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tartar of both rock and bone, and that both were of equal utility, and the seller parted with his bone tartar business only and kept his rock tartar business, the court noted that the public purchasing tartar still had competition as to prices between rock tartar and bone tartar.37

SECTION 5

RESTRICTIVE CONTRACTS ACCOMPANYING

THE

COMBINATION OF

SEVERAL BUSINESS UNITS

§ 18. If the combination be illegal 38 then the restriction certainly is. But if the combination taken by itself be legal, the courts appear to have made no distinction, so far as the validity of the restriction is concerned, between the case of a sale and a combination.39

The principal question which arises is whether the test of the validity of the restriction is the extent of the business sold or of the businesses combined. Is the restriction void only if it is broader than the business sold or only if it is broader than the businesses combined? The latter position has been sustained.40 The situation is like that of an incoming partner, who devotes himself to the common business of all the partners, and may properly be restricted so that he cannot carry on the same business in competition with the partnership.

and protection applies to one's [the restrictive covenant] was not business as well as to his person.'') unreasonable. The parties contem

37—United States Chemical Co. plated an extensive business, with a v. Provident Chemical Co., 64 Fed. special effort to develop an export 946 (1894) [98].

trade. No limitation of foreign 38—For the principles applicable countries could be made in advance, in determining the validity of com for the company was to seek its binations see post $8 48-92.

markets. In this country it might 39—Oakdale Mfg. Co. v. Garst, need to set branches in different 18 R. I. 484 (1894) [78]; Anchor parts for the sale or manufacture Electric Co. v. Hawkes, 171 Mass. or exportation of its products.'); 101 (1898); Robinson v. Suburban Anchor Electric Co. v. Hawkes, 171 Brick Co., 127 Fed. 804 (1904). Mass. 101 (1898). But see Central

40-Oakdale Manufacturing Co. Ohio Salt Co. v. Guthrie, 35 Oh. St. v. Garst, 18 R. I. 484 (1894) [84] 666 (1880) [690). (The circumstances show that it Kales Sum. R. of T.-2

17

SECTION 6

CONTRACTS NOT TO CARRY ON A BUSINESS, GIVEN BY ONE IN THE

BUSINESS TO ANOTHER IN THE BUSINESS OR INTENDING TO
ENTER IT

$ 19. It has already been assumed that a contract to refrain from doing business is void when the promisor is already engaged in the business and the promisee is not entering the business and not a competitor.41 On the other hand, some contracts not to carry on a business are valid when they are secured to enable the promisee to enter the business on more advantageous terms. A common case of this sort is where a professional man, having an established practice, covenants with one intending to practice in the same place that he will not longer carry on his profession there. Here the only sale of the covenantor's business is contained in the restrictive covenant not to carry it on. Its validity, however, is beyond question. Suppose, however, that the promisee and promisor are already in the business and competing, is the covenant by one to the other to cease business valid ?

§ 20. Where the business is carried on principally with a plant and property which cannot readily be converted to any other use and will in all probability lie entirely idle during a period provided by the covenant, the restriction is regularly held to be illegal.42 The moment, however, the restrictive covenant is to take a steamboat off a certain run (which does not in the least involve keeping it idle but only transferring it to another service) it has

41--Ante § 1.

ment, was sold). See also Oliver 42–Tuscaloosa Ice Mfg. Co. v. v. Gilmore, 52 Fed. 562 (1892) Williams, 127 Ala. 110 (1899) (Here it made no difference that [176]; Clemons v. Meadows, 123 the promisor had given a lease to Ky. 178 (1906) [185]; (There was the promisee for the term of the in these two cases the added fact restriction). that a demand existed for the full In Lufkin Rule Co. v. Fringeli, product of the plants shut down); 57 Oh. St. 596 (1898) it is sug. Western Woodenware Assn. gested that even a sale with a reStarkey, 84 Mich. 76 (1890) [189] striction on the seller may be in(Here it made no difference that valid where it is in reality an atsome of the property used in the tempt to purchase another out of business, such as tools and equip business. Sed quaere ad hoc.

V.

been sustained.43 So where competitors agreed to cease competing by dividing the territory where their selling force operated and reciprocally covenanting not to do business in the specified territory of each other, the covenants have been sustained.44 So where the business was conducted without any plant at all, the promise to cease business and turn over all orders to the competing promisee was held to be valid. 45

821. In looking over these results one is forced to the conclu. sion that the mere covenant with the competitor not to carry on a given business is specially objectionable where it involves the shutting down and standing idle of a valuable plant, rendering the property useless for the time being. A contract operating in this way presents a distinctive feature which must be considered in balancing the considerations for and against its validity. This distinctive feature is decisive against the legality of the restriction even though the latter be regarded as a method of selling the business of the covenantor.

8 22. It may be urged that the covenantee could have purchased the property and then shut up the plant and yet the restriction by the seller must have been held valid. The answer to this is that the actual purchase of the plant and property would in most cases be a guaranty that the plant would not be shut down unless there had in fact been excessive competitionin which case the shutting down would be justified. Furthermore,

case

was

43—Leslie v. Lorillard, 110 N. Y. the covenantor was also engaged in 519 (1888) [65] (In this raising peppermint roots, there was there were the additional facts in no objection to a division of the support of the covenant that com business, so that the covenantor, as petition excessive and was part of the sale of his roots coveentered into by the covenantor-a nanted not to do any manufacturing newcomer in the business—for the for a period of time: Van Marter purpose of compelling the promisee v. Babcock, 23 Barb. (N. Y.) 633 -the established line to buy him (1857). off).

45-Wood Whitehead Bros. 44– Wickens v. Evans, 3 Y. & J. Co., 165 N. Y. 545 (1901) [72]. 318 (1829) [84]; National Benefit In Mapes v. Metcalf, 10 N. D. 601 Co. v. Union Hospital Co., 45 Minn. (1901) where the promisor was a 272 (1891) [94].

printer and using a plant in his Similarly, where the covenantor business, but where the plant was and covenantee each engaged in the not sold, the restriction was, nevermanufacture of peppermint oil and

theless,

sustained.

V.

a plant which is simply shut down for a specified number of years must (if the contract be valid) remain shut no matter what the business conditions may be. On the other hand, a plant and property which are purchased outright and shut down may and undoubtedly would be opened by the owner as soon as business conditions warranted that step. These considerations are sufficient to justify the courts in making a distinction between the actual sale of the plant and the shutting down of the plant without such sale.46

46—In Stines v. Dorman, 25 Oh. St. 580 (1874), D purchased of B a hotel property. D also sold to B a hotel property and B covenanted not to use the premises so purchased for hotel purposes while the property which D purchased from B was so used. The restriction was held valid. Suppose, however, it had appeared that this was a mere subterfuge to secure in effect

a covenant by B to shut down his hotel property and go out of the hotel business while still retaining a property useful for hotel purposes? Perhaps the restriction might still have been sustained because it was probable that under it B's property would not remain entirely useless but would be put to some other useful purpose.

CHAPTER II

CONTRACTS ACCOMPANYING THE SALE OF PROPERTY

RESERVING THE SELLER'S BUSINESS

8 23. In the preceding chapter the principal consideration which supported a covenant, operating in some degree to restrain trade and to produce monopoly, was that in favor of the free alienation of a business on the best terms possible. There are other considerations just as potent to justify similar restrictions. For instance, the person carrying on a business upon land is entitled to the same freedom of action in selling the land and retaining his business that he has to sell the business with or without the land. Unless the seller who desires to sell his land and retain his business can exact from the buyer a covenant not to use the land sold to carry on the business of the seller, the seller must keep his property or run the risk in selling it that the purchaser will in fact acquire some of the business which the seller did not intend to part with and was not obliged to part with. Where, therefore, the seller who carried on a business of selling sand from his premises sold part of the land with a covenant that the purchaser should not sell any sand from the land purchased, the covenant was valid.1 The restriction was not broader than the protection of the seller required.

8 24. If it be urged that the covenant was for an indefinite period and could be enforced in equity against all purchasers of the land and long after the seller had exhausted all the sand from his land, or gone out of business, the answer is that such changed conditions would cause a court to refuse specific performance and the damages would be nominal.

8 25. In Norcross V. James 2 the injunction against the grantee of the buyer with notice was refused because the court declined to give specific performance against the grantee of the

2–140 Mass. 188 (1885).

1-Hodge v. Sloan, 107 N. Y. 244 (1887) (215).

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