Anchor Elec. Co. v. Hawkes

• Decision Date: 19 May 1898
• Citation: 50 N.E. 509,171 Mass. 101
• Parties: ANCHOR ELECTRIC CO. v. HAWKES.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

171 Mass. 101

50 N.E. 509

ANCHOR ELECTRIC CO. v. HAWKES.

Supreme Judicial Court of Massachusetts, Suffolk.

May 19, 1898

COUNSEL

Whipple & Sears, for plaintiff.

F Hutchinson, for defendant.

OPINION

KNOWLTON J.

The only question which we need to discuss in this case is whether the stipulation on which the bill is founded is void as against public policy. The stipulation is as follows "It is further agreed by all the persons whose names are set hereunder, officers of the corporations hereinabove described, that they will not hereafter at any time, directly or indirectly, as partner, agent, officer of a corporation or in any other wise, enter into or conduct, or assist in conducting, any business that shall in any way interfere with or compete with the proposed business of said Anchor Electric Company for a period of five years, except that any one of said persons sever connection with said Anchor Electric Company as provided by paragraph six of said agreement of September 29, 1894." The defendant was the business manager of the Hawkes Electric Company, a corporation, and a shareholder therein; Norman Marshall was the business manager of the Iona Manufacturing Company, a corporation, and a shareholder therein; and Phillip M. Reynolds was the business manager of the Brown Electric Company, a corporation, and a shareholder therein. On September 29, 1894, these three persons entered into an agreement in writing to form a new corporation under the laws of Maine, of which Hawkes was to be the president, Reynolds the treasurer, and Marshall the vice president and assistant secretary, and of which these three were to be the managing board of directors. Four other persons were to be selected to make up the full board of directors, of whom one was to be chosen from the board of directors of each of the above-mentioned corporations. Each of these corporations was to sell all its assets to the new corporation at their actual cash value, to be determined as provided in the writing, and an agreed price of a substantial amount fixed by the writing was to be allowed by the new corporation for the good will of each of the three corporations. Each of these three persons was to subscribe for and take one-third of the capital stock of the new corporation, and the assets of each of the three corporations at the value ascertained as provided by the writing were to be received pro tanto by the new corporation in payment for this stock, and the balance was to be paid for by the subscribers in cash. The three persons severally agreed that, so long as the agreement should continue, they would "devote themselves unreservedly to the interests and duties of the office which they occupied, and the promotion in every way of the interests of the corporation to be formed." On the back of the writing was an agreement, signed by the three, fixing the salaries which they were severally to receive in the new corporation, and an additional stipulation as to the allowance for assets of the three corporations. It was provided that the agreement should be binding only as approved by a majority of the shareholders or boards of directors of the three corporations. The Anchor Electric Company was afterwards established as a corporation under the laws of Maine, in accordance with the contract. In this connection there was another agreement made on October 12, 1894, between the Anchor Electric Company and the other three corporations, whereby the assets and good will of the three were transferred to the new corporation at specified agreed prices, which were paid in stock of the new corporation. A part of this agreement of the three old corporations with each other and with the Anchor Electric Company was in these words: "They will not hereafter at any time continue the business of manufacturing and dealing in electrical goods or specialties of any sort or description, after the fifteenth day of October, 1894, except to sell and dispose of merchandise on hand at this date, not herein transferred to the Anchor Electric Company, and will do no business of any sort or description except such as is necessary in liquidation of said three electric companies." The agreement was signed by each of the four corporations, by their respective officers, Hawkes, Reynolds, and Marshall, and the stipulation in question was the sixth article of the agreement. The judge found that the instrument had been executed in all its parts except this sixth article, and had been adopted by the corporations. There was a provision in the first agreement whereby either of the three persons could withdraw from the new corporation if he was at any time put at a financial disadvantage by the other two in reference to salary or income, and could sell his stock to the others at a price to be agreed upon or fixed by arbitration. The judge before whom the case was heard found that the defendant sold his stock in the new corporation, and withdrew from it, but not under the provision above referred to; and that he has violated, and intends to violate, the sixth article of the last agreement. He found that all the allegations of the bill bearing upon the validity of the sixth article were proved. He also found as a fact, so far as he could properly so find, that the sixth article was reasonable and necessary for the carrying out of the transaction set forth in the agreement, and that the value of the stock of the Hawkes Electric Company was largely dependent upon its being kept. It is found that the business of the plaintiff is of a nature that may extend over the whole country. We are thus brought to a consideration of the law applicable to the case.

From very early times certain contracts in restraint of trade have been held void as against public policy. They are objectionable on two grounds: They tend to deprive the party restrained of the means of earning a livelihood, and they deprive the community of the benefit of his free and unrestricted efforts in his chosen field of activity. The distinction was long ago taken between contracts involving a partial restraint of trade and contracts involving a general restraint of trade; the former being held valid if not unreasonable, and the latter invalid. The changes in the methods of doing business, and the increased freedom of communication which have come in recent years, have very materially modified the view to be taken of particular contracts in reference to trade. 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...