Antitrust, Business, Corporate and Contract Law

AuthorDaniel Brannen, Richard Hanes, Elizabeth Shaw

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Law that addresses business activities cover a broad range of economic topics including laws related to contracts, corporations, and trusts and monopolies. Responsibility for governmental oversight has greatly changed through time and is split between various governmental parts. For example, the Supreme Court has had relatively little affect on contract and corporate law where states have the primary responsibility for oversight. The federal government has responsibility in certain situations, such as interstate commerce.

Early History of Corporation and Contract Law

One of the most common types of business worldwide is the corporation. A corporation is a business that has been formally chartered (grant of ownership rights) by a state. It gains its own identity apart from the owners and investors. Chartering corporations has a long history. In the sixteenth century English merchants faced the dangers of the high seas both

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from weather and pirates. The shipping businesses sought protection from financial responsibility for cargo losses. As a result, early corporate charters granted by the English monarchy limited liability (financial responsibility) for any losses of corporate property. Many of these early corporations were also given monopoly (one company dominates a particular market) powers over territories and industries that the crown considered critical to English interests. In fact, English law had granted monopolies to specific trade and craft guild organizations by decree even in the Middle Ages. Some of the best known early English corporations in the eighteenth century were the East Indian Company and Hudson's Bay Company. The American colonies, with settlement beginning in the seventeenth century, were also chartered corporations. However, drafted in 1787, the U.S. Constitution makes no mention of corporations. They were primarily subject to state regulation. By 1800 the states had granted about 200 corporate charters.

To enforce business agreements including contracts, the English Parliament passed the Statute of Frauds in 1677. The law established standards for settling legal disputes over contracts. Later after American independence, all U.S. states adopted various forms of the English act establishing the basis for U.S. contract law. The only mention of contracts in the Constitution was the Contract Clause of Article I which reads, "No State shall . . . make any . . . Law impairing the Obligation [responsibility] of Contracts." Early in U.S. history, the Supreme Court applied the Contract Clause in ruling a state law unconstitutional in Fletcher v. Peck (1810). The Court gave a broad definition to what a contract is. Thus, employers were quite free to contract for labor with their employees and establish agreements with other businesses. Cases involving the Contract Clause were numerous in the nation's early years.

In 1819 the Court in Dartmouth College v. Woodward first recognized private profit-making corporations by extending protection of the Contract Clause to corporate charters. The Court considered the corporate charter a form of contract between the state and the private corporation. Protection of corporations by the Clause from unreasonable state regulation provided assurance to individuals to invest money in corporations and spur economic growth of the nation. In Charles River Bridge v. Warren Bridge (1837) the Court further defined a balance between a state interest in regulating corporations and protecting corporations from arbitrary (inconsistent) laws.

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Freedom to Trade

Efforts by businesses to restrain trade by blocking activities of competitors in some way is as old as profit-making business itself. Early English and later U.S. efforts at restricting such anti-competitive behavior in business was largely based on common law principles dealing with contracts and conspiracies. Approaches varied greatly among the states. The Court ruled in Swift v. Tyson (1842) that federal courts should decide business disputes including accusations of restraint of competition using a "rule of reason." The rule of reason worked in the following manner. If state law applied restrictions broadly, the restrictions were often considered illegal. If more limited in time or geographic extent, the restraints might be allowed.

Congress held constitutional powers to regulate interstate commerce (trade or business across state lines) in the Commerce Clause in Article I, Section 8, of the Constitution. The Clause states that Congress could "regulate Commerce . . . among the several...

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