1891.

64

39 66

TODE V. GROSS.

15th of October, 1884, the defendant owned a
cheese factory situate in the Town of Monroe,
Orange County, comprising two parcels of land,
with the buildings thereon, and a quantity of
fixtures, machinery, and tools connected there-
with. For some time prior, with the assistance
of her husband, Conrad Gross, her brother in-
law, August Gross, and her father, John Hoff-
man, she had been engaged in the business of
manufacturing cheese at said factory known as
"Fromage de Brie,' Fromage d'Isigny," and
"Neufchatel." Such cheeses were made by a
secret process known only to herself and her
said agents. On the day last named, she en-
tered into a sealed agreement with the plain-
tiffs, whereby she agreed to sell and transfer to
them the said factory and all its belongings,
together with the "good will, custom, trade-
marks, and names used in and belonging to the
said business," for the sum of $25,000, to be
paid and secured March 1, 1885, when posses-
sion was to be given. Said instrument con-
tained a covenant on her part that she would
communicate after the first day of March,
1885, or cause to be communicated, to" said
plaintiffs, "by Conrad Gross, John Hoffman,
and August Gross, or one or other of them, the
secret of the manufacture of the cheeses known
as 'Fromage de Brie,' Neufchatel,' and 'D'Is-
igny,' and the recipe therefor, and for each of
them, and will instruct or cause to be instructed
them, and each of them, in the manufacture
thereof. And that she and the said Conrad
Gross, John Hoffman, and August Gross will
refrain from communicating the secret recipe
and instructions for the manufacture of said
cheeses, or either of them, to any and all per-
sons other than the above named parties of the
second part [plaintiffs], and will also, after the
first day of April, 1885, refrain from engaging
in the business of making, manufacturing or
vending of said cheeses, or either of them, and
from the use of the trade-marks or names, or
either of them, hereby agreed to be transferred
in connection with said cheeses, or either of
them, or with any similar product, under the
penalty of five thousand dollars, which is here-
by named as stipulated damages to be paid by
the party of the first part [defendant], or her
heirs, executors, administrators, or assigns, in
case of a violation by the party of the first part
[defendant] of this covenant, of this contract,
or any part thereof, within five years from the
date hereof." She further covenanted that she
herself, as well as "said Conrad Gross, John
Hoffman, and August Gross, during and up to
and until the first day of May, 1885, shall con-
tinue and remain in said County of Orange, and
from time to time, and at all reasonable times
during said period, by herself, or by said Con-
rad Gross, John Hoffman, and August Gross,
whenever so requested by the said parties of
the second part [plaintiffs], impart to them, or
either of them, the secret of making such
cheeses, and each of them, and instruct them
and each of them, in the process of man-
ufacturing the same, and each of them, as
fully as she or the said Conrad Gross, John
Hoffman, or August Gross, or either of them,
are informed concerning the same." Both par-
ties appear to have duly kept and performed
the agreement, except that, as the trial court
found "subsequently to the 1st day of May,

1885, Conrad Gross, the husband of defend-
ant, went to New York City, and engaged in
the business of selling foreign and domestic
and while so engaged
fruits, and all kinds of cheese and sausages,
etc.,'

sold and personally delivered from his place of
business to one John Wassung three boxes of
cheese marked and named Fromage d'Isigny,'
and having substantially the same trade-marks
thereon as that sold by defendant to plaintiffs,
and having stamped thereon the name 'From-
age d'Isigny,' and that said cheese so sold by
him to said Wassung was a similar product to
that formerly manufactured by defendant."
Also, that " said August Gross, the brother-in-
law of defendant, subsequent to the 1st day of
May, 1885, engaged in the business of retailing
fancy groceries in the City of New York, and
in and during the fall of 1887, and prior to the
commencement of this action, kept for sale at
his place of business in New York City boxes
of cheese marked or stamped 'Fromage d'Is-
igny.'" The court further found that the
cheese so sold by Conrad Gross under the name
of "Fromage d'Isigny," as well as that kept
for sale by August Gross marked "Fromage
was never sold by plaintiffs, nor
d'Isigny,'
made or manufactured by them, or either of
them, but that the same was a similar prod-
uct." The court found as conclusions of law
that said agreement was a reasonable one, and
was founded upon a good and sufficient con-
sideration; that said sale by Conrad and said
keeping for sale by August Gross was a direct
violation of the covenant in question; that the
restriction imposed was no more than the in-
terests of the parties required, and that it was
not in restraint of trade or against public pol-
icy. Judgment was ordered for the plaintiffs
for the sum of $5,000 as stipulated damages.

Mr. John Fennel, for appellant:

The trial judge having found that the defendant did not know of the violations, and there being no proof that the defendant had violated the covenant, there was no such breach as entitled the plaintiff to recover the $5,000.

Leggett v. New York Mut. L. Ins. Co. 53 N. Y. 397, 398. See also Houg v. McGinnis, 22 Wend. 163.

In every case in which a party was held to pay the stipulated sum, it was because of a personal breach, the courts holding that the payment of the sum could have been avoided by the compliance with the contract, and hence the party held could not complain. Bagley v. Peddie, 16 N. Y. 471.

No damages have been proven except nominal damages.

The provision in the agreement "under the penalty of $5,000, which sum is hereby named as "stipulated damages," is a penalty. Bagley v. Peddie, supra; Kemp v. Knickerbocker Ice. Co. 69 N. Y. 58.

If a bond is conditioned for the performance of a covenant, the penalty is not recoverable and quantum damnificatus is the true thing in issue.

Beers v. Shannon, 73 N. Y. 303.

Whether a sum named is a penalty or stipulated damages should be determined according to the justice and equity of the particular case.

1 Sedgw. Dam. p. 478, citing Jaquith v. Hud- | self and her agents. She had the right to conson, 5 Mich. 123.

It is unjust to compel defendant "to suffer an enormous loss, wholly disproportionate to the injury to the other party."

1 Sedgw. Dam. p. 480; Basye v. Ambrose, 28 Mo. 39; Jaquith v. Hudson, supra; Beale v. Hayes, 5 Sandf. 640; Tayloe v. Sandiford, 20 U. S. 7 Wheat. 13, 5 L. ed. 384; Esmond v. Van Benschoten, 12 Barb. 366; Colcell v. Lawrence, 38 N. Y. 75, citing Hoag v. McGinnis, 22 Wend. 165; Spear v. Smith, 1 Denio, 464; Lampman v. Cochran, 16 N. Y. 275; 1 Sedgw. Dam. p. 527.

Messrs. Bacon & Merritt, for respondents: The covenant in question is not void as being in restraint of trade, because: (1) it was not limited as to time; (2) it was a covenant not affecting general trade at all, but affecting the use of trade-marks and secret recipes which were the very property sold by the defendant to the plaintiffs.

Ainsworth v. Bentley, 14 Week. Rep. 630; Stiff v. Cassell, 2 Jur. N. S. 348; Ingram v. Stiff, 5 Jur. N. S. 947; Leather Cloth Co. v. Lorsont, L. R. 9 Eq. Cas. 345; Hitchcock v. Coker, 6 Ad. & El. 438; Roussilon v. Roussilon, 42 L. T. N. S. 679; Davies v. Davies, 58 L. T. N. S. 209, 37 Alb. L. J. 408; Vickery v. Welch, 19 Pick. 523; Taylor v. Blanchard, 13 Allen, 373; Peabody v. Norfolk, 98 Mass. 452; Morse T. Drill & M. Co. v. Morse, 103 Mass. 73; Jarvis v. | Peck, 10 Paige, 118, 4 L. ed. 910; Hard v. Seeley, 47 Barb. 428: Diamond Match Co. v. Roeber, 9 Cent. Rep. 181, 106 N. Y. 473; Hodge v. Sloan, 9 Cent. Rep. 870, 107 N. Y. 244; Leslie v. Lorillard, 1 L. R. A. 456, 110 N. Y. 533; Watertown Thermometer Co. v. Pool, 51 Hun, 157; 2 Story, Eq. Jur. § 950.

The fact that this covenant not only provided against the acts of the defendant herself, but also as against the acts of her husband her father and brother-in-law, does not relieve her of liability. If a party enters into an absolute contract without any qualification or exception, and receives from the party with whom he contracts the consideration of such engagement, he must abide by the contract and either do the act or pay damages, his liability arising from his own direct and positive undertaking. Shubrick v. Salmond, 3 Burr. 1637; Hadley v. Clarke, 8 T. R. 259; Hand v. Baynes, 4 Whart. 204; Trenton School Trustees v. Bennett, 27 N. J. L. 514; School Dist. No. 1 v. Dauchy, 25 Conn. 530; Beebe v. Johnson, 19 Wend. 500; Parr v. Greenbush, 42 Hun, 232; Harmony v. Bingham, 12 N. Y. 99; Tompkins v. Dudley, 25 N. Y. 272.

Plaintiff was entitled to recover $5,000 as liquidated and stipulated damages. The use of the word "penalty" is not important if upon a construction of the whole covenant it is obvious that the parties intended that the amount provided should be stipulated damages.

Price v. Green, 16 Mees. & W. 346; Dakin v. Williams, 17 Wend. 447; Knapp v. Maltby, 13 Wend. 587; Bagley v. Peddie, 16 N. Y. 469; Woster v. Kisch, 26 Hun, 61.

Vann, J., delivered the opinion of the court: The business carried on by the defendant was founded on a secret process known only to her

tinue the business, and by keeping her secret to enjoy the benefits to any practicable extent. She also had the right to sell the business, including as an essential part thereof the secret process, and, in order to place the purchasers in the same position that she occupied, to promise to divulge the secret to them alone, and to keep it from everyone else. In no other way could she sell what she had, and get what it was worth. Having the right to make this promise, she also had the right to make it good to her vendees and to protect them by covenants with proper safeguards against the consequences of any violation. Such a contract simply left matters substantially as they were before the | sale, except that the seller of the secret had agreed that she would not destroy its value after she had received full value for it. The covenant was not in general restraint of trade, but was a reasonable measure of mutual protection to the parties, as it enabled the one to sell at the highest price, and the other to get what they paid for. It imposed no restriction upon either that was not beneficial to the other, by enhancing the price to the seller, or protecting the purchaser. Recent cases make it very clear that such an agreement is not opposed to public policy, even if the restriction was unlimited as to both time and territory. Diamond Match Co. v. Roeber, 106 N. Y. 473, 9 Cent. Rep. 181: Hodge v. Sloan, 107 N. Y. 244, 9 Cent. Rep. 870; Leslie v. Lorillard, 110 N. Y. 519, 534, 1 L. R. A. 456; Watertown Thermometer Co. v. Pool, 51 Hun, 157. The restriction under consideration, however, was not unlimited as to time.

The chief reliance of the defendant in this court, where the point seems to have been raised for the first time, is that the covenant, so far as stipulated damages are concerned, is confined to the personal acts of Mrs. Gross, and does not embrace the acts of her agents. A careful reading of the agreement, however, in the light of the circumstances surrounding the parties when it was made, shows that no such result was intended. What was the object of the covenant? It was to keep secret, at all hazards, the process upon which the success of the business depended. On no other basis could the plaintiffs safely buy, or the defendant sell, for what her property was worth. Who had the power to keep the process secret? Clearly the defendant, if anyone, as she had confided it to no one except her trusted agents, who were nearly related to her by blood or marriage. But could she covenant against the acts of those over whom she had no control? She had the right to so covenant by assuming the risk of their actions; and, unless she had done so, presumptively she could not have sold her factory for so large a sum. It was safer for her to sell with such a covenant than it was for the plaintiffs to buy without it. She could exercise some power over her own husband and her father and her husband's brother, all of whom had been associated with her in carrying on the business, and whose actions in certain other respects she assumed to control for a limited time, whereas the plaintiffs were powerless, unless they had her promise to keep the process secret at the peril of paying heavily if she did not. It is not surprising, therefore,

to find that the restrictive part of the covenant, to her covenant was a violation thereof by her, applies with the same force to her agents that whether she knew of it or assented to it or not. it does to herself; for she undertakes that Whenever that was done which she agreed neither she nor they will disclose the secret, or should not be done, it was a breach of covenant engage in making or selling either kind of by her, even if the act was contrary to her cheese, or use the trade-marks or names con- wishes, and in spite of her efforts to prevent it. nected with the business. We do not think Her covenant was against a certain act by any that a personal act of the defendant is essential one of four persons, including herself. Two to a violation of this covenant by her; for if of those persons separately did the act which she permits, or even does not prevent, her agents she had agreed that neither of them should do, from doing the prohibited acts, the promise is and thus there was a violation of the covenant broken. While it is her exclusive covenant, it by her, the same as if she had done the act in relates to the action of others; and, if they do person. The argument of the learned counsel what she agreed that they would not do, it is a for the defendant that the contract fixed a sum breach by her, although not her own act. She to be paid in case of a violation by the defendviolated her agreement, not by selling herself, ant, but not in case of a violation" by the other but by not preventing others from selling. parties," while plausible, is unsound, for there This construction of the restrictive part of the were no " other parties" who could break the Covenant would hardly be open to question, covenant. She was the sole covenantor, and were it not that in the same sentence occurs the unless she kept the covenant she broke it ; and reparative or compensatory part designed to she did not keep it. As the actual damages make the plaintiffs whole if the defendant either for a breach of the covenant would necessarily could not or did not keep her agreement. be "wholly uncertain, and incapable of being While this provides that any violation involves ascertained except by conjecture," we think the penalty of $5,000, it adds, "which sum is that the parties intended to liquidate them hereby named as stipulated damages to be when they provided that the sum named should paid" by the defendant in case of a violation be "as stipulated damages." The use of the by her of the covenant in question. What kind word "penalty" under the circumstances is of violation is thus referred to? The defend- not controlling. Bagley v. Peddie, 16 N. Y. ant says a personal violation by her only, but 469; Dakin v. Williams, 17 Wend. 448, afwe think, for the reasons already given, that the firmed, 22 Wend. 201; Wooster v. Kisch, 26 spirit of the agreement includes both a viola- Hun, 61. tion by her own act and by the act of those whom she did not prevent from selling, although she had agreed that they.would not sell. As no one not a party to a contract can violate it, every act of defendant's former agents contrary

As there is no other question that requires discussion, the judgment should be affirmed, with

costs.

All concur, except Brown, J., not sitting.

NEW JERSEY COURT OF ERRORS AND APPEALS.

To in any way impute insolvency to any merchant or trader, or to write concerning him that he cannot pay his debts, is libelous, and therefore actionable.

Odgers, Libel & Slander, 22, 30.

Although the rest of defendant's letter was privileged, because written in answer to Mr. Ohnmeiss' questions, yet the libelous words, being volunteered, were not privileged under the circumstances. A letter may be privileged as to one part and not as to the rest.

Odgers, Libel & Slander, 199; Warren v. Warren, 1 Cromp. M. & R. 250; Cole v. Wilson, 18 B. Mon. 212; Godson v. Home, 1 Brod. & B. 7; Lewis v. Chapman, 16 N. Y. 369.

A communication, if volunteered, will be privileged when the party to whom it is made has an interest in it, and such party stands in such relation to the communicator as to make it a reasonable duty, or at least proper that he should give the information.

King v. Patterson, 8 Cent. Rep. 357, 49 N. J. L. 417: Marks v. Baker, 28 Minn. 162; Locke v. Bradstreet Co. 22 Fed. Rep. 771; Erber v. R. G. Dun & Co. 12 Fed. Rep. 526; Crane v. Waters, 10 Fed. Rep. 619.

That anyone, in a transaction of business or employment with another, has a right to use language bona fide which is relevant to that business or employment, and which a due re

1891.

SELLERS V. TEXAS CENTRAL R. Co.

the bank. It was not necessary, to justify the
communication, that it should have been in
response to an inquiry made by Ohnmeiss.
In Waller v. Lock, 45 L. T. N. S. 243, Jessel,
M. R., says: "If an answer is given in the
discharge of a social or moral duty, or if the
person who gives it thinks it to be so, that is
enough. It need not even be an answer to an
inquiry, but the communication may be a vol-
In my judgment, the circum-
untary one.

stances under which the letter was written upon
which this suit is based, repel the inference of
an improper motive on the part of defendant,
and cast upon the plaintiff the burden of prov-
ing malice.

No evidence having been produced in the
trial court to show malice in the publication,
the non-suit was properly ordered, and the
judgment below should be affirmed.

TEXAS SUPREME COURT.

J. S. SELLERS, Appt.,

v.

TEXAS CENTRAL R. CO. et al.

(........

Tex.........)

(June 19, 1891.)

APPEAL by plaintiff from a judgment of the

District Court for Bosque County in favor of defendants in an action brought to recover damages for injuries caused to plaintiff's prop

No reservation of a right to flood lands, erty by the backing up of the water of a river

conveyed by a railroad company, with water of , a river backed up by the faulty construction of the embankment on which its tracks are laid, will be implied from the mere fact that the conveyance was made after the embankment was fin

ished.

NOTE.-Implied reservations.

It is now settled law in England that a reservation out of a grant will not be implied except in case of necessity. Crossley v. Lightowler, L. R. 2 Ch. App. 478.

on account of the alleged faulty construction
of defendant's railroad embankment. Reversed.
The facts sufficiently appear in the opinion.
Messrs. Knight, Crane & Ramsey for
appellant.

Mr. L. C. Alexander for appellees.

building. Dillman v. Hoffman, 38 Wis. 559; Thomp-
son v. Miner, 30 Iowa, 386.

The same rule applies where a lessee sublets the 1891. cessity of his own use of the stairway, hall, etc., is first floor of the building so arranged that the neIn Wisconsin a reasonable necessity as distinThe right to foul a stream from dye works can- apparent. Benedict v. Barling (Wis.) May not be reserved by implication. Ibid. Neither will an easement of light and air for win-guished from an absolute necessity is sufficient to dows be so reserved on the sale of a vacant lot. Wheeldon v. Burrows, L. R. 12 Ch. Div. 31; White v. Bass, 7 Hurlst. & N. 722; Ellis v. Manchester Carriage Co. L. R. 2 C. P. Div. 13; Russell v. Watts, L. R. 25 Ch. Div. 559.

Nor an easement for the projection of bow-sprits of large vessels at a dock over a neighboring coal wharf on the sale of the latter. Suffield v. Brown, 4 De G. J. & S. 185.

Of right of way.

An implied reservation of a right of way over land sold will be made only in case of strict and absolute necessity (Shoemaker v. Shoemaker, 11 Abb. N.C. 80); and not of a way merely for convenience. Mitchell v. Seipel, 53 Md. 251.

But it may be upheld in case of an alley over premises sold with a house where it is the only means of access to another house. Durel v. Boisblanc, 1 La. Ann. 407.

And in Pennsylvania the use of an alley which
was open and apparent, having a gate set up, was
held to be reserved though not strictly a way of
necessity. Cannon v. Boyd, 73 Pa. 179.

An express reservation of an archway on the sale
of a house was held to imply a reservation of the
use of a passageway under it to reach a stable in
Davies v. Sears, L. R. 7 Eq. Cas. 427.
the rear.
On the other hand, a right of way of necessity is
not reserved where the grantor expressly releases
an existing right of way although his land is thus
left entirely shut in from the public road. Rich-
ards v. Attleboro Branch R. Co. 153 Mass. 120.

These two cases last referred to may perhaps be
considered as turning on the construction of the
contracts rather than on the question of implied

An easement of evident necessity in stairways and hallways is reserved on the sale of part of a

sustain an implied reservation of the use of stairways, etc. Galloway v. Bonesteel, 65 Wis. 80.

But such use of stairways is not reserved where Phelps, 58 How. Pr. 77; Schrymser v. Phelps, 62 other independent entrances exist. Outerbridge v. How. Pr. 1.

Of dam and race.

In Pennsylvania the use of a dam and race on land sold for supplying with water a mill retained by the grantor was held to be reserved by implication. Seibert v. Levan, 8 Pa. 383.

There are exactly contrary decisions in New York Reed, 17 Me. 175. and Maine. Burr v. Mills, 21 Wend. 290; Preble v.

In New Jersey a similar reservation of the use of a spring and an artificial conduit on land sold for held; the court, like the courts of Pennsylvania, the benefit of a paper mill on another tract was uptions beyond cases of strict necessity. Seymour v. seeming to extend the doctrine of implied reservaLewis, 13 N. J. Eq. 439.

Of use of drain.

No implied reservation of the use of a drain which is not apparent exists on the sale of premises over which it runs, at least where another could be made at reasonable expense, and therefore such use is not a necessity. Randall v. McLaughlin, 10 worth v. Crawford, 46 N. Y. 349; Scott v. Beutel, 23 Allen, 366; Carbrey v. Willis, 7 Allen, 369; ButterGratt. 1. Contra, Pyer v. Carter, 1 Hurlst. & N. 916. But this last case has been completely overning of this note. ruled in the later English cases cited at the begin

There is another class of cases, not considered in this note which relate to easements, where the ent purchasers. premises affected are sold simultaneously to differ

42

B. A. R.