Kutash v. Gluckman

1. Under the general rule of force in this State, while a contract in general restraint of trade is unenforceable, a contract with a reasonable and only partial restraint will generally be upheld, particularly where it applies to a sale by a partner to his copartners of his interest in the partnership properties and their business including good will, with an agreement by the vendor not to engage in a competing business within definite limits as to territory.

2. The question as to the reasonableness of restraints of trade is one of law for the court to determine from the subject-matter of the contract and the circumstances that throw light on the intention of the parties, and is subject in this State to specific tests:

(a) With respect to locality, such a contract is unenforceable if the restraint as to territory is unlimited; but generally a restraint which extends only throughout the territory covered by a business and its good will, and which affords necessary fair protection to the party in whose favor it was made, and which is not injurious to the public, will be upheld.

(b) With respect to time, although such a contract not to practice a learned profession or engage in a vocation requiring special skill will not be enforced where there is no reasonable limitation as to the duration of the inhibition, and a like rule obtains as to contracts by employees with employers, it is nevertheless true that an otherwise valid contract for the sale of a business including good will, or the vendor's interest therein, with a reasonable limit as to the territory involved, will be upheld even though the contract is unlimited as to time.

3. The petition was not subject to the specific ground of demurrer that the petition showed a contract within the statute of frauds, in that it was not to be performed within a year, since the petition showed that the plaintiff vendee had wholly performed his part of the contract by paying to the defendant the agreed consideration, and therefore brought the case within the plain and unambiguous language of the Code, § 20-402(2), stating an exception to the operation of the statute "where there has been performance on one side, accepted by the other in accordance with the contract."

4. In accordance with the foregoing rules, the court properly overruled the general demurrer to the petition by a former partner of the defendant, to enjoin the defendant from engaging in a competing business in violation of the alleged terms of the dissolution agreement, whereby the defendant for an accepted consideration agreed not to compete with the plaintiff in such business within a stated territorial limit.

No. 14057. APRIL 16, 1942. The defendant excepted to the overruling of his general demurrer to a petition by his former copartner to enjoin the defendant from violating an alleged contract not to engage in a business, as agreed. The petition set forth that in 1941 the parties were engaged in "a specialized business" of "buying and selling metals as partners;" that "the customers from whom they buy and the customers to whom they sell are limited, as there are only certain types of business that sell or buy metals;" that it is "necessary to travel great distances between customers, inasmuch as they are far between;" that plaintiff purchased defendant's interest in the partnership business for a consideration of $400, $70 in cash and $330 by turning over to defendant a truck of that value; that, "as a consideration of said purchase-price, defendant agreed to withdraw from the partnership and agreed not to engage in a business of buying and selling metals in competition with the plaintiff within a radius of 200 miles from the City of Atlanta;" that the plaintiff was induced to pay the consideration stated for "the good will of the business, . . being principally the customers which had been built up by the partnership, the customers from whom they bought the metals, and customers to whom they sold the metals; that if it were not for the value of these customers, said partnership interest would have had no monetary value;" that plaintiff was "induced to pay said cash consideration . . in return for defendant agreeing not to conduct a similar business within a radius of 200 miles of Atlanta," and "not to call on any customers within a radius of 200 miles of Atlanta." It was further alleged, that in violation of this contract the defendant "immediately began to engage in the business of buying and selling metals, identical to the business of plaintiff, and in direct competition with plaintiff;" immediately went to a town in Alabama within about 100 miles of Atlanta, and bought "a lot of a lead dross" from the newspaper in that town, which was "a member of a chain of newspapers . . customers of" plaintiff; that defendant also solicited business in Alabama cities "located within a radius of 200 miles of Atlanta; that he has been selling the metal so obtained to a named concern in Atlanta;" that all of said purchasing and selling was in violation of said contract; that defendant is "now actively engaged in the business of competing with" plaintiff, and "doing all he can to take from [plaintiff] his business and his customers;" that plaintiff has been irreparably damaged by reason of the difficulty in proving such damage if defendant is permitted to continue such competitive business; and that plaintiff has no adequate remedy at law.

There are prayers for a restraining order, injunction, and damages. By amendment it was further alleged that "said agreement was not in writing, but made orally in the presence of witnesses."

The renewed general demurrer of the defendant attacked the petition as amended, on the grounds that it failed to state a cause of action; and that the "oral contract, which is the basis of the cause of action, is unlimited as to time, and . . this fact appears on the face of the pleadings, and because of this fact . . the alleged oral contract is . . void and unenforceable." 1. Among the contracts that are stated by the Code, § 20-504, to be unenforceable because "against the policy of the law" are "contracts in general restraint of trade." It seems to have long been the rule both in this and other States, in the evolution from strict limitations of the early common law to more liberal principles under modern adjudications, that while a contract in general restraint of trade is void, a contract only in partial restraint will be upheld, "provided the restraint be reasonable," and the contract be valid in other essentials. Holmes v. Martin, 10 Ga. 503, 505; Brewer v.Lamar, 69 Ga. 656, 659 (47 Am. R. 766), and cit.; 36 Am. Jur. 482, § 5. This general rule, which is applicable especially to sales that include the good will of a business, is also particularly applicable to such a sale by a partner to his copartners of his interest in the partnership. 36 Am. Jur. 538, 539, 543, 544 (§§ 58, 59, 63, 65). See, in this connection,Marshall v. Johnson, 33 Ga. 500 (2), 507.

2. Whether the restraints imposed by such a contract are reasonable presents a question of law for determination by the court, and not one of fact for the jury. In deciding this question, "the court will look to the whole subject-matter of the contract, the kind and character of business, its location, the purpose to be accomplished by the restriction, and all circumstances [which show] the intention of the parties and which must have entered into the making of the contract." Hood v. Legg, 160 Ga. 620,625, 632 (128 S.E. 891); Rakestraw v. Lanier, 104 Ga. 188,194 (30 S.E. 735, 69 Am. St. R. 154); Bullock v.Johnson, 110 Ga. 486, 493 (35 S.E. 703); Smith v.DuBose, 78 Ga. 413, 440 (3 S.E. 309, 6 Am. St. R. 260); 36 Am. Jur. 532, § 51. Although these general principles obtain in the construction of such contracts as to their reasonableness, there are in this State other well-settled tests which control in this determination, whatever rules may prevail in other jurisdictions.

(a) "A contract without limitation as to space or territory, although limited as to time, not to engage in a particular trade or business, is unenforceable as being against the policy of the law." Bonner v. Bailey, 152 Ga. 629, 632 (110 S.E. 875), and cit.; Everett v. Boone, 157 Ga. 372 (121 S.E. 240); Carson v. Sun Life Assurance Co., 56 Ga. App. 164 (3), 166 (192 S.E. 241). But a contract which "affords a fair protection to the party in whose favor it is made, and is not injurious to the public . . may extend to all the territory covered by the business the good will of which has been sold;" and such an agreement not to engage for a stated time "in the manufacture or sale of brick or clay products in a radius of 300 miles from the location of such a plant" has been held legal.Legg v. Hood, 154 Ga. 28 (113 S.E. 642); Hood v. Legg,160 Ga. 620 (2), 629, and cit., supra.

(b) With respect to whether such a contract is valid, if it is unlimited as to time, "a distinction exists between that class of contracts binding one to desist from the practice of alearned profession, and those which bind one who has sold out a mercantile or other kind of business, and the good will therewith connected, not to again engage in that business. In the former class, there should be a reasonable limit as to time, so as to prevent the contract from operating with unnecessary harshness against the person who is to abstain from practicing his profession at a time when his so doing could in no way benefit the other contracting party. In the latter class such limit is not essential to the validity of the contract, but the restraint may be indefinite. In . . Swanson v. Kirby, 98 Ga. 586 [26 S.E. 71], there was a purchase of property and of a business connected with the same, and necessarily the good will pertaining to that business was involved. That case, therefore, belongs to the latter of the above-mentioned classes, and is distinguishable" from cases in the former class. (Italics ours.) Rakestraw v. Lanier,104 Ga. 188 (3) (supra). As to the reasons for this distinction with regard to unlimited time, see 104 Ga. 198-202;McAuliffe v. Vaughan, 135 Ga. 852, 858 (70 S.E. 322, 33 L.R.A. (N.S.) 255, 22 Ann. Cas. 290); 6 R. C. L. 793, § 197. The principle that applies to the learned professions has been extended to occupations which require special skill, such as an agreement not to work in a town as a barber at any time in the future. Brown v. Williams, 166 Ga. 804 (144 S.E. 256). As to agreements by employees with their employers not to engage in any rival business, and the rule in this State that the time fixed shall not extend beyond a reasonable period after the employment, see Shirk v. Loftis, 148 Ga. 500, 504 (97 S.E. 66); Ogle v. Wright, 187 Ga. 749, 750 (2 S.E.2d 72), and cit. Under these distinctions, there is no conflict between the uniform holdings of this court, that a contract in the sale of properties and good will of a business not to engage in such abusiness within a reasonable space of territory need not be limited as to time, with other holdings as to professions, occupations requiring special skill, and contracts between employers and employees. Goodman v. Henderson, 58 Ga. 567,569; Swanson v. Kirby, 98 Ga. 586, 593 (supra); McAuliffe v. Vaughan, 135 Ga. 852 (3), 857, 858 (supra); Hood v.Legg, 160 Ga. 627 (supra); Holloway v. Brown, 171 Ga. 481,482 (155 S.E. 917).

(c) Under the preceding rulings, the instant petition by the owner of a partnership business, engaged in buying and selling metals, with "great distances between customers," to restrain and enjoin a former copartner from violating their contract, was not subject to general demurrer as showing an agreement in unreasonable restraint of trade, even though the contract was unlimited as to time, where under the alleged agreement, the plaintiff purchased the defendant's interest, including the good will of the partnership, for cash or its equivalent, and as part of the agreement the defendant undertook "not to call on any customers within a radius of 200 miles of Atlanta" and "not to conduct a similar business" within such radius, and where it was alleged that defendant was violating this agreement by dealing with customers and conducting a competing business both in Atlanta and within a hundred-mile radius of the city.

3. The amended petition was not subject to the specific ground of general demurrer that the petition showed an oral contract unlimited as to the time of performance, and therefore the contract was within the statute of frauds, since, under the averments, the defendant received the full consideration for his promise to the plaintiff; and the situation falls within the exception to the statute, "where there has been performance on one side, accepted by the other in accordance with the contract." Code, § 20-402 (2). But for this plain and unequivocal provision of our law as embodied in the Code, it might otherwise be suggested that a performance by one party, though accepted by the other as in accordance with the contract, might not be sufficient to take the case out of the provisions of the statute of frauds unless the performance related to that portion of the contract which was forbidden by the statute of frauds. See, in this connection, 27 C. J. 349, § 430 (2). Such a construction, however, is not authorized by the broad and unambiguous language of the Code.

4. Under the above rulings, the court did not err in overruling the general demurrer to the amended petition.

Judgment affirmed. All the Justices concur.