Summary
reasoning that a restrictive covenant "if enforced at all, it must be enforced according to its terms"
Summary of this case from ADP, LLC v. RaffertyOpinion
01-13-1897
ALTHEN v. VREELAND.
A. R. Denman and J. E. Howell, for complainant. W. B. Guild and R. V. Lindabury, for defendant.
Bill by George P. Althen against James H. Vreeland for an injunction. Heard on bill, answer, replication, and proofs. Decree for complainant.
A. R. Denman and J. E. Howell, for complainant.
W. B. Guild and R. V. Lindabury, for defendant.
EMERY, V. C. This is an application for an injunction restraining the violation of a covenant in restraint of trade, and to restrain the interference with the good will of a business, and is made under the following state of facts: On or about October 22, 1895, the complainant purchased from the defendant the interest of the defendant in the partnership property and estate, real and personal, of the firm of Mulford & Vreeland,composed of one Mulford and defendant, carrying on the business of cracker and biscuit bakers in Newark. The agreement for purchase was in writing, dated October 22, 1895, and included an agreement for the conveyance of the good will of the business, and also contained an agreement that the vendor would not thereafter engage in a similar business within 1,000 miles of Newark, without the purchaser's written consent. The consideration for the whole purchase was $19,500. About 10 days later, and on November 1, 1895 the real estate was conveyed by deed, as agreed upon, and the personal property of the partnership, by bill of sale bearing that date. The bill of sale, after a conveyance of all the interest of Vreeland in all goods and chattels of the firm, contains the following covenant on the part of the vendor, viz.: "That I will not at any time engage in or conduct the business of manufacturing or selling crackers, cakes, or biscuits, as principal agent or servant, within one thousand miles of Newark, N. J., without the written consent of said Althen." The sale of defendant's partnership interest was made to complainant for the purpose of a continuance of the business by complainant with Mulford as a partner in defendant's place, and the business has been so continued since the purchase under the name of Mulford & Altheh. The defendant has engaged in the business of selling crackers and biscuits in Newark, contrary to the terms of the agreement, and is now preparing to engage in the business of their manufacture at Newark. These sales, and the intention to engage in the business, are admitted in the answer of defendant, and he defends the violation of the agreement upon the ground that the covenant is illegal and void. The complainant, in his bill, alleges facts showing or tending to show that the nature of the business is such that the restriction to the 1,000-mile limit was reasonable and necessary for the protection of the business. The defendant, in his answer, sets up facts showing or tending to show that the restriction was unreasonable, and not required for the protection of the business, and alleging that up to the time of the purchase by complainant the sales had never extended beyond 80 miles from the city of Newark. The question to be determined on the case, so far as it relates to this covenant, is the legality of this covenant, either by the illegality apparent on its face or by reason of the proofs of facts showing it to be an unreasonable restriction, and therefore illegal. It is insisted by the defendant that under the decisions of our courts in Brewer v. Marshall, 19 N. J. Eq. 537, and Mandeville v. Harman, 42 N. J. Eq. 185, 7 Atl. 37, the contract is invalid upon its face, as being too general, and unreasonable in its restrictions as to space. For the reasons stated in my opinion on the application for preliminary injunction, it seems to me doubtful whether these decisions reach so far as to make the present contract invalid on its face, and, for the purposes of the present decision, I shall adopt the rule which has been often applied in more recent cases, viz. that, in cases of sales of good will or business, the validity of the covenant of restriction depends upon the reasonableness of the restriction for the protection of the purchaser, as shown by the circumstances of the case, provided the restriction of the vendor be not injurious to public interest. Nordenfeldh v. Gun Co. [1894] App. Cas. 535; Match Co. v. Roeber (1887) 106 N. Y. 473, 13 N. E. 419. On the facts of the case, as shown by the proofs, I am of opinion that the restriction imposed was unreasonably extensive. The business sold did not extend more than 80 or 100 miles from the city of Newark, and was mainly confined to the state of New Jersey and the cities of New York and Brooklyn. One shipment was made to Cuba, and one to Florida, but in the former case the sale was made to a New York customer, and in the latter at Asbury Park, so that the trade or business in each of these cases must be considered as extending only to the latter places. This appearing to be the scope of the business sold, a covenant restricting the vendor to the limit of 1,000 miles goes farther than is reasonably necessary for the protection of the business or good will sold. Such protection to the business sold is the limit and test of the reasonableness of the covenant in cases of this character, and, while the reasonableness as to distance must depend on the particular circumstances of each case, it would seem that in cases of sales of business and good will of the present character—an established manufacturing and mercantile business—the extreme limit of restriction as to space (where the restriction is general as to time) should not extend beyond the territory in which the business is carried on at the time of the sale. But, without attempting to decide whether, in any case, a restriction extending beyond the limit of the business at the time of sale would be valid, it is clear, I think, that no circumstances have been shown in the proofs in this case which would justify the conclusion that this 1,000-mile limit was reasonably necessary, if the only object was to protect the business sold. The covenant, if entered according to its terms, would not only protect the complainant's business practically from the competition of defendant, but it would also prevent defendant from supplying a territory far beyond the limits of the business sold, and to which the complainant, equally with any other person, should have access in the interest of the public. I must therefore decline to advise an enforcement of the covenant. Complainant's counsel urge, however, that the proofs show that a restriction within the limits of the state would be reasonable, and, as a consequence of this, thatcomplainant is entitled to an injunction restraining defendant within the state. It is not claimed that the covenant is in terms so divisible as to admit of a separate application within the state and outside of the state, but it is insisted that, the whole doctrine of illegality of restriction being based upon reasons of public policy, the courts of each state should consider only the legality of the re striction so far as relates to trade and commerce within its own limits, and, if the restriction within the state is reasonable, then the agreement should be enforced within the state, according to its terms. But the answer to this proposition is twofold. In the first place, the contract might then be enforced without the state, for, if enforced at all, it must be enforced according to its terms, and would legally and in fact control defendant's right to manufacture or sell anywhere outside of the state within the limit of 1,000 miles. Defendant, if within the state, would be punishable for contempt of such violation, or his property within the state might be sequestered. In the second place, trade and commerce within the area of the United States, so far as restrictions of this character are concerned, are in law and in fact national. Many decisions of our courts, both federal and state, recognize in this respect a public policy based upon the consideration of the effect of the restriction without regard to the existence of state lines, and counsel have not referred me to any cases in our court sustaining a contrary doctrine. Navigation Co. v. Winsor, 20 Wall. 64, 67; Match Co. v. Roeber, 106 N. Y. 473, 13 N. E. 419. See opinion of Andrews, J., page 485, 106 N. Y., and page 423, 13 N. E. The English cases are relied on as supporting this contention, but, if this be the rule there established, it is altogether inapplicable in this country. It should be noticed, moreover, that, even admitting complainant's claim in this respect, the restraint imposed by the contract in question, being general and unrestricted as to time, extends to the whole of the vendor's life, and it would then become also, on complainant's theory, general and unrestricted as to space. No case has been referred to in which a restraint, general both as to time and space, has been held either reasonable or legal. I must decline to enforce this restrictive contract, as not reasonable under the circumstances of the case disclosed by the proofs, and the preliminary injunction enforcing it, pending the hearing made for the purpose of preserving the status quo pending the determination of this question of fact, must be discharged.
The bill also alleges that the defendant Vreeland, since the sale of his interest in the property and good will of the firm of Mulford & Vreeland to complainant, solicited the trade of old customers of the firm, and prays relief against interference with the good will of the business, and for general relief. The defendant admits in his answer that he may have solicited the trade of the old customers, and upon this point, which was within his knowledge, the answer in its evasive form is a sufficient admission. Wills v. McKinney, 30 N. J. Eq. 465, and authorities there cited. Sanborn v. Adair, 29 N. J. Eq. 338. It was besides proved at the hearing that the defendant did in fact trade with one or more of the old customers, and that the trade of the complainant with the old customers was to some extent interfered with by defendant's trading with them. Defendant, having sold to complainant his interest in the good will of the firm, along with his interest in the property, and received the price agreed upon by the parties, cannot now be permitted to get back part of the property conveyed by solicitation of the old customers. Where the good will of a business is sold, without further provision, the vendor may set up a rival business, but he is not entitled to canvass the customers of the old firm, and may be restrained by injunction from soliciting any person who was a customer of the old firm prior to the sale to continue to deal with the vendor or not to deal with the purchaser. This doctrine is put upon the ground that these acts are direct and intentional dealings with the good will sold, and efforts to destroy it, in which the vendor takes advantage of the business connection of the old firm, and his knowledge of that connection. I have considered this subject in Coal Co. v. Spangler (May, 1896) 34 Atl. 932, with a reference to the latest decisions. The defendant's answer set up that the contract should not be enforced because it was unfairly obtained from him, and because the value of the good will was not included, but the proofs failed to sustain these allegations. The bill of sale does not contain an express conveyance of the defendant's interest in the good will of the business, but it was included in the written agreement of purchase, and the bill alleges that the good will was included in the purchase. The answer admits this, and seems also to admit that the good will was conveyed. In view of this evident intention of the parties, this is the construction of the answer which I took upon the application for preliminary injunction, and which I still think should be taken. The complainant, therefore, having purchased from the defendant, for a valuable consideration, defendant's interest in the good will of the firm, the complainant is entitled to enforce against the defendant the obligations which are implied as arising from the purchase, and an injunction to prevent defendant's solicitation of the customers of the old firm will therefore be advised. The form of the injunction will be settled, if not agreed on.