63 F.2d 58 | 5th Cir. | 1933
In this ease the record supports the following conclusions as to the material facts, stated somewhat more in detail than as found by the District Court. Appellant, George O. Jones, is a practical baker and skilled executive of some 20 years’ experience. In 1917 he was employed as a baker by the Campbell Baking Company, of which Winfield M. Campbell was president. Campbell became interested in him. Jones showed exceptional ability, and was from time to time promoted. The Campbell Baking Company merged with other companies owning and operating bakeries in various cities. Appellee, the Campbell-Taggart Associated Bakeries,Inc., grew out of these consolidations, and Campbell became chairman of the board. One of its subsidiaries is the C. J. Patterson Corporation, which company is in the business of selling machinery and supplies to bakers, and financing the erection of new plants. In 1925, on the recommendation of Campbell, Jones was made manager of a bakery in Little Rock, operated by the Patterson company. He was desirous of having a business of his own and the Patterson company agreed to finance the erection of a plant. In 1927 Jones visited a number of cities looking for a suitable location. During that time he was employed by the Patterson company, selling its products to bakeries, in order to pay his expenses. Waco, Tex., was finally selected, and on June 14, 1927, a contract was executed between Jones and the Patterson company, for the erection of a bakery in that city. It was agreed that a corporation should be organized to build and operate a bakery, with a capital of $200,000 of preferred stock, entitled to 7 per cent, cumulative dividends, and 2,000 shares of no par common stock; Jones to manage and operate the bakery. A Delaware corporation was organized under the name of the Hilltop Baking Company. Jones subscribed to $5,000 of the preferred stock, was given a bonus of 22% per cent, of the common stock, or 450 shares, and was paid a salary of $5,000 a year. Tlje bakery was built, paid for out of subscriptions to the preferred stock, and began operations in January, 1928. A Texas corporation of the same name was organized with Jones as the president and manager. The Delaware corporation owned all its stock as a holding company. The Campbell-Taggart Associated Bakeries, Inc., owned the controlling interest in the Delaware corporation. When the Hilltop Bakery began operations, there were 13 other bakeries in Waco. It prospered under Jones’ efficient management, secured a majority of the business in the city, and was earning about $15 per share on the common stock. Jones was desirous of owning a controlling interest in it. In 1929 he began negotiations with Campbell for the acquisition of that interest. The contract between Jones and the Patterson company provided that in the event Jones died or severed his connection with the bakery prior to January 1,
The District Court found the facts substantially as above set out. Based thereon, he found that it was a necessary and vital element of the future success of the business of the Hilltop Baking Company that in the event Jones left its employment as president and active manager said company should receive all the good will which he had built up by his efforts; that Jones agreed that the business would receive all his good will arising from his active management of the plant and the conduct of its business; that he would remain as president and active manager of the company until he should decide to go to a larger city than Waco; that when he did so, he would continue as a member of the board of directors of the Hilltop Baking Company; that the good will of Jones went into and was regarded by the parties as forming part of the consideration arrived at on September 16,1930, to be paid for the purchase of Jones’ stock; that it was understood that Jones would organize a bakery in East St. Louis, 111.; that had appellee known that Jones intended entering into active competition in Waco, his stock would not have been purchased. The record amply supports these findings.
The District Court also found that Jones was not guilty of fraud in concealing his intention of engaging in business in Waco, as that intention did not develop until after the sale had been consummated. The facts create a strong presumption to the contrary.
It is urged that good will as an asset appertains only to a business and not to an officer of a corporation conducting the business. Therefore, Jones had no good will to convey. Strictly speaking, that is true, and if Jones had attempted. merely to sell his good will in the business of the Hilltop Bakery, the contract could not have been enforced. However, the good will of a business arises from a reputation for fair dealing and the quality of the goods sold. There is no doubt that Jones had become so identified with the management of the Hilltop Bakery and the excellence of its products that his personality entered into any good will- the business enjoyed.
Whether it be called a transfer of his good will- or something else it was a very material part of the consideration for the sale of his stock that Jones would not thereafter compete with the Hilltop Bakery by establishing his own bakery under his own name in Waco. It is highly probable that Jones intended becoming interested in the Hot Shop Bakery when he arranged to accelerate the sale of his stock, and was guilty of constructive fraud in concealing that intention. But in any event there is no doubt he convinced Campbell that he would not be a competitor in Waco. It is beyond belief that Campbell would have purchased stock, the value of which depended almost entirely on future profits, if he had even suspected an intention on the part of Jones to become a competitor, as it is obvious that under that condition the stock would have very much less value. When making the sale of his stock it would have been competent for Jones to have entered into a valid contract to not engage in the bakery business in Waco for a reasonable time. But the parties were very friendly and not dealing at arm’s length. Campbell was interested in the future welfare of Jones and believed his representations that he would locate elsewhere than Waco, would not be a competitor of the Hilltop Bakery, and would continue to give it his own good will and assistance for its continued success. Relying upon these representations, no written contract to that effect was drawn up; but it is clear that it was the intention of the parties that their future conduct would be the same as if such a definite agreement had been reduced to writing.
By engaging' in competition with the Hilltop Bakery in Waco, within 10 days after selling his stock, Jones destroyed a material consideration for the purchase of that stock. Courts of equity are not bound by the strict rules of the common law. Fundamental maxims are that equity looks to the intent rather than the form, and will not suffer a wrong without a remedy. Equity and good conscience require that the transaction be set aside and the parties restored to their previous positions. We are not aware of any authority directly in point, but the following well-eojisidered eases, in principle, at least, support these conclusions. Durham v. Lewis, 231 Ky. 601, 21 S.W.(2d) 1004; Kradwell v. Thiesen, 131 Wis. 97, 111 N. W. 233; S. Jarvis Adams Co. v. Knapp (C. C. A.) 121 F. 34; Up River Ice Co. v. Denier, 114 Mich. 296, 72 N. W. 157, 68 Am. St. Rep. 480; Fleckenstein Bros. Co. v. Fleckenstein, 76 N. J. Law, 613, 71 A. 265, 24 L. R. A. (N. S.) 913; Legg v. Hood, 154 Ga. 28, 113 S. E. 642; Watson v. Ford (C. C.
The judgment of the District Court was right.
Affirmed