Swigert & Howard v. Tilden

63 L.R.A. 608, 97 N.W. 82, 121 Iowa 650

• Court: Supreme Court of Iowa
• Decided: October 31, 1903
• Status: Published

Opinion

Bishop, O. J.

It will be observed that, by the contract in question, defendant agreed, without limitation of time, to abstain from engaging in the shirt business within a radius of one hundred miles of Des Moines; that, as related to the states of Iowa and Nebraska generally, thq agreement provides for a time limit of ten years. Taking the facts as stated in the petition to be true — and, as far as well pleaded, the demurrer admits the truth thereof— it is manifest that the alleged conduct on the part of defendant does now, and, unless he be restrained therefrom, will continue to, interfere 'with, and work injury and damage to the property rights and business interests of plaintiffs. It is certain that the defendant possessed valuable rights, and, without dispute, these were in the nature and character of property rights. It was in consideration of a transfer of such to plaintiffs that they entered into the contract of purchase, and paid the consideration price. It would seem that common fairness requires that plaintiffs should be protected in the rights thus acquired by them, unless, forsooth, some consideration of general public policy dictates that their complaint should go unheard. That the attempted restriction is .against public policy, and therefore void, is the sole contention on behalf of appellee. It is said that the contract, having application to the entire states of Iowa and Nebraska, is one in general restraint of trade; that the •one hundred mile restriction is a limitation in pretense ■only, while covering practically the entire state; and that the same cannot be upheld, because the contract being indivisible, if one part is void all parts are void.

The doctrine that contracts in general restraint of trade are to be held void as against public policy found root early in the development of our system of law, and ■recognition of such doctrine has continued down to the •present time, but with more or less of modification as ■different courts have been called upon to make practical .application thereof. Formerly, in the enforcement of this doctrine, the rights of the immediate parties to a contract, :as between themselves, were put entirely out of view until it had been determined that the contract was not one, ■the enforcement of which would operate as an encroachment upon the interests of the general public. The reason ■of the rule is said to- be two-fold — that such restraints work injury to the public by depriving it of the industry •of the restricted party in the vocation for which he is best .adapted, as well as by the tendency thereof to throw the person so restrained upon the public for support, or compel him to expatriate himself and transfer his residence .and allegiance to some other state or country in order to pursue his occupation; also that the tendency of such restraint is to foster monopolies, prevent competition,-enhance prices, and might ultimately enable ¡organized •capital to silence all competition, become the sole producer, and place the public at its mercy. The following cases will serve to illustrate: Alger v. Thatcher, 19 Pick. 51 (31 Am. Dec. 119); Wright v. Ryder, 36 Cal. 342 (95 Am. Dec. 186); Western W. Ass’n v. Starkey, 84 Mich. 76 (47 N. W. Rep. 604, 11 L. R. A. 503, 22 Am. St. Rep. 686); 1 Smith’s Leading Cases (9th Ed.) 694. In view, however,, of the ever-changing conditions of trade, commerce, the mechanic arts, etc., and the diversity of interests which obtain in the various states and countries, it must be manifest that there can be no single standard respecting public policy. This is true to the extent that it frequently happens that in certain respects the policy of one state is found to be the exact opposite of that maintained by another; and, even where'there is no essential difference in the matter of abstract definition, it may be certain that self-interest, vi.:wed from the standjjoint of locality more or less immediate, will enter into and dominate the side of practical application. Now, in this country we have no' such conditions as existed when the doctrine was first promulgated. In a recent case it has been well said: “Public policy is a variable test. In the days of the early English cases, one who could not work at his trade could hardly work at all. The avenues to occupation were not as open nor as numerous as now, and one rarely got out of the path he started in. Contracting not to follow one’s trade was about the same as contracting to b6 idle, or to go abroad for employment. But this is not so now. It is an everday occurrence to see men busy and prosperous in other pursuits than those to which they were trained in youth, as well as to see them change places and occupations without depriving themselves of the means of livelihood, or the state of the benefit of their industry. It would therefore be absurd, in the light of this common experience, now to say that a man shuts himself up to idleness or to ‘ expatriation, and thus injures the public, when he agrees, for a suffi«i«nt consideration, not to follow some one calling within the limits of some particular state. There is no expatriation' in moving from one state to another, and from such removals a state would be likely to gain as much as it would lose.” Herreshoff v. Boutineau, (R. I.) 19 Atl. Rep. 712 (8 L. R. A. 469, 33 Am. St. Rep. 850). Again, in Wood v. Whitehead, 165 N. Y. 545 (59 N. E. Rep. 357) it is said “The doctrine which avoids a contract for being one in restraint of trade is founded upon a , public policy. It had its origin at a time when the field of human enterprise-was limited, and when each man’s industrial activity was-more or less necessary to the material well-being and welfare of his community and of the state. The conditions-which made so rigid a doctrine reasonable no longer exist-In the present practically unlimited field of human enterprise there is no good reason for restricting the freedom to contract, or for fearing injury to the public from contracts which prevent a person from carrying on a particular business. Interference would only be justifiable when it was demonstrable that in some way the' public interests were endangered.” See, also, Diamond Match Co. v. Roeber, 106 N. Y. 473 (13 N. E. Rep. 419, 60 Am. St. Rep. 464); Leslie v. Lorillard, 110 N. Y. 519 (18 N. E. Rep. 363, 1 L. R. A. 456). To any one at all familiar with present-day conditions, it requires no argument to demonstrate that public policy requires that in trade matters there shall be no restraints imposed, save in those instances where it is clearly made to appear that the public welfare would be otherwise seriously endangered. And an all-important factor in business life is the right of individual contract — the right to buy and sell, to bargain and convey at will. The demand for recognition of this, coming up from the world of business, has been heard, and countenance given thereto, by legislatures and courts everywhere. So, too, note has been taken of the baneful results which follow, seemingly with inevitable certainty, from giving sanction even negatively, to acts or conduct involving fraud or dominated by bad faith. Certainly it is not going too far to say that there can be no sound public policy which operates to give countenance to the open disregard and. violation of personal contracts entered into in good faith and upon good consideration. A recent expression of the English Oourt of Appeals on the subject rings true. In Underwood v. Barber, 68 L. J. Ch. Div. 201, it is said: “If there is one thing more than another which is essential to the trade and commerce of this country, it is the in-violabilty of contracts deliberately entered into; and to .allow a person of mature age, and not imposed upon, to •enter into a contract, to obtain the benefit of it, and then ■to repudiate it and the obligations which he has undertaken, is prima facie at all events, contrary to the interests of any and every country.”

It has thus come to be the rule of the cases in most jurisdictions that a contract in itself reasonable and based upon good consideration will be enforced according to the rights of the respective parties thereto, and this notwithstanding it may appear that in some respects or in a limited way the enforcement of such contract has for a result a partial restraint of trade. Several of our own cases make it certain that such is the rule in this state. Heichew v. Hamilton, 3 G. Greene, 596; Hedge v. Lowe, 47 Iowa, 137; Smalley v. Greene, 52 Iowa, 241; Chapin v. Brown, 83 Iowa, 160. See, also, the following recent cases from ■other jurisdictions in which the doctrine has found application: Diamond Match Co. v. Rueber, supra; Herreshoft v. Boutineau, supra; Cowan v. Fairbrother, 118 N. C. 406 (24 S. E. Rep. 212, 32 L. R. A. 829, 54 Am. St. Rep. 733); Wood v. Whitehead Bros. Co., 165 N. Y. 545 (59 N. E. Rep. 357); Anchor Electric Co. v. Hawkes, 171 Mass. 101 (50 N. E. Rep. 509, 41 L. R. A. 189, 68 Am. St. Rep. 403); Trenton Potteries Co. v. Olyphant, 58 N. J. Err. & App. 607 (43 Atl. Rep. 723, 46 L. R. A 255, 78 Am. St. Rep. 612). It is to be noted, however, that a distinction is generally drawn, and with much force, between those trades .or avocations, on the one hand, in which the general public, as such, has some special interest, as, for instance, common carriers, water and light companies, and others oí a quasi public character, and those trades and avocations, on the other hand, in which the interest does not arise out of a common necessity, or is not otherwise a matter of common concern to the general public, but which serve rather to minister to the convenience or gratify the desires, tastes, etc., of such individual members of the community as care to extend their patronage. The reason for this is -apparent. Take the case of a city in which water is supplied to the inhabitants from two or more general sources, each under the control of a separate private ownership. Now, a contract between such owners, whatever the consideration as between themselves, providing for the shutting off of all such sources of supply but one, would serve to create a monopoly, and would certainly be so far repugnant to the general public interest that the courts would refuse to enforce the same. The case of Chapin v. Brown, supra, furnishes a further illustration. It there appeared that all dealers doing business in Storm Lake who had theretofore engaged in the purchase of butter from the farmers of the surrounding country entered into a contract with plaintiff to the effect that they would discontinue such business, and give plaintiff sole and exclusive control thereof. Here was an interest common to all the farmers residing within the trade circle of Storm Lake, and the court held that the contract was void as against public policy, for the reason that the direct tendency and effect thereof was to create a monopoly. But to our minds the reasoning which proves satisfactory in such cases loses quite all its force when applied to a case where, as for illustration, two out of one hundred or one thousand shirt dealers agree between themselves, upon a sufficient; consideration, and without any purpose to control the trade generally, that the one will not engage in business in -competition with the other. And this more especially where one sells out Ms business, including the good will thereof, to the other. In such cases the interest of the general public, from a trade standpoint, is infinitesimal. We have simply the substitution of one tradesman for another.

In giving application to the present-day doctrine, it has been said that the true test is whether the restraint is such only as to afford a fair protection to the interests of the party in favor of whom it is given, and not so large as to interfere with the interests of the public. And the restriction must be reasonable, not oppressive, or out of proportion to the benefits which the vendee may, in reason, expect to flow from the restrictive features of the contract. In Hubbard v. Miller, 27 Mich. 15 (15 Am. Rep. 153), it is said: “If, considered with reference to the situation, business, and objects of the parties, and in the light of all the surrounding circumstances with reference to which the contract vtas made, the restraint contracted for appears to have been for a just and honest purpose, for the protection of the legitimate interests of the party in whose favor it is imimsed, reasonable as between them and not specially injurious to the public, the restraint will be' held valid.” And this language is quoted approvingly in Hedge v. Lowe, supra. How whether a contract is reasonable in'respect of the length of time during which the restriction is to run, and in respect of the scope of’ territory which is to be covered thereby, as ap^died to a case like the one before us, it would seem that the fair and full protection of the business and good will which the-vendee has purchased and paid for may well be accepted as the test. Certainly the restriction ought not to be wider in the scope of its operation, and there can be no-good reason for confining it to any narrower limits. It follows naturally that each case must be governed in the main by its own facts. Take, for instance, the case of Hedge v. Lowe. There it appeared that Lowe had sold his. stock of goods at Winterset to Hedge, and, in connection therewith, had agreed that he -would not engage in the same business at Winterset or'vicinity for a period of five years. There was no suggestion that the restriction as to time or territory was unreasonable, and such could not have been well urged, in view of the fact that the business was carried on at retail, and, of necessity, confined to the town where located and its vicinity; and five years was not thought an unreasonable time in which to enable the purchaser to convert the good will of the vendor into a good will personal to himself. But manifestly there are trades and employments which, from their nature, cannot be and are not confined to local limits. The business of a wholesale merchant in the city of Des Moines will serve to illustrate. His trade extends over the state as a whole, and mayhap into adjoining states. It certainly cannot be said that the good will of his business is limited to the city of Des Moines. On the contrary, it must be apparent that it extends as far as his trade extends. Now, there is no basis upon which to draw a distinction between the enforcement of the property right in the good will of a retail business at Winterset and the enforcement of the property right in the good will of a wholesale business at Des Moines, as the same actually exists. ' Nor are we persuaded that the welfare of the state is jeopardized in the one case more than in the other. The expatriation of the one is no different in character from that of the other and the one is no more likely to become an idler or pauper than the other. Indeed, as we read the cases, the courts no longer attempt to fix geographical limits within which only contracts of the character in question can be enforced. And if such they ever had, the terms “general restraint of trade” and “partial restraint of trade” have no longer a territorial meaning. We think the subject may be disposed of by saying that in respect of time and territory, and in the absence of any affirmative showing that the public welfare is put in jeopardy, as that a monopoly is created, or the like, the validity of all such contracts must he made to depend upon the question, aa presented by each case, whether the restraint goes so far only as to reasonably insure to the purchaser the full enjoyment of the right purchased by him in good faith and for a good and valuable consideration. Ihis view finds support in many of the reported cases. Among others, the following may be referred to: Cowan v. Fairbrother, 118 N. C. 406 (24 S. E. Rep. 212, 32 L. R. A. 829, 54 Am. St. Rep. 733); Oregon Navigation Co. v. Winsor, 20 Wall. 64 (22 L. Ed. 315); Nordenfeldt v. Maxim, 63 L. J. Ch. Div. 908; Smalley v. Greene, 52 Iowa, 241; Troendle v. Bender, (Iowa) 79 N. W. Rep. 1123. We are aware that there are cases in which a contrary doctrine is announced. We have examined all those cited by counsel for appellee, and others as well, and we find nothing to disturb the conclusion as above expressed.

It follows from what we have said that, as matter of law, at least, the contract involved in this action cannot be held to be void as in general restraint of trade. The good will sold extended over the territory covered by the contract, and, in the absence of any showing, the time limit, as applied to the states of Iowa and Nebraska, cannot be said to be unreasonable. Even though the time limit, as applied to the city of Des Moines ■ and vicinity, may be said to be unreasonable, we cannot agree that this avoids the contract in its entirety; and, as the petition states a cause of action, the demurrer should have been overruled. —Reversed.