(- lowu, -, 169 N. W. 670.) 480, 72 N. W. 157; Haugen v. Sund- So. 384, 18 Ann. Cas. 430; Fairfield seth, 106 Minn. 129, 118 N. W. 666, v. Lowry, 207 Mass. 352, 93 N. E. 16 Ann. Cas. 259; Webster v. Buss, 598. 61 N. H. 40, 60 Am. Rep. 317; Amer- In the Gompers Case the court ican Ice Co. v. Meckel, 109 App. Div. touches upon a distinction which 93, 95 N. Y. Supp. 1060; Palmer v. those who deny the rule in Hedge v. Toms, 96 Wis. 367, 71 N. W. 654. Lowe usually overlook. It is there

Sporadic instances are not want- said that the fallacy of the arguing in which a contrary view is an- ment denying the assignability of nounced or suggested, but they are the contract is in regarding it not generally recognized as authori- as merely personal in character, tative precedents. The one most di- "whereas, it was alone an incident rectly in point to that effect is Hill- to the property which they had partman v. Shannahan, 4 Or. 163, 18 ed with and the business also. It Am. Rep. 281. It is there held that would not have been binding, for the contract, having made no refer- want of a consideration, unless as ence to "the heirs and assigns" of incident to the property." In the the purchaser, must be construed as Palmer Case, 96 Wis. 367, 71 N. W. personal only, and not enforceable 654, the Wisconsin court on the same in the hands of his assignee. The subject says: “To determine the reasoning employed is by no means question,

the nature of the persuasive, and the citation of au- contract must be understood. It thorities wholly omits reference to does not constitute a distinct propor consideration of the numerous erty right, independent of the busiprecedents to the contrary. The ness it was designed to protect, any presence or absence of express men- more than the good will itself. The tion of the words “heirs and as- purpose of the contract being to prosigns" is discussed in several of the

tect the property or business to cases first above cited, and in each which it related, it was an incident instance it is held to be immaterial. of, and adherent to, such property Indeed, in our own leading case of and business. It could not otherHedge v. Lowe, supra, the agree- wise exist." ment was with the purchaser by To construe such contracts as pername, without any express mention sonal only where the design to so of heirs or assigns, and it was held narrow or restrict their effect is not to be assignable. This decision has clearly expressed is to deprive them been cited and followed in nearly all of much, if not most, of their value. the other states when the question The seller expects a better price, has come up for adjudication. In and the buyer is willing to pay a many cases the courts go much be- better price, than the business would yond what we have had occasion to command without it. But the busihold, and say that, even if there is

ness, when once purchased, is worth no express transfer of the contract, on the market only what the owner the good will assigned by the first

can reasonably hope to sell it for, seller follows the business into the and if he cannot sell it without dehands of the second purchaser, with stroying its protection against comout any express mention, as an in- petition by the man who created cident to the business,—a rule for and built it up, he is quite sure to which many good reasons may be suffer loss. To hold that the parties found. Public Opinion Pub. Co. v. to a contract of sale intend such inRansom, 34 S. D. 381, 148 N. W. equitable and absurd results, the 842, Ann. Cas. 1917A, 1010; Parnell language should reveal it so clearly v. Doan, 31 Ont. Rep. 517; Palmer v. as to place it beyond all reasonable Toms, 96 Wis. 367, 71 N. W. 654; doubt. What the defendant sold in Gompers v. Rochester, 56 Pa. 194; the first instance was not only the Didlake v. Roden Grocery Co. 160 physical property, but the estabAla. 484, 22 L.R.A.(N.S.) 907, 49 lished business, together with its

protection for five years against law does disfavor are contracts competition by him. It was this which unreasonably restrict the inproperty and this business, so pro- dividual in his liberty of occupation tected, which Wright bought and and employment. But there is no owned, and as such owner had the public policy or rule of law which right to sell, and did sell, to the condemns or holds in disfavor a fair plaintiffs. Though the protection and reasonable agreement of this existed as incident to the property character, and such a contract is enand business, it was nevertheless a titled to the same reasonable conproperty right, which the plaintiffs struction and the same effective enacquired with the property and forcement that are accorded to busibusiness, and as such the courts will ness obligations in general. For an recognize it and enjoin its wrongful illuminating discussion of this subinvasion. The defendant undertook ject, see Diamond Match Co. v. to refrain from competition with Roeber, 106 N. Y. 473, 60 Am. Rep. the business sold by him for five 464, 13 N. E. 419. years, and is presumed to have re- our opinion, the plaintiff's peticeived sufficient consideration tion stated a good cause of action, therefor, and it is but equitable that and the demurrer thereto should he be required to perform his agree- have been overruled. The ruling ment in good faith.

and judgment below are therefore In discussion courts sometimes in- reversed, and the cause remanded, dulge in the loose generality that the with instructions to the trial court law does not favor contracts in re- to overrule the demurrer, and for straint of trade, and therefore an further proceedings not inconsistent agreement by which a party un

with the views hereinbefore exdertakes not to enter a specific pressed. business in a specified city or town Preston, Ch. J., and Gaynor and will be strictly construed. What the Stevens, JJ., concur.

.

a

ANNOTATION.

a

ex

Enforceability by the purchaser of a business, of a covenant of a third person

with his vendor not to engage in a similar business. I. General rule, 1078.

VI. Where sale of property and business II. Necessity that covenant run to pur

not contemporaneous, 1084. chaser and assigns, 1080.

VII. As affeced by limitations in scope III. Necessity that covenant be

of covenant, 1084. pressly assigned, 1080.

VIII. Effect of retransfer of covenant to IV. Transfer to a corporation, 1081.

original covenantee or covenanV. Transfer to partnership, 1083.

tor, 1085. I. General rule.

subsequent sale of the business by the

original purchaser, and that it will pass The rule is well settled that a cove

to the subsequent purchaser as an incinant reasonable as to territory and

dent of such sale. time, entered into by the seller of a

Alabama.-Knowles v. Jones (1913) business, not to engage in a similar

182 Ala. 187, 62 So. 514. business, is valid and enforceable. The

California.—California Steam Nav. question here raised is as to whether

Co. v. Wright (1856) 6 Cal. 258, 65 or not such a covenant is assignable

Am. Dec. 511. with a subsequent sale of the business,

Illinois. Bauwens Goethals or passes to a subsequent purchaser of

(1914) 187 Ill. App. 563. the business, even if not expressly as- Indiana.—Beard v. Dennis (1855) signed. On this question the cases are 6 Ind. 200, 63 Am. Dec. 380. generally in harmony in holding that Iowa.—Hedge v. Lowe (1877) 47 such a covenant is assignable with a Iowa, 137.

V.

Michigan.-Up River Ice Co. v. Den- establishments beyond the value of ler (1897) 114 Mich. 296, 68 Am. St. the money or property invested there. Rep. 480, 72 N, W. 157.

in, and is property in the legal sense Minnesota.—Haugen v. Sundseth of the term, and subject to sale and (1908) 106 Minn, 129, 118 N. W. 666, transfer in conjunction with a sale of 16 Ann. Cas. 259.

the business, precisely as other perMississippi.-Klein v. Luck (1895) sonalty." 73 Miss. 133, 18 So. 891.

But in Anderson V. Faulconer Nebraska.-Hickey v. Brinkley (1855) 30 Miss. 145, it is held that a (1911) 88 Neb. 356, 129 N. W. 553. covenant by the seller of a newspaper

New Hampshire.-Webster v. Buss plant not to set up a newspaper in op(1881) 61 N. H. 40, 60 Am. Rep. 317. position to the purchasers is not brok

New Jersey.-Fleckenstein Bros. en by the act of the seller in subse. Co. v. Fleckenstein (1903) - N. J. quently setting up a newspaper plant 53 Atl. 1043, decree settled in (1904) after the personal representative of 66 N. J. Eq. 252, 57 Atl. 1025.

the covenantee had sold the original New York.—Diamond Match Co. v. plant. Roeber (1887) 106 N. Y. 473, 60 Am. In Barber Asphalt Paving Co. v. Rep. 464, 13 N. E. 419; Francisco v. Brand (1889) 55 Hun, 606, 7 N. Y. Smith (1894) 143 N. Y. 488, 38 N. E. Supp. 744, a contract was held assign980; Greite v. Henricks (1893) 71

able where it was based upon a good Hun, 7, 24 N. Y. Supp. 545; A. Booth consideration, and by its terms one of & Co. v. Seibold (1902) 37 Misc. 101, the parties thereto covenanted not to 74 N. Y. Supp. 776; American Ice Co. sell asphalt except to certain persons v. Meckel (1905) 109 App. Div. 93, 95 in specified cities. The violation of N. Y. Supp. 1060.

this covenant was restrained in beEngland.—Swainson v. Swainson half of the subsequent assignee of the (1857) 4 Jur. N. S. 1011; Jacoby v.

covenantee. Whitmore (1883) 49 L. T. N. S. 335, In Baines v. Geary (1887) L. R. 35 32 Week. Rep. 18; Showell v. Winkup Ch. Div. (Eng.) 154, 56 L. J. Ch. N. S. (1889) 60 L. T. N. S. 389; Smith v. 935, 56 L. T. N. S. 567, 36 Week. Rep. Hawthorne (1897) 76 L. T. N. S. 716; 98, 51 J. P. 628, a covenant by an Welsted v. Hadley (1904) 21 Times employee of a milk carrier not to serve L. R. 165.

or interfere with the customers of his Canada.-Parnell v. Dean (1900) 31 employer after the termination of his Ont. Rep. 517; Berry v. Days (1903) employment was held to be assignable 23 Can. L. T. Occ. N. 221, 5 Ont. L. and enforceable by the subsequent Rep. 629.

purchaser of the business from the The general rule is also recognized original employer. To the same effect in Palmer v. Toms (1897) 96 Wis. 367, is Benwell v. Inns (1857) 24 Beav. 306, 71 N. W. 654, which holds that after 53 Eng. Reprint, 376; Showell v. Winthe purchaser of the business had dis- kup (1889) 60 L. T. N. S. (Eng.) 389. posed of it to another he was no long- But in Berlitz School of Languages er interested in the enforcement of a v. Duchene (1904; Sc. Ct. Sess.) 6 F. covenant of this character entered in- 181, it is held that a covenant by the to by his vendor, and hence could not teacher of a school not to teach in enforce it. The court remarked that competition with the schools of his such a covenant passed as an incident employer within two years after leavof the business to the subsequent pur- ing his employment is not subject to chasers.

assignment to a purchaser of the In Haugen V. Sundseth (Minn.) schools. supra, the court said that "the good In Pemberton v. Vaughan (1847) 10 will of a business is the favor won Q. B. 87, 116 Eng. Reprint, 35, in confrom the public and the probability sidering the validity of an agreement that old customers will continue their by the seller of a business not to enpatronage. It is an advantage and gage in a competing business within benefit that is acquired by business a given territory, unlimited as to time,

Lord Denman, Ch. J., said that "an in the abstract, but whether it may be agreement in restraint of trade is il- transferred with the business to legal because it is for life. It does not which the original pertained. follow that the plaintiff will not re- Upon this question in Haugen v. quire the protection of the agreement Sunseth (1908) 106 Minn. 129, 118 N. because he may not himself continue W. 666, 16 Ann. Cas. 259, the court the business. He may sell the busi- said that the fact that the contract did ness and sell it on better terms on ac- not run to the purchasers and their count of the protection secured to it successors and assigns did not affect by such an agreement."

the question of its subsequent trans

fer in the least; that “while perhaps II. Necessity that covenant run to purchaser and assigns.

the use of those words or their equiv

alent may in instances be essential While in a few of the foregoing

to confer the right of alienation in the cases, notably California Steam Nav.

grantee, their use is wholly unnecesCo. v. Wright (1856) 6 Cal. 258, 65

sary in a case like that at bar. But Am. Dec. 511 and Diamond Match Co.

specific property or substantial propv. Roeber (1887) 106 N. Y. 473, 60 Am.

erty rights which survive to an execuRep. 464, 13 N. E. 419, the covenant

tor or administrator-in which classiran to the purchaser and his assigns,

fication good will, trademarks, and in a majority of the cases, however, it

tradenames must be included-may be did not, and it was nevertheless en

transferred from person to person forced in behalf of the subsequent

where an indefeasible title passes purchaser, although the point was ap

from the original owner without referparently not raised or discussed. In

ence to the language of the different a few of the cases where the point was

transfers.” expressly raised, it was held that it was immaterial whether or not the III. Necessity that covenant be expressly covenant ran to the purchaser alone

assigned. or to the purchaser and his assigns. In a majority of the foregoing cases,

This is the holding in Webster v. the original covenant was not expressBuss (1881) 61 N. H. 40, 60 Am. Rep. ly assigned to the subsequent pur317, wherein the court said that the chaser of the business. Apparently agreement to relinquish the business such an assignment is unnecessary, formed a material part of the pur- the theory being that the covenant chase, and constituted in part the in

passes as an incident of the sale of the ducement for such purchase, and en- business. In the following cases, tered into the value of the property however, the instrument of sale conpurchased. Hence there was no rea- tained an express assignment of the son why the purchaser should not

covenant: Klein v. Lusk (1895) 73 avail himself of the agreement in ef- Miss. 133, 18 So. 891; Hickey v. Brinkfecting a subsequent sale of the busi

ley (1911) 88 Neb. 356, 129 N. W. 553; ness.

American Ice Co. v. Meckel (1905) 109 In Hedge v. Lowe (1877) 47 Iowa,

App. Div. 93, 95 N. Y. Supp. 1060. 137, the court said if the agreement

None of these cases, however, hold not to engage in a competing business

that an express assignment was essenwas of sufficient value to constitute in

tial. part an inducement to purchase the

In American Ice Co. v. Meckel (N. business, it must be admitted that it might be equally of value to the pur

Y.) supra, a covenant incident to the chaser upon subsequently selling the

sale of a business and the good will business, and no good reason could

thereof, and running to the covenantbe given why the original purchaser

ee, his heirs and assigns, is held enshould not avail himself of this agree

forceable by a subsequent purchaser ment as a means of effecting a subse- of the business, although the covenant quent sale. And it is pointed out that was not expressly assigned to him, the question is not whether such a the court holding in this regard that covenant may be subject of a transfer the covenant passed as an incident to the sale of the business and the good poration to secure funds to carry on will.

the business, and that he turned over In Greite v. Henricks (1893) 71 to the corporation the property purHun, 7, 24 N. Y. Supp. 545, a covenant chased, did not show that he was not incorporated in the bill of sale of engaged in the business so as to repremises used for a hotel and saloon, lieve the covenantor from the obligaby which the seller agreed not to en- tion of the covenant. In this case the gage in a similar business within a covenantee was the manager of the designated distance from this hotel, business of the corporation. was held to pass to a subsequent pur- In Up River Ice Co. v. Denler (1897) chaser of the business, it being incor- 114 Mich. 296, 68 Am. St. Rep. 480, 72 porated in the later bill of sale by a N. W. 157, an agreement collateral to provision thereof that the same was the sale of stock in a corporation, that subject to all the terms, conditions, the seller will not engage in the same and covenants of the previous bill of business in which the corporation was sale, which was declared to form a engaged, and which was assigned to part and parcel of the present bill. the corporation, was held enforceable

In Jacoby v. Whitmore (1883) 49 in its behalf. To the same effect, see L. T. N. S. (Eng.) 335, it was held Jacoby v. Whitmore (Eng.) supra. that the benefit of a covenant of this Upon this point, in Bradford v. character passed to the purchaser of Montgomery Furniture Co. (Tenn.) the business, and the good will to supra, the court said: “We think, to which the covenant related, although hold that the defendants lost the benethe covenant was not expressly men- fit of their contract by virtue of the tioned. Upon this point, Cotton, L. J., vestiture of the title of their business .said: When the agreement was en- in an artificial person, in order, as tered into, Whitmore was to become they thought, to carry it on more adan assistant in the shop, and the ob- vantageously, would be to allow the ject was to prevent the customers complainants, while recovering full being at some future time carried off consideration, to defeat the object of elsewhere by the assistant when he their contract, and do the defendants should leave the service of his employ- great injustice.

great injustice. Complainants coner, and such a covenant was, I think, tracted not to engage in the furniture part of the good will of the business, business for the time mentioned, in and certainly part of the beneficial opposition to the defendants. The interest of Cheek in the business. agreement was absolute and without Therefore, in my opinion, this cove- qualification. The change made by nant was assignable, and was in fact the defendants in the manner of conassigned.

ducting their business in no way afIV. Transfer to a corporation.

fected complainants. It did not in any

way increase or lessen the obligation It has been held that the good will

and burdens of their contract; and we and the covenant by the seller of a

cannot see upon what principle, conbusiness not to engage in a competing

sistent with reason and justice, it business pass to a corporation organ

should release them from its performized by the purchaser of the business

ance. The good will which defendants for the purpose of operating the busi

had purchased from complainants, ness and to which the business is

and the contract they had made with transferred, hence, the covenant may enforced by the corporation.

them for its protection, were property Knowles v. Jones (1913) 182 Ala. 187,

rights, valuable and assignable, and 62 So. 514; Bradford v. Montgomery

were not affected by the changes made Furniture Co. (1906) 115 Tenn. 610,

by the defendants in the manner in 9 L.R.A.(N.S.) 979, 92 S. W. 1104. which they conducted their business.

In Ragsdale v. Nagle (1895) 106 The contract remained in full force Cal. 332, 39 Pac. 628, it is held that and effect until it expired by its own the fact that a covenantee in a cove- limitations." nant of this character organized a cor

be