Barrows v. McMurtry Mfg. Co.

• Decision Date: 07 April 1913
• Citation: 54 Colo. 432,131 P. 430
• Parties: BARROWS v. McMURTRY MFG. CO. et al.
• Court: Colorado Supreme Court

131 P. 430

54 Colo. 432

BARROWS v. McMURTRY MFG. CO. et al.

Supreme Court of Colorado

April 7, 1913

Error to District Court, City and County of Denver; Greeley W Whitford, Judge.

Action for an injunction by the McMurtry Manufacturing Company and another against Stanley M. Barrows. Judgment for plaintiffs and defendant brings error. Affirmed.

Davis & Whitney, of Denver, for plaintiff in error.

Cranston, Pitkin & Moore, of Denver, for defendants in error.

BAILEY J.

The action was by defendants in error against Stanley M. Barrows plaintiff in error, to enjoin him from continuing to violate the terms of a certain contract entered into May 5th, 1906, between himself, his sister and brother of the first part, the Denver Plate Glass Company of the second part, and the defendants in error of the third part. The defendant was the largest stockholder in, and president and general manager of, the Denver Plate Glass Company, a corporation engaged in the business of handling paints, varnishes and plate and window glass in Colorado and neighboring states. The McMurtry Manufacturing Company and the McPhee & McGinnity Company, plaintiffs, were engaged in similar business in about the same territory. The chief place of business of the three companies was Denver, where their main offices were located. Under the contract the entire stock in trade of the Denver Plate Glass Company, except a portion of the paint stock, was sold to the plaintiff companies, including the good-will of the company and that of Stanley M. Barrows and his brother and sister. The amount charged and paid for the good-will was $2,500.00. Among other things, the contract contained the following:

'And the parties of the first part and each of them agree with the third parties that if there is a consummation of this deal, until May 1st, 1916, they will not, nor will any of them, engage directly or indirectly in any business in the state of Colorado, which carries, handles or sells paints, varnishes or glass, or accept employment with or work for any house or business which handles any such goods or merchandise or class of business, or invest any money in or become stockholders or directors in any company or corporation which in any way carries on in the state of Colorado any class of business similar to that heretofore carried on by second party.'

In substance, the complaint alleges that defendant violated this covenant, in that, soon after the consummation of the sale, he not only engaged in the glass business himself, but was instrumental in the organization of certain corporations within the state for like purposes, one of which, in particular, the Independent Glass Company, was incorporated within two weeks after the execution of the contract. The defendant answered that the contract is against public policy, secured under a collusive and fraudulent agreement for the purpose of creating a monopoly in restraint of trade, and therefore void; and further, that it was executed by the defendant under duress, and for that reason unenforceable. A replication denied the charges of duress and conspiracy and other affirmative defensive matter. The court, without a jury, upon hearing found the issues joined generally for the plaintiffs, with specific findings as follows:

'That said defendant, Stanley M. Barrows, received and obtained a good and valuable consideration for the execution of said agreement, and for the making of the personal covenants made by him and contained therein; that the said contract was not executed by him under duress of any kind nor under intimidation or coercion of any kind, but was executed of his own free will and volition, and solely and alone for the consideration arising therefrom, and for the benefits he would receive from the payment of the moneys therein agreed to be paid; that neither the said contract nor any part thereof was or is invalid or void; that no agreement or covenant therein contained was or is in restraint of trade, and that the agreements therein contained made by the defendant, including the agreement contained in said tenth paragraph, were and are reasonable and fair, and were necessary to protect the plaintiffs in the purchase made by them of goods, wares and merchandise, and good-will.

'Second. The court finds, from the evidence, that said contract was not obtained by plaintiffs for the purpose of, nor with the intention of, securing or obtaining any monopoly of any kind, at any place, of any business, trade, occupation or calling, and that no monopoly of any kind was in any way obtained by plaintiffs, through or because of the execution or consummation of said contract, or at all. The court finds from the evidence that neither the said written contract nor any agreement therein contained was ever in any way waived or cancelled, or discharged by plaintiffs, or any of them, and that the said contract and all of the agreements made by plaintiffs have been fully kept and performed by them, and that said contract is now in full force and effect, and that plaintiffs are entitled to have the same specifically enforced and carried out.

Third. The court, from the evidence, specifically finds that each of the defenses interposed in the answer of defendant is not sustained by the evidence, and on all of said defenses and on all of the issues herein joined, the court finds for the plaintiffs.

'Fourth. The court finds that the defendant, Stanley M. Barows, from time to time, and frequently and continuously, by various and sundry pretenses, practices, devices and machinations, both directly and indirectly, has sought to evade, and has evaded, and has infringed and violated the terms of said agreement, and more particularly the provisions of paragraph 10th thereof; that, he, the said defendant, has been and is associated with the Independent Glass Company, a corporation doing business in Denver and throughout the state of Colorado, and which corporation was organized for the purpose of carrying, handling and selling, and which corporation has carried, and does carry, handle and sell glass in Denver and throughout the state of Colorado, and that he has worked for said the Independent Glass Company, has taken orders for it and has sought to build up its business in divers ways, and to deprive the plaintiffs of the benefit of the agreements made by the Denver Plate Glass Company and the defendant in said written contract of May 5, 1906, and that through said the Independent Glass Company he has been and is engaged in doing business in the state of Colorado, and handling and selling glass therein, and that the plaintiffs have suffered, and will continue to suffer, great and irreparable injury by the violation of said contract by defendant, unless they receive the protection of a court of equity.

'Fifth. The court further finds from the evidence that the said defendant has, under the guise of conducting the business of an agent for a plate glass insurance company, kept his office in the same room with the said the Independent Glass Company, and has been therein engaged in directing, or aiding in directing, the business of the said the Independent Glass Company, and that the practices and conduct of the defendant have been such that in order to make effective the said contract of May 5, 1906, and to protect the plaintiffs therein, it will be necessary for the court to restrain the said defendant, among other things, from continuing to maintain his office or place of business with the said the Independent Glass Company, during the period provided for in said contract, to wit, up to and including the first day of May, 1916.'

A judgment and decree restraining the defendant from further acts in violation of the terms of the contract was accordingly entered. To review which defendant brings the case here on error.

The main question is whether that part of the contract wherein and whereby the defendant agreed and undertood not to engage in the glass business in this state for a period of ten years, is void as being in restraint of trade, and thus against public policy. The defendant contends that it is, and predicates error on the fact that the court below held a contrary view.

That one may lawfully covenant to refrain from pursuing a particular business within the limits of a certain territory, even if it be an entire state, if the restraint thereby enjoined is reasonable and affords only a fair protection to the one in whose favor it is imposed, is no longer an open question. The following general rules applicable to contracts of this character are found in Eddy on Combinations, § 688 et seq.:

'It will be found that in the earlier days contracts in restraint of trade were looked upon with great disfavor by the courts. The attitude of the courts in this respect has greatly changed, and the most enlightened tribunals not only consider contracts in restraint of trade with favor, but look upon them as essential to the well-being and progress of the community. It is not seldom, however, that even now the courts, carried away by the earlier decisions, arbitrarily pronounce contracts, which as a matter of fact appear entirely reasonable under all the circumstances, to be void, not so much because they are unreasonable as because they seem contrary to some earlier authorities.

'Contracts in restraint of trade should be interpreted in the light of the following propositions:

'(a) The right to contract is fundamental to all social organization.

'(b) Good-will is property, and as such is subject to transfer like any other species of property; and in its enjoyment the purchaser is entitled to exactly the same measure of protection that is afforded the purchaser of tangible property; the law should not permit the vendor to

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