The Liberty to Trade as Buttressed by National Law/The Knight Case

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The Knight Case
by George Howard Earle, Jr.


The Knight Case

Whatever the crimes perpetrated in the name of "liberty," they are not a circumstance to those sought to be justified by the opinion of Chief Justice Fuller in United States vs. Knight.[1]

And yet, that was perhaps the most ably argued of all the trust cases, and resulted in two of the most learned opinions—those of the Chief Justice and of Mr. Justice Harlan—to be found in the reports. Indeed, in the one or the other of those opinions can be found the foundation of most of the doctrines that have been enunciated since.

And, what is striking, is that, so far as the law was concerned, the difference of opinion was negligible.

The difficulty was not that the Chief Justice did not know the law of the case, but that he knew so much more than some of his readers—certainly this one—that he assumed understanding where instruction might be needed.

The Supreme Court says in Arkansas vs. Bank:[2] "Whether the Supreme Court was warranted in assuming the facts, as it sets them forth, is no concern of ours. The important thing is that it was at pains to state them, and that it can have had no purpose in doing so other than to establish a liability. * * * If the statute imposed liability without, etc., * * * there was no need to go into these details."

If this be the right method of approach, and, of course, it is, being pointed out by the Supreme Court, there should be no difficulty as to the Knight case.

In the Knight case, the purpose being to prove non-liability, only those facts were necessarily inquired into whose presence would create liability, if found.

As the meaning of the decision, therefore, absolutely depends upon these findings, let us seek it in them.

In the first place, it was thought necessary to find that there was a complete purchase, a complete change of property. The reason is obvious.

In the second, that every one was left free. Again the reason is obvious.

In the third, that it was a case of contract, and the provisions related solely to that purchase and not to subsequent arrangements as to trade. Again the reason is obvious.

Again, that the refineries had continued to operate and had actually increased their product, that the object of purchase "was manifestly private gain in the manufacture of the commodity;" "that there was nothing in the proofs to indicate any intention to put a restraint upon trade or commerce" and, finally, that what was done was either "sanctioned," or "permitted" "by the States of residence or creation." And the decision—a veritable mine of law—held, of course correctly, that, under these findings, the restraint was indirect and, therefore, lawful.

Let the converse of this be stated:

If there had been invasion of liberty, proof of intention to restrain national trade, the control of discretion as to a business not completely owned, unified or merged, the deprivation of the public of a great utility for supplying a necessary food; a purpose to profit by non use, by stifling competition, instead of through production, acts prohibited by the States of creation or residence as in violation of their public policy as well as tending to a diminution of National trade—what then? The later cases fully answer. There would have been "tendency," direct restraint, illegality! And, if the method of approach now adopted (and it has the Supreme Court's sanction) be correct, that is what the Knight case decides!

It is the present purpose to demonstrate this. There has been a tendency to criticise the findings of the Knight case, especially that relating to intention or tendency—the sequel has unquestionably justified Mr. Justice Harlan's fears in that respect. But it is not fair to judge any case by conditions of trade arising or acts committed after the decision has been rendered. For the present purposes, it may not be important whether the inferences of fact were correct or not, but it well illustrates the law to consider them. Indeed, were they not the inferences universally drawn before the trusts had debauched trade to accomplish crime? Why was a man permitted to covenant that he would protect a good-will that he had sold? Simply because every one, for centuries, had considered that the best way of insuring that the business would go on; would maintain, or increase trade. No one had thought that a man would invest capital in a business that he might destroy it. Just a few months before the Knight case this subject had been carefully considered by the House of Lords itself, and a similar conclusion reached.[3] If, therefore, the inference was unjustifiable in the one case, neither of the greatest tribunals of the world was correct, and the Supreme Court had the justification of the precedent just set by the House of Lords.

The importance of the findings that "the manifest object" was to profit by use, not abuse, by manufacture, not restraint, can be understood when it is remembered that the Chief Justice was professedly writing the opinion "in the light of the common law," and concluding that all that was done was "sanctioned" by it. The great decision upon that law, with which the Chief Justice was of course perfectly familiar, was Oregon vs. Winsor.[4] There, too, an instrumentality had been changed from one owner to another, and the transfer had also been held "sanctioned," "permitted," but why? The answer to this covers the whole subject. Simply because it "had no tendency to destroy the usefulness of the steamer, and did not deprive the country of any industrial agency. The transaction merely transferred the steamer from the employment of one company to that of another, situated and doing business in another State. It involved no * * * cessation or diminution of its business whatever. The presumption is that the arrangement * * * promoted the general interests of commerce. * * * The public was not injured by being deprived of any of the ness enterprise of the country. * * * The vendees did not incapacitate themselves from carrying on business just as they had previously done and in the same locality. * * * The vendees did not incapacitate themselves from carrying on business. * * * Their business was rather facilitated by the arrangement." It is impossible that the Chief Justice had not this decision in mind as he had shortly before expressly followed it in Gibbs vs. Gas Company,[5] where he himself says: "It is also too well settled to admit of doubt that a corporation cannot disable itself by contract from performing the public duties which it has undertaken and by agreement compel itself to make public accommodation or convenience subservient to its private interests." In view of all this, it is absolutely impossible to say that he was finding that it was lawful and "sanctioned" by the States, or any of them, to deprive the country of its industrial agencies, to destroy business, stop commerce and production, that national trade might be limited and the profits of monopoly be swollen!

No State ever sanctioned such public evil, and no judge ever knew this better than the Chief Justice. The whole case manifestly turned on the careful findings of its facts: the fact that the purpose was to profit by production, not by restraining commerce either directly or indirectly. For otherwise, the question of "indirection" could not possibly have been raised at all, since complete lawfulness is its very foundation.

This can, however, fortunately now be demonstrated by two later opinions of the Chief Justice. No sooner had this decision been rendered than it was promptly abused by the trusts; and, after awhile, the Securities case, identical in method, came before the court, and it then found "tendency" as a fact on its added knowledge of trust methods, but it really followed the law of the Knight case, departing only from its inference of fact, which the trusts bad proved no longer tenable, by their subsequent misconduct.

And this is established by the unanimous opinion in the Harriman case.[6] There Chief Justice Fuller says: "The objection was that the exercise of its powers, whether those of owner or of trustee, would tend to prevent competition, and thus to restrain commerce. Some of our number thought that as the Securities Company owned the stock the relief sought could not be granted, but the conclusion was that the possession of the power which, if exercised, would prevent competition, brought the case within the statute, no matter what the tenure of title was."

That is "tendency" controlled; not the question as to whether that unlawful thing resulted from one form of forbidden thing, rather than from another. But if this be not sufficient demonstration that the Knight case turned on the innocence of intent then believed in, Loewe vs. Lawlor[7] certainly must close the discussion, for the Chief Justice again expressly says, p. 297:

"We do not pause to comment on cases such as United States vs. Knight (156 U. S. 1), Hopkins vs. United States (171 U. S. 578), and Anderson vs. United States, in which the undisputed facts showed that the purpose of the agreement was not to obstruct or restrain interstate commerce. The object and intention of the combination determined its legality." And that is a better summary of the decision in the Knight case than any of its critics has ever reached; and, what is better still, it is the conclusion that the whole history of the law requires!

  1. 156 U. S. 1 (1894).
  2. 207 U. S. 276 (1907).
  3. Nordenfelt vs. Maxim, (1894) A. C. 535.
  4. 20 Wall 68 (1873).
  5. 130 U. S. 410 (1889).
  6. 197 U. S. 291 (1905).
  7. 208 U. S. 274, p. 297 (1907).