Honorable Jesse Owens 

District Attorney 

Vernon, Texas 

Dear Sir: Opinion No. O-2792 

Be: Restraint of trade; whether contract to quit business and refrain from engaging in same buslness for a period of six years, 

coupled with agreement not to sell 

equipment for use in such business 

In a county in Texas Is violative 

of penal provisions of anti-trust 

laws. 

We have had under consideration your request for our 

opinion as to whether a certain contract is in violatlon of 

Article 1632, Penal Code of Texas. In order to properly appraise the questions involved, we copy the gist of the contract as submitted by you: 

"This contract and agreement made and entered 

into on this the 10th day of August, A.D., 1940,by 

and between Walter Baucum of Hardeman County, Texans 

party of the first part, and H. W. Thaten of Childress County, Texas, and W. L. Beasley of Hardeman 

County, Texas, partles of the 2nd part, and for such 

contract and agreement wltnesseth: 

"For and in consideration of the sum of $700.00 

to me, cash In hand paid on this the 10th day of 

August, 1940 as follows: $350.00 by H. W. Thaten, 

one of the parties of the 2nd part and $350.00 paid 

by W. L. Beasley, the other party of the 2nd part, 

the receipt of which Is hereby acknowledged, and 

confessed, I, Walter Baucum, party of the first 

part, do hereby assign, convey and sell unto the 

said parties of the 2nd part, jointly, all of the 

patronage and good will of Walter Baucum individually and the Blue Ribbon Bakery of Quanah, Texas, 

of which the said Walter Baucum is sole owner, 

and for said consideration agree and bind Walter 

Baucum individually and the Blue Ribbon Bakery 

to discontinue the operation of said bakery and 
Honorable Jesse Owens, page 2 O-2792 

of Walter Baucum individually in the bakery 

business in Hardeman County, Texas, on this the 

10th day of August, 1940 and further agree that 

for a period and time of six years from this 

date, the said Walter Baucum will not engage in 

the making, distribution or sale of bread or 

other bakery products, either directly or indirectly within the territorial limits of Hardeman County, Texas. And for the same consideration agree that said Blue Ribbon Bakery will be 

closed to business on this date and that the 

equipment and property used in connection therewith will not be assigned or transferred to any 

other person, company, corporation or association of persons to be used in the bakery business either directly or indirectly in Hardeman 

County, Texas, for a period of six years from 

this date." 

The above contract is signed and acknowledged 

three parties. 

Article 1632, Penal Code, to which you refer, 

as follows: 

"A 'trust' is a combination of capital, skill 

or acts by two or more uersons, firms, corporations or associations of persons, or either two or 

more of them for any or all of the following purposes : 

"1 . To create, or which mav tend to create 

or carrv out, restrictions in trade or commerce or 

aids to commerce, or in the preparation of any 

product for market or transportation, or to create 

or carry out restrictions in the free pursuit of 

any business authorized or permitted by the laws 

of this State. 

"2 . To fix, maintain, increase or reduce the 

price of merchandise, produce, or commodities, or 

the cost of insurance, or of the preparation of any 

product for market or transportation. 

by all 

reads 

“3 . To urevent or lessen competitlon in the 

manufacture, making transportation, sale or purchase of merchandise, produce or commodities, or 

the buslness of insurance, or to prevent or lessen 

competition in aids to commerce, orinthe preparation of any product for market or transportation. 
Honorable Jesse Owens, page 3 o-2792 

“ll . To fix or maintain any standard or figure 

whereby the price of any article or commodity of 

merchandise, produce or commerce, or the cost of 

transportation, or insurance, or the preparation 

of any product for market or transportation, shall 

be in any manner affected, controlled or establishea. 

“5 . To make, enter into, maintain, execute 

or carry out any contract, obligation or anreement 

bv which the parties thereto bind, or have bound, 

themselves not to sell, diswose of, transoort or 

to prepare for market or transnortatLon any article 

or commodity or to make any contract of insurance 

at a price b;low a common standard or figure, or 

by which they shall agree, In any manner, to keep 

the price of such article or commodity, or charge 

for transportatlon or insurance, or the cost of 

the preparation of any product for market or transportation, at a fixed or graded figure, or by which 

they shall, In any manner, affect or maintain the 

price of any commodity or article, or the cost of 

transportation or insurance, or the cost of the 

preparation of any product for market or transportation, between them or themselves and others, to 

preclude a free and unrestricted comnetitlon am'dnp; 

themselves or others in the sale or transwortation 

of any such article or commodits or business of 

transporation or insurance, or the preparation 

of any product for market or transportation, or 

by which they shall agree to pool, combine or unite 

any Interest they may have in connection with the 

sale or purchase of any article or commodity, or 

charge for transportation or insurance, or charge 

for the preparation of any product for market or 

transportation, whereby its price or such charge 

might be in any manner affected. 

“6 . To reuulate, fix or limit the outnut of 

anv article or commodltr which mav be manufactured, mined, produced or sold, or the amount of insurance which may be undertaken or the amount of 

work that may be done in the preparatlon of any 

product for market or transportation. 

“7 . To abstain from engaging in or continuing business, or from the purchase or sale of merchandise, produce or commodities partially or en- 

%irelv within this State, or any nortlon thereof." 

(Emphasis ours.) 
Honorable Jesse Owens, page 4 o-27.92 

We have underlined all of those portions of the 

statute which appear to be in any wise applicable to your 

case. Your particular inquiry la whether paragraph 3 is 

violated by the contract and attendant'facts. You stress 

the assertion that Baucum did not in fact sell his business 

but only agreed to close same and move out of the town of 

Quanah, Texas. It appears from your letter that the State 

is in position to prove that pursuant to'the contract, Baucum did close his doors and agreed not to make, distribute 

or sell bread or other bakery products In Hardeman County, 

Texas, for a period of six years, and that none of his 

property will be assigned or transferred to any other to be 

used in the bakery business in the prescribed territory for 

such period of time. 

There have been relatively few cases before our appellate courts construing the criminal law provisions of the 

anti-trust statutes of this State. Although the general 

language employed In the Revised Civil Statutes is the same 

as that used in the Penal Code, ana Article 7426, Revised 

Civil Statutes, is in exactly the same language as Article 

1632, Penal Code, supra, they were enacted by the Leglslature as separate bills, and the enactment appearing in the 

civil code became a part of the statutory law of this state 

at a subsequent time. See State v. Standard Oil Co., 130 Tex. 

313, 107 S.W. (2d) 550, reversing Civ. App., 82 S.W. (2d) 420. 

We have been unable to find, nor do we believe exists, any 

case by the Court of Criminal Appeals deciding the question 

submitted by you. 

It is interesting to note that the provisions of 

the Penal Code recently withstood a most aggressive attack 

leveled at the constitutionality thereof. In an able and 

elaborate opinion Judge Christian of the Commission of the 

Court of Criminal Appeals upheld the law. See Ex parte Tigner, 

Cr. App., 132 S.W. (2d) 885. A motion for rehearing was 

filed, but was overruled; whereupon, the case was appealed to 

the Supreme Court of the United States and finally affirmed, 

Tigner v. State of Texas, 60 s. ct. 879, 84 L. Ed. 756. re. 

Justice Frankfurter delivered the opinion of the Supreme Court 

and specificKay overruled the case of Connolly v. Union Sewer 

Plpe Co., 184 U.S. 540, 46 L. Ed. 679, 22 S. Ct. 431, long 

relied upon as making the penal provisions of our anti-trust 

laws inoperative. The latter case may well explain then 

dearth of criminal cases arising in this state. 

In our study of your question we have found many expressions of the general principles of law applicable to your 

case. We shall briefly discuss a few of the various authorities, 

citing others for your consideration. 
Honorable Jesse Owens, page 5 O-2792 \ 

-. 

In Williston on Contracts, Vol. 5, 0 1636, p. 4580, 

appears the following: 

"It is everywhere agreed that in order to 

be valid a promise imposing a restraint'in trade 

or occupation must be reasonable. The question 

of reasonableness is for the court, not the jury; 

and in considering what is reasonable, regard 

must be paid to (a) the question whether the 

promise is wider than Is necessary for the protection of the convenantee in some legitimate interest 

covenaAtoLb)a2 

e effect of the promise upon the 

(c) the effect upon the public. 

If the resiralnt imposed Is greater than is necessary for the protection of the covenantee, the 

promise Is necessarily invalid. One whose business Is confined to New York is not helped by 

the promise of another not to do business in 

Chicago, and if the promise is enforced by injunction the promisor is Injured, while the promisee is not correspondingly helped. Such a case 

in the simple form supposed would not often arise, 

but very commonly a promise is exacted which lnclude3 not only a restriction advantageous to the 

promisee, but one injurious to the promlsor without corresponding benefit to the promisee. Such 

a promise, unless divisible, is wholly Invalid. 

Even If no objection can be taken on this ground, 

the effect may conceivably be so harsh In Its 

consequence upon the promisor that enforcement 

of the promise will be refused. Finally, even 

though neither of the foregoing objections 

exists, the effect of the promise on the public 

interest may be such as to make enforcement contrary to public policy. In considering the 

nature of this last objection, .it must be recognl?nd at the outset that the purpose of any 

restrictive agreement Is almost always to lessen 

comnetltion with the oromisee, thereby enabling 

him to do a larger business and on terms more 

favorable to himself than he could do if he had 

not obtained the oromise in question. Thi p 

p s has been regarded. especially in the &i% 

*Ln;;a;; 

Q Y 

i;p;;a;n;o ",;,:;;;I; ;;$erest 

Y the 

restrictive promise is ancillary to some other 

transaction that Its vallalty has been upheld. 

Thus, if a dealer should pay a competitor to 

promise to go out of business, or cease to corn--,, 

nete. the agreement would be invalid. . . . . . 

(Emphasis ours.) 
Honorable Jesse Ownes, page 6 O-2792 

The underscored portion of the above quotation is 

copiously annotated, and among the cases listed in support 

of the text Is the case of Potomac Fire Insurance Co. v. 

State, (Tex. Civ. App.) 18 S. W. (2d) 929. 

From Ruling Case Law, we quote as follows: 

"From the tests laid down for determining 

the validity of such an agreement, It seems to 

follow that no conventional restraint of trade 

can be enforced, unless the covenant embodying 

It is merely ancillary to the main purpose of 

awful contract, and necessary to orotect the 

covenantee In the en.ioyment of the legitimate 

fruits of the contract, or to protect him from 

the dangers of an unjust use of those fruits by 

the other party. This statement of the rule 

implies that the contract must be one in which 

there is a main purpose, to which the covenant 

In restraint of trade is merely ancillary. . .' 

(6 R. C. L. 1 195, p. 790, Emphasis ours.) 

From Corpus Jurls, we quote the following: 

"The covenant or contract by which the restraint is imposed must be incidental to and in 

support of another contract or a sale by which 

the covenantee acquires some interest in the 

business needing protection. Contracts which 

have for their ob.iect merelv the removal of a 

rival and comoetitor in a business are unlawful 

under all circumstances. . 

420, P. 477. Emphasis ours:)' ' 

' (13 C.J., I 

The latest offering by the same publishers, Corpus 

Juris Secundum, adheres to the rule announced In Corpus Juris: 

"The validity of an agreement in restraint 

of trade is according to the trend of authority 

to be tested by its reasonableness with respect 

to the protection of the covenantee and the 

public interest involved, and in all cases it 

1s essential that the restrictive covenant be 

incidental to another lawful contract or sale 

involving some interest reouiring the protection 

of the restraint. Although it may In some cases 

continue after the sale of such interest. . . . 

"Restraining contract must be ancillary. 

The covenant or contract by which the restraint 
. . 

Honorable Jesse Owens, page 7 Q-2792 

is imposed must be Incidental to and in support 

of another lawful contract or sale by which the 

covenantee acauires some Interest needing - oro- _ 

tection. As fs stated in 1 250 infra, contract;! 

which have for their object merely the removal 

of a rival and comnetitor in a business are unlawful under all circumstances. . . ." (17 

C.J.S., I 246, p. 627. Emphasis ours.) 

It would serve no useful purpose to list here the 

many cases from other jurisdictions cited by the above authorities. These do not rest upon any eonstructlon of our 

statutes, but appear to be convlnclng statements, showing 

the status of the common law. We shall proceed to discuss 

zome of the Texas case3 arlzing from civil actlons. 

In the case of Comer v. Burton-Lingo Co., 24 Tex. 

Clv. App. 251, 58 S. W. 969, an owner of a lumber business, 

on the sale thereof to three firms engaged in the same buslness, agreed not to re-enter such business in the city of 

Cleburne, for a period of ten years. The vendor resumed the 

lumber business in Cleburne within the perlod embraced in 

the contract. The suit sought to restrain him from contlnulng such business and for damages. The answer of defendant 

charged that plaintiff firms, being the only dealers in such 

business In such place, combined to buy such business and 

good will to prevent competitlon, and to control prices. 

The court said if the plaintiffs entered Into a comblnatlon 

of their acts and capital to buy, and did buy the stock In 

trade and good will of the defendant, and, if the purpose 

of the combination was to create or carry out restrictions 

in trade or in the free pursuit of business, or to prevent 

competition, it was prohibited by the anti-trust law. We 

quote from the opinion of the court: 

"The anti-trust law does not apply to the sale 

of a business and the good will thereof, accompanied by an obligation on the part of the 

seller not to resume business for a limited tlme 

at a specified place, where the purchaser Is a 

single person or firm. Gates v. Hooper (Tex. Sup.) 

2; ;. ;. $9; Erwin v. Hayden (Tex. Civ. App.) 

Does It apply to a combination of 

two & more dealers to buy the stock and good ~I.11 

of an opposition dealer for one of the purposes 

prohibited by the statute? The combination prohi: 

blted by the law in force when the contract before us was entered into was the union or association of the capital, skill, or acts of two or more 

persons, firms, OP corporations for the purpose of 
. . 

Honorable Jesse Owens, page 8 O-2792 

doing either of the things denounced by the 

statute. If the combination is consummated, 

and its purpose is unlawful, then it 13 lmmaterial as to whether It Is reasonable from 

a business standpoint, or as to how It will 

affect the public. The object of the statute 

was to prohibit any combination having for its 

purpo3e the dofng of either of.the things 

specified, withoutregard to the lntentlon of 

the parties, or of the immediate effect of the 

comblnatlon on trade and commerce, az the power 

arising from such combination was believed to 

be dangerous to public interests. Therefore 

the legislature did not attempt to regulate 

such combinations, but prohibited them entlrelg. . . . ..'I 

Crandall v. Scott, Tex. Clv. App., 1.61 S.W. 925, L3 a 

caze wherein plaintiff and two other concerns, who conducted 

moving picture shows In Amarillo made an agreement by which 

the others gave notes to plaintiff In consideration of his 

ceasing business and agreeing that no showhouse except the 

two operated by the makers of such notes should open ln 

Amarillo before a certain time; that If a theater of a certain standard should open within the time and operate for six 

months, all of the notes maturing after the opening of the 

new show should be void, and that If a showhouse should open 

and run for less than such perlod, the notes should be void 

for the time it was conducted. Holding that there was such a 

"combination" In restraint of trade as violated the antltrust law, the court refused to sanction the contract, declaring it wholly void, notwithstanding a serious question as to 

failure of defendants' pleadings to properly attack its 

validity, the opinion reciting that the contract's illegality 

was apparent from the record. The case of Comer v. BurtonLingo, supra, was cited with approval. 

The court held the very language contained in the first 

and seventh numbered paragraphs of what is now Article 1632, 

Penal Code, was violated by theconblnatlon entering Into the 

purported contract. 

In Smith V. Kouslakls, Tex. Clv. App., 172 S.W. 586, 

plaintiff entered Into an agreement with defendants that for 

a valuable consideration defendant3 would not operate, or 

permit lessees to operate a lunch stand upon certain premises 

for a period of two years. A written memorandum waz executed 

by the parties. Thereafter the premises were sublet for a 

lunch stand. This occasioned the suit for an lnjunctlon; which 

waz granted by the lower court. The court of Civil Appeals 
. 1. . 

Honorable Jesse Owens, page 9 O-2792 

reversed the case, a majority of the court holding the purnorted contract void, because in violation of the first and 

seventh numbered paragraphs of Article 7796, Revised Civil 

Statutes, 1911. This article is fin the identical language 

of our present Article 1632, Penal Code, supra. The third 

justice doubted the applicability of the anti-trust statute, 

but concurred in the result because of the common law~rule 

limiting such agreements to covenants ancillary to a lawful 

contract such as mentioned in the quotations from Williston, 

Ruling Case Law, Corpus Juriz, etc., hereinbefore set out by 

us. 

We next consider the caze of Robinson v, Levepmann, 

Tex . Civ. App., 175 S. W. 160, writ of error refused, 185 

S.W. xv. Robinson's firm and two others were engaged in the 

busfness of selling paints, wallpaper, oils and varnishes In 

the city of Corsicana, Texas. Robinson's flrm sold Its stock 

of merchandise to the two competitors, with agreement that 

the sellers would not engage In such business in such city so 

long as the buyers were engaged therein. Robinson left 

Corsicana for a time, but returned and resumed the zame character of business he had theretofore followed and Ln competition with said partFes to the alleged contract. Suit was for 

damages and an injunction restraining Robinson from carrying 

on the business. The court held the contract illegal and 

void, as indicating a combination in contravention of language 

in the civil statutes, the zame as used in what is now numbered peragrsphs 1, 3 and 7 of Article 1632, Penal Code. See 

p. 162 of the opinion, 175 S. W. 160, supra. 

We recognize the seemingly anomolous situation created 

by the language of the statute as interpreted and construed 

by our courts as shown by the excerpt already quoted herein 

from Comer v. Burton-Lingo Co. and the other cases supra. 

Neverthe less, it appears that the decisions in civil suits 

are conclusive that the anti-trust law does not apply to the 

sale of a business and the good will thereof, accompanied by 

an obligation on the part of the seller not to resume business 

for a limited time at a specified place, where the purchaser 

is a single person or firm; whereas, It does apply to a wbination of two or more dealers when such combination is for 

one of the purposes enumerated and prohibited by the statute. 

See Comer v. Burton-Lingo Co., supra; Langever v. United 

Advertising Corporation, Tex. Civ. App., 258 S.W. 856; Malakoff 

Gin Co. v. Rlddlesperger, Tex. Civ. App., 133 S.W. 519; Ibid, 

Supreme Court, 192 S.W. 530; Linen Service Corporation v. 

Qres, Tex. Civ. App., 128 S.W. (26) 850; State v. Racine 

Sattley Co., Tex. Clv. App., 134 S.W. 400, and many others 

grouped I.n 28 Tex. Digest, 220-222. 
. . 

Honorable Jesse Owens., page 10 O-2792 

An interesting and lnformatlve discussion of the entire subject of Texas anti-trust legislation and court decisions construing It may be found In the Texas Law Review. 

3 Tex. Law Review 335, 4 ibid. 129, 15 ibid. 293. The author of~the last treatise cited declares that "the cases lnvolvlng convenants not to compete are decided entirely In accordance with 'common law prlnclples." 

Rev. 301, from which we quote: 

See note, 15 Tex. Law 

!f .' 

. . . That Is, they are upheld If lncldent 

to the sale of a business or a contract of employment If reasonably limited in time and space 

. . . . . . . The fact that the early cases made uze 

.of a tortured construction of the word 'comb~ina- 

.tlon', in the statute in order to reach this rev. Hooper, 81 Tex. 159, 16 S.W. 744 

of cymm, Immaterial in this conThe Texas Supreme Court case of Gates v. Hooper is 

Incorrectly cited by Professor Nutting, the correct reference 

being 90 Tex.: 563, 39 S.W. 1079. The volumes indicated show 

the re.port of Welsh v. Morris, a similar case. Nevertheless, 

Gates v. Hooper Is treated as the leading case by many courts 

and text writers for the principle that there can be no "combination" unless two or more unite or associate "capital, 

,skill or acts" for one of the prohibited purposes, and that a 

restriction imposed by a single vendee is to be treated az 

lawful and therefore enforceable by the equitable arm of the 

law, despite the anti-trust statutes. Reference to Sheppard's 

Southwestern Reporter Citations show the caze to have been 

listed as authority in no less than 44 civil cases to and including the pronouncement in Houston Credit Sales Co. v. 

English, Tex. Civ. App., 139 S.W. (2d) 163. No effort on the 

part of any court to overrule Gates v. Hooper has been found, 

though we have made exhaustive search. 

So It may be confidently stated that as seen through 

the eyes of the civil courts of this State, assuming the facts 

.submitted by you as proven, 

from a "combination" 

I.e., that the contract resulted 

of Thaten and Beasley, az that term has 

been judicially defined, the same would be considered void 

and unenforceable, condemned by Article 7426, Revised Civil 

Statutes. 

Would the Court of Criminal Appeals follow the civil 

courts, and upon a sufficient quantum of proof of such combination, affirm a convlction? 

It is not the prerogative of this department to antl- 
Honorable Jesse Owena, page 11 0 -2792 

clpate or forecast such oontlngenoy. We do not wish to appear so preoumptlous as to draw any Inference that we are 

attempting In the sllghtest degree to Invade the field reserved exclusively for the Court of Criminal Appeals. We are 

cognizant of the provisions of Article 4399-i Revlaed Clvll 

Statutes, however ; that the Attorney General shall advlse 

the several dlstrlct attorneys in the prosecution and defense 

of .a11 actions In the dlstrlot or inferior courts, whenever 

requested and when, as In the Instant case, the’attorney has 

Investigated the questIon and submitted a brief. 

In this oonneotlon, we point out. the fact that while 

nelther the Supreme Court and the various Courts of Civil 

Appeals on the one hand, nor the Court of Criminal Appeals la 

In any manner subordinate one to the other, It appears that 

respect will always be glven to the decision of the court 

which glves the flrst Interpretation to language of a statute 

of such nature that It might be properly construed by, either 

court. See 11 Tex. Jur. 853, 3104; Redman v. State, 67 Tex. 

Cr. R. 374, 149 3. w. 670; Rx parte Mussett, 72 Tex. Cr. ,R. 

487, 162 a.,W. 846; Losalng v. Hughes, Tex. Clv. App., 244 

S.W. 556, 561. 

We therefore respectfully advlse you that It Is our 

opinion that a prosecution will lie for a VlolatlOn of Artlcle 1632, Penal Code, supra, assuming the proof avallable to 

sustain the facts as stated in your letter and acoompanglng 

brief. 

You are correct In your reference to the punishment 

upon oonviotlon; Artlole 1.635, Penal Code, would control and 

a violator of Article 1632 might be confined In the penltentiary for not less than two nor more than ten years. 

Yours very truly 

ATTORNEY OENERAL OF TEXAS 

BWlQO :wa 

By s/Benjamin Woodall 

Benjamin Woodall 

Assistant 

APPROVED OCT 25, 1949 

a/Gerald C. Mann 

ATTORNEY GENERAL OF T]pxAS 

Approved Oplnlon Committee By s/&WB Chairman