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8 11. (3) If the restriction is broader than the business sold and the business sold is not coextensive with the boundaries of the United States, it is void.21 The seller is doing more than sell what he has. He is selling a business in which he might engage in the future. The public policy therefore in favor of his being permitted to sell what he has, freely and at the best price, is not applicable. The social interest in freedom of individuals to enter what business they please is not balanced by any social interest in freedom to sell at the best price obtainable. It may be that today there is little danger that the seller will become a charge on the community 22 but that the public may be deprived

Rule Co. v. Fringeli, 57 Oh. St. the restriction as to territory was 596 (1898) (Both of these cases broader than the actual extent of involve sales to competitors, but no the seller's business or not: Diasuggestion has been made that the mond Match Co. v. Roeber, 106 N. rule of these cases was limited to Y. 473 (1887) [55]; Gamewell the case of a sale to a competitor.) ; Fire-Alarm Co. v. Crane, 160 Mass. Anchor Electric Co. v. Hawkes, 171 50 (1893) [54]. Mass. 101 (1898) where the re In Tode v. Gross, 127 N. Y. 480 striction accompanied a combination (1891) where the business sold was of competitors, seems contra to dependent upon a secret process, Taylor v. Blanchard supra.

which was also sold, no inquiry 21-Trenton Potteries Co. v. Oli. seems to have been made as to phant, 58 N. J. Eq. 507 (1899) whether the covenant (which was [161]; Bishop v. Palmer, 146 Mass. unlimited) was broader than the 469 (1888) [45]; Berlin Machine business sold. Works V. Perry, 71 Wis. 495 But in Watertown Thermometer (1888); Alger v. Thacher, 19 Pick. Co. v. Pool, 51 Hun. (N. Y.) 157 (Mass.) 51 (1837); Lawrence v. (1889) the court seems to have susKidder,

10 Barb. (N. Y.) 641 tained a restrictive covenant which (1851); Lange v. Werk, 2 Oh. St. was broader than the business sold, 519 (1853); Thomas V. Miles, 3 going upon the reasonableness of the Oh. St. 274 (1854); Wiley v. Baum advantage to the vendee. gardner, 97 Ind. 66 (1884).

22-But

Gamewell FireA fortiori, it is illegal if in addi Alarm Co. v. Crane, 160 Mass. 50 tion to the restriction being broader (1893) [55] (“To exclude a perthan the business sold, the sale is to son from manufacturing or selling

competitor: Gamewell Fire anywhere in the United States or in Alarm Co. v. Crane, 160 Mass. 50 the world machinery designed for (1893) [50] (Sale of one out of certain purposes, in which that perfifteen competitors in the United son has acquired great skill, may States, to another.)

operate to impair his means of earnIn some cases the courts have not ing a living."'). been careful to determine whether

see

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of the benefit of his entering the business, and that a possible competitor may be eliminated, constitute an appreciable danger.23 It has even been suggested that the fact that the restriction is broader than the business sold gives rise to the inference that it is exacted for the actual purpose of monopoly,24 but this seems hardly so today.

§ 12. The restriction may be broader than the business sold, because it relates to a territorial area larger than that in which the business was carried on,25 or because it concerns a related business which was not not actually carried on by the seller.26

§ 13. When a professional man sells his practice and covenants not to carry it on in the place in question for the remainder of his life, it has been argued that the restriction is broader than the necessities of the case require, since it would still be in operation if the buyer abandoned practice or died in the lifetime of the seller.27 The reply is that just as the seller has sold his practice to the buyer, so the buyer may again sell his practice to another buyer or take in a partner.28 Even if the first buyer

a

23—Bishop v. Palmer, 146 Mass. something more than a presumption 469 (1888) [48] (“Two principal against it, because it can never be grounds on which such contracts are useful to any man to restrain ånheld to be void are that they tend other from trading in all places, to deprive the public of the services though it may be, to restrain him of men in the employments and from trading in some, unless he incapacities in which they may be tends a monopoly, which is most useful, and that they expose crime.''). the public to the evils of monop 25—Bishop v. Palmer, 146 Mass. oly.''); Gamewell Fire-Alarm Co. 469 (1888) [45]. v. Crane, 160 Mass. 50 (1893) [55] 26_Gamewell Fire-Alarm Co. v. (The principal object of the stipu Crane, 160 Mass. 50 (1893) [50] lation was, we think, to prevent the (The seller, who was a manufacmanufacture or sale by the defend turer, covenanted not to carry on ant of any instruments which would the business of manufacturing or serve the same purpose as those selling, and not to enter into compemade and sold by the plaintiff, and tition with the buyer either directly thus to enable the plaintiff more or indirectly.) completely to control the market.'') 27-Per Denman, C. J., in Hitch

24-Mitchel V. Reynolds, 1 P. cock v. Coker, 6 A. & E. 438 (1837) Wms. 181 (1711) [9] (“It shows [16]; Per Van Fleet, V. C., in why a contract not to trade in any Mandeville v. Harman, 42 N. J. Eq. part of England, though with con 185, 193 (1886) [32, n. 9]. sideration, is void, for there is 28-French v. Parker, 16 R. I.

dies in the lifetime of the seller, the fact that he had a practice protected from the seller's competition may make his practice an asset which his administrator can sell.29 Furthermore, the buyer purchased the seller's practice, which means the practice which the seller would have during his life. It would hamper such transactions too much if the covenant had to be worded so as to take care of all the contingencies under which the restriction might cease to be of value to the buyer.

8 14. Covenants which seem to be broader than the seller's business may be divisible, so that the separable part which is not broader than the seller's business may be enforced.30

§ 15. (4) If the business sold is coextensive with the boundaries of the United States, but the restriction is world-wide, is it valid! It has been said that where the restriction related to the territorial area of a foreign country, that fact could not be

219 (1888) [29] (“If the com high or elsewhere”'); Thomas v. plainant here wished to retire from Miles, 3 Oh. St. 274 (1854) (rehis practice, and sell it, he could striction in "said city or elseprobably sell it for more if he where”'); Lange v. Werk, 2 Oh. would secure the purchaser from St. 519 (1853) (restriction in the competition with the defendant for County of Hamilton, in the State of ever than he could if he could only Ohio, or any other place in the secure him from such competition United States." Held valid as to during his own life. So, if he wished Hamilton County); Wiley v. Baumto take in a partner, he could, for gardner, 97 Ind. 66 (1884). the same reason, make better terms In Oregon Steam. Navigation Co. with him.”)

v. Winsor, 87 U. S. 64 (1873), the 29—Hitchcock v. Coker, 6 A. & restriction was held divisible as to E. 438 (1837) [24].

the time it was to be operative. It 30—Trenton Potteries Co. v. Oli. was enforced during the time it phant, 58 N. J. Eq. 507 (1899) could properly be operative. Sed [161] (Restriction applied “within quaere ad hoc. any state in the United States of In Hubbard v. Miller, 27 Mich. America, or within the District of 15 (1873) a covenant not to carry Columbia, except in the State of on a certain business was, without Nevada and the Territory of any express limitation as to terriArizona," and was held applicable tory, construed as forbidding the to the area of each State disjunc carrying on of the business only at tively described, and enforced in the the city where the business sold had State where the covenantor's busi been carried on, and such territory ness was carried on); Smith's Ap round about as the business would peal, 113 Pa. St. 579, 590 (1886) naturally and reasonably be carried (restriction “in the County of Le

on in

an argument against the validity of the covenant.31 This may be doubted; for it is now apparent that restrictions upon doing business in a foreign country may have a very unfortunate effect upon the public interest in the domestic jurisdiction, especially where the covenantee is engaged in a rival business in the foreign country as well as in the domestic jurisdiction.

SECTION 4

RESTRICTIVE CONTRACTS ACCOMPANYING THE SALE OF A BUSINESS TO

AN EXISTING COMPETITOR, WHERE THE RESTRICTION IS SO FAR
LIMITED AS TO BE VALID IF THE SALE WERE NOT TO A COM-
PETITOR

8 16. If the sale be illegal 32 then the restriction certainly is. But if the sale taken by itself be legal, the courts have made no distinction, so far as the legality of the restriction is concerned, between the case where the sale is to be a competitor and where it is not. Accordingly, the restrictive covenant and the sale to a competitor have been sustained both where the title to tangible assets used in the business passed,33 and also where

31—Nordenfelt v. Maxim Nor They certainly would not have redenfelt Guns Co. (1894] A. C. 535 garded it as against public policy [44] (“The appellant appeared to prevent the person whose busiwilling to concede that it might be ness had been purchased and was good if limited to the United King being carried on here from setting dom; hut he contended that it up or assisting rival businesses in ought not to be world-wide in its other countries; and for my own operation. I think that in laying part I see nothing injurious to the down the rule that a covenant in public interests of this country in restraint of trade unlimited in re upholding such a covenant.'') gard to space was bad, the courts 32—As to the principles governhad reference only to this country. ing the validity of the sale see post They would, in my opinion, in the 88 48-92 which deal with combinadays when the rule was adopted, tions. have scouted the notion that if for 33—Nordenfelt v. Maxim Northe protection of the vendees of a denfelt Guns Co., [1894] A. C. 535 business in this country it were (33); Diamond Match Co. v. Roenecessary to obtain a restrictive ber, 106 N. Y. 473 (1837) (55); covenant embracing foreign coun United States Chemical Co. tries, that covenant would be bad. Provident Chemical Co., 64 Fed.

34

there were no such assets, and the only way in which the business could be sold was for the seller to agree not to carry it ons Where part of a business has been sold to a competitor by merely covenanting not to carry on the part specified, the sale and the restriction have been sustained. 35

8 17. In some cases there were special elements which furnished arguments in favor of the validity of the sale and the restriction. Thus where it appeared that the competitor who sold out had recently gone into the business for the purpose of engaging in a cut-throat competition and being bought off, there was presented an actual case of excessive competition, and the buyer was in the position of endeavoring to protect his legitimate and established business from the seller's unconscionable conduct.36 So where it appeared that the seller was making

946 (1894) [98]; Trenton Potteries Benefit Co. v. Union Hospital Co., Co. v. Oliphant, 58 N. J. Eq. 507 45 Minn. 272 (1891) [94]. (1899) [161]; Kellogg v. Larkin, 36—Leslie v. Lorillard, 110 N. 3 Pinn. (Wis.) 123 (1851); Chap Y. 519 (1888) [65]; United States pel v. Brockway, 21 Wend. (N. Y.) Chemical Co. v. Provident Chemical 157 (1839); Van Marter V. Bab Co., 64 Fed. 946 (1894) [98], cock, 23 Barb. (N. Y.) 633 (1857); semble, (The court noted that the Moore & Handley Hardware Co. v. seller sold only part of its tartar Towers Hardware Co., 87 Ala. 206 business, so that it had been in a (1888); Beard v. Dennis, 6 Ind. particularly advantageous position 200 (1855); California Steam Navi. to cut prices in that part of the gation Co. v. Wright, 6 Cal. 258 business sold, while making a profit (1856); Hubbard V. Miller, 27

on the other part, thus practicing Mich. 15 (1873).

the scheme of local price cutting to But see, semble, contra: Game put the buyer out of business. The well Fire-Alarm Co. v. Crane, 160 court speaks of the seller as being Mass. 50 (1893) [50]; Carrol v. a dangerous and aggressive rival. Giles, 30 S. C. 412 (1888).

The court said: “The plaintiff 34-Leslie v. Lorillard, 110 N.

was making inroads upon the deY. 519 (1888) [65]; Wood v.

fendant's business, and greatly Whitehead Bros. Co., 165 N. Y. 545

cutting the prices of its sole manu(1901) [72]; Wickens v. Evans, 3 Y. & J. 318 (1829) [84]; National

factured product, while with the Benefit Co. v. Union Hospital Co., plaintiff this product was but a 45 Minn. 272 (1891) [94]; Mapes

single feature of its manufacturing v. Metcalf, 10 N. D. 601 (1901).

plant. The defendant bad a perfect 35—Leslie v. Lorillard, 110 N.

right to buy off the competition of Y. 519 (1888) [65]; Wickens v. a dangerous, powerful and aggresEvans, 3 Y. & J. 318 (84); National sive rival. The law of self-defense

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