William H. (William Homer) Spencer.

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described.

The majority of the Circuit Court of Appeals appear to have
entertained the view that the words "employers and employees" as
used in section 20 should be treated as referring to " the business class
or clan to which the parties litigant respectively belong"; and, as
there had been a dispute at complainant's factory in Michigan con-
cerning the conditions of employment there a dispute created, it is
said, if it did not exist before, by the act of the Machinists' Union in
calling a strike at the factory section 20 operated to permit members
of the Machinists' Union elsewhere some 60,000 in number
although standing in no relation of employment under complainant,
past, present, or prospective, to make that dispute their own and
proceed to instigate sympathetic strikes, picketing, and boycotting
against employers wholly unconnected with complainant's factory
and having relations with complainant only in the way of purchasing
its product in the ordinary course of interstate commerce and this
where there was no dispute between such employers and their em-
ployees respecting terms or conditions of employment.

We deem this construction altogether inadmissable. Section 20
must be given full effect according to its terms as an expression of
the purpose of Congress; but it must be borne in mind that the
section imposes an exceptional and extraordinary restriction upon
the equity powers of the courts of the United States and upon the
general operation of the antitrust laws, a restriction in the nature of a



274 LAW AND BUSINESS

special privilege or immunity to a particular class, with corresponding
detriment to the general public; and it would violate rules of statutory
construction having general application and far-reaching importance
to enlarge that special privilege by resorting to a loose construction
of the section, not to speak of ignoring or slighting the qualifying
words that are found in it. Full and fair effect will be given to every
word if the exceptional privilege be confined as the natural meaning
of the words confines it to those who are proximately and substanti-
ally concerned as parties to an actual dispute respecting the terms or
conditions of their own employment, past, present, or prospective.
The extensive construction adopted by the majority of the court below
virtually ignores the effect of the qualifying words. Congress had in
mind particular industrial controversies, not a general class war.
"Terms or conditions of employment" are the only grounds of
dispute recognized as adequate to bring into play the exemptions;
and it would do violence to the guarded language employed were
the exemption extended beyond the parties affected in a proximate
and substantial, not merely a sentimental or sympathetic, sense by
the cause of dispute.

Nor can section 20 be regarded as bringing in all members of a
labor organization as parties to a "dispute concerning terms or condi-
tions of employment" which proximately affects only a few of them,
with the result of conferring upon any and all members no matter
how many thousands there may be, nor how remote from the actual
conflict those exemptions which Congress in terms conferred only
upon parties to the dispute. That would enlarge by construction
the provisions of section 20, which contains no mention of labor
organizations, so as to produce an inconsistency with section 6, which
deals specifically with the subject and must be deemed to express the
measure and limit of the immunity intended by Congress to be incident
to mere membership in such an organization. At the same time it
would virtually repeal by implication the prohibition of the Sherman
Act, so far as labor organizations are concerned, notwithstanding
repeals by implication are not favored; and in effect, as was noted
in Loewe v. Lawlor, 208 U.S. 274, 3034, would confer upon voluntary
associations of individuals formed within the states a control over
commerce among the states that is denied to the governments of the
states themselves.

The qualifying effect of the words descriptive of the nature of
the dispute and the parties concerned is further borne out by the



COMPETITIVE LABOR PRACTICES 275

phrases defining the conduct that is not to be subjected to injunction
or treated as a violation of the laws of the United States, that is to
say: (a) " terminating any relation of employment, .... or persuad-
ing others by peaceful and lawful means so to do"; (b) "attending at.
any place where any such person or persons may lawfully be, for the
purpose of peacefully obtaining or communicating information, or
from peacefully persuading any person to work or to abstain from
working"; (c) ''ceasing to patronize or to employ any party to such
dispute, or .... recommending, advising, or persuading others by
peaceful and lawful means so to do"; (d) "paying or giving to, or
withholding from, any person engaged in such dispute, any strike
benefits ...."; (e) "doing any act or thing which might lawfully
be done in the absence of sucli dispute by any party thereto." The
emphasis placed on the words "lawful" and "lawfully," "peaceful"
and "peacefully," and the reference to the dispute and the parties
to it, strongly rebut a legislative intent to confer a general immunity
for conduct violative of the antitrust laws, or otherwise unlawful.
The subject of boycott is dealt with specifically in the "ceasing to
patronize" provision, and by the clear force of the language employed
the exemption is limited to pressure exerted upon a "party to such
dispute" by means of "peaceful and lawful" influence upon neutrals.
There is nothing here to justify defendants or the organizations they
represent in using either threats or persuasion to bring about strikes
or a cessation of work on the part of employees of complainant's
customers or prospective customers, or of the trucking company
employed by the customers, with the object of compelling such
customers to withdraw or refrain from commercial relations with
complainant, and of thereby constraining complainant to yield their
matter in dispute. To instigate a sympathetic strike in aid of a
secondary boycott cannot be deemed "peaceful and lawful" per-
suasion. In essence it is a threat to inflict damage upon the
immediate employer, between whom and his employees no dispute
exists, in order to bring him against his will into a concerted plan to
inflict damage upon another employer who is in dispute with his
employees. The majority of the Circuit Court of Appeals, very
properly treating the case as involving a secondary boycott, based
the decision upon the view that it was the purpose of section 20 to
legalize the secondary boycott "at least in so far as it rests on, or
consists of, refusing to work for any one who deals with the principal
offender." Characterizing the section as "blindly drawn," and con-



276 LAW AND BUSINESS

ceding that the meaning attributed to it was broad, the court referred
to the legislative history of the enactment as a warrant for the con-
stuction adopted. Let us consider this.

By repeated decisions of this court it has come to be well
established that the debates in Congress expressive of the views and
motives of individual members are not a safe guide, and hence may
not be resorted to, in ascertaining the meaning and purpose of the
law-making body. Aldridge v. Williams, 3 How. 9, 24; United
States v. Union Pacific Railroad Co., 91 U.S. 72, 79. But reports of
committees of House and Senate stand upon a more solid footing,
and may be regarded as an exposition of the legislative intent in a
case where otherwise the meaning of a statute is obscure. Binns v.
United States, 194 U.S. 486, 495. And this has been extended to
include explanatory statements in the nature of a supplemental report
made by the committee member in charge of a bill in course of pas-
sage. Binns v. United States, supra; Pennsylvania Railroad Co. v.
International Coal Co., 230 U.S. 184, 19899; United States v. Coca
Cola Co., 241 U.S. 265, 281; United States v. St. Paul, Minneapolis
6 Manitoba Railway Co., 247 U.S. 310.

In the case of the Clayton Act, the printed committee reports are
not explicit with respect to the meaning of the "ceasing to patronize"
clause of what is now section 20. But they contain extracts from
judicial opinions and a then recent textbook sustaining the " primary
boycott," and expressing an adverse view as to the secondary or
coercive boycott; and, on the whole, are far from manifesting a
purpose to relax the prohibition against restraints of trade in favor
of the secondary boycott.

Moreover, the report was supplemented in this regard by the
spokesman of the House committee (Mr. Webb) who had the bill in
charge when it was under consideration by the House. The question
whether the bill legalized the secondary boycott having been raised,
it was emphatically and unequivocally answered by him in the nega-
tive. The subject, he declared in substance or effect, was under
consideration when the bill was framed, and the section as reported
was carefully prepared with the settled purpose of excluding the
secondary boycott and confining boycotting to the parties to the
dispute, allowing parties to cease to patronize and to ask others to
cease to patronize a party to the dispute; it was the opinion of the
committee that it did not legalize the secondary boycott, it was not
their purpose to authorize such a boycott, not a member of the com-



COMPETITIVE LABOR PRACTICES 277

mittee would vote to do so; clarifying amendment was unnecessary;,
the section as reported expressed the real purpose so well that it could
not be tortured into a meaning authorizing the secondary boycott.
This was the final word of the House committee on the subject,-and
was uttered under such circumstances and with such impressive
emphasis that it is not going too far to say that except for this exposi-
tion of the meaning of the section it would not have been enacted
in the form in which it was reported. In substantially that form it
became law; and since in our opinion its proper construction is
entirely in accord with its purpose as thus declared, little need be
added.

The extreme and harmful consequences of the construction
adopted in the court below are not to be ignored. The present case
furnishes an apt and convincing example. An ordinary controversy
in a manufacturing establishment, said to concern the terms or condi-
tions of employment there, has been held a sufficient occasion for
imposing a general embargo upon the products of the establishment
and a nation-wide blockade of the channels of interstate commerce
against them, carried out by inciting sympathetic strikes and a second-
ary boycott against complainant's customers, to the great and incalcu-
lable damage of many innocent people far remote from any connection
with or control over the original and actual dispute people constitut-
ing, indeed, the general public upon whom the cost must ultimately
fall, and whose vital interest in unobstructed commerce constituted
the prime and paramount concern of Congress in enacting the anti-
trust laws, of which the section under consideration forms after all a
part.

Reaching the conclusion, as we do, that complainant has a clear
right to an injunction under the Sherman Act as amended by the
Clayton Act, it becomes unnecessary to consider whether a like result
would follow under the common law or local statutes, there being no
suggestion that relief thereunder could be broader than that to which
complainant is entitled under the acts of Congress.

There should be an injunction against defendants and the associa-
tions represented by them, and all members of those associations, 4
restraining them, according to the prayer of the bill, from interfering
or attempting to interfere with the sale, transportation, or delivery in
interstate commerce of any printing press or presses manufactured by
complainant, or the transportation, carting, installation, use, opera-
tion, exhibition, display, or repairing of any such press or presses,



278 LAW AND BUSINESS

.or the performance of any contract or contracts made by complainant
respecting the sale, transportation, delivery, or installation of any
such press or presses, by causing or threatening to cause loss, damage,
trouble, or inconvenience to any person, firm, or corporation concerned
in the purchase, transportation, carting, installation, use, operation,
exhibition, display, or repairing of any such press or presses, or
the performance of any such contract or contracts; and also and
especially from using any force, threats, command, direction, or even
persuasion with the object or having the effect of causing any person
or persons to decline employment, cease employment, or not seek
employment, or to refrain from work or cease working under any
person, firm, or corporation being a purchaser or prospective purchaser
of any printing press or presses from complainant, or engaged in haul-
ing, carting, delivering, installing, handling, using, operating, or repair-
ing any such press or presses for any customer of complainant. Other
threatened conduct by defendants or the associations they represent,
or the members of such associations, in furtherance of the secondary
boycott should be included in the injunc ion according to the proofs.

Decree reversed, and the cause remanded to the District Court
for further proceedings in conformity with this opinion.

JUSTICES BRANDEIS, CLARKE, and HOLMES, dissenting.

QUESTIONS

1. Would the court have reached a different conclusion in Lawlor v. Loewe,
supra, page 264, if the case had arisen after the passage of the Clayton
Act?

2. What reasons induced Congress to pass the Clayton Law ?

3. Does the Clayton Act change the common law as to the legality of
bargaining practices in labor controversies or is it simply designed to
control the use of the writ of injunction ?

4. Under the provisions of this law, when is the writ of injunction an
appropriate remedy in a labor controversy ?

5. By what process of reasoning did the court in the principal case arrive
at the conclusion that the complainant was entitled to an injunction
notwithstanding the provisions of the Clayton Act ?



LAW AND THE FORM OF THE
BUSINESS UNIT



CHAPTER I

INTRODUCTORY TOPICS

The final topic for consideration in this study deals with the legal
aspects of the business unit. The business man, in choosing the form
of unit in which he will carry on his business, in organizing, financing,
managing, and dissolving it, and in meeting its various responsi-
bilities to its members and to third persons, will encounter many legal
problems. Some understanding of these legal problems will greatly
assist the business manager in performing his various duties in con-
nection with the business unit.

What is the most appropriate unit in which to carry on a given
business, is a question which sooner or later conies to every business
man. Shall he conduct his business as an individual enterpriser?
Shall he appoint agents and delegate to them a part of his duties in
carrying on the business ? Shall he associate with himself others as
joint-principals? Shall he organize his business and conduct it in
corporate form? Or shall he resort to some other organization
device ? Organization devices, just as all other social and economic
institutions, originate and develop in response to social and economic
needs. The various types of business units to which reference has
been made have developed and are continuing to develop in terms of
business demands. There is, therefore, in the nature of things, no
hard-and-fast rule for determining what is the most appropriate unit
for a given business. What is appropriate for one business may be
quite inappropriate for another. The question of the appropriateness
of the business unit must be answered, in the first place, in terms of
the nature, size, and peculiar needs of a given business; it must be
answered, in the second place, in terms of the nature and character-
istics of the various forms of the business unit. In other words, the prob-
lem is to discover the form of the unit which most nearly fits the particu-
lar business, and the solution of this problem necessitates an under-
standing both of the needs of the business and of the advantages and dis-
advantages of the various organization devices. Is the business one
which demands close personal relations ? Are the primary considera-
tions economy and simplicity in organization? Is the business one
which demands more capital than a private individual can ordinarily

281



282 LAW AND BUSINESS

provide ? Is it a business which demands a large amount of capital ?
Is it a speculative or hazardous business in the conduct of which it is
desirable to limit the liability of its proprietors ? Is it a business in
which management plays a large part? Is the business one which
requires a fairly permanent and certain existence ? These are typical
of the questions which the business man must ask in determining
the fitness of a given organization device for a given business and
can only be answered in terms of the legal characteristics and attri-
butes of the various forms of the business unit to which he can resort.

Assuming that the business man has decided upon the form of unit
in which he will carry on his business, his next problem is to organize
his business in terms of that form of unit. In some cases he will have
to comply with definite, formal requirements; in other cases he may
encounter no formal requirements at all. In any event, however,
whether required by law or not, there are certain precautionary steps
in organization which he should take to safeguard the rights of
different parties. What must he do to protect his own interests?
What should he do to safeguard the interests of his business associates ?
What should he do to protect the interests of the persons who will
deal with the unit ? What are the legal consequences which attach
to his failure to make adequate provisions for the protection of these
interested parties ?

Prior or subsequent to, or contemporaneous with, the organiza-
tion of the unit will come questions relating to the best method or
methods of financing the' business. The business man will discover
that different considerations apply in financing a business, depending
upon the particular organization device which has been selected. He
will, therefore, want to know, in terms of the form of unit which he has
chosen, what are the most efficient legal devices to which he can resort
in raising capital; how these devices can best be utilized; what pitfalls
he should watch for and what safe-guards he can establish in utiliz-
ing these devices; and what inducements, peculiar to the unit which
he has chosen, he can offer to prospective investors.

After the business unit has been organized and financed arises
the problem of managing the unit from day to day, the most impor-
tant of all the problems in connection with the business unit from the
point of view of the business manager. In the first place, he will
find that one of his chief tasks is to keep the unit within the scope of
its powers. He will, therefore, need to know what powers the unit
enjoys and can exercise; and what legal consequences follow from
exceeding its powers. In the second place, he will find that another



INTRODUCTORY TOPICS 283

of his tasks is to see that the unit exercises its power in the authorized
manner. He will, therefore, need to know how the powers of the
unit are to be exercised. By whom, for instance, are the affairs of
a given unit to be managed ? How far can the majority go in Con-
ducting the business to suit themselves ? How far can the minority
object to the plans and policies of the majority? What are the
appropriate remedies of the minority in case the majority are over-
reaching the minority in the management of the unit? What are
the duties of the officers and agents of the unit to the unit and to the
members of the unit? What are the duties of the members of the
unit to the unit and to each other ?

In carrying on the business, the unit through its officers and agents
may do wrongs of one kind or another and perhaps commit crimes.
Who is to be held responsible for these wrongs and crimes ? Is the
unit itself solely responsible for them ? Are the officers and agents
of the unit solely responsible for them? Are the members of the
unit responsible ? Are they all jointly responsible ?

In the course of its business the unit will incur debts from time to
time. Those responsible for the management of the unit will need
to know what powers creditors have to subject the property of the
unit and its members to the payment of these debts. Are creditors
limited to the property of the unit in securing satisfaction of their
claims? May they proceed against the property of the individual
members of the unit? Or may the creditors proceed against the
property of either at their pleasure ?

Important questions arise with reference to the dissolution or
termination of the business unit. How long does a given unit have
the power to exist? Can the state in any manner terminate the
relation before its allotted time ? Can individual members bring it
to an end prematurely ? Can a majority of the members terminate
the unit without the consent of the minority? Assuming that in
one way or another the unit has been dissolved, what are the conse-
quences of dissolution ? What becomes of the liabilities of the unit ?
What becomes of its property ?

The foregoing comments and questions indicate in broad outline
the scope of our study of the legal aspects of the form of the business
unit. The treatment of these different problems must necessarily be
brief because of limitations of space and time. It is hoped, however,
that the materials to follow, which are arranged in terms of this
outline, will give some appreciation of the legal aspects of the business
man's relation to the form of his business unit.



CHAPTER II

NATURE AND CHARACTERISTICS OF FORMS OF
THE BUSINESS UNIT

PRATT v. BACON
10 Pickering's Massachusetts Reports 123 (1830)

PER CURIAM. There is certainly some resemblance between
a corporation and a partnership, inasmuch as each may consist of
two or more persons associated together, and acting in concert, for
the promotion of some private or public object. But the difference
between the relative rights and duties, the legal qualities and charac-
teristics of the members of a manufacturing corporation, and
copartners and tenants in common, is obvious and strongly marked.
A corporation is an ideal body, subsisting only in contemplation of
law, which may be composed of members constantly changing, which
is deemed, for useful purposes, to have an existence independently
of that of all the members of which it is composed, to be capable
of perpetual succession, and of acquiring, holding, and conveying
property. Its real and personal property is deemed to be vested
in the corporation and not in the individuals composing it; and these
have no other interest in it, or control over it, than the qualified ones,
of electing officers, and receiving dividends and profits in the manner
provided by the act of incorporation, or the votes and by-laws, which
may be made pursuant to the powers conferred by it. They cannot
bind their associates, or the corporation, either in any personal
obligation, or executory contract, nor alienate, pledge, or otherwise
affect the corporate property, by any sale, mortgage, contract, or other
personal act. They may change their relation to the corporation,
at any tune, by a sale of their shares; and such sale is not deemed to
be a transfer of any legal interest in the corporate property, but
of the qualified, beneficial interest before mentioned. By a like
transfer of shares, strangers may become members without the consent
of the corporation, unless when some restraint is imposed upon the
general right by a by-law; and such by-law, by imposing a particular
limitation, would itself imply the existence of the general rule. It is
true that at the time this corporation was established, by force of a

284



NATURE AND CHARACTERISTICS OF FORMS 285

particular provision of law, the individual members were made
conditionally liable for the debts of the corporation; but as the law
then stood, this liability ceased by their ceasing to be members, by
a sale of their shares, even for debts and obligations incurred while
they were members, contrary to the well-known rule of law in relation



Online LibraryWilliam H. (William Homer) SpencerLaw and business [electronic resource] (Volume 3) → online text (page 30 of 69)