Feenaughty v. Beall

178 P. 600, 91 Or. 654, 1919 Ore. LEXIS 74

• Court: Oregon Supreme Court
• Decided: February 18, 1919
• Status: Published

Opinion

BURNETT, J.

1. A contract may be defined as an agreement between two or more parties competent for that purpose, upon a sufficient consideration, to do or not to do a particular thing which lawfully may be done or omitted. In this suit there are three questions to be considered: First, whether it was lawful to make such a contract as the plaintiffs say was made; second, whether there was actually a contract; and third, if made, whether it was sufficiently certain to enable a court to decree specific performance thereof. While the common-law rule was that a contract in restraint of trade was unlawful, modem conditions have led the courts by great weight of authority to lay down the mle that it is proper for parties selling an established business or transferring their stock in a corporation engaged in business, as part of the transaction to agree that the seller will not engage in like business in any capacity in a place and for a time designated. It is in the nature of a protection of the purchaser in the enjoyment of what he had bought and is not to be countenanced unless in connection with the sale of a business or of property employed in trade.

2. In Barrows v. McMurtry Co., 54 Colo. 432 (131 Pac. 430), in one contract joined in by a stockholder, his corporation and the purchaser of the entire stock in trade of the concern and the goodwill of it and the stockholder and his brother and sister, he covenanted not to engage either directly or indirectly in any business in the State of Colorado which carried, handled or sold paints, varnishes or glass, or to accept employment with any house or business which handled such merchandise or to invest any money in any concern in that state carrying on a like business. The court sustained the contract and by injunction forbade his violation of it. In Kramer v. Old, 119 N. C. 1 (25 S. E. 813, 56 Am. St. Rep. 650, 34 L. R. A. 389), it was held substantially that if several persons engaged in a business at a certain place sell it and agree not to engage thereafter in the same business in that place, it is a violation of the contract for any one of them to assist in the organization and management of a corporation thereafter formed to compete with the purchaser in such business. It was also held in that case that although the contract is binding between the parties to it, it does not impair the right of defendants who were not parties to the contract. .What was enjoined was the organization of a new corporation by the parties to the original agreement, as a device for its infraction: See, also, Up-River Ice Co. v. Denler, 114 Mich. 296 (72 N. W. 157, 68 Am. St. Rep. 480); Kronschnabel-Smith Co. v. Kronschnabel, 87 Minn. 230 (91 N. W. 892); Kradwell v. Thiesen, 131 Wis. 97 (111 N. W. 233); Harris v. Theus, 149 Ala. 133 (43 South. 131, 123 Am. St. Rep. 17, 10 L. R. A. (N. S.) 204); Fleckenstein Brothers Co. v. Fleckenstein, 76 N. J. Law, 613 (71 Atl. 265, 24 L. R. A. (N. S.) 913); Bradford v. Montgomery Furniture Co., 115 Tenn. 610 (92 S. W. 1104, 9 L. R. A. (N. S.) 979); Buckhout v. Witwer, 157 Mich. 406 (122 N. W. 184, 23 L. R. A. (N. S.) 506); Siegel v. Marcus, 18 N. D. 214 (119 N. W. 358, 20 L. R. A. (N. S.) 769); Hall Mfg. Co. v. Western Steel & Iron Works, 227 Fed. 588 (142 C. C. A. 220, L. R. A. 1916C, 620). We conclude, therefore, that it is lawful for a concern selling its business and goodwill or for an individual selling his interest either in a firm or corporation, to agree that the seller will not engage in a specified business and will refrain for a specified time from certain things financially detrimental to the buyer.

3. The next question to he determined is whether the writing of January 26, 1914, addressed to the plaintiffs and signed -by the Bealls, constitutes a-contract. The consideration recited is “your purchase of the interest of ourselves in the company known as Beall & Company.” The record shows that the sale of the stock of the Bealls in that concern was accomplished by the writing executed on January 17, 1914, declaring that the transfer should be made as of the next day but one. Consequently, the sale of the stock was an accomplished fact at least a week before the date of the writing upon which the plaintiffs were relying. It was a past consideration. In that respect it was inert. , It could not support any subsequent stipulation, The plaintiffs had irrevocably agreed to buy that stock and to pay for it. "What they had already covenanted to perform cannot operate as a consideration for additional stipulation. We had occasion to consider this point in Hoskins v. Powder Land & Irr. Co., 90 Or. 217 (176 Pac. 124), where some precedents are noted.

4. The plaintiffs, however, contend that before the execution of exhibit “A” transferring the stock and during the negotiations which led up to the execution of that instrument, the Bealls stated in effect that they were anxious to retire from business and would stay out, and the contention of the plaintiffs is that the writing of a week later is part of the same transaction and must be read in connection with the instrument actually transferring the stock, and likewise, that the previous conversation supports that theory.

Section 713, L. O. L., reads thus:

“WThen the terms of an agreement have been reduced to writing by the parties, it is to be considered as containing all those terms, and therefore there can be, between the parties and their representatives or successors in interest, no evidence of the terms of the agreement, other than the contents of the writing, except in the following cases :

“1. Where a mistake or imperfection of the writing is put in issue by the pleadings;

“2. Where the validity of the agreement is the fact in dispute. But this section does not exclude other evidence of the circumstances under which the agreement, was made, or to which it relates, as defined in Section 717, or to explain an ambiguity, intrinsic or extrinsic, or to establish illegality or fraud. The term ‘agreement’ includes deeds and wills as well as contracts between parties.”

In Sund v. Flagg, 86 Or. 289 (168 Pac. 300), where consideration of this statute was involved, the plaintiffs sought to recover compensation for their services in grading for a railroad under employment by the defendant. Work was begun under an oral arrangement contemplating a later writing embodying the stipulation of the parties. The contention of the defendant was that it was agreed orally that the estimate of the chief engineer should be binding upon the plaintiffs and that it would control the subsequent writing. Mr. Justice Harris, speaking for the court, on that point used this language:

“It may be true that contracts with stationmen usually contain the stipulation contended for by the' defendant but the answer is that this instrument does not contain such a stipulation. The parties chose to reduce their .oral agreement to writing and upon inspection the document appears to contain a complete contract. The prior oral agreement made in September, 1912, may have included the stipulation that the parties would be bound by the estimates of the chief engineer; but if the oral agreement did embrace such a stipulation the parties left it out when they reduced the agreement to writing and since ,the writing now appears to contain a complete contract, the party

claiming to be prejudiced is without remedy in this proceeding”: Citing Vogt v. Schienebeck, 122 Wis. 491 (100 N. W. 820, 106 Am. St. Rep. 989, 2 Ann. Cas. 814, 67 L. R. A. 756).

The instrument contracting for the sale of the stock opens with this statement made by the Bealls and accepted by the plaintiffs: “This confirms our verbal agreement with you which we now understand to be as follows,” the matter following containing the offer to sell and the terms thereof. Over their own signatures the plaintiffs declared: “We accept the above as satisfactory.”

There is no pretense in this suit that any mistake was made in the execution of this document or that the plaintiffs were induced by the fraud of the Bealls to consent to it. It evidenced a completed transaction. It cannot be varied by parol. It was a past consideration giving no vitality to the document upon which the plaintiffs here rely. On that account they can claim nothing by virtue of it.

5. The corporate defendants cannot be bound by the stipulations of an instrument to which they were not parties. In Hall Mfg. Co. v. Western Steel & Iron Works, 227 Fed. 588 (142 C. C. A. 220, L. R. A. 1916C, 620), the court said:

“If any stockholder or officer is skilled in any profession or art, he is not restrained from exercising his skill by the corporation’s covenant.”

The converse is equally true that if a stockholder operating for himself makes a covenant in his own name, it does not bind a corporation of which he may be a member. If it were held that a single stockholder by his individual act or stipulation could bind a corporation of which he was a member, without the concern’s being a party to.that agreement, it would be in the power of the holder of a majority of the stock- or even of a minority, to prejudice other holders of stock who had no notice of it. As against his corporation, a stockholder cannot contract with parties who have no interest in the concern to operate as a member thereof in any manner inimical to it. He owes his loyalty to the institution and no person not interested in it can lawfully seduce him from his duty. It is his business to maintain a position where he can exercise his fair, honest judgment in the interests of the corporation of which he is a member: 15 Am. & Eng. Cyc. L. 948. In 3 Clark & Marshall on Private Corporations, Section 657, the authors use this language:

. “But any agreement by or between a part of the stockholders of a corporation, particularly where they own the majority of the stock, by which they bind themselves to vote for certain officers or directors, or for themselves, at a stated salary, or for certain measures, without regard to what may be to the best interests of the company, or otherwise place their own interests in opposition to the interests of the company, since it tends to á perpetration of a fraud upon minority stockholders, is contrary to public policy, and illegal.”

The parties to the paper of January 26, 1914, might lawfully contract affecting their own interests, but without its consent they could not restrict the activities of the Coast Culvert & Plume Company or of the. Multnomah Iron Works.

6. By means of injunction the plaintiffs seek to enforce specific performance of the negative language in exhibit “C.”

“That we will not enter directly or indirectly into any organization or individual connection in the same line of business in or about Portland or this territory whereby the interests of Beall & Company will be in any measure interfered with.”

That injunction is a proper remedy to enforce such negative covenants is laid down in Harris v. Theus, 149 Ala. 133 (43 South. 131, 123 Am. St. Rep. 17, 10 L. R. A. (N. S.) 204).

7. In a suit for specific performance, the contract itself must be specific enough to serve as the foundation of a specific decree. The court cannot be wiser than the parties themselves or go more into detail than they have marked out for their conduct, or make a new contract for them. In every case that has come under our observation where the court enjoined parties from transacting a similar business, the agreement was so specific that no one could mistake what was within the contemplation of the parties. For instance, in Up-River Ice Co. v. Denler, 114 Mich. 296 (72 N. W. 157, 68 Am. St. Rep. 480), the man who sold his stock agreed not to engage in the ice business in Port Huron or adjacent thereto at any time, either as principal, agent or employee. Kradwell v. Thiesen, 131 Wis. 97 (111 N. W. 233), was a case wherein the defendant bound himself in writing with the Kradwells that for and during a period of five years from and after June 23, 1903, he would not, either directly or indirectly, in his own name or as stockholder or as agent, engage in the business of selling drugs either at wholesale or retail, or conduct a drug-store, within the corporate limits of Eacine. On the other hand, in Hoff v. Leneerman, 143 Ill. App. 170, the agreement by the defendant not to run a corn-sheller “in the territory contiguous to Guthrie, Hlinois,” was held to be too indefinite to justify a decree for specific performance. In Brehm v. Sperry, 92 Md. 378 (48 Atl. 368), a contract “to give their best efforts” to the consummation of a certain scheme was likewise held to be too indefinite for enforcement by decree. In Burke v. Mead, 159 Ind. 252 (64 N. E. 880), the rule laid down by Mr. Justice Washington in Colson v. Thompson, 2 Wheat. 336, 340 (4 L. Ed. 253), was approved, reading thus:

“The contract which is sought to be specifically executed, ought not only to be proved, but the terms of it should be so precise as that neither party could reasonably misunderstand them. If the contract be vague or uncertain, or the evidence to establish it be insufficient, a court of equity will not exercise its extraordinary jurisdiction to enforce it, but will leave the party to his legal remedy.

See, also, Buck v. Smith, 29 Mich. 166 (18 Am. Rep. 84), and Blanchard v. Detroit etc. R. R. Co., 31 Mich. 43 (18 Am. Rep. 142).

8. It is uncertain from the language of the writing what the parties considered at the time to be an interference with the interests of Beall & Company. On this ground, likewise, in our judgment, the contract is not a good foundation for enforcement of specific performance. The decree of the Circuit Court is reversed and the suit dismissed.

Beversed and Dismissed. Behearing Denied.

McBride, C. J., and Benson and Harris, JJ., concur.