Harrison v. Glucose Sugar Refining Co.

116 F. 304, 58 L.R.A. 915, 1902 U.S. App. LEXIS 4336

• Court: Court of Appeals for the Seventh Circuit
• Decided: May 6, 1902
• Docket: No. 830
• Status: Published

Opinion

JENKINS, Circuit Judge

(after stating the facts). The objection that the appellee is an illegal trust or monopoly condemned by the law of the state of Illinois, and so declared by the supreme court of that state, cannot be 'sustained. We have held in the case of an injurious combination of the nature here asserted that the remedy is by direct proceedings; that with respect to a contract which is independent of the illegal combination, and is merely incident to other and innocent purposes, one who voluntarily and knowingly deal's with parties so combined cannot on the one hand take the benefit of his bargain, and on the other defend against the contract on the ground of the illegality of the combination. Dennehy v. McNulta, 30 C. C. A. 422, 86 Fed. 825, 41 L. R. A. 609. See, also, Paper Co. v. Robertson (C. C.) 99 Fed. 985.

It is to be said also that since the submission of this case the supreme court of the United States in Connolly v. Sewer Pipe Co. (decided March 10,1902, and as yet not officially reported) 22 Sup. Ct. 431, 46 L. Ed. 679, has declared the anti-trust law of the state of Illinois to be in derogation of the constitution and an invalid enactment.

It is urged that the contract in question is one in restraint of trade because of the covenant that during the stipulated time of service the appellant would not, directly or indirectly, become interested in the specified business within a radius of 1,500 miles from the city of Chicago otherwise than under his engagement with the appellee. The doctrine of restraint of trade had its birth in conditions anciently obtaining, and now greatly changed. Then the area of trade was confined within narrow territorial bounds. Intercommunication has become largely extended, and trades anciently limited to a small locality have become national in their extent. The rule is bottomed upon the consideration whether such a covenant was broader than the covenantee required for his protection. The restraint must not be arbitrary, but 'should be limited. It must be reasonable with respect to time and to the area within which the covenantee prosecutes his business. Beyond this, restraint is unnecessary and invalid. The test to be applied was asserted by Chief Justice Tyndall in Horner v. Graves, 7 Bing. 735, to be this:

“To consider whether the restraint is such only as to afford a fair protection to the interests of the party in favor of whom it is giv'en, and not so large as to interfere with the interests of the public. Whatever restraint is larger than the necessary protection of the party can be of no benefit to either. It can only be oppressive, and, if oppressive, it is, in the eye of the law, unreasonable and void, on the ground of public policy as being injurious to the interests of the public.”

In Navigation Co. v. Winsor, 20 Wall. 64, 68, 22 L. Ed. 315, Mr. Justice Bradley, in delivering the opinion of the court, observes:

“There are two principal grounds on which the doctrine is founded that a contract in restraint of trade is void as against public policy,—one is the injury to the public by being deprived of the restricted party’s industry; and the other is the injury to the party himself by being precluded from pursuing his occupation, and thus being prevented from supporting himself and his family.”

In Gibbs v. Gas Co., 130 U. S. 396, 409, 9 Sup. Ct. 553, 557, 32 L. Ed. 979, Chief Justice Fuller, speaking for the court, says:

“The decision in Mitchel v. Reynolds, 1 P. Wms. 181, is the foundation of the rule in relation to the invalidity of contracts in restraint of trade; but, as it was made under a condition of things and a state of society different from those which now prevail, the rule laid down is not regarded as inflexible, and has been considerably modified. Public welfare is first considered, and if it be not involved, and the restraint upon one party is not .greater than protection to the other party requires, the contract may be sustained. The question is whether, under the particular circumstances of the case and the nature of the particular contract involved in it, the contract is or is not unreasonable.”

Notwithstanding some authorities which seem to have followed blindly the ancient rule, overlooking the reason of the rule and the changed conditions, it is not just to limit the territory within which restraint may be applied by any arbitrary geographical boünds, without regard to the nature and extent of the business in which the restraint is sought to be imposed. State lines cannot justly be applied within the reason of the rule. It is a question not of state policy, but of national policy and of general law. The reasonableness of the restraint has respect to the territory occupied by the business. That which would be reasonable in respect of one trade would be unreasonable in respect of another. Each case must be resolved upon its peculiar circumstances. Fowle v. Park, 131 U. S. 88, 9 Sup. Ct. 658, 33 L. Ed. 67; Carter v. Alling (C. C.) 43 Fed. 208; Rousillon v. Rousillon, 14 Ch. Div. 351; Nordenfelt v. Ammunition Co. [1894] App. Cas. 535; Underwood v. Barker, 68 Law J. Ch. 201; Kramer v. Old, 119 N. C. 1, 25 S. E. 813, 34 L. R. A. 389, 56 Am. St. Rep. 650; Cloth Co. v. Lorsont, L. R. 9 Eq. 345; Badische Anilin und Soda Fabrik v. Schott [1892] 3 Ch. 447; Match Co. v. Roeber, 106 N. Y. 473, 13 N. E. 419, 60 Am. Rep. 464; Herreshoff v. Boutineau, 17 R. I. 3, 19 Atl. 712, 8 L. R. A. 469, 33 Am. St. Rep. 850; Electric Co. v. Hawkes, 171 Mass. 101, 50 N. E. 509, 41 L. R. A. 189, 68 Am. St. Rep. 403.

In the contract in question the restraint is limited, as to time, to the period of service engaged for; as to territory, within a radius of 1,500 miles of the city of Chicago. It is contended that in the latter respect the restraint is unreasonable. The answer asserts that, the territory described comprises the entire territory in the United States within which glucose and its kindred products are or can be successfully manufactured and marketed. The bill alleges that the market occupied by the appellee extends throughout the United States and to various foreign countries, but particularly extends throughout the territory described. Within the modern doctrine we cannot say that this restraint is invalid, the circumstances being considered. The appellant engaged his services to the appellee for a specified term. He was to aid in the manufacture of glucose and its kindred products. He was to receive a compensation of $4,000 per annum, and in addition, as he states, was to have for his five years’ service $17,500 par value of the common stock of the appellee. The restriction that during the term of service the appellant should not become interested in the manufacture of like products in the territory occupied by the appellee seems not unreasonable. He engaged his whole service and his entire time for the period of five years and for a liberal compensation to be paid him. It is but common justice that during the period of service contracted, and from which service he had not been discharged, the appellant should not become interested in the manufacture or sale of the product of a rival in the business*. In Rousillon v. Rousillon, supra, a contract not to engage in the sale of champagne, without limit as to territory, was enforced. In Whittaker v. Howe, 3 Beav. 383, a contract by a solicitor not to practice his profession in any part of the kingdom of Great Britain was held valid. In Underwood v. Barker, supra, an agreement by one in the service of a hay and straw merchant that he would not, for the space of 12 months next after leaving the business, be interested in the same business in the United Kingdom of Great Britain, Ireland, the Province of Belgium, Holland, or the Dominion of Canada, nor for the period of five years in the Republic of France, was sustained. The extent of the restraint here is only that during the time engaged for he should not enter the service of a rival within the territory occupied by his employer. There is in this agreement, as we conceive, nothing contrary to public policy. If the public be deprived of his supposed skill it is only because he chose to break his contract, and declines to re-enter the service for which he engaged and which is still open to him. He is not debarred from engaging in other business or providing for his family in any other occupation. It is well said in Electric Co. v. Hawkes, supra:

“The comparative ease with which one engaged in business can turn his energies to a new occupation if he contracts to give up his old one makes the hardship of such a contract much less for the individual than formerly, and the commercial opportunities which open the markets of -the world to the merchants of every country leave little danger to the community from an agreement of an individual to cease to work in a particular field.”

We cannot believe that the scientific ability of the appellant will be lost to the public or that his family will suffer because he may not for the limited time of his contract expend his ability in the manufacture of glucose and its kindred products. He has but to re-enter the service to which he engaged and which is stiff open to him to place them above the fear of want. In one respect the case is peculiar, and distinguishable from most, if not all, of the cases bearing upon the subject. • The instances in which the rule of restraint has been applied may be thus classified: (1) where the vendor of a business and' its good will covenants that he will not re-enter the same line of business; (2) where the limitation is to take effect after the expiration of the contract period of service; (3) where the servant has been discharged; (4) where the master has acquiesced in the abandonment of the service of the servant. Here the restriction is limited to the period of service engaged for. The appellant left without cause and to enter the service of a rival. There was no acquiescence by the appellee. The appellant was immediately notified to return to the service which he had abandoned, and the biff alleges a willingness by the appellee to retain the appellant in its service and to pay him the compensation contracted for notwithstanding his conduct. Clearly, under such circumstances no public policy would be violated in upholding the covenant. He is not deprived of the opportunity to obtain the means of subsistence or of giving to the public the benefit of his skiff in the business to which he has been accustomed. He has only to perform the duty which he engaged to perform to render himself and his family comfortable. We know of no public policy which requires us to sanction the bald violation of a contract lest the public should be deprived of the peculiar skill of the appellant because he will not exercise that skill where he has engaged to exercise it. We quite concur with the master of the rolls in Underwood v. Barker, supra, that:

“If there Is one thing more than another which is essential to the trade and commerce of this country, it is the inviolability of contracts deliberately entered Into; and to allow a person of mature age, and not imposed upon, to enter into a contract, to obtain tbe benefit of it, and then to repudiate it and the obligation which he has undertaken, is prima facie, at all events, contrary to the interests of any and every country. * * * The public policy which allows a person to obtain employment on certain terms, understood and agreed to by him, and to repudiate his contract, conflicts with, and must, to avail the defendant, for some sufficient reason prevail over, the manifest public policy which, as a rule, holds him to his bargain.”

There is, however, another consideration which, as we think, should prevail to hold this contract valid. The appellant was under his contract employed in a confidential capacity, in a business which, notwithstanding the denial of the appellant, we cannot but believe upon the evidence presented required many secret processes. The 'statement of facts which precedes this opinion details the measures of care adopted to prevent knowledge of those 'secrets by rivals and by the servants in the business, except those occupying confidential relations. The record is replete with evidence, not necessary here to be set forth at large, to the effect that the experts were constantly experimenting to discover processes by which every part of the product might be utilized at the minimum of expense, and that the experiments and the results obtained were communicated confidentially to the appellant. It also satisfactorily appears, notwithstanding his denial, that the appellant entered into the employment of a concern not at the time engaged in a rival business, and forthwith superintended for them the construction of works for the manufacture of glucose and its kindred products with a view to compete with the appellee in such manufacture. Under the circumstances it would require something more than his mere denial to convince us that in the manufacture of glucose he would not employ the secrets of the business of the appellee which had been confidentially communicated to him. He could not well do otherwise. He was employed by the rival for that purpose. He was to give all his skill, including the knowledge confidentially acquired in the business of appellee, to his new master. He could not in good faith 'serve the one without breach of duty to the other. In such case it may well be doubted if the rule with respect to restraint of trade should apply, because these secrets of the business are the property of the appellee, to which the public has no right, and may not justly insist that it shall receive the benefit of the appellant’s services through breach of confidence. Machine Co. v. Morse, 103 Mass. 73, 4 Am. Rep. 513; Beal v. Chase, 31 Mich. 491. In all such cases courts have uniformly enjoined the delinquent party from’ engaging in the business from which he has agreed to refrain and from disclosing the secrets of the business which he has thus acquired. 1 Spell. Inj. §477; 1 Story, Eq. Jur. 323; 2 Story, Eq. Jur. 952; 1 High, Inj. § 19; Hopk. Unfair Trade, § 67; Vickery v. Welch, 19 Pick. 523, 527; Peabody v. Norfolk, 98 Mass. 452, 458, 96 Am. Dec. 664; Chadwick v. Covell, 151 Mass. 190, 23 N. E. 1068, 6 L. R. A. 839, 21 Am. St. Rep. 442; Salomon v. Hertz, 40 N. J. Eq. 400, 2 Atl. 379; Westervelt v. Paper Co., 154 Ind. 673, 57 N. E. 552; Thum Co. v. Tloczynski, 114 Mich. 149, 72 N. W. 140, 38 L. R. A. 200, 68 Am. St. Rep. 469; Morison v. Moat, 21 L. J. Ch. (N. S.) 248; Yovatt v. Winyard, 1 Jac. & W. 394.

This is not a suit to enforce the specific performance of a contract for personal services, which it is conceded cannot be done. The injunction sought to restrain the appellant from violating his covenant and from disclosing the secrets acquired by him while in the service of the appellee under his contract of employment. There is no adequate remedy at law for such violation. There are no mean's to determine the extent of the damages which would be sustained by disclosure of such secrets. To vacate the restraint imposed by the court below would practically decree for the appellant upon the merits of the case, for a decree would be useless if the secrets were once disclosed.

We are of opinion that the decree awarding the injunction should be affirmed.