(b) Good-will is property, and as such is subject to transfer like any other species of property; and in its enjoyment the purchaser is entitled to exactly the same measure of protection that is afforded the purchaser of tangible property; the law should not permit the vendor to regain possession, contrary to the terms of his agreement, of all or any part of that which he has sold. (c) All contracts made for the protection of the purchaser of good-will should be strictly enforced, unless it clearly appears that they are so unreasonable in their terms as to deprive the vendor or the party bound of valuable rights, without any corresponding benefit to the purchaser; even under such conditions a contract should be enforced wherever it is possible to so divide it as to declare it binding over such territory and for such time as are reasonably necessary for the protection of the purchaser, and declare it void as to such time and such territory as are not necessary for the protection of the purchaser. It will be found that it is occasionally possible for courts to hold the contract divisible in this respect. (d) A contract in restraint of trade being the contract by which the good-will of a profession, trade or calling, or of a business or enterprise, is sold, the courts should look with favor upon such contracts and enforce them, except in those cases where the enforcement would be manifestly inequitable and amount to the enforcing of a contract that is void for want of consideration. (e) The consideration for a contract in restraint of trade being that which is paid for the good-will of the profession, trade, calling, business or enterprise in question, it is obvious that the entire consideration is met by the transfer of the entire good-will, and any agreement which arbitrarily binds the vendor beyond the territory and the time necessary for the protection of the good-will transferred is without consideration. The investigation of the law governing contracts in restraint of trade as developed in England and subsequently in America leads up to the statement of what may be termed the modern rules upon the subject. CHAPTER 20. CONTRACTS IN RESTRAINT OF TRADE IN ENGLAND. $689, 690. Classification of contracts in restraint of trade. 694. The early rule. 695-697. Early rule modified. 699. Mitchell v. Reynolds (1711). 700. By-law of Gunmakers' Company. 702-705. Some additional illustrations. 706. Recent leading cases-Rousillon v. Rousillon. 707-711. Nordenfelt v. Maxim-Nordenfelt Company. 712. Some exploded tests. 713-716. Modern English rule. 717. Good-will as a valuable property right. 718. Reasonableness of the restraint. 689. Classification of contracts in restraint of trade.Contracts in restraint of trade may be classified as follows: (A) A contract by the seller of a business, trade, industry or profession not to compete with the buyer. Such contracts are for the protection of the good-will of the business, trade, industry or profession sold. (B) Contracts by a partner or retiring partner not to compete with the firm or his successors. Such contracts are for the promotion and protection of the good-will of the business. (C) Contracts by employees, agents and factors not to compete with the employer or principal either during or after the time of service or business connection. Such contracts are usually for the protection of the employer or principal against the unfair use by the servant, agent or factor of the intimate. knowledge gained by the latter in the employment of the former.1 (D) Contracts by grantees, lessees and parties succeeding to any property, rights or privileges, not to use the property, rights or privileges for purposes in opposition to, or competition with, the interests of grantor or lessor. 1 See Pollock on Contracts (5th Eng. ed.), ch. VII. § 690. In addition to the foregoing, contracts which are properly classified under the head of contracts in restraint of trade, the decisions are numerous wherein contracts of an entirely different class are also referred to as contracts in restraint of trade. For instance, contracts whereby two or more competitors enter into any sort of combination or trade agreement are referred to as contracts in restraint of trade; many such decisions have been already reviewed. Were the field open to adopt new definitions, it might be urged with much reason that the only contracts which are in any true sense in restraint of trade are contracts and agreements between parties engaged in trade whereby competition is to cease; but the development of the law concerning contracts in restraint of trade has been along well-defined lines, and the definition herein before suggested (see § 688) is the only definition permissible under the decisions; any attempt to apply the law governing contracts in restraint of trade to agreements whereby parties engaged in business suppress competition or act together in any manner to advance their interests must necessarily result in confusion.1 1 For an interesting discussion of the law of contracts in restraint of trade in connection with anti-trust legislation, see article by Mr. Frederick H. Cooke, 33 Am. Law Rev. 63. The opening paragraph of this article is in point: "The ordinary practicing lawyer is inclined to regard with contempt, or at least with indifference, as of little practical importance, investigations into the origin of legal doctrines. It suffices for him that they are as they are: ita scripta est. But occasionally at least the origin of such a doctrine becomes of practical importance, as determining the propriety of its application to a given case. This seems to us to be true of two doctrines that are at present often confounded by reason of overlooking their respective origins-the doctrine against contracts in restraint of trade and that against restrictions upon competition. The mischievous results of this confusion are seen, not only in the decisions, but in so-called 'anti-trust' legislation." For a discussion of the development of the law of England, see article in 22 Irish Law Times, 282. Regarding the general policy of the law, the writer in this article says: "But if the spirit rather than the letter of the authorities is to be regarded, much may be said in favor of the validity of a general restraint, where it is reasonably required for the protection of the plaintiff. It is generally admitted that the ground on which the decisions are founded is public policy, and in early times the meaning of that was explained to be that the nation ought not to be deprived of the services of a useful member; and accordingly nobody was allowed to bind himself not to employ his talents. his industry or his capital in any useful undertaking in the kingdom. Ipswich Tailors' § 691. Origin of the rule.— The origin of the rule that contracts in restraint of trade are opposed to public policy cannot be definitely ascertained. It is said to have been partially recognized by the Roman law,' but in a leading English case it was definitely proven that no such rule is recognized by the law of France.2 § 692. In the reign of Henry V. a dyer bound himself not to exercise his trade for six months in the same town with the plaintiff; in an action on the bond Judge Hull exclaimed with considerable emphasis, in the French of the day, “Per Dieu, if the plaintiff were here, he should go to prison till he had paid a fine to the king." This seems to be the earliest reported case. Under the more liberal doctrine which controls the courts of the present day Case, 11 Coke's Rep. 53a; Mitchell v. Reynolds, 1 P. Wms. 181; Homer v. Ashford, 3 Bing. 328. No doubt Lord Macclesfield expressed his opinion that a total restraint could not under any circumstances be reasonably required for the protection of the parties, but that was merely a subordinate ground of decision, and the notion of reasonableness as the sole test of the validity of a contract in restraint of trade has only come into prominence in modern times. On the other hand, public policy is a variable quantity, and it would be a strange thing -as was pointed out by Lord Justice Fry-if a contract which might now be for the public benefit were held to be void because in the reign of Henry V., or in the reign of Elizabeth, that contract was contrary to public policy; and according to modern conceptions, a contract which is reasonable is prima facie not opposed to public policy. It is obvious that a rule which might be eminently beneficial in a comparatively primitive state of society might be ill adapted to the highly complex condition of modern commercial intercourse. Certain it is that no trade is likely to starve for want of apprentices at the present day. Hence it happens that public policy may require that the covenantee should be protected no less than the covenantor; and this view of public policy was strongly insisted upon by Lord Justice James in Re Leather Cloth Co. v. Lorsont. Mr. Justice Kekewich put the case in a nutshell when he said that freedom of contract and freedom of trade were equally favorites of public policy. Upon the question upon what the law ought to be these arguments are hard to meet, but in the face of the formidable array of decisions by which an artificial rule has been established that a general restraint is void, they would appear to have less cogency upon the question what is the actual state of the law. In conclusion, we respectfully concur in the opinion expressed by Lord Justice Bowen, that the rule of the common law is too much ingrained in our history to be changed at this moment-at all events, except by the highest court in the country." 1 Greenh. Pub. Pol. 687. 2 Rousillon v. Rousillon (1879), L. R. 14 Ch. Div. 351, 49 L. J. Ch. 338, 22 Albany Law Jour. 212, 11 Cent. Law Jour. 270. 3 Year-Book 2 Hen. V., 1415. the bond that excited the anger of Judge Hull would be enforced. It would be difficult indeed for a man to dispose of the good-will of his business for any sum at all commensurate with its value if the law did not permit him to bind himself not to embark in the same business in the same town for a period so short as six months. § 693. In 1602 the following bond was held void: "That if R. Bacheler, son of the defendant, do at any time on this side or before the feast of St. John Baptist which shall be in the year 1604, either as apprentice or servant, or for himself as master, or otherwise, use the trade of an haberdasher within the county of Kent, the cities of Canterbury or Rochester; if then the within bounded R. Bacheler do upon request pay unto the plaintiff twenty pounds, that then the obligation shall be void." It was resolved by the court that it was against the law "to prohibit or restrain any to use a lawful trade at any time, or at any place; for as well as he may restrain him for one time or one place, he may restrain him for longer times and more places, which is against the beneft of the commonwealth; for being freemen, it is free for them to exercise their trade in any place. And although it were alleged that here he is not prohibited or obliged absolutely that he shall not exercise the trade of an haberdasher, but that if he exercise it, he shall pay to the plaintiff 201., and so it differs from the Dyer case, yet, the court said, it was all one; for he ought not to be abridged of his trade and living." § 694. The early rule. It is clear from these cases that the courts in those early days would not tolerate any contract, whether reasonable or otherwise, which restrained a man from following his trade or calling; neither the extent of the territory involved nor the time covered by the bond influenced the court in the slightest degree; it was sufficient if it appeared that the object of the contract was to restrain the party bound. Although the reports of the two early cases referred to are exceedingly meagre, and the facts are not fully recited, it is apparent that the courts were influenced by the following considerations: 1. That contracts in restraint of trade were void as "against the benefit of the commonwealth." 1 Colgate v. Bacheler (1602), 1 Croke's Rep. 872. |