Herbert v. W. G. Bush & Co.

• Decision Date: 31 August 1956
• Citation: 298 S.W.2d 747,42 Tenn.App. 1
• Court: Tennessee Court of Appeals
• Parties: Thomas L. HERBERT, Jr., Complainant-Appellee, v. W. G. BUSH & COMPANY et al., Defendants-Appellants. 42 Tenn.App. 1, 298 S.W.2d 747

Page 747

298 S.W.2d 747

Thomas L. HERBERT, Jr., Complainant-Appellee, v. W. G. BUSH & COMPANY et al., Defendants-Appellants.

42 Tenn.App. 1, 298 S.W.2d 747

Court of Appeals of Tennessee, Middle Section.

Aug. 31, 1956 Certiorari Denied by Supreme Court Dec. 7, 1956.

[42 TENNAPP 3] Howard, Davis, Boult & Hunt, Nashville, for appellants.

Waller, Davis & Lansden, Nashville, for appellee.

HICKERSON, Judge.

Thomas L. Herbert, Jr., sold certain stock which he owned, or controlled, in W. G. Bush & Company to the corporation. As a condition for the sale and purchase of this stock the corporation required and T. L. Herbert, Jr., gave a covenant not to compete with Bush in its business for twenty-five years. Thomas L. Herbert, Jr., filed the bill to strike down this part of the agreement on the ground that it was in restraint of trade and void under the statute of Tennessee, Code Section 5880; and, furthermore, the agreement not to compete was invalid and void in that it was in violation of the provisions of the Sherman Anti-Trust Act, Title 15 U.S.C.A. Secs. 1 and 2.

Defense was made that the agreement not to compete did not violate the state statute, or the Federal Act. Estoppel was, also, pleaded.

[42 TENNAPP 4] The Chancellor sustained the bill and decreed that the agreement not to compete was void because it violated the state statute; and that complainant was not estopped to prosecute his bill.

The concluding paragraph of the opinion states:

'Having reached the results set forth herein, it is not necessary for the Court to consider and determine whether or not said agreement violates the Sherman Anti-Trust Act, Title 15 U.S.C.A. Secs. 1 and 2, and this question is pretermitted.'

Defendants assign four errors which made two questions:

1. Did the Chancellor err in holding that the agreement not to compete, 'violates the public policy of the State of Tennessee as expressed in Section 5880 of the Code of Tennessee, 1932, and is null, void, unenforceable, and of no binding effect on either of the parties'?

2. Did the Chancellor err in refusing to hold and decree, 'that complainant is estopped to retain the benefits of a contract and at the same time to challenge as contrary to public policy the obligation imposed upon him by such contract'?

Complainant assigned one error, as follows:

'The Chancellor erred in not holding and decreeing that the agreement of Thomas L. Herbert, Jr., not to compete with the defendants was in violation of the Sherman Anti-Trust Act and invalid and unenforceable. 15 U.S.C.A. Secs. 1 and 2.'

Since the state statute is more favorable to the contentions of complainant than the Federal Act, we are satisfied[42 TENNAPP 5] with the disposition which the Chancellor made of the question presented by the assignment of error filed in behalf of complainant. Therefore, complainant's assignment is overruled.

(1) Tennessee Code of 1932, Section 5880, provides:

'Trusts and combinations are unlawful and void.--All arrangements, contracts, agreements, trusts, or combinations between persons or corporations made with a view to lessen, or which tend to lessen full and free competition in the importation or sale of articles imported into this state, or in the manufacture or sale of articles of domestic growth or of domestic raw material, and all arrangements, contracts, agreements, trusts, or combinations between persons or corporations designed, or which tend, to advance, reduce, or control the price or the cost to the producer or the consumer of any such product or article, are declared to be against public policy, unlawful, and void.'

W. G. Bush & Company, herein called Bush, was organized prior to 1920. Complainant was elected the first President of Bush and served the corporation in that capacity until February 1, 1949, when he was discharged.

T. L. Herbert & Sons is a wholly owned subsidiary of Bush and Sangravl Company is a wholly owned subsidiary of T. L. Herbert & Sons. Wherefore, Bush is the owner of the two other corporate defendants.

Bush is engaged in the manufacture and sale of brick. T. L. Herbert & Sons is engaged in the business of building supplies. Sangravl Company is engaged in the Sand and gravel business.

[42 TENNAPP 6] On February 1, 1949, complainant was Vice President and General Manager of T. L. Herbert & Sons and President of Sangravl Company. His position with these two companies was terminated at the time he was discharged as President of Bush.

The Herbert family is the owner of most of the capital stock of Bush. For practical purposes, it is a family corporation. Complainant and certain trusts created by him of which he is cotrustee were the owners of the following capital stock in Bush:

'T. L. Herbert, Jr................................................ 4,726 shares

Commerce Union Bank and T. L. Herbert, Jr., Trustees U/A T. L.

Herbert, Jr., 4138 ........................................... 4,240 shares

Commerce Union Bank and T. L. Herbert, Jr., Trustees U/A T. L.

Herbert, Jr., 123142 ......................................... 5,050 shares

Commerce Union Bank and T. L. Herbert, Jr., Trustee U/A T. L.

Herbert, Jr., 122843 ......................................... 240 shares.'

We shall refer to this stock as complainant's stock, since it seems he controlled the trust stock. All the shares owned and controlled by complainant represented about 25% to 30% of the capital stock of Bush.

When complainant was discharged, he became extremely dissatisfied with the management of Bush. He was afraid the stock would depreciate in value to his detriment. For that reason, he was anxious to sell his stock. There was no market for the stock unless Bush or some member of the Herbert family would buy it. This put the holders of the majority stock in an advantageous bargaining [42 TENNAPP 7] position. Neither Bush nor the majority stockholders were under a moral or legal obligation to buy complainant's stock. On the other hand, complainant was under no compulsion to sell the stock, except his distrust of the management.

Bush occupied an excellent position in the operation of its business at the time complainant was discharged, for some time prior thereto, and since that time. The only competition of any consequence which it had in Middle Tennessee, its trade area, was T. L. Lewis & Sons of Nashville, Tennessee. Bush had a capacity of twenty-four million common brick a year. Lewis had a capacity of one million four hundred forty thousand common brick a year. This difference in the size and capacities of the two companies were such that Bush, for all practical purposes, dominated the brick industry in the territory which it served. Complainant had been a potent force in building and developing this condition and position for Bush.

Thus circumstanced negotiations began for the sale of complainant's stock to Bush or to the majority stockholders. Mr. Alfred D. Sharp was the broker who represented the seller and the buyer. The negotiations lasted about fourteen months. Bush refused to take the stock unless complainant would agree not to compete for a term of twenty-five years. The result of the negotiations was the sale of the stock to Bush for $33.50 a share, or a total of $489,515.40, which was paid in cash. According to the contract of sale, complainant executed and delivered to Bush the following agreement not to compete:

'Therefore, in consideration of the purchase of said 14,256 shares of the capital stock of W. G. Bush & Company, Thomas L. Herbert, Jr., hereby agrees [42 TENNAPP 8] that he will not directly or indirectly engage in any business which is competitive with W. G. Bush & Company, T. L. Herbert & Sons, or SanGravl Company, or any one or more of them, in any area in which any one or more of said companies are now operating, for a period of twenty-five years from and after the date of this letter.'

In Standard Oil Co. v. State, 117 Tenn. 618, 659, 100 S.W. 705, 715, 10 L.R.A.,N.S., 1015, our Supreme Court construed the Tennessee statute and said:

'The making of the agreement with Love, with a view to lessen competition, and which tended to do so, is thus fully proven. This is all that is necessary to constitute a violation of the statute. The statute was not only intended to prohibit contracts and combination between those engaged in the same business, made for the purpose, or which had a tendency, to destroy all competition, and which are injurious to the whole public, but those made and formed by any and all persons with a view, or which in their nature tend, to lessen competition to any material extent, to the injury of any part of the people of the state. The number of persons, generally speaking, engaged in the conspiracy, the extent of the territory affected, the degree which it was intended or has a tendency to lessen competition, the extent of the injury to the public, or whether it be permanent or temporary in its character, are not material elements of the offense. The form of the combination is also a matter of indifference. No forms or precedents are followed in the commission of crime. In any form the agreement may be made, or disguise in which it may appear,[42 TENNAPP 9] or whatever scheme may be adopted to accomplish the prohibited acts, it is within the statute. It is enough that the contract was made with a view to lessen competition in the sale of an article of commerce of prime necessity, and that it is injurious to the public, however limited and restricted it may be in its scope, effect, duration. It is its purpose, tendency, and effect that makes it unlawful.

'Contracts of the character made by these parties were unlawful under the common law, and those engaged in them subject to indictment.

'This court, construing a statute containing the same provisions of the one here applied, through Mr. Justice Caldwell, said:

"Courts are practically unanimous in holding that contracts, agreements, arrangements, or combinations, in whatever form...