·208
FEDERAL REPORTER,
vol. 43.
bank, is sick, and almost sick unto death; and whether it can survive .will depend much on the good nursing a COUl;t of chancery can give, and.bywhich it may possibly be resuscitated. Now, these respondents seem to think-and hope is always a great thing in commerce-that they can survive with a little rest. I know of no better means for them to keep life in them and stay on their fep.t than for the court to take charge of. this matter for them. In the management of a concern like this, in an insolvent condition, with the latitude which a court of equity has in running the business, and giving it provisional credit, authorizing a receiver to go ahead with the business, keeping it going, if the court discovers there is any hope and vitality in it, seems to me to be best for all. parties in interest. If the assets turn out as respondents seem to think they will, there will be no end put to the corporation. They can pay off these debts, or the. court will pay them from the business, and they have their franchise. I think this a case where sound discretion and a proper regard for the interests of all parties concerned will justify the court in interposing to enjoin further action under the deeds of trust for the present, reserving the question of the rights of the respective parties for determination upon final hearing. The court does not desire to be understood as casting any reflection upon the competency or of the present trustee. There is only this to be said in respect to t4at: He was chosen by this board of directors; he is in the employ of the president of the cortcern in another branch of his business; he is without bond, and is possessed of little property. While he might manage the affairs of the concern with ability and fidelity, yet a receiver is required to give bond·. He then becomes an officer of the court, and is under the direction and supervision of the court. This is better for all the creditors. As to the preferred creditors, it is to their interest that the very most be realized out of the assets possible. It is also better for the non-preferred creditors that the Wl1tter be managed by the court for the time being. So that as the matter stands the prayer of the petition will be granted provisionally. A provisional order of injunction will be made, and if you can agree upon a receiver the court will appoint him, otherwise the court will select One.
CARTER
et al. v.
ALLING
et
aZ.
(Olrcuit. oourt, N. D. Illinois. June 80, 1890.) A contract between a manufacturing corporation, whose business extends through. out the United States and Canada, and one of its traveling salesmen, who baa been in its employ for several years, whereby he agrees not to enter the service of· .any busines8competitor of the corporation for tbree years after leaving its 8ervlce, 1& valid. . 01.1' TRADE.
In Equity.
CARTER t1. ALJoING.
J. L. High, for complainants. Cratty Bros. &; Ashcraft, for defendants. BLODGETT, J. The bill in this case seeks an injunction against the defendant Alling, restraining him from entering into the employment of the other defendant, the L. H. Thomas Company, and for other relief. -The material allegations of the bill, so far as necessary for the disposition of the case, are: That on the 2d day of January, 1888, and for many years prior thereto, complainants were and had been copartners doing business under the firm name and style of Carter, Dinsmore & Co., engaged in the business of manufacturing and selling inks and mucilage, having their manufactory and principal office in the city of Boston, incthe state of Massachusetts, with depots or warehouses in the city of New York and the city of Chicago; that in the conduct of their business· they had employed, and still employ, traveling agents, can. vassers, and salesmen, to introduce and sell the products of their manufacture throughout the United States and Canada; that the inks so manufactured and sold by complainants have always been known to the trade and to the public under the name of "Carter's Inks;" and that under said name such inks. and the mucilage manufactured by the firm, have, by reason of their excellence, and through the means of such traveling men, canvassers, and salesmen, as well as by extensive advertising at large expense to complainants, become widely and favorably known throughout the United States and Canada, as well as in various foreign countries; .whereby complainants have established a large and profitable business in the manufacture and sale of said products throughout the United States and Canada; that about the year 1881 the defendant Edward H. Alling entered into the employment of said firm as a general salesman, involving the duties of canvassing, and introducing samples to and soliciting the trade of customers, and in part of selling to the trade, and to the advertising departments of such businecs. It is further alleged that on the 2d day of January, 1888, the said Alling en· tered into a certain written agreement with complainants for a further employment by them, by which agreement Alling agreed to work for complainants in the traveling. canvassing, and advertising departments of their business, and to do work in such other departments as they might request, from January 1, 1888, to July 1, 1890, for which service complainants were to pay him as salary $200 per month during said two and a half years, and at the expiration of said two and a half years a further sum, calculated upon a percentage of the net profits of the firm for the entire period of such employment, over and above the amount of said monthly payments, complainants also to pay all of Alling's traveling expenses. It was also provided by the contract that either party might terminate the same by giving one month's notice in writing, provided the other failed to comply with all the terms and provisions therein expressed. Alling, in and by the contract, further covenanted that he would 110t, within three years from the termination of his employment by oomplainants, whenever that might be, travel, canvass, or advertise v.43F.no.3-14
{2m
43.
\
for, or otherwise assist anyone engaged in, norhimsell engage ,dir.ecUy or indirectly in, any line of\ business: earriedon orcQDtemplated althe time of the termination of hIS employment by the complainant, nor fur:nishinformaUPD direc.tJ.yot indireotly toahy 'oneengaged 'Or interested in anyaueli1 lioe of business. He further agreed nottocoliImunicate during, the continuauce of saidagreem.Eint, or at any time ,subsequently, anyi info,rmation relating,to the secrets of the traveling, advertising, and canvassing departments, nor any knowledge 01' secrete; :which he then ,had or might from time to time acquire pertaining to depart· mentsof the business of said complainants, to any person not a member i of:complainants' firm, exoept as requested in writing. by complainants; and dn· case. ofviolation of Slj.id .coveml.nt the defendant Alling agreed to · pay: complainants or their legal' SUCCeSSors the, .sum of as liqui·;dateddamages, but such payment 'was not to release him from the obligations. undertaken, 01' from. liability for breaeh And ·it: was further provided· that, in .caseofany ,termination whatever of said ,contract, of :the :defendantAliing, 'as 'expressed in ·thecoYxlnanLjust recitedi.shouldremain in full force. The bill furtbercharges,that the :defendant Alling, left theeinployment ofcomplain.ants' in: of Jantmry, 1889, and that he :soon thereafter entered into theiemployment.oLthe defendl1ntHthe L. II. Thomas Company, whicb:is uoder .the laws state: of Illinois, ;for. ,the among ather things; of .manufacturingJand selling, inlts ,alid'mucilage; thaLits manufactory is located in the ,vicinity of the city ofOhicago,;ana·its .prinoip'al office is in.:the.city of9hicagojand that the: business:of thesaiq. L. H.Thomas;Oompany is, of the same nature ·with that of complainants, is cdnducted in substantially the same emplo(Yment of oonvassersand travelings!11esmen, and by.advertising andselling.ita;products throughout the country, that '.it is ltcompetitor JCOmplainantdn -!Dhebillalso .eharges· that the. defendant, the L,' Oompany· wasfuUy ad·ilt :the ·timeof employing Alling 'q£; hiS .obligation to'complainants 'lunder the .ngreemerit'ofJanriary :2" ;1888 t and :that; complainants fear ',that in the .course of ,hisemploYmenUvith'said L.i H.· Thoma/! Com;pany. Alling is communicatingtoand,using for the ,benefit of said com'p,anythe intormationwhich. he hasiobtainedas an employe of;complain.ants' !Concern, land the, business, and will comimunicate to saidcompairiy.thetradel secrets;pertaining to complainants' ·business so acquired by him while in complainants' employ, and will' avail lhimself of '. such trade. :secrets'to·· promote the business land further' the Jinterestscif said. compalllY' as, a: comMtit1!>rof complainants',to the, great .and irreparable injury of complainants. ' ;,The: bill prays8n injunction ':r;estraining Alling, for ,aperiod,.of threayearsfrom ithe termination of his employment with complainants,'from:traveling,canvallsing for, and othJerwise assisting L. :H.,Thomas Company , or, any; other corporations or persons engaged 'in". or from ,himself directly or· indirectly business' of manufacturing: writing, fluids,and :mucilage,iand. from filrnishing ;ai)..y, :infonnatli:oDi JdirectJ.y'QI'· indirectly. 1:',
,
/
, j,CAR-rEB ". ALLING.
to the L.,H. ,'fhom.as CompaIlY, and to any other person or corporation engaged in or inteJ,'ested in sucp business, or from communicating ,directly or indirectly to any such person' or corporation any information relating to the secrets of the traveling, advertising, or canvassing departments of complainants' firm. And that the' L.. H. Thomas Company, its officers, agents, and employes, may also be enjoined and restrained for a like period from employing Alling to travel, canvass, or advertise for, and otherwise assist said company in the business of manufacturing and selling inks, writing fluids, and mucilage. in the case. It is conceded that There is no dispute as to the ,complainants were manufacturers and. sellers of inks, etc., as charged in their bill; that Alling entered into complainants' employ under this contract, and continued in their service, as a traveling salesman and canvasser and advertiser of their inks, up to about the 20th of January, 1889, at or about which time difficulties arose between said parties touching the manner in which should conduct the business for complainants, /lndhe was notified that complainants had discharged him; and that within avery short time after such discharge defendant Alling became connected with the said L. H. Thomas Company as its president, taking the, general charge and management of its affairs, including the selling of its inks, mucilage, bluing, and writing fluids; and that the other officers of the L. H. Thomas Company were duly notified, at or Before· the time when Alling went into their employ in the capacit)' aforesaid., of his obligations under said contract to complainants. The o'llly defense seriously insisted upon in the case is that this contract is void. as a contract in restraint, of trade. There is no difference between counseias to the tenor and scope of the earlier'English doctrine upon the subject of contracts like that now under consideration. ,It was heldthat they were contrary to public policy and void; but, as the later cases came before the court,this doctrine was much relaxed, and the first modification of the doctrine was. the recognition of the validity of contraetsqfthisnature where th,e restraint was limited as to space or: time, and reasonable ill its nature, and the reported cases are ab\mdant in which an undertaking by one person not to carryon a given business within a limited area and within a fixed period of time has been sustained, and a·breachof the undertaking enjoined, ina court of equity. In later yeal'!l a further relaxation of the old rule has grown up both in England and and the courts havtl repeatedly recognized the validity of contracts in restraint of trade thronghout an entire state or country, where such restraint was not unreasonable, in view of the nature and extent ofthe pusjness of the covenantee. In Machine Co. v. Morse, 103 Mass.. 13, where the defendant had conveyed to the plaintiff certain patents for improvements in twist drills and collets,wHh an agreement to use his best efforts to perfect improvements in the business, and to do no act that might injure complainant or its business, and that he would at no' timeilid, or <encollrage iiI any manner any competition saIDe, to serve Rssuperintendent of complainant for su()p .
212
J'EDERAL REPORTER,
him, and the defendant having left the employment of complainant and gone into the employ of the competitor of complainant in the same business, an injunction restraining defendant from violating his covenant was allowed by the court, although it was there urged strenuously that the covenant sought to be enforced was in restraint of trade, and contrary to public policy, and void; the court saying: "The language of the contract implies that when the plaintiffs joined the defendant in his IIew business they had confidence in his mechanical skill and ingenuity, and intended to avail themselve..'1 of it for the benefit of the busi1Iess in which he induced them to embark, and that it was a material part of the consideration for which they paid him so considerable a sum and invested, their capital. It was, not in restraint of trade nor contrary to public policy that tbedefendantshould contract to render to the plaintiffs his exclusive services in this respect. This part of the contract he is alleged to have violated." In Whittaker v. Howe, 3 Beav. 383; complainant had purchased the inrereBt of the defendant, Howe, in the business of a firm of attorneys for £5,000, the defendant agreeing that he would not practice as a solicitor orlttt0rney in any part of Great Britain for the space of 20 years without Whittaker's consent. The defendant resumed practice as an attomeyin England within the period of 20 years after the purchase, and a bill:was filed to enjoin him from practicing or in any manner carrying on business as a solicitor or attorney in any part of Great :gritain. The injunction was granted as prayed, Lord LANGDALE, master of the rolls, saying: "Theq'dElstion, therefore, is whether the restraint ought to be considered as reasonable in this particular case. The business is that of an attOrney and solicitor, which to a large extent may be carried on by correspondence or by agents, and as ta which it has already been oecidedthat a restraint of practice witllin a distance of 150 miles was not an unreasonable restraint. * * * Agreeing with the court of common pleas that in such cases · no certain, precise boundary can be laid down within which the restraint would be reasonable, and beyond' which excessive,' having regard to the nature of the profession; to the limitation of time, and to the decision that a distance of 1.'50 miles does, not describe an unreasonable boundary, I must say as Lord KENYON saillin Davis v. Mason, [5 Term It. US:] 'ldo not see that the limits are necess8fily unreasonable, nor do I know bow to draw the line.' At present, conclusion that this agreement is void; and I theret'ore, I cannot come do nbtthi'nk that this' court can refuse to grant an injunction to restrain the of a contract or covlln,ant because there may oe some part Of the agreement Which the court could not compel the defendant specifically to perform," In Rousillon v. RousiUon, 14 Ch. Div. 351, (1880,) the defendant was empl?yed by a firm engaged in the wine business to travel for them in England, Scotland, and Holland; and in bis agreement he covenanted as follows: "I undertake not to represent any other champagne house for two years after having left you, at any time I leave your house for any reason whateVer, wbether it be on"your part or onniy own. I also undertake c.ablish myself,nor to associate myself withothel' persons or houses, in the
CARTER .,. ALLING.
tt8
champagne trade, for ten years, in case I should leave you 811 already mentioned above." Plaintiffs having discontinued their business, defendant within a year thereafter started business as a retail wine merchant in London, selling champagne and other.wines, whereupon complainants prayed an injunction to restrain defendant from carrying on the business of a champagne merchant for a period of 10 years from the time he left their employment. The injunction prayed for was granted, the court, by Mr. Justice FRY, saying: "Now, what is the criterion by which the reasonableness of the contra('t is to be jUdged? I will take the law on that point from the language of Chief JUlltice-TINDAL, in delivering the judgment of the court of exchequer chamber on appeal from the court of queen's bench in Hitchcock v. Coker, [6 Adol. & E. 438.] He said: · We agree in the general principle adopted by the court that, wher£' a restraint of a party frOID carrying on a trad,e is larger and wider than the protection of the party with whom the contract is made can possibly require, such restraint must be considered as unreasonable in law, and the contract which would enforce it must be therefore void.' That passage was adopted 1;Jy Lord WENSLEYDALE, when a baron of the court of exchequer, in delivering judgment in Ward v. Byme. [5 Mees. &W. 548, 561;] and therefore the rule so expressed is the authority of the courts of queen's bench, exchequer. and exchequer chamber. If, therefore. the extent of the restraint is not greater than can possibly be required for the protection of the plaintiff. it is not unreasonable. .. .. .. But then it is said that over and above the rule that the contract shall be reasonable there exists an6ther rule, namely, that the contract shall be limited as to space. and that this contract, being in its terms unlimited as to space, and therefore extending to the whole of England and Wales. must be void. Now. in the first place. let me consider whether such a rule would be reasonable. There are many trades which are are extensive carried on all over the kingdom. which by their very and widely diffused. There are others which from their nature anll necessities are local." Match Co. v. Roeber, 106 N. Y. 473, 13 N. E. Rep. 419, decided in 1887, is the latest reported case upon the subject that has been brought to my atteIition; In that case the defendant, who was a manufacturer of friction matches in the state of New York, with a large business throughout the United States and territories, sold his business and goodwill to the complainant corporation, with a covenant that he would not at any time within 99 years engage in the manufacture or sale of friction matches, except as an employe of complainant, within any of the states or territories of the United States except Nevada and Montana. He subsequently entered into the employment of a rival company to manufacttirematches in the state of New Jersey, and, on suit being brought hy the complainant to obtain an injunction restraining his employment with a competitor, it was urged, among other things, that the covenant was void as against public policy, because it was in restraint of trade. The injunction was awarded, the court, in an exhaustive opinion, E'aying: "Steam and electricity have, for the purposes of trade and commerce.almost annihilated distance, and the whole world is now a mart for the distri· of industry. The great diffusiollot wealth, and the bution of
rest'U!ElB!,4ct1f"fity'ofm'anklnil,:strivlng to better their condition,'has greatIyen>' larged the field of human enterprise, and created a vast number give scope ,to,i and employment for. capital and labfir.> [orne no longer 'favor the of exclusive privileges. and to a,. busfnes!l c(lrporatidns'iu6 practically partnerships, and may be orga'nizedbj any persons Who desire to unite their capital or skHl in business. leavin:g'afree field to all others who desire. for the same or similar purposes, withacorp,qr.ate Q,haracter. The tendency of recent ad· jlidicat.ions)B rnarked in. the direction of relaxing the rigor'oftbe doctrine that'a:ifciontractil in general restraint of trade are void. irrespective of special circurnstances. Indeed. it has of late been denied that a hard and fast rule of that killd'has ever beEln the la'w 'of England. ** When the restraint isgeI1etal,but Itt the same thne' only with 'the interest to be proteCt.(l<!-luld with the benefit ,Ii}eli.ntto be conferred. theras'eems to be no gooClreason ,"'hr. as between tpe:partles, the contractiil not as reasonable as WJiJeD the interest is partia'l; at1d th'ere is a corresponding partial restraint. And 'is'thereahy real public interest Which necessarily condemns the one and not the It is an encour,agement to industry and to enterprise in buildihg up"a trade that a mall shall. be, allowed to sell the good-will of the busiiness and the fruits of his industtyupon the best terms' he can obtain. If hisbuSinefJ8'eteilds over a does public policy fOl'bid his Ilccompa· nying,the a stipulatiotl'for restraint co-extensive with the business whieh'he sells?" "", . Al'l;d V.Wi1,iBOr, 20 Wall. 64, Mr. Jristice BRADLEY, for the QOUl't, enid; . ''It.ill a well-settled rale (If law that an agreement in dgenera] restraint of trade'is 'illegal and void; but anllgreement which dperates merely in partial restraint of trade is good, provided It be not unreasonable, and there be a consideratkm td support it: In: 'order' that may not be unreasonable. the restraint ,imposed 'must not 'be larger than i,j'Teq:uL'red for the necessary protectionof1tbe1part.y with' whom :the'contract is made; 'Ii II< .. This country issublltalltlally one country,: 'especially in all m,ltters of ti'adeand busi· ness; and it is manife$t that cases may arise in which it would involve too nal'f(>wa.vjewQf thesubject,.to,cpnaemnas invalid awntract not to carry on a f.',";, .1\:.,0" ;.:'1: '.::; , within ',":; , particular particular stale. It ' , " 1>', ' :.'
a
be cited; it un· seems tcl>J1\Cil the rule clearly. an employer has the right to t9gQ·,itM· oia competitor, for ,1\ sOl}ttble, tep-pinates, within the territory where. the, his ,markl:lt;, and whether suc!) covenant is ;J;easona· hIe all!!, a judicial. questi(Ou :whi()h must,depflnd in each case upon ita It :hasbeen well said that trade: state ,linea. :rhemodern; agencies of commerce, and sal.esman to, or· even havl'len:larged:t:hefield for beyond, 81:;ldto extent a. luanufact· urllr or energy and. enterprise made a market for. his. -wares, .t/:) ";t\1a.1l tn\f irightto prQteQt h,.isbusiness: ii-OlD ical competition by contracts like the one under consideration. In the C1Jse,I;n<;n'Vr: wer!,! of inks, and: similar commodities;. and' their .business extended throughout, the: entire:United'Sta:tes, andC'anadils. ,The' defendb.ut Alling was emneqeasl/oi:Y ,wmultiply QQ9tat.ioQ$.
"plQyed to. canvass to advertise tPEl products o{pl)mbusiness. Prior making the contract now under consider- .. .he, had been fors6veral, years employed in a similar. caracity by ,the complainants, and itmust be presumed that he had acquired l1Q exJepsiveknowledge" not only of the, complainants' business met!)ods, 1mt of their trade secrets, and this knowledge he .had the pay of complainantS, and acting for them. It does not, therefore, se13mto me unreasonl.lible, that the complainants should exact, from him that he would, not reveal their trade I:!oorets. and would not of any competitor of complaipants for the time f!pecifi.ed in his, covenant after his employment by cOlllpla,.inants ElhQuld ter,minate. , In the wine dealer's ;case, just quoted, the restriqtion a term of ten years after the employment qeased,;and the GaUTt, under, the circumstllinces, not . Here the restriction is for <three, years opiy,whicb, it me,was,entirely proper for defendto agree foand .' for complainants to exact. A d.ecree. ,ther:efore be, entered for.the complainantll.. ,:!
to
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:!o,MBSJm,·PuOFLTS.....LuBILlTT,'OlrDmSEJSOR-PABTIES....,EQtJ'IT:r. . , . : . :
&'SAlItE'-'-PJtINOIPAL 'AND' BtJ'RETy....RELlilASB.
A Sllit was brought by thl! owner of land against .the !,arties in possession for mesne profitll'. 'The defendants n9tified their grantor,'who had 'warranted the title, J !and.· he. conducted, their defense. : After, recovering judgment, the plaiutitf ,s1lQli ,aillgrantor to. recover the of such .The dl3fendants intheorigi.' "'YmlllUit were not Diade and objecti0ll; was i'aised.on groun'd: Bf}ld, . that the fact that some of Iloald defendants had. dIed after entry of JUdgnlentagamst did, not affect the suit against the 2. BY TENANT.' . ..· . ,; : i Pliiitltiff bad had trantderred ioher tberight' to .iuesaid grantor for the ,price paW ffior the land. Bela, that this fact did nQtai;re'?t ,her right toO mense IIro t s. ..... . ..' . .
:,:..
no
.d
.
').,:'
; :.,' who 'hasreQoveredt'Wo agalJ;lst ,,: ptll'!lon in , pOSSllssion,-onefor the lanciand the other for rents andprollts,-exolulDges her ). judgMent claim for rents and prollts .againstan evicted: tenant 'for the i'igh1l 'of the tenant to recover over from hisgrant0r t;he same ,the. lattllr'scov,enant · of warranty,' and all clai!D pers0ll; perSOnally. · such agreement is no defense' to a SUIt aga1Ust suob'grantor for sInd 'rents and ... ,profits, since he is the.prin.C.iP.3.1 debtor, and the eVi.Qted,pe",pn fa · but equity will deduct fromtb.ll amount to be rilcovereci against the principal the " amount paid by the surety' as part consideration for and. personal . release. .
In Eqllity. . . .. ..'. . : Sllitby W. W. Whitney, liS administrato.rot against thEl city 9f:New .flhefa.ctsin th('l,case, see.9 SQ.p. Ct. Rep, . ;; , :.J 'f.. J, .Semme$ ilnd· A. for com · . J! .J· .R,;Redqw.ith, fox " .
. of Myra of .i,;;