Creter v. Creter, A--464

• Citation: 145 A.2d 149,52 N.J.Super. 197
• Decision Date: 16 October 1958
• Docket Number: No. A--464,A--464
• Parties: Frank CRETER, Plaintiff-Appellant, v. Harry CRETER, Defendant-Respondent. . Appellate Division
• Court: New Jersey Superior Court – Appellate Division

Page 197

52 N.J.Super. 197

145 A.2d 149

Frank CRETER, Plaintiff-Appellant, v. Harry CRETER, Defendant-Respondent.

No. A--464.

Superior Court of New Jersey Appellate Division.

Argued Sept. 29, 1958.

Decided Oct. 16, 1958.

Harry Weltchek, Elizabeth, argued the cause for appellant (Weltchek & Weltchek, Elizabeth, attorneys; Ernest Prupis, Elizabeth, on the brief).

Matthew Krafte, Irvington, argued the cause for respondent.

Before Judges GOLDMANN, CONFORD and HANEMAN.

The opinion of the court was delivered by

GOLDMANN, S.J.A.D.

Plaintiff appeals from a judgment in favor of defendant entered by the Superior Court, Law Division, in an action seeking a declaratory judgment that a covenant not to compete, contained in a partnership agreement between the parties, is illegal and unenforceable because it encompasses an unreasonably large area and is not ancillary to a sale of good will or a contract of employment; or, in the alternative, that if legal and enforceable, the covenant is not applicable to a dissolution of the partnership pursuant to the terms of the agreement.

Defendant answered denying the material allegations of the complaint. On plaintiff's motion for summary judgment the court held that the covenant was not Per se against public policy and was applicable upon a lawful dissolution of the partnership, but there was a fact issue as to the reasonableness of the covenant. Plaintiff's application for leave to appeal from that decision was denied. Following the trial, the court entered judgment for defendant and this appeal ensued.

The parties are brothers. For some years prior to 1918 their father was engaged in the business of manufacturing and selling burial vaults in Newark. In that year plaintiff began to work for his father, defendant joining the business some ten years later. The father died in 1931, bequeathing the business to his widow. She operated it until January 1932, when she sold it to the parties to this action and a third brother who is no longer connected with the enterprise. In 1932 they formed a corporation, Philip Creter, Inc. The business continued under the corporate form until the parties to this action entered into a partnership operating under the name of Philip Creter Company on March 15, 1937. At some time in the past the business was moved from Newark to Irvington, where it has continued to date.

The partnership agreement provided that the partnership was to continue indefinitely at the will of the partners, and that any partner desiring to terminate the partnership must give six months' written notice. The contribution of each of the parties to the partnership capital was the amount of his share of interest in Philip Creter, Inc., then in process of dissolution. Paragraph 16 of the partnership agreement provided that

'In the event the said partnership is terminated by reason of one partner voluntarily retiring, or disposing of his interest in the partnership, or if he is compelled to retire by reason of his violation of any of the clauses hereto, the partner so retiring shall not, at any time, either alone or generally, with or as agent for any person, either directly or indirectly, set up, exercise, or carry on the said trade or business of manufacturing or selling burial vaults within the State of New Jersey for period of five (5) years; and shall not set up, make, or encourage any competition to the said trade or business of the partnership, nor do anything to the prejudice thereof; and shall not divulge to any person any of the secrets, accounts or transactions of, or relating to the said co-partnership, and for any violation of this clause, the parties hereto bind themselves to each other in the sum of Ten Thousand ($10,000.00) Dollars, to be deemed liquidated damages and not in the nature of a penalty.'

During the 21 years of the partnership's existence plaintiff and defendant operated the plant in alternate weeks, the arrangement being that when not so engaged plaintiff would promote additional business on the outside, defendant spending his off-weeks in collecting delinquent accounts. Personal difficulties and friction having arisen between the parties, plaintiff is desirous and anxious to dissolve the partnership lawfully, according to the provisions of the partnership agreement. He frankly states that upon doing so he intends to continue in the same type of business--the manufacture and sale of burial vaults--in the northern New Jersey metropolitan area, if not prohibited from doing so by paragraph 16 of the agreement.

The stipulation of facts reveals that during the life of the partnership its business has been almost entirely concentrated in the seven northern metropolitan counties of New Jersey. Over 93% Of its deliveries were in the four counties of Essex, Union, Bergen and Morris. Sales in these counties and in Middlesex, Passaic and Hudson Counties have accounted for from 94.25% To above 99% Of the firm's sales in a given year. In the entire history of the firm there has been one delivery in Camden County and none whatsoever in Salem, Cape May, Gloucester, Cumberland and Atlantic Counties. Because of the weight of the vaults and shipping problems, including the necessity for speedy service, very few deliveries were made in the remaining counties; in fact, none of the remaining eight counties has ever accounted for even 1% Of the partnership's sales. It is stipulated there are a total of ten concerns, including the partnership, engaged in the same business in New Jersey.

Plaintiff argues that (1) the covenant contained in paragraph 16 of the partnership agreement is invalid and unenforceable because unreasonable as to territory and, further, unreasonable since it is ancillary to articles of partnership; and (2) it is inapplicable since the partnership is dissolved by its very terms, the dissolution not being in breach of the agreement.

We deal with plaintiff's first contention, that paragraph 16 is void because it covers too great a geographical area. The argument is that the partnership business never extended to the entire State of New Jersey, so that the covenant is unnecessary and unreasonable to protect that business and, therefore, unenforceable.

To be sustained, a restraint such as is here involved must be no broader than is reasonably required to protect the covenantee, and thus not unduly injurious to the public's interest in free competition. Trenton Potteries Co. v. Oliphant, 58 N.J.Eq. 507, 514--515, 43 A. 723, 46 L.R.A. 255 (E. & A.1899); Fleckenstein Bros. Co. v. Fleckenstein, 76 N.J.L. 613, 615--616, 71 A. 265, 24 L.R.A.,N.S., 913 (E. & A.1908); Wyder v. Milhomme, 96 N.J.L. 500, 503, 115 A. 380 (E. & A.1921); Gordon Supply Co. v. Galuska, 113 N.J.Eq. 353, 354--355, 166 A. 700 (Ch.1933); Automobile Club of Southern New Jersey V. Zubrin, 127 N.J.Eq. 202, 203--204, 12 A.2d 369 (Ch.1940), 36 Am.Jur., Monopolies, § 65, p. 544 (1941). The question of reasonableness is to be determined by reference to the nature of the business, the manner in which it has been conducted, and its territorial extent. Where the territory specified in the covenant is greater than that to which the business extends--I.e., greater than is reasonably required for its protection--the covenant is not sustainable.

The covenant here under consideration covers without...