Opinion
No. 23850
Decided April 19, 1933.
Contracts — Owner may part with right to use land, when — Contracts in restraint of trade enforceable, when.
1. The owner of land may, in the exercise of his complete dominion over it, upon a valuable consideration, part with his right to use such land for a specific purpose.
2. A contract in restraint of trade, in which the restraint is partial only, reasonable and not oppressive, and in which a valuable consideration has passed between the parties, is one which the law will enforce.
ERROR to the Court of Appeals of Madison county.
This case arises upon an error proceeding to the judgment of the Court of Appeals of Madison county, Ohio, modifying and affirming a judgment of the court of common pleas of Madison county, Ohio.
The petition filed in the case is as follows:
"Plaintiff is a corporation duly organized and doing business under the laws of Ohio, with principal place of business in Plain City, Ohio, and is engaged in the business of operating a theatre, in Plain City, Madison County, Ohio.
"On the 13th day of June, 1930, and for some time prior thereto, the defendants owned and operated a theatre in the Village of Plain City, Madison County, Ohio, which theatre was known as the Princess Theatre. The defendants still own the building in which said Princess Theatre was located.
"On the said 13th day of June, 1930, plaintiff and defendants entered into a written contract, by the terms of which plaintiff agreed to pay the defendants the sum of $500.00 in cash, a note for $700.00 bearing interest at 7% per annum, payable in installments of $40.00 per month, and to issue five shares of the common stock of the plaintiff company to the defendant, H.C. Robey, with a provision that said cash, note and stock should be delivered to the said defendants before said agreement should become binding. And in consideration of said cash, note and stock, the defendants agreed to forever discontinue the use of said Princess Theatre as a show house or auditorium for the use of public gatherings of any kind, either by themselves or either of them, or by other persons, partnerships or corporations.
"Plaintiff duly performed all of the conditions of said agreement on its part to be performed.
"Plaintiff is engaged in continuing said business at the same place, but defendants, in violation of said agreement, have re-opened the same Princess Theatre building for public gatherings, and are using and are permitting said theatre building to be used for public gatherings. The said Princess Theatre building, owned by defendants as aforesaid, is located on the North side of West Main Street, in the said Village of Plain City, Madison County, Ohio, and directly across the street from the theatre owned and operated by the plaintiff. The defendants threaten to and will, unless restrained by the court continue to use their said building for public gatherings.
"Said acts of defendants in violation of said agreement are a continuing injury to and interference with plaintiff's business, and if continued will reduce plaintiff's profits, and cannot be fully compensated in damages. Plaintiff has no adequate remedy at law.
"Wherefore plaintiff prays that a temporary restraining order be issued out of this court, restraining and enjoining the defendants from using the said Princess Theatre building for any kind of public gatherings during the pendency of this suit and that upon final adjudication hereof, the defendants be permanently enjoined from using said buildings for any kind of public gatherings and for such other and further relief as is just and proper."
The defendants demurred for the reason that it appears on the face of the petition that facts were not stated which show a cause of action. The court of common pleas overruled the demurrer, and, the defendants not desiring to plead further, issued a permanent injunction, ordering the defendants below to "forever discontinue the use of said Princess Theatre as show house or auditorium for use of public gatherings of any kind, either by themselves or either of them, or by other persons, partnerships or corporations."
On error proceedings being instituted in the Court of Appeals of Madison county, that court modified the decree as follows:
"It is therefore ordered, adjudged and decreed that the defendants be and hereby are enjoined as follows, to-wit: 'that they discontinue the use of said Princess Theatre as show house or auditorium for the use of public gatherings of any kind, either by themselves, or either of them, or by other persons, partnerships or corporations, so long as the Plain City Theatre Company, its successors or assigns, conduct a theatre at the place where the theatre of said company is now operated in Plain City, but in no event longer than the lives of defendants.' "
The judgment as so modified was then affirmed by the Court of Appeals.
The case comes into this court upon allowance of motion to certify the record.
Mr. John F. Carlisle, for plaintiffs in error.
Messrs. Crabbe, Johnson, Crabbe Williams, for defendant in error.
Two main questions of law are urged here by the plaintiffs in error:
(1) As the petition specifically states that the plaintiffs in error "still own the building in which said Princess Theatre was located," and since the prayer of the petition is based upon a contract which in terms applies only to the "use" of the Princess Theatre, it is claimed that the petition does not state a cause of action. In support of this point plaintiffs in error urge that since the Robeys still own the building no interest in real property has been parted with by them to which a contract such as that set up in the petition may lawfully be attached as an incident.
(2) It is claimed that since the petition prays that the defendants be permanently enjoined from using the building for any kind of public gatherings, when the contract related only to a theatre, there is a fatal discrepancy between the cause of action pleaded and the prayer of the petition.
The petition alleges that the Plain City Theatre Company has duly performed all the conditions of the agreement. Hence the demurrer concedes that the contract set out in the petition has been fully executed; that the Plain City Theatre Company has delivered to the Robeys $500 in cash, the note for $700.00 set out in the contract, and to H.C. Robey five shares of the common stock of the Plain City Theatre Company. The plaintiff in error H.C. Robey hence comes into a court of equity as a stockholder of the Plain City Theatre Company, endeavoring to avoid a contract which he made upon a valuable consideration with the company. This is a circumstance which a court of equity must necessarily consider in the case.
We are aware that courts have often held that a contract restraining the use of property or restraining the continuance of an occupation cannot be upheld unless it is ancillary to a lawful contract or transaction in reference to a matter in which the contractee has a legitimate interest in need of protection. 6 Ruling Case Law, 792.
It is also the general rule that contracts which have for their object merely the removal of a rival or competitor in business are unlawful. 13 Corpus Juris, 477. Citing these general principles, it is the contention of the plaintiff in error that in order for the contract pleaded to be valid the Plain City Theatre Company must have acquired an interest in the property or business of the Princess Theatre to which the restraint is a reasonable incident.
However, we are impressed with the fact that in this state it has been held that contracts in restraint of trade are not illegal even though the sale of the business and its good will are not involved except when such contracts are unreasonable in character. List v. Burley Tobacco Growers' Co-operative Assn., 114 Ohio St. 361, 151 N.E. 471. For similar holdings by the United States Supreme Court, see United States v. American Tobacco Co., 221 U.S. 106, 31 S.Ct., 632, 55 L.Ed., 663; Standard Oil Co. v. United States, 221 U.S. 1, 31 S.Ct., 502, 55 L.Ed., 619, 34 L.R.A. (N.S.), 834, Ann. Cas., 1912D, 734.
The restraint agreed on in this contract is partial only. The building may be used for any other purpose than for the holding of public gatherings. The restraint is limited to this one particular building. The Robeys can operate a theatre in any building in Plain City other than the Princess Theatre. Whatever possible error existed in the judgment of the court of common pleas because of its issuing an injunction to operate "forever" is eliminated by the modification of the judgment by the Court of Appeals.
Also this contract was an incident to the conveyance of an interest in property.
When the corporation paid the Robeys $500 in cash, gave them a note for $700, and delivered to H.C. Robey five shares of common stock of the Plain City Theatre Company, it contracted with reference to the business of the Princess Theatre. The consideration for the transfer of the cash, the note, and the five shares of stock was the discontinuance of the business in the building occupied by the Princess Theatre.
This restraint of trade was certainly no more unrelated to the conveyance of an interest in property than the restraint agreed upon in the case of Grasselli v. Lowden, 11 Ohio St. 349. In that case it was held that the owner of land may in the exercise of his complete dominion over it, upon a valuable consideration, part with his right to use such land for a specific purpose. Hence when the Robeys accepted from the theatre company the tangible consideration which they concededly received, they could legally, as they did, part with their right to use the Princess Theatre for a specific purpose. The building which they "still own" is a part of the realty. 11 Ruling Case Law, 1081.
Substantial support is found in favor of this doctrine in other states. Thus it was held in Heichew v. Hamilton, 3 G. Greene (Iowa), 596, that an agreement to give up keeping a tavern at a place a half mile from the plaintiff, on the same road, is not in restraint of trade.
In Ulrich v Hull, 17 Wis. 424, it was held that a covenant not to maintain a mill dam at a particular place is not illegal.
Johnson v. Gwinn, 100 Ind. 466, was a case in which A, a livery stable keeper, sold his stock partly to B and partly to C, agreeing not to engage in business in the same stable for five years. It was held that the agreement was valid, although in restraint of trade.
A more recent decision along the same line is Horany v. Treese, 91 Okl., 264, 217 P. 396, which held: "An oral contract by the terms of which a party agrees not to equip and operate a competing moving picture show house in a particular building, where the other party to the contract owns and operates, in another building, the only show in the town, is not void as contravening public policy where it is shown that the agreement does not prevent his opening and operating such show in any other building or place in the town."
Meridian Amusement Company of Illinois v. Home Theater Company, 215 Ill. App. 479, holds in the fourth paragraph of the syllabus: "A contract executed contemporaneously with the sublease of a theater building for a moving picture show whereby the sublessor, which was the lessee of another theater building near by, agreed not to conduct a moving picture show therein, held a valid and binding contract supported by good consideration."
A recent and authoritative decision upon the same point is to be found in Dick v. Sears-Roebuck Co., 115 Conn. 122, 160 A. 432, in which the Supreme Court of Errors of Connecticut held that a restriction upon the conduct of a certain business upon a particular piece of land for a reasonable purpose and covering a reasonable period of time does not violate public policy. Hence we overrule the first contention of the plaintiffs in error.
It is also urged that the judgment in this case should be reversed because the petition prays for a permanent injunction against the use of the building for public gatherings of any kind, whereas the contract related only to the Princess Theatre. The contract, however, speaks of the Princess Theatre from two points of view. In the second paragraph of the petition, where it is alleged that the defendants owned and operated a theatre, it is evident that the pleading speaks of the operation of a theatre business. In the contract pleaded, where the defendants agreed to forever discontinue the use of the Princess Theatre as a show house, or auditorium for the use of public gatherings of any kind, it is evident that the parties were speaking of the theatre as a building.
Since the judgment of the court did not enjoin the use of the building for any other purpose except that for which the parties agreed that it should not be used, the judgment as entered is responsive to the allegations of the petition and the plaintiffs in error's second contention is overruled.
The contract is reasonable, based upon an adequate and valuable consideration, not invalid as being in restraint of trade, and the judgment of the Court of Appeals must be affirmed.
Judgment affirmed.
WEYGANDT, C.J., DAY, STEPHENSON, JONES and MATTHIAS, JJ., concur.
KINKADE, J., not participating.