Beit v. Beit.

• Decision Date: 03 March 1949
• Citation: 135 Conn. 195,63 A.2d 161
• Court: Connecticut Supreme Court
• Parties: BEIT et al. v. BEIT.

135 Conn. 195

63 A.2d 161

BEIT et al.

v.BEIT.

Supreme Court of Errors of Connecticut.

Nov. 23, 1948.

Rehearing Denied March 3, 1949.

Appeal from Superior Court, New London County; Inglis, Judge.

Action by Max Beit and others against Seymore J. Beit for a declaratory judgment determining whether or not a restrictive covenant as to engaging in business is legal and enforceable. The case was tried to the court. From a judgment declaring the covenant invalid and unenforceable, the defendant appeals.

No error.

The appellant filed a motion for reargument which was denied.

BROWN and ELLS, JJ., dissenting.

Francis F. McGuire, of New London (Morgan K. McGuire, of New London, on the brief), for appellant.

Charles Suisman, of New London, for appellees.

Before MALTBIE, C. J., and BROWN, ELLS, JENNINGS and DICKENSON, JJ.

MALTBIE, Chief Justice.

This case involves issues as to the right of the vendors of an interest in a business to a declaratory judgment that a covenant in restraint of trade contained in bills of sale executed to carry out the bargain is unreasonable and unenforceable, and as to the conclusion of the trial court that it is illegal. From a judgment for the plaintiffs the defendant has appealed.

The finding, in which no material correction can be made, may be summarized as follows: The plaintiffs, husband and wife, were in partnership with the husband's two brothers and their wives. The partnership operated three stores. Two were large stores, one in New London and one in Norwich, engaged in the sale of groceries, fruits, vegetables, meats and dairy products, principally by self-service and on a cash-and-carry basis. The third store was in Norwich and was engaged only in the sale of meats. No wholesale business was done by the partnership, but large sales were made to some hotels and restaurants at a discount. The customers of the stores were almost exclusively residents of New London and the towns contiguous thereto and of Mystic and Norwich and the towns contiguous thereto. The partnership had no special brands or exclusive rights to sell products. It carried the same general line of merchandise as did other competitive stores of a like nature, of which there were a number within New London county but outside the area served by the stores of the parties. We take judicial notice that the area of New London county is about 695 square miles, that ten of its twenty-one towns are not contiguous either to Norwich or to New London, and that the area of the ten comprises almost 60 per cent of the area of the county.

The plaintiffs sold their interest in the business to a son of one of the brothers, and to carry out the transaction each of the plaintiffs executed two bills of sale dated October 23, 1945. All the instruments contained a clause as follows: ‘I further expressly covenant and agree with this vendee, his heirs and assigns not to engage in the meat market or grocery business within the limits of New London County, Connecticut, for a period of thirty years, from this day.’ Previous to the sale the parties had not discussed the inclusion in the bills of sale of such a covenant, but the attorney for the partnership who drafted the bills inserted the covenant thinking that it would meet with the desire of the parties to do so and basing the provisions on what he believed would be fair and reasonable; nor was the covenant discussed when the instruments were executed. Later the plaintiff Max protested its inclusion, but this was upon a misunderstanding as to its purport, and when its effect was explained to him he expressed himself as satisfied with it, stating that neither he nor his wife intended ever to engage again in a business similar to that theretofore conducted by the partnership. Before bringing this action, however, he entered into negotiations to purchase a grocery and food business in the town of East Lyme, a town in New London county but not contiguous to either Norwich or New London. When advised by the attorney who drafted the bills of sale that carrying on such a business would violate the covenant quoted above, he desisted from the negotiations, although otherwise he would have made the purchase. The plaintiff Max desires to engage in the retail grocery and meat business in New London county. This action was brought by writ dated October 24, 1946; and, while in the complaint as amended the plaintiffs sought both a judgment declaring the covenants illegal and to have the bills of sales corrected so as to omit them, the trial court granted no relief other than a declaratory judgment.

We are met at the outset with the question whether the plaintiffs are entitled to maintain an action seeking a declaratory judgment as to the legality of the covenant. The reason why such covenants are held to be unenforceable is that unless they meet certain criteria they constitute a restraint upon trade which is against public policy. Styles v. Lyon, 87 Conn. 23, 26, 86 A. 564; May v. Young, 125 Conn. 1, 5, 2 A.2d 385, 119 A.L.R. 1445. A court will not grant any relief to a plaintiff who rests his claim upon an agreement which is against public policy, for that would be to lend its aid to an illegal transaction. Smith v. David B. Crockett Co., 85 Conn. 282, 287, 82 A. 569, 39 L.R.A., N.S., 1148; Roberts v. Criss, 2 Cir., 266 F. 296, 301, 11 A.L.R. 698; 2 Page, Contracts (2d Ed.) § 1026. It is sometimes stated generally that the courts will not grant affirmative relief to the promisor in such a covenant by way of rescission or the like. Manchester & L. R. Co. v. Concord R. Co., 66 N.H. 100, 102, 20 A. 383, 9 L.R.A. 689, 49 Am.St.Rep. 582; 36 Am.Jur. 655. Where, however, the invalidity of the agreement is based on the fact that it is against public policy, we have found only one decision which directly denies such relief to a promisor, and in that case it was pointed out that no public interests were involved. National Harrow Co. v. Hench, C.C., 76 F. 667, 670. On the other hand, it has been held that in a proper case equity will grant relief of that nature to the promisor on the ground that the agreement is against public policy. Duval v. Wellman, 124 N.Y. 156, 160, 26 N.E. 343; Cox v. Donnelly, 34 Ark. 762; 3 Pomeroy, Eq.Jur. (5th Ed.) § 941. Where a promisor in such an agreement seeks to have equitable relief based upon its illegality, the situation is very different from that presented where the promisee seeks to enforce it, for the promisor is not seeking to put it into effect but rather is asserting and furthering the public policy of the state. ‘The remedy of cancellation is simply the equitable proceeding identical with the setting up of the illegality as a defense to defeat a recovery at law, and thus get rid of the contract as a binding executory obligation.’ Missouri, K. & T. Trust Co. v. Krumseig, 8 Cir., 77 F. 32, 42, 23 C.C.A. 1.

To permit a party who has voluntarily entered into such an agreement, for a valuable consideration perhaps in large part based on it, to escape the consequences of his acts, as is illustrated in this case, smacks of unfairness and savors of an encouragement to dishonesty. But the reason for permitting a promisor to prove the invalidity of the agreement was long ago stated by Lord Mansfield in Holman v. Johnson, 1 Cowp. 341, 343, when he said: ‘The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so say.’ See Funk v. Gallivan, 49 Conn. 124, 128, 44 Am.Rep. 210. To the contention that a defense against the enforcement of such an agreement by one who has received a valuable consideration is unconscionable, the Supreme Court of Illinois has said: ‘The answer to this is that in a situation of this kind the interest of the public, rather than the equitable standing of individual parties, is of determining imortance. The defense is not here allowed because the party raising it is entitled to any consideration, but upon principles of public policy and to conserve the public welfare.’ Parish v. Schwartz, 344 Ill. 563, 572, 176 N.E. 757, 761, 78 A.L.R. 1032. Speaking of the application of the principle that one who is a party to a fraudulent contract may defend against its enforcement on the ground of the fraud, the Supreme Court of Michigan states: ‘Quite likely, at first blush, we react against such a rule. A deeds to B his farm to defraud his creditors, with an agreement that B shall reconvey when requested. We do not admire the sportsmanship of B when he refuses to reconvey, and it may be that we are reluctant to refuse specific performance to A. But, if the rule were otherwise, it would be an open invitation to all kinds of fraudulent contracts.’ Leland v. Ford, 245 Mich. 599, 610, 223 N.W. 218, 222; see 5 Williston, Contracts (Rev.Ed.) p. 4562. Indeed, if a defendant were forbidden to defend against the enforcement of a contract as against public policy because he had received a consideration, there would be few cases where that defense could be made.

Professor Borchard cites several cases to support his statement that a promisor is entitled to a judgment that a covenant he has made is unenforceable as against public policy. Borchard, Declaratory Judgments (2d Ed.) p. 515. In most of these cases the courts did render judgment holding the agreements to be illegal, but without discussing the question whether to do so falls within the proper field of declaratory judgments. See also Ertel Bieber & Co. v. Rio Tinto Co., [1918] A. C. 260, 275. Where a promisor seeks a declaratory judgment that a covenant he has made is unenforceable as against public policy, the case is stronger than it is where he seeks affirmative...