense?

Ruling Court Case. United States Vs. Joint Traffic Association, Volume 171 United States Reports, Page 505

Thirty-one railroad companies, engaged in interstate commerce between Chicago and the Atlantic coast, formed themselves into an association known as the Joint Traffic Association. They agreed that the organization should have control over competitive traffic, with certain exceptions, in this territory, and have the power to fix rates for all such traffic. No railroad which entered the agreement was at liberty to change its rates without the consent of the association. It was further agreed that the managers of the association should so conduct the regulation of the railroads within the agreement, so as not to violate the Interstate Commerce Act, and that they should, so far as possible, act in co-operation with the Interstate Commerce Commission. The United States now brings this bill against the association and the railroads, seeking to punish them on the ground that the agreement is an unlawful interference with interstate commerce, which is forbidden by the Sherman Anti-Trust Law.

It was contended, among other things, that if this law were construed to cover every agreement which restrained trade, whether such restraint was reasonable or otherwise, that it would be unconstitutional. If construed reasonably, it would not cover the agreement involved in this case.

Mr. Justice Peckham, in answer to the contention that the Sherman Law might cover agreements, which are in no way intended to restrain commerce, said: "The act of Congress must have a reasonable construction, or else there would scarcely be an agreement or contract among business men that could not be said to have, indirectly or remotely, some bearing upon interstate commerce, and possibly to restrain it. To suppose, as is assumed by counsel, that the effect of the decision in the Trans-Missouri case, is to render illegal most business contracts or combinations, however indispensable and necessary they may be, because, as they assert, they are in restraint of trade in some remote and indirect degree, is to make a most violent assumption, and one not called for or justified by the decision mentioned, or by any other decision of this court.

"Has not Congress, with regard to interstate commerce, and in the course of regulating it, in the case of railroad corporations, the power to say that no contract or combination shall be legal which shall restrain trade and commerce by shutting out the operation of the general laws of competition? We think it has."

It is the combination of these large and powerful corporations, covering vast sections of country, and influencing trade throughout the whole extent thereof, that constitutes the alleged evil. Judgment was given for the United States.

Ruling Law. Story Case Answer

In the development of the cases under the Sherman Act, the judges sought to qualify their early statements with reference to the scope of the act. Mr. Justice Brewer said, in the Northern Securities Company case, in commenting on the Trans-Missouri case: "Instead of holding that the Anti-Trust Act included all contracts, reasonable or unreasonable, in restraint of interstate trade, the ruling should have been that the contracts there presented were unreasonable in restraint of interstate commerce, and as such, within the scope of the act. That act, as appears from its title, was leveled only at unlawful restraints and monopolies.

"Congress did not intend to reach and destroy those minor contracts in partial restraint of trade which the long course of decisions at Common Law had affirmed to be reasonable, and were fit to be upheld. The statutory prohibition was not intended to make a departure from the Common Law rules and definitions."

The Story Case is based upon the facts in the case of Cincinnati Packet Company vs. Bay, Volume 200 United States Reports, Page 179. Mr. Justice Holmes gave the opinion of the court.

He held that, in the light of the Joint Traffic Association case, the Sherman Act must have its construction based on the Common Law. This contract not to compete for five years, was made as part of the sale of a business, and not as a devise to control commerce, and is not within the letter or spirit of the Sherman Act. The temporary withdrawal of the seller from business, was necessary in order to give the sale effect, and the contract was not illegal.

It is now the settled law that the Sherman Act must be construed in the "light of reason." A distinction must be made between reasonable and unreasonable contracts.