Richards v. American Desk & Seating Co. , 1894 Wisc. LEXIS 207 ( 1894 )

Pinney, J.

The agreement in question is in partial or limited restraint of the trade of both of the parties to it in certain, lines of articles which were to be manufactured and sold by the plaintiff’s assignor to the defendant, up to the amount of $200,000, and during a period of less than four years. By the terms of the agreement the plaintiff’s assignor was prevented from selling, directly or indirectly, any other like articles of its manufacture during that time in a large part of Wisconsin and of Michigan, and in any part of thirty other states and territories of the United States, and a like, restraint was imposed on the defendant as to the remainder of Wisconsin and Michigan, and all the other states of the Union. Both counterclaims are founded upon and grow out of the alleged breaches by the plaintiff’s assignor of provisions of this contract, and are dependent upon its validity, but the more important one relates to a claim to recover twenty-five per cent, of the amount of sales alleged to have been made by the plaintiff’s assignor within said period in the territory set apart exclusively to the defendant for making sales of such articles.

It will be seen from the statement of the case that the restraint against the plaintiff’s assignor, alleged to have been violated, was total in all the states and territories named in it, except Wisconsin and Michigan, where it extended to parts only of those states, but it was limited in respect to the time it was to continue. That any agreement in restraint of trade of one of the parties to a contract is void, as being against public policy, unless founded upon a valuable consideration and limited, as regards time, space, and the extent of the trade, to what is reasonable under the circumstances of the case, is well settled, for the reason, that such contracts tend to deprive the public of the services of parties in the employments and capacities in which they are most useful, and that they tend to expose the public to the evils of monopoly. Kellogg v. Larkin, 3 Pin. 123; Laubenheimer v. Mann, 17 Wis. 542; Alger v. Thacher, 19 Pick. 51; Bishop v. Palmer, 146 Mass. 469, 473; Oregon S. N. Co. v. Winsor, 20 Wall. 66, 67; Gibbs v. Consolidated Gas Co. 130 U. S. 396; Lange v. Werk, 2 Ohio St. 519; Gamewell F. A. Tel. Co. v. Crane, 160 Mass. 50. These oases show, and many others might be cited to the same effect, that it is essential, in order not to be unreasonable, that the restraint imposed must not be larger than is plainly required lor the protection of the party with whom the contract is made, and whether it is reasonable in a given case is a question, not of fact, but of law for the court. Poll. Cont. 366-368; Washburn v. Dosch, 68 Wis. 440.

The test as to whether the restraint is reasonable or not is well expressed in the often-cited case of Horner v. Craves, 7 Bing. 735, 743, where it is said: “The question 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. 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.” It is said, in substance, in many cases that all restraints are presumed to be bad, but if the circumstances are set forth that presumption may be excluded, and the court is to judge of these circumstances whether the contract be valid or not. Taylor v. Blanchard, 13 Allen, 373; Callahan v. Donnolly, 13 Am. Rep. 172, and note; Mallan v. May, 11 Mees. & W. 653; Lange v. Werk, 2 Ohio St. 519; Kellogg v. Larkin, 3 Pin. 123; Berlin Machine Works v. Perry, 71 Wis. 495, 499, 501. It is held, in substance, in these cases that the pleading will be bad on demurrer if it does not appear from the contract or averments of extrinsic facts that the restraint was reasonable. This is in accordance with the great weight of authority, and seems to be the necessary result of the rule as to the validity of such restraint.

The great diffusion of wealth, the wonderful advances made in the methods and facilities for manufacturing and carrying on commerce, tbe manifold improvements in machinery and in the adaptation of steam and electricity as motive powers, have enlarged or opened numerous fields of industry and wrought marvelous changes, and the tendency of the later cases has been in relaxation of the earlier rule in relation to contracts in restraint of trade. The most liberal and advanced doctrine on the subject in this country is found in the case of Diamond Match Co. v. Roeber, 106 N. Y. 473, in which the history of the law is elaborately considered, and a covenant excluding a manufacturer of matches, who had sold his property, stock, etc., from engaging in the manufacture and sale of matches for a period of ninety-nine years within any of the states and territories, except Nevada and Montana, was sustained; but it appeared in that case that before such sale he had carried on the business of manufacturing friction matches, “ and of selling the same in the several states and territories of the United States, and in the District of Columbia,” and so the case really came within the rule under consideration, and the restraint was reasonably necessary to protect the other party in his purchase, in view of the circumstances disclosed. Tode v. Gross, 127 N. Y. 485, was in relation to a restraint imposed upon the vendor of a business founded on a secret process, but it recognizes and sustains the general rule. A manufacturing business founded upon the use of a secret process or the use of patented processes or means, is not understood to be within the rule. The cases of Leather Cloth Co. v. Lorsont, L. R. 9 Eq. 345, and Rousillon v. Rousillon, L. R. 14 Ch. Div. 351, are understood to represent the more modern views of the law on this subject in England. In the former case it was said: “All restraints upon trade are bad as being in violation of public policy, unless they are actually and not unreasonably for the protection of parties in dealing legally with some subject matter of contract.” The same subject was considered in the somewhat recent case of Davies v. Davies, L. R. 36 Ch. Div. 359, in which CottoN, L. J., held the law to be “ that a limited restraint may be good, provided the restraint is reasonable and such as was required for the protection of parties with whom the covenant is entered into,” and that the rule ought not to be altered but by the House of Lords; and BoweN, L. J., held substantially the same view, and notices that in that case the court had no materials for deciding that the covenant in question was beneficial to the public, or reasonably necessary for the protection of the covenantee, and, in substance, that to sustain it would be “ leaping into the dark; ” while Env, L. J., was inclined to adhere to his decision in Rousillon v. Rousillon, supra, and hold that the burden of proof as to the validity of the restraint is shifted by showing that it has been entered into for the protection of the interests of one of the contracting parties.

The counterclaims and second contract, made an exhibit thereto, are exceedingly meager and wholly insufficient to show that the agreement of restraint insisted on by the defendant was reasonably necessary for the protection of its interests under the contract. While it appears by implication that the respective parties may have agencies in the territory set apart to each for the" sale of the line of goods and wares mentioned in the contract, there is nothing to show the amount of annual output of these goods and wares by the plaintiff’s assignor, or of the ordinary amount of manufacture and sale by either party, or that the defendant had established or carried on any trade in more than one state out of the thirty states and territories to which the restraint it seeks to enforce extends, and in respect to which it charges violations of this restraint by the plaintiff’s assignor. The counterclaims wholly fail to show that the defendant’s interest for less than four years in the sale and disposition of $200,000 in value of the goods and wares mentioned, even upon the most liberal view of the subject, and under the existing state of trade and competition, would justify the very extensive restraint relied on. It follows from these views that, upon the face of the pleadings, it is not made to appear that the contract was a reasonable and valid one, and therefore the portions of the order appealed from are erroneous.

As to validity of contracts in restraint of trade without limitation of place, see note to G-amewell F. A. Tel. Oo, v. Grane (1G0 Mass. 50), in 22 L. R A. 673.— Rep.

By the Goiort.— The parts of the order of the circuit court appealed from are reversed, and the cause is remanded with directions to sustain the plaintiff’s said demurrers to the counterclaims.