C. W. Swingle & Co. v. Reynolds ( 1941 )

Carter, J.

This is an action to recover damages for the breach of a contract of sale containing a covenant not to engage in the business of rendering dead animals in the territory south of the Platte river in Nebraska for a period of five years. At the close of plaintiff’s evidence the trial court directed a verdict for the defendant.

The plaintiff had for many years been engaged in the business of rendering and processing dead animals in the state of Nebraska in a territory extending from the Missouri river west to Oxford and lying south of the Platte river. Plaintiff’s plant was located at Lincoln and was served by company trucks operating in the territory hereinbefore described.

In March, 1937, plaintiff and defendant entered into a written contract whereby plaintiff purchased from the defendant certain real estate and machinery which defendant had acquired while constructing a rendering plant at Fairbury, Nebraska. The contract contains the following paragraph: “As a part of the consideration for the foregoing sale and purchase of the above described property, Reynolds hereby agrees not to engage either directly or indirectly in any manner whatsoever for a period of five years from this date in the rendering business, which is understood to include the collection, transportation, rendering and processing of dead animals, packing house offal and butcher shop offal, in that part of the state of Nebraska which is south of the Platte river.”

On October 7, 1937, defendant and C. W. Bruenig commenced the construction of a rendering plant at Wahoo, Nebraska, the plant being located south of the Platte river. Plaintiff alleges that it commenced operation in November pr December, 1937, and that defendant was connected with the plant until December 21, 1938. There is evidence in the record that operations commenced on December 2, 1937, and that defendant sold his interest to Bruenig on December 21, 1938.

This action was commenced to recover damages for the violation of that part of the contract providing that defendant was- “not to engage either directly or indirectly in any manner whatsoever for a period of five years from this date in the rendering business, * * * in that part of the state of Nebraska which is south of the Platte river.” Defendant for defense contends that the action is based on an unlawful agreement, that the restriction recited in the contract is violative of the anti-trust laws, and of the laws forbidding restraint of trade and monopolies.

The general rule is that the purchase of the property and business of another furnishes a sufficient consideration for an agreement that the latter will not again engage in that business in the same vicinity. Such a contract to be against public policy must have a tendency to militate against the public interest. Farmers State Bank v. Petersburg State Bank, 108 Neb. 54, 187 N. W. 117. Partial restraints upon the exercise of any business are not considered unreasonable when they are ancillary to any valid contract made in good faith and are apparently necessary to reasonably protect the parties, or either of them. But if it appears that the main purpose of the transaction is to create a monopoly and the making of the contract is only incidental to the accomplishment of that purpose, the contract will hot be enforced. Wittenberg v. Mollyneaux, 60 Neb. 583, 83 N. W. 842.

The evidence reveals the fact in the instant case that defendant had not completed his plant at Fairbury, that he did not intend to complete it, that a going business had not been established, and, consequently, defendant had no good-will to sell. The defendant well knew that the restrictive covenant was essential to the consummation of the deal. It is almost intolerable that a person should be permitted to obtain money from another upon solemn agreement not to compete for a reasonable period within a restricted area, and then use the funds thus obtained to do the very thing the contract prohibits. Unless such contract be against the public interest, the parties should be held to their engagements.

It must be admitted by a practical consideration of the subject that any restrictive covenant of this .nature does to some extent eliminate competition and tend toward monopoly. Any statement to the contrary simply fails to consider its practical aspects. Also, it may be said that such contracts are generally made for the very purpose of eliminating some competition. To state it otherwise would require us to overlook actualities in modern business methods. We think the plaintiff had a right to purchase defendant’s property and business, for the very purpose of eliminating him as a competitor, and the contract being in all respects the voluntary act of the parties and free from misrepresentation and fraud, it is binding unless it contravenes the public interest.

The question might well be posed as to how the public interest has been contravened by the making- of the contract in question. Defendant promised to refrain from business for a period of five years in the south Platte territory in Nebraska. Certainly, the five-year limitation is not unreasonable, and defendant does not so contend. Is the territorial limitation unreasonable? The evidence discloses that plaintiff’s trucks operate at points 160 miles distant from its plant at Lincoln. That it is possible to operate at more distant points cannot be questioned. Other competitors are not prevented from competing with plaintiff in any of the south Platte territory. In fact, other' plants are now operating in the restricted area at McCook, Tecumseh and Wahoo. The elimination of one competitor from a restricted area for a limited time in the business field recited in the record does not appear to us to constitute such a restraint of trade or tendency toward monopoly incompatible with the public interest as to warrant one of the parties to avoid his solemn agreement which he made in consideration of a sum of money greatly in excess of value given, if the restrictive covenant be void.

The general rule is that “A restraint of trade is unreasonable, in the absence of statutory authorization or dominant social or economic justification, if it * * * is greater than is required for the protection of the person for whose benefit the restraint is imposed.” Restatement, Contracts, sec. 515. The contention is made that the inclusion of the territory south of the Platte river and west of Oxford, Nebraska, makes the restriction unreasonable. The evidence shows that the business of plaintiff did not extend into, this area. “Neither the period of time during which a restraint is to last, nor the extent of the territory that is to be included is conclusive but the length of time and even more the extent of space are important factors in the determination of the reasonableness of a restrictive agreement.” Restatement, Contracts, sec. 515, Comment c. Ordinarily, the inclusion of the territory west of Oxford within the restricted area would make the territorial scope of the restrictive clause excessive and require a finding that the limitation was unreasonable.

The record shows, however, that the plaintiff company or its stockholders were contemplating the construction of a rendering plant at McCook, Nebraska. In the contract the following provision appears: “In the event a corporatipn is organized by the Company or its stockholders to operate a rendering plant at McCook, Nebraska, Reynolds shall, upon request, be made the manager of such plant at a good salary plus 10 per cent, of the net profits of the business of such company and Reynolds shall also have the right to purchase from the Company, or its stockholders, one-half of any stock which such Company, or its stockholders, acquire in the new corporation. Reynolds shall give the Company written notice before such plant is ready for operation if he desires to become manager thereof, and if he desires to purchase such stock and such stock shall then be transferred to Reynolds and paid for by him.” That the foregoing provision was considered a binding contract of employment is evidenced by defendant’s answer in which it is alleged that in April or May, 1937, “and before the rendering plant at McCook, Nebraska, referred to in plaintiff’s petition, was ready for operation, defendant orally gave notice to the plaintiff that he desired to exercise the right given him by said contract * * * to become manager of said plant, * * * that plaintiff thereupon accepted said oral notice and promised and informed the defendant that it would take the matter up further with defendant prior to the commencement of operation of said plant at McCook.” It is evident therefore that the contract of the parties had a double aspect, one having to do with the sale of the plant at Fairbury, and the other having to do with a contract of employment in a plant to be constructed and operated at McCook, Nebraska.

An authoritative text states the rule applicable to a contract of employment as follows: “The following bargains do not impose unreasonable restraint of trade unless effecting, or forming part of a plan to effect, a monopoly: * * * (f) A bargain by an assistant, servant, or agent not to compete with his employer, or principal, during the term of the employment or agency, or thereafter, within such territory and during such time as may be reasonably necessary for the protection of the employer or principal, without imposing undue hardship on the employee or agent.” Restatement, Contracts, sec. 516. We think the contract of employment to be performed at McCook, Nebraska, and recognized by the answer of defendant as a valid contract, constitutes a sufficient consideration for the restrictions imposed in the south Platte territory west of Oxford. The restrictive promise was- reasonably limited and therefore enforceable.

We conclude therefore that the contract of sale of the real estate and personal property at Fairbury and the agreement therein contained to employ defendant in the operation of the rendering plant at McCook, Nebraska, are sufficient to sustain the limitations imposed by the contract as to the time and space in which defendant might compete with plaintiff in the rendering and processing of dead animals. The limitations being reasonable under the circumstances, they are not incompatible with the public interest or against public policy.

Damages to plaintiff through loss of profits occasioned by the competition of the rendering plant promoted and partially financed by defendant and operated by Breunig at Wahoo were definitely shown by evidence as yet uncontradicted. It is argued that plaintiff took away the truck formerly operated at Wahoo in its business before the rendering plant there went into operation, and, conseqüently, is not entitled to recover damages for the loss of business in that field. At the very least, the question of the voluntary abandonment of the territory is a question for the jury.

We think the evidence required that defendant’s motion for a directed verdict be overruled.

Reversed and remanded.