United Shoe Machinery Co. v. Kimball

| Mass. | Jan 1, 1907

Knowlton, C. J.

The defendants were manufacturing and dealing in needles, awls, drivers and similar articles, and on June 11, 1904, they sold their business to the plaintiff. The plaintiff is a corporation engaged in the business of manufacturing and selling machinery and devices for manufacturing boots and shoes, including needles, awls and drivers, and other similar articles. The bill of sale from the defendants to the plaintiff included the business previously carried on by them, “ together with the good-will thereof, and all business, good-will, property, interests and rights of every name and nature . . . relating to needles, awls, drivers, and like articles,” etc. Besides other covenants of the defendants designed to effectuate the purpose of the parties, the instrument contained a covenant as follows: “ And for the same consideration we and each of us do hereby covenant and agree to and with the said United Shoe Machinery Company, its successors and assigns, that we will not nor will either of us at any time within fifteen years from the date of these presents directly or indirectly, individually or in combination with others, as manager, agent or employee, or as officer or stockholder in a corporation, or otherwise, in any manner, enter into or be engaged or interested in or financially or otherwise assist any person, firm or corporation in entering into, developing or carrying on any business which consists in whole or in part of or relates to manufacturing or dealing in needles, awls or drivers.” In the spring of 1906 the defendants established a business in Lynn where the business previously sold to the plaintiff was conducted, for the purpose of manufacturing and selling needles, awls and other articles like those which they were manufacturing when they made the sale. This suit was brought to enforce the covenant quoted above, by an injunction to prevent the defendants from carrying on the business so established.

The first defence relied on is that the instrument and the covenant contained in it were obtained by the fraud of the plaintiff. In reference to this contention the judge who heard the case found that “ there was no fraud; there was no mistake, and there was no accident, about this contract that was entered into.” A careful examination of the evidence, which was reported by a commissioner, shows that the only foundation for this contention is that there had been competition between the plaintiff and the defendants in the sale of needles, and that this was referred to by both parties in the course of the negotiations for the sale of the business, and that the plaintiff’s agent told the defendants what difficulties they might encounter in conducting their business against the plaintiff’s competition. The justice found that the matters referred to were only such as legitimately might result from competition while each party was striving to obtain an advantage over the other by the usual methods of business. In a case of this kind the findings of the single justice must stand unless they are plainly wrong. The evidence before us discloses no error in this finding.

The more important and difficult question is whether the covenant is invalid as being against public policy. The defendants contend that it is void because it is to continue in force for an unreasonably long time, and is unrestricted in space.

The testimony shows that considerably more than half of the consideration paid by the plaintiff was for the good will of the business, or to obtain relief from the competition of the defendants. It is not disputed that the business of the plaintiff is conducted in all parts of the civilized world where shoes are manufactured by machinery. Although the business carried on by the defendants was not large, it was of such a kind, and might be so extended, as to affect the market throughout this country and in other countries. The plaintiff made its purchase with a view to obtain the advantage of controlling the good will of this business in every part of the extended area in which it was itself selling needles. It might derive profit from the ownership of this good will, either affirmatively through the sale of articles of recognized merit, as a successor to the defendants in their business, or negatively through freedom from the competition which previously had diminished its own profits, and which later might diminish them much more. These are considerations hearing upon the reasonableness of such a covenant in connection with the sale of a business and its good will to the proprietor of a competing business.

The law on this point, as laid down in early times, has been materially changed by recent decisions. Formerly it seems to have been held that a provision for a general restraint of any person in his trade was necessarily invalid. But in this Commonwealth and in other jurisdictions this is no longer the law. The subject was considered and many of the cases were referred to in Anchor Electric Co. v. Hawkes, 171 Mass. 101" court="Mass." date_filed="1898-05-18" href="https://app.midpage.ai/document/anchor-electric-co-v-hawkes-6426344?utm_source=webapp" opinion_id="6426344">171 Mass. 101, in which there is this statement of the law: “ In connection with the sale of the good will of a business, the vendor will be bound by any covenant which is reasonably necessary for the preservation and protection of the property which he sells. ... In cases in which such covenants have been held bad they were .deemed to go further than was reasonable to give full Value to the property sold.” Under this rule, in conceivable cases, a covenant may be valid which is- unlimited both in time and space. This is held by a unanimous decision of the House of Lords in Nordenfelt v. Maxim Nordenfelt Guns && Ammunition Co. [1894] A. C. 535. The reasoning in the later American cases leads to the same result. Leslie v. Lorillard, 110 N.Y. 519" court="NY" date_filed="1888-10-16" href="https://app.midpage.ai/document/leslie-v--lorillard-3598317?utm_source=webapp" opinion_id="3598317">110 N. Y. 519. Wood v. Whitehead Brothers Co. 165 N.Y. 545" court="NY" date_filed="1901-02-05" href="https://app.midpage.ai/document/wood-v--whitehead-brothers-co-3606066?utm_source=webapp" opinion_id="3606066">165 N. Y. 545. Gibbs v. Consolidated Gas Co. 130 U.S. 396" court="SCOTUS" date_filed="1889-04-15" href="https://app.midpage.ai/document/gibbs-v-consolidated-gas-co-of-baltimore-92483?utm_source=webapp" opinion_id="92483">130 U. S. 396, 409. Oakdale Manuf. Co. v. Garst, 18 R. I. 484. Bancroft v. Union Embossing Co. 72 N. H. 402. National Enameling & Stamping Co. v. Haberman, 120 Fed. Rep. 415.

The value of a business with its good will may be enhanced to a purchaser by the fact that its competition is detrimental to a business conducted by him. A considerable part of the price paid may represent the value to the purchaser of relief from the interference of the vendor as a competitor. The mere fact that a contract looks to the withdrawal of the competition of one of. the parties to it does not render the contract invalid. Ordinarily, with the present methods of conducting business and the freedom of communication between centres of trade and industry, such a contract does not create a monopoly, to the danger of the general public. An owner of a business, who can sell it for s. large price in connection with a promise not to compete with the purchaser of it, should not be precluded from obtaining its value. The value of the right to make contracts freely is a very important consideration in determining questions of public policy. Leslie v. Lorillard, 110 N.Y. 519" court="NY" date_filed="1888-10-16" href="https://app.midpage.ai/document/leslie-v--lorillard-3598317?utm_source=webapp" opinion_id="3598317">110 N. Y. 519. Wood v. Whitehead Brothers Co. 165 N. Y. 545. If it appeared that such a contract was made with a purpose to obtain a monopoly, and would have a direct tendency to that result, it would be looked upon with less favor. On the evidence in the present case this does not appear. But one legitimately may try to diminish competition in his own field, and may make reasonable efforts to enhance his profits by energy and enterprise as. a pioneer where others only tardily follow.

In the present case the justice who heard the witnesses found that the relations of the respective parties to the business sold were such that the time limit was not unreasonable, and that the general covenant as to place was such as the defendants properly might make, for a valuable consideration, to accomplish the purpose shown in the contract. We cannot say that he was wrong in his conclusion.

Decree affirmed.