Gen. Bronze Corp. v. Schmeling

• Decision Date: 20 June 1932
• Citation: 208 Wis. 565,243 N.W. 469
• Parties: GENERAL BRONZE CORPORATION v. SCHMELING ET AL.
• Court: Wisconsin Supreme Court

208 Wis. 565

243 N.W. 469

GENERAL BRONZE CORPORATION

v.SCHMELING ET AL.

Supreme Court of Wisconsin.

June 20, 1932.

Appeal from a judgment of the Circuit Court for Milwaukee County; August E. Braun, Circuit Judge.

Action by the General Bronze Corporation against W. C. Schmeling and others. Judgment for plaintiff, and defendants appeal; there being also a motion for review by plaintiff.--[By Editorial Staff.]

Modified and affirmed.

This was an action by the plaintiff to restrain the defendants from violating the terms of a restrictive covenant not to engage directly or indirectly in competition with plaintiff, which covenant was part of a written agreement for the purchase of the assets, business, and good will of the Wisconsin Ornamental Iron & Bronze Company, a Wisconsin corporation, by the plaintiff, General Bronze Corporation.

The court filed its findings of fact and conclusions of law, and entered judgment for the plaintiff. It was adjudged and decreed that the defendants be enjoined from engaging in the business of manufacture or sale of architectural or ornamental bronze and/or iron work, or any other business in competition with plaintiff, for a period of fifteen years from and after August 12, 1929, within twenty-six states of the United States named in the judgment. Defendants appeal. There is a motion for review by the plaintiff, based upon the contention that the restraining order is not sufficiently broad in its territorial extent.

Such facts as are necessary to an understanding of the questions presented will be stated in the opinion.

FAIRCHILD, J., dissenting.

Paul, Ebert, Paul & Knoeller, of Milwaukee, for appellants.

Quarles, Spence & Quarles, of Milwaukee, (Victor D. Werner, of Milwaukee, of counsel), for respondent.

WICKHEM, J.

Prior to July 25, 1929, the defendants, W. C. Schmeling, F. Van Kooy, and Arthur R. Stark, were stockholders and employees of the Wisconsin Ornamental Iron & Bronze Company. Each of the defendants on that date owned 55 shares out of a total of 981 shares of this company. Schmeling was the assistant general manager and superintendent of production and erection; Van Kooy was vice president and chief draftsman; and Stark was treasurer and purchasing agent.

Some time prior to June 28, 1929, negotiations were commenced between the plaintiff and Mr. E. A. Ernest, president of the Wisconsin Ornamental Iron & Bronze Company, which culminated on July 25th in the contract here involved. By the terms of this contract the plaintiff, General Bronze Corporation, purchased all the assets, business, and good will of the Wisconsin Ornamental Iron & Bronze Company, for a total consideration of $892,710, of which about half was paid in cash and the rest in shares of the General Bronze Corporation. Later the contract was modified in such a manner that 5,280 shares of the General Bronze Corporation were transferred in lieu of cash, and the Wisconsin company permitted to retain securities valued by it at $124,332.25. The stock which represented the purchase price was distributed to the stockholders of the Wisconsin Company in proportion to their holdings in this company.

The following restrictive covenant was incorporated into the contract, which was signed by defendants and other stockholders of the Wisconsin Company: “Sixth: The stockholders agree that they will not at any time within fifteen years from date of transfer to General Bronze of said business, assets and good will of the Wisconsin Company, directly or indirectly engage in the manufacture or sale of architectural and ornamental bronze and/or iron work (except in the capacity of the agent or employee of General Bronze, its successors and assigns, within any of the several states of the United States of America, or in the territories thereof, or within the District of Columbia, except and reserving however the right to manufacture and sell bronze and/or iron work in the state of Nevada), nor within the Dominion of Canada or the Republic of Mexico; provided, however, that each of said stockholders except E. A. Ernest, shall have the right, if any of them shall not be in the employ of General Bronze, its successors or assigns, or any of its subsidiaries, to accept employment with other employers in the same or similar line of business in the respective capacities occupied by such respective stockholders (except E. A. Ernest) as of June 30, 1929, with the Wisconsin Company, or in any other capacity.”

Following the merger the defendants entered the employ of the plaintiff in practically the same capacity in which they were formerly employed by the old company, except that they were not officers of the plaintiff. Shortly thereafter the defendants decided to quit plaintiff's employ and promote an independent enterprise. On February 28, 1931, they organized the Wisconsin Art Bronze & Iron Company, and entered into competition with the plaintiff.

[1] Defendants contend, first, that their organization of the Wisconsin Art Bronze & Iron Company, and their subsequent employment by that company, did not constitute a breach of the restrictive covenant. The restrictive covenant permits defendants to accept employment with other employers in the same or similar line of business in the respective capacities formerly occupied by defendants with the Wisconsin Company, or in any other capacity. It is argued that since they were each stockholders, and since two of them were officers of the Wisconsin Company at the time of the restrictive agreement, they have in no way violated the agreement by becoming stockholders, officers, and employees of the company which they have organized, and that aside from this, the covenant puts no limitation upon the relation they may have to a rival company. If this contention is valid, then the restrictive agreement is a mere nullity, but the covenant is not subject to such a construction. The covenant provides that the defendant may accept employment in any capacity with competitors of the plaintiff. It clearly does not permit them to become enterprisers and to organize competition with the General Bronze Corporation. It is idle to say that they are not competing with the General Bronze Corporation because the competitor is a corporation having a separate entity, of which they are merely stockholders, officers, and employees. To take such a position would be to permit the use of the corporate entity as an instrumentality of fraud. It is therefore concluded at the outset that if the contract is valid and enforceable, and if the plaintiff is not estopped to enforce it, or has not waived its provisions, there has been a violation which is subject to restraint.

[2] The principal contention of the defendants is that the contract is void as against public policy, for the reason that its territorial extent is greater than is reasonably necessary for the protection of the good will sold. The rule governing the validity of contracts in restraint of trade has been set forth in several Wisconsin cases. My Laundry Co. v. Schmeling, 129 Wis. 597, 109 N. W. 540, 545;Berlin Machine Works v. Perry, 71 Wis. 495, 38 N. W. 82, 5 Am. St. Rep. 236;Richards v. American Desk & Seating Co., 87 Wis. 503, 58 N. W. 787;Palmer v. Toms, 96 Wis. 367, 71 N. W. 654;Durbrow Commission Co. v. Donner, 201 Wis. 175, 229 N. W. 635;Geo. M. Danke Co. v. Marten (Wis.) 241 N. W. 359. In the Palmer Case, it was said: “The general rule that contracts in restraint of trade are void has its exceptions, one of which is that, for the protection of the good will of an established business, the owner of the same may make a sale thereof with such business, and, as an inducement to the purchaser to buy, part with his liberty to engage in the same business for such limited time and within such limited territory as may be reasonably necessary to protect the purchaser in the enjoyment of such business.”

With the rule of law in mind, the facts concerning the business of the Wisconsin Company become important. This company was organized in 1884, and remained in business continuously up to July 25, 1929. It is conceded that the company had an...