Klein v. Buck

• Decision Date: 18 November 1895
• Citation: 18 So. 891,73 Miss. 133
• Parties: JULIUS M. KLEIN v. BUCK & MARKHAM
• Court: Mississippi Supreme Court

18 So. 891

73 Miss. 133

JULIUS M. KLEIN v. BUCK & MARKHAM

Supreme Court of Mississippi

November 18, 1895

FROM the chancery court of Warren county, HON. CLAUDE PINTARD Chancellor.

The opinion states the case.

Decree affirmed.

T. C Catchings, for the appellant.

1. Klein did not sell out to Armstrong in order to avoid liability, but to pay his debts, and for the purpose of securing them as large a sum as possible, and Armstrong being without right to complain of a breach of Klein's covenant against re-engaging in the insurance business, because of his failure to perform his own agreement to execute and secure promissory notes for the deferred payments of purchase money his assignees, who can have no greater right than his, are not entitled to an injunction.

There is no merit in the suggestion that Klein cannot defend on the ground that Armstrong failed to execute and secure the notes. It is true, as stated, that he had given to the insurance companies the order accepted by Armstrong, and that those companies could thereupon deal with the deferred payments as they pleased, but his contention is that the fact that Armstrong had released him from liability for these payments cannot have the effect of discharging the covenant made by Armstrong in respect to the notes, which was the consideration, in large part, of his agreement to refrain from the insurance business, and at the same time leave Klein's covenant in force.

It is not true absolutely, as argued by opposing counsel, that the acceptance of the order by Armstrong ipso facto discharged Klein from his liability to the companies. In accepting that order, Armstrong expressly did so subject to the conditions of the contract with Klein, which included his right to rescind. Klein was only to be released in case Armstrong executed the notes and continued the business. It would scarcely be contended that, if Armstrong had rescinded the contract, and the courts should have decided that he had a right to do so, that Klein would have been released. Under such circumstances Armstrong certainly would have been released, for his acceptance was based upon the conditions of the contract as stated, and he could avoid his liability provided, under the conditions of that contract, he could rescind it. His rescission of the contract would have carried with it a rescission of the acceptance of the order, and, indeed, of the whole transaction. In such case, Klein would have been liable to the companies, undoubtedly, as he was in the beginning. Klein, therefore, did have an interest, which was to see that Armstrong did not rescind the contract, but carried it out in good faith, for, until the notes were given and secured, he remained liable. Klein did not mean to bind himself to refrain from the insurance business whether Armstrong complied with his part of the contract or not, and Armstrong's contract was not to secure Klein's release from, but to pay, his debts to the amount of $ 13,000. Armstrong declared a rescission, insisted on it, declined to give his notes, and, by his conduct, created such apprehension on the part of the insurance companies that they accepted an inferior contract with Buck & Hackett. Armstrong, by his conduct, destroyed the spirit and intent of his contract with Klein, and neither he nor his assignees have any such equity as they contend for.

The consideration of Klein's covenant to refrain from the business of insurance was an agreement of Armstrong to pay $ 13,000, of which $ 9,000 was to be evidenced by two secured notes, payable in one and two years. If, as contended, the order of Klein upon Armstrong operated as an assignment to the insurance companies of his interest in these deferred payments so absolutely that they could do as they pleased with them, it is also true in law and fact that they could not release Armstrong from his obligation to Klein to pay the $ 9,000 by two secured notes, and at the same time hold Klein to his covenant to refrain from the insurance business, for his covenant was given in consideration of Armstrong's undertaking. The release of Armstrong necessarily had the effect of releasing Klein from his covenant.

2. The contract, in so far as Klein's covenant is concerned, cannot be enforced by Buck & Hackett or Buck & Markham. His covenant was with Armstrong only, and not with Armstrong and "his assigns." The word "assigns" appears only in that paragraph of article two of the contract which contains the covenant, which is as follows: "Nor on behalf of any other agent than the party of the second part or his assigns." It is not contended that Klein is acting as the agent, or that he proposes to act as the agent, of any other insurance agent. Hence, he does not stand in the attitude of violating this part of his covenant. He is charged with acting, or intending to act, as an agent or solicitor himself of insurance companies. Neither by the rules of grammar or common sense can the words "his assigns," in the paragraph referred to, be applied to any other part of his covenant. The covenant being restrictive, must be literally construed. No words can be added to or taken from it. It is a personal one with Armstrong.

Section 660 of the code of 1892, relied upon by counsel for appellee, does not affect the question. That section was not intended to provide that all contracts might be assigned. Its purpose was simply to enable the assignee of such contracts as could be assigned to sue in his own name, when the assignment was in writing. If this covenant, therefore, is not such a one as could be assigned, the fact that it has been attempted to be assigned by writing, does not bring it within the terms of that section of the code. Chicago, etc., Railroad Co. v. Packwood, 59 Miss. 282. Whatever may be the ruling in other states, the question has been definitely determined in this state. Anderson v. Faulconer, 30 Miss. 145.

The adjudged cases, including some of those relied on by appellee, draw a just distinction between the good will of a business and a restrictive covenant of the kind here alleged. The sale of the good will of a business does not imply a contract on the part of the vendor to not again engage in a similar business. Guerand v. Dandelet, 32 Md. 562; Hedge v. Lowe, 47 Iowa 137; Greite v. Hendricks, 78 N.Y.S. (71 Hun), 7. For instance, the contract between Klein and Armstrong, if the restrictive covenant entered into by Klein were entirely eliminated from it, would still convey to Armstrong the good will of the business, for in article one of the contract the good will is mentioned as being conveyed along with the books, policies, etc. The restrictive covenant was something in addition to the good will, and was in no sense an incident of the business transferred. It was a separate, special, independent covenant, and, therefore, had no connection with the good will, and would not pass to the assignee as an incident of the business.

The case of Navigation Co. v. Wright, 6 Cal. 258 (65 Am. Dec., 511), cited on behalf of appellees, does not sustain their contention, for it is evident that, but for the peculiar words of the covenant and of the circumstances of the case, the court would have held that the covenant was not assignable. In Diamond Watch Co. v. Roeber, 106 N.Y. 473 (s.c. 60 Am. Rep., 464), the assignment of a restrictive covenant was maintained, because it was made with the covenantee and assigns.

In no case can the covenant be held to cover anything save local insurance in Vicksburg. 92 Am. Dec., 751, note.

Miller, Smith & Hirsh, for the appellees.

Fairly interpreted, the contract is assignable on its face. All of its parts must be considered together, and the construction contended for by appellant is a forced one that does violence to its spirit and intent. It is idle to say that Klein's covenant as to the assignees of Armstrong was limited to refraining from acting as the agent of any other insurance agent, while it is conceded that the covenant with Armstrong precluded his engaging in the insurance business in any manner. The language of the instrument does not admit of that interpretation.

A covenant of this character has uniformly been construed as constituting a part of the good will of the business or property sold, and passes with the property when transferred, because it adds value to the business, and when the business is transferred the covenant necessarily goes with it. Gompers v. Rochester, 56 Pa. 194; Pemberton v. Vaughn, 59 Eng. C. L. Rep., 87; Greite v. Hendricks, 71 Hun (N. Y.), 7; Hedge v. Lowe, 47 Iowa 137; Jacoby v. Whittemore, 49 L. J. N. S., 335; Guerand v. Dandelet, 32 Md. 561; California Steam Navigation Co. v. Wright, 6 Cal. 258.

The case of Anderson v. Faulconer (30 Miss.) rested on the peculiar language of the covenant involved, and the opinion is not susceptible of the interpretation given to it by opposing counsel. Anderson had died, and Stith, the other covenantee, had sold out his interest to him before his death. As the covenant was against setting up a printing establishment in the same town, in opposition to Anderson & Stith, as proprietors of a certain paper, the covenant was at an end, for neither of the covenantees retained any interest in the paper.

2. There is no merit in the argument that because Armstrong failed to give the notes for $ 4,000 and $ 5,000, Klein was released from his covenant to refrain from engaging in the insurance business. The order on Armstrong given by Klein to his creditors operated as an absolute assignment by Klein in their favor of the entire fund due by Armstrong. It then became their property, and he had nothing further to do with it. Bush, Redmond & Co. v. Foote, 58 Miss. 12; Daniel on Neg. Inst., § 21. The agreement to execute these...