John T. Stanley Co. v. Lagomarsino

Decision Date21 September 1931
CourtU.S. District Court — Southern District of New York

Fugarty, Quel & Devlin, of New York City (Lloyd P. Stryker and Seymour B. Quel, both of New York City, of counsel), for plaintiff.

Hardy, Stancliffe & Hardy, of New York City (Noah A. Stancliffe and George T. Barker, both of New York City, of counsel), for defendant.

PATTERSON, District Judge.

This is a suit to enforce a covenant by the defendant not to engage in the business of fats, grease, bone, and soap.

The defendant was formerly in the business of buying and selling fats, grease, and bones under the name of Jersey Fat Company. His business was mainly in New York City and the cities of New Jersey near by, but it also took him as far as Rye, N. Y., and New Brunswick, N. J. The property used in the business consisted of two trucks for collecting material, the cost of which when new was about $7,000.

The plaintiff is a New York corporation, engaged in the rendering business. As part of such business it buys and sells fats, grease, bone, soap, and kindred articles. Its principal place of business is in New York City. It apparently does business also in the part of New Jersey near New York City, but beyond that the territorial extent of its business was not shown.

In August, 1925, the defendant was approached by one of the plaintiff's employees and the subject of selling out to the plaintiff was discussed. A sale was arranged at the price of $10,000. The negotiations resulted in the execution by the defendant of two agreements on August 26, 1925, and it is upon these agreements that the plaintiff bases its case. By the first, the defendant for the sum of $10,000 sold his business and good will to one Carty, a dummy acting in the plaintiff's behalf and known to be such by the defendant. The agreement describes the business as "the grease, fat and bone collecting business now conducted by me in the State of New Jersey and in the State of New York." The defendant also agreed to continue to be employed in the business at a salary of $50 a week, under the direction of Carty or his assigns. By the second agreement, the defendant agreed not to engage in the business "of buying, selling, dealing, or otherwise trading in fats, grease, bone, soaps of any kind, or any commodity kindred or allied to the same." This agreement further provided that this and other restrictions should apply "within the State of New Jersey and the State of New York and to be binding for a term of ten years from the date hereof." The agreement also recited that the covenant should not be affected by the fact that the defendant was to be employed by Carty and that it should run after the defendant might leave such employ. Carty assigned his rights under these agreements to the plaintiff, as was contemplated all along.

For some seven months thereafter, the defendant continued to drive one of his old trucks and to do business under his old tradename, Jersey Fat Company; but at the direction of one of the plaintiff's foremen, he spent his time trying to get business from customers of competitors of the plaintiff. It seems that the plaintiff had some sort of understanding with rivals not to seek business from one another's customers, and this activity by the defendant was to secure for the plaintiff customers of the others in breach of the understanding, while the plaintiff ostensibly was living up to it. After some seven months, this pretense that the defendant was still in business for himself was abandoned and the defendant began to work for the plaintiff in the usual way, buying and collecting fats, grease, and bones on one of its trucks. The employment continued at the rate of $50 a week until October 30, 1930, when the defendant was discharged. Evidence was introduced tending to show that the discharge was for cause. The defendant then commenced business on his own account, buying and selling fats, grease, and bones in New York City and in nearby places in New Jersey. The plaintiff promptly commenced this suit to enforce the covenant and asked for an injunction and accounting.

The plaintiff's case was proved by the agreements admittedly signed by the defendant. The agreement not to re-engage in the business was ancillary to the sale of the business and good will. Under settled principles such a covenant attached to the sale of a going business is valid, prima facie at least (Diamond Match Co. v. Roeber, 108 N. Y. 473, 13 N. E. 419, 60 Am. Rep. 464; United States v. Addyston Pipe & Steel Co. (C. C. A.) 85 F. 271, 281, 46 L. R. A. 122), and unless one or more of the matters relied upon as defenses to the suit are established the plaintiff is entitled to the relief demanded in the bill.

1. The defendant pleaded, and offered testimony tending to prove, that when he signed the two agreements he was told by the plaintiff's agent, one Daiber, that the agreements called for his employment by the plaintiff for the term of ten years, and that otherwise he would not have signed. The defendant and Cella, his brother-in-law, who also was present at the signing, testified to this effect. This is equivalent to an assertion that the writing does not represent the real agreement of the parties and was executed through fraud or mistake, and if established it is of course a good defense to a suit to enforce the written agreement. John T. Stanley Co. v. Lagomarsino, 49 F.(2d) 702, wherein the Circuit Court of Appeals reversed a preliminary injunction granted in this case. I am convinced, however, that the defendant was not in fact overreached or imposed upon as to the contents of the papers and that no employment for ten years was in fact ever agreed upon. The testimony of the defendant and of Cella was sharply contradicted by that of Diamond, the plaintiff's attorney, and by Daiber, who was in charge of the matter for the plaintiff. Both testified that the defendant and Cella were given copies of the agreements to read, that Daiber read both agreements aloud in the presence of all four, and that Daiber did not tell the defendant that the employment would be for ten years. I am satisfied that these two witnesses were telling the truth about the entire transaction. In addition, the probabilities are in favor of their version. The defendant is an able, intelligent man. He could read and speak English. He was also experienced in business. Prior to this time he had sold for $14,000 a bus line which he had built up in New Jersey. Cella also was capable and well versed in business affairs, and was present for the specific purpose of seeing that the defendant was not tricked or deceived. It is unlikely that under these circumstances the defendant would have signed papers in a $10,000 deal without being aware of what they contained. Upon this disputed question of fact, therefore, I find that the defendant knew what the provisions of the agreements were when he signed them. There was no agreement by the plaintiff to employ him for ten years, and it is therefore unnecessary to consider whether the discharge in 1930 was for cause or without cause. This defense fails and the counterclaim seeking reformation of the contract by adding a clause obliging the plaintiff to employ the defendant for ten years must be dismissed.

2. The other defense pleaded is that the agreements were obtained by the plaintiff in an effort to gain a monopoly. There was no proof of the alleged monopolistic contracts or of the conspiracy to suppress competition unreasonably. In any event, the matters pleaded do not render the agreements between the plaintiff and the defendant unlawful. There is nothing on the face of the agreements that shows them to be a part of an unlawful scheme. It is settled law that where the contract sued upon is lawful, the collateral question whether the plaintiff is violating the Sherman Anti-Trust Act (15 USCA § 1 et seq.) or similar state statutes will not be inquired into. Wilder Mfg. Co. v. Corn Products Co., 236 U. S. 165, 35 S. Ct. 398, 59 L. Ed. 520, Ann. Cas. 1916A, 118; Gilbert v. American Surety Co. (C. C. A.) 121 F. 499, 61 L. R. A. 253; Camors-McConnell Co. v. McConnell (C. C. A.) 140 F. 412.

3. At the trial the defendant urged that the covenant not to engage in business was unreasonable in two respects and therefore void. The contention is that by its terms the covenant kept the defendant from engaging in the soap business, among others, and that he had never been engaged in that business; also, that the territorial restriction covers the states of New York and New Jersey, whereas the defendant had done business only in New York City and in places within a relatively small area around it. It is said that in both respects the covenant went beyond proper limits and consequently is unenforceable. No such defense was pleaded in the answer. It may well be that in a case of this sort it is up to the plaintiff to show the reasonableness of the covenant, and that the defendant need not affirmatively plead its unreasonableness. But if the rule is otherwise, it is clear in this case that the plaintiff has not been prejudiced in any way by the omission of this matter from the answer, and in the exercise of the discretion which I have under rule 19 of the Equity Rules (28 USCA § 723), I will allow an amendment to the answer embodying this matter as an additional defense. The point will therefore be treated on the merits.

It is everywhere recognized that the restriction against the vendor's resuming business must be a reasonable one, adapted to the fair protection of the good will sold. If it is broader and restrains the vendor beyond the bounds of the business sold, it is not valid in its entirety. The covenant may thus be objectionable because too ambitious in respect to space or to time or to businesses covered. If the crossroads grocer on selling out bound himself never to engage in any kind of business in the United States, none would be...

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