Mitchel v Reynolds

Mitchel v. Reynolds is a landmark decision in the history of the law of restraint of trade. It is generally cited for establishing the principle that reasonable restraints of trade, unlike unreasonable restraints of trade, are permissible and therefore enforceable and not a basis for civil or criminal liability. It is largely the basis in US antitrust law for the "rule of reason." William Howard Taft, then Chief Judge of the Sixth Circuit Court of Appeals, later US President and then Chief Justice of the Supreme Court, quoted Mitchel extensively when he first developed the antitrust rule-of-reason doctrine in United States v. Addyston Pipe & Steel Co., which was affirmed in 1899 by the Supreme Court. The doctrine also played a major role in the 1911 Supreme Court case Standard Oil Company of New Jersey v. United States 221 U.S. 1 (1911).

Mitchel is also cited for the proposition that usually harmful practices may be rebuttably presumed unlawful, so that the burden of showing legitimacy is placed on the proponent of the practice.

Reynolds was a baker at St Andrew Holborn (parish), which included both Lincoln's Inn and Gray's Inn, and therefore a considerable number of lawyers. In this litigation-prone environment, Reynolds chose to rent his bakeshop business to Mitchel for five years and gave Mitchel a bond for 50 pounds with the condition that the bond would be void if Reynolds refrained from acting as a baker in the parish for the next five years. Reynolds resumed his trade as a baker at another location in the parish within the five years, and Mitchel sued on the bond.

Reynolds defended by demurrer, contending that the bond was void because it was on a restraint of trade. His position was that any such restraint of trade was illegal per se, since it prevented him from exercising his trade as a baker.

Although general restraints of trade are unlawful, the court of the Queen's Bench, per Chief Justice Parker (Lord Macclesfield), held this restraint of trade reasonable and therefore lawful. It was ancillary to a legitimate transaction (the rental or sale of the bakeshop business) and it was reasonably necessary to effectuate the main purpose. Its extent was limited to what was necessary to accomplish the main purpose of the transaction. If Reynolds reopened his bakery business, he would attract his old customers and deprive Mitchel of the benefit of his bargain with Reynolds, which included the goodwill of the business (i.e., the habit of the customers to continue to buy baked goods at the same location). Although a restraint of trade without a good reason to support it is presumed unlawful, the court ruled, the presumption can be rebutted and overcome by facts such as those present here: the restraint of trade was necessary and ancillary to a lawful transaction.

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