Amdt14.S1.4.7.2 Laws Prohibiting Trusts, Restraint of Trade or Fraud

Fourteenth Amendment, Section 1:

All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

Even during the period when the Court was invalidating statutes under liberty of contract principles, it recognized the right of states to prohibit combinations in restraint of trade. 1 Thus, states could prohibit agreements to pool and fix prices, divide net earnings, and prevent competition in the purchase and sale of grain. 2 Further, the Court held that the Fourteenth Amendment does not preclude a state from adopting a policy prohibiting competing corporations from combinations, even when such combinations were induced by good intentions and from which benefit and no injury have resulted. 3 The Court also upheld a variety of statutes prohibiting activities taken by individual businesses intended to harm competitors 4 or restrain the trade of others. 5

Laws and ordinances tending to prevent frauds by requiring honest weights and measures in the sale of articles of general consumption have long been considered lawful exertions of the police power. 6 Thus, a prohibition on the issuance or sale by other than an authorized weigher of any weight certificate for grain weighed at any warehouse or elevator where state weighers are stationed is not unconstitutional. 7 Similarly, the power of a state to prescribe standard containers to protect buyers from deception as well as to facilitate trading and to preserve the condition of the merchandise is not open to question. 8

A variety of other business regulations that tend to prevent fraud have withstood constitutional scrutiny. Thus, a state may require that the nature of a product be fairly set forth, despite the right of a manufacturer to maintain secrecy as to his compounds. 9 Or, a statute providing that the purchaser of harvesting or threshing machinery for his own use shall have a reasonable time after delivery for inspecting and testing it, and may rescind the contract if the machinery does not prove reasonably adequate, does not violate the Due Process Clause. 10 Further, in the exercise of its power to prevent fraud and imposition, a state may regulate trading in securities within its borders, require a license of those engaging in such dealing, make issuance of a license dependent on the good repute of the applicants, and permit, subject to judicial review of his findings, revocation of the license. 11

The power to regulate also includes the power to forbid certain business practices. Thus, a state may forbid the giving of options to sell or buy any grain or other commodity at a future time. 12 It may also forbid sales on margin for future delivery, 13 and may prohibit the keeping of places where stocks, grain, and the like, are sold but not paid for at the time, unless a record of the same be made and a stamp tax paid. 14 A prohibitive license fee upon the use of trading stamps is not unconstitutional, 15 nor is imposing criminal penalties for any deductions by purchasers from the actual weight of grain, hay, seed, or coal purchased, even when such deduction is made under a claim of custom or under a rule of a board of trade. 16


  1.  Jump to essay-1See, e.g., Grenada Lumber Co. v. Mississippi, 217 U.S. 433 (1910) (statute prohibiting retail lumber dealers from agreeing not to purchase materials from wholesalers selling directly to consumers in the retailers’ localities upheld); Aikens v. Wisconsin, 195 U.S. 194 (1904) (law punishing combinations for maliciously injuring a rival in the same business, profession, or trade upheld).
  2.  Jump to essay-2Smiley v. Kansas, 196 U.S. 447 (1905). See Waters Pierce Oil Co. v. Texas, 212 U.S. 86 (1909); National Cotton Oil Co. v. Texas, 197 U.S. 115 (1905), also upholding antitrust laws.
  3.  Jump to essay-3International Harvester Co. v. Missouri, 234 U.S. 199 (1914). See also American Machine Co. v. Kentucky, 236 U.S. 660 (1915).
  4.  Jump to essay-4Central Lumber Co. v. South Dakota, 226 U.S. 157 (1912) (prohibition on intentionally destroying competition of a rival business by making sales at a lower rate, after considering distance, in one section of the State than in another upheld). But cf. Fairmont Co. v. Minnesota, 274 U.S. 1 (1927) (invalidating on liberty of contract grounds similar statute punishing dealers in cream who pay higher prices in one locality than in another, the Court finding no reasonable relation between the statute’s sanctions and the anticipated evil).
  5.  Jump to essay-5Old Dearborn Co. v. Seagram Corp., 299 U.S. 183 (1936) (prohibition of contracts requiring that commodities identified by trademark will not be sold by the vendee or subsequent vendees except at prices stipulated by the original vendor upheld); Pep Boys v. Pyroil, 299 U.S. 198 (1936) (same); Safeway Stores v. Oklahoma Grocers, 360 U.S. 334 (1959) (application of an unfair sales act to enjoin a retail grocery company from selling below statutory cost upheld, even though competitors were selling at unlawful prices, as there is no constitutional right to employ retaliation against action outlawed by a state and appellant could enjoin illegal activity of its competitors).
  6.  Jump to essay-6Schmidinger v. City of Chicago, 226 U.S. 578, 588 (1913) (citing McLean v. Arkansas, 211 U.S. 539, 550 (1909)). See Hauge v. City of Chicago, 299 U.S. 387 (1937) (municipal ordinance requiring that commodities sold by weight be weighed by a public weighmaster within the city valid even as applied to one delivering coal from state-tested scales at a mine outside the city); Lemieux v. Young, 211 U.S. 489 (1909) (statute requiring merchants to record sales in bulk not made sin the regular course of business valid); Kidd, Dater Co. v. Musselman Grocer Co., 217 U.S. 461 (1910) (same).
  7.  Jump to essay-7Merchants Exchange v. Missouri, 248 U.S. 365 (1919).
  8.  Jump to essay-8Pacific States Co. v. White, 296 U.S. 176 (1935) (administrative order prescribing the dimensions, form, and capacity of containers for strawberries and raspberries is not arbitrary as the form and dimensions bore a reasonable relation to the protection of the buyers and the preservation in transit of the fruit); Schmidinger v. City of Chicago, 226 U.S. 578 (1913) (ordinance fixing standard sizes is not unconstitutional); Armour & Co. v. North Dakota, 240 U.S. 510 (1916) (law that lard not sold in bulk should be put up in containers holding one, three, or five pounds weight, or some whole multiple of these numbers valid); Petersen Baking Co. v. Bryan, 290 U.S. 570 (1934) (regulations that imposed a rate of tolerance for the minimum weight for a loaf of bread upheld); But cf. Burns Baking Co. v. Bryan, 264 U.S. 504 (1924) (tolerance of only two ounces in excess of the minimum weight per loaf is unreasonable, given finding that it was impossible to manufacture good bread without frequently exceeding the prescribed tolerance).
  9.  Jump to essay-9Heath & Milligan Co. v. Worst, 207 U.S. 338 (1907); Corn Products Ref. Co. v. Eddy, 249 U.S. 427 (1919); National Fertilizer Ass’n v. Bradley, 301 U.S. 178 (1937).
  10.  Jump to essay-10Advance-Rumely Co. v. Jackson, 287 U.S. 283 (1932).
  11.  Jump to essay-11Hall v. Geiger-Jones Co., 242 U.S. 539 (1917); Caldwell v. Sioux Falls Stock Yards Co., 242 U.S. 559 (1917); Merrick v. Halsey & Co., 242 U.S. 568 (1917).
  12.  Jump to essay-12Booth v. Illinois, 184 U.S. 425 (1902).
  13.  Jump to essay-13Otis v. Parker, 187 U.S. 606 (1903).
  14.  Jump to essay-14Brodnax v. Missouri, 219 U.S. 285 (1911).
  15.  Jump to essay-15Rast v. Van Deman & Lewis, 240 U.S. 342 (1916); Tanner v. Little, 240 U.S. 369 (1916); Pitney v. Washington, 240 U.S. 387 (1916).
  16.  Jump to essay-16House v. Mayes, 219 U.S. 270 (1911).