Burchell v. Capitol City Dairy

• Decision Date: 24 March 1932
• Citation: 158 Va. 6
• Parties: MICHAEL H. BURCHELL v. CAPITOL CITY DAIRY, INCORPORATED, ET AL.
• Court: Virginia Supreme Court

Page 6

158 Va. 6

MICHAEL H. BURCHELL v. CAPITOL CITY DAIRY, INCORPORATED, ET AL.

Supreme Court of Virginia, Richmond.

March 24, 1932.

Present, Campbell, C.J., and Holt, Epes, Hudgins and Chinn, JJ.

1. VENDOR AND PURCHASER — Covenant by the Vendor of a Business not to Engage in Like Trade — Ancillary and Incidental to the Main Business — Case at Bar. — The general rule is that to be valid a covenant by a vendor of a business not to engage in like trade must be ancillary and incidental to the main purpose of the transfer of the business sold, and made in protection or support of the business transferred; and that it has no vitality or validity apart from the business transferred. In the instant case, a suit to enjoin a vendor of a business from breach of his contract not to engage in a like business, there was nothing which took the case out of the general rule.

2. VENDOR AND PURCHASER — Covenant by the Vendor of a Business not to Engage in Like Trade — Assignment of Covenant — Covenant Passes with the Sale of the Business. — A covenant by the vendor of a business not to engage in a like trade is assignable by the purchaser of the business, even though it does not run to the purchaser and his assigns; and if the purchaser in turn sells the business, including his good will, the covenant passes as an appurtenance of or an incident to the business sold without a specific assignment thereof, or of the contract in which it was made.

3. VENDOR AND PURCHASER — Covenant not to Engage in Business for a Certain Time — Assignment of Covenant — Injunction against the Vendor — Who may Enjoin Vendor. — The instant case was a pure bill for injunction against the vendor of a business upon his covenant not to engage in a like business. When the purchaser assigned the contract to another he lost all right to enforce by injunction the restrictive covenant of the vendor; and when the assignee, a corporation, sold all its corporate assets, including its good will, to another corporation, it, too, lost all its right to enforce by injunction the restrictive covenant of the original vendor. If either the purchaser or his assignee had any cause of action against the vendor it was for damages for past breaches only.

4. VENDOR AND PURCHASER — Covenant not to Engage in Business for a Certain Time — Assignment of Covenant — Injunction against the Vendor — Dismissal of Suit for Want of Interest of Complainants — Case at Bar. — In the instant case defendant, operating a dairy business, sold the business to complainant, Oyster, with a covenant not to engage in the dairy business for ten years within fifty miles of the city of Washington. Oyster assigned all his rights to the Capitol City Dairy, Incorporated. Defendant accepted employment as manager of a dairy business in Alexandria and the instant suit was brought by Oyster and the Capitol City Dairy to enjoin defendant from breaking his covenant. It appeared that the Capitol City Dairy sold its good will and corporate assets to the Chevy Chase Dairies. Had this sale been made prior to the instant suit it would have been necessary to dismiss the bill because neither of the complainants had any interest which he was entitled to have protected. When this sale by the Capitol City Dairy took place during the pendency of the suit, and that fact was pleaded and established by the proof, the court in the absence of any request that the new party in interest be substituted for the Capitol City Dairy, Incorporated, should have dismissed the bill for the same reason.

Appeal from a decree of the Corporation Court of the city of Alexandria. Decree for complainants. Defendant appeals.

The opinion states the case.

Albert V. Bryan and William S. Snow, for the appellant.

Charles Henry Smith and E. Joel Treger, for the appellees.

EPES, J., delivered the opinion of the court.

The bill in this case prays for an injunction against Burchell. It contains no other prayer for relief, not even a prayer for general relief. The salient facts determinative of this appeal are as follows:

Michael H. Burchell and Clarence V. Horner had organized and were operating the Loudoun Farms Dairy Company, Incorporated, which was doing a dairy business in the District of Columbia. They owned all its outstanding capital stock, each owning one-half of the stock.

They entered into a written contract, dated October 2, 1929, with F. L. Oyster by which they agreed to sell to Oyster all the outstanding capital stock (3,000 shares) of this corporation for $26,055.00 and certain other considerations. In this contract Burchell and Horner each covenanted that he would not, directly or indirectly, engage in the dairy business in, or within fifty miles of, the city of Washington for a period of ten years.

In making purchase of this stock Oyster was acting for an undisclosed principal, the Capitol City Dairy, Incorporated, which was engaged in the dairy business in the District of Columbia. Oyster immediately assigned all his rights in and under this contract to Capitol City Dairy, Incorporated, which soon thereafter caused the Loudoun Farms Dairy, Incorporated, to be dissolved.

In April, 1930, Burchell accepted employment as manager of the Alexandria Dairy Products Company, Incorporated, a corporation doing a dairy business in the city of Alexandria, Virginia, and was so engaged when the bill in this cause was filed.

In September, 1930, Capitol City Dairy, Incorporated, and F. L. Oyster filed their bill in this cause to enjoin Burchell from breaking his covenant above mentioned.

On January 26, 1931, Burchell filed his answer in which he set up the defense that his covenant not to engage in the dairy business was unenforceable by either Oyster or his assignee, the Capital City Dairy, Incorporated, because it constituted an unlawful restraint of trade.

The answer also alleged, and the stipulation of facts upon which the cause was heard established, these further facts:

The Capitol City Dairy, Incorporated, had sold all its corporate assets, including its good will, to the Chevy Chase Dairies, Incorporated (a Delaware corporation), incorporated to do a retail and wholesale dairy business in the city of Washington, whose...