Morehead City Sea Food Co., Inc. v. Way
| Decision Date | 20 October 1915 |
| Docket Number | 174. |
| Citation | 86 S.E. 603,169 N.C. 679 |
| Parties | MOREHEAD CITY SEA FOOD CO., INC., v. WAY. |
| Court | North Carolina Supreme Court |
Appeal from Superior Court, Carteret County; Bond, Judge.
Action by the Morehead City Sea Food Company, Incorporated, against B. C. Way. From an order continuing an injunction, defendant appeals. Affirmed.
This is an action to restrain the defendant from engaging in the business of a fish dealer in Morehead City in violation of an agreement whereby the defendant agreed with the plaintiff upon the plaintiff's purchasing his business, good will and certain personal property, not to carry on, be concerned in, or interested in said business of a fish dealer for a period of ten years withn 100 miles of Morehead City. The plaintiff was duly organized on the 14th of March, 1914, and the defendant, one of the incorporators, was elected a director, vice president, and general manager of the plaintiff, and he has continued in these positions up to the commencement of this action.
Prior to the 14th of March, 1914, the fish business of Morehead City was conducted by seven different firms composed of eleven individuals. These fish dealers operated boats about the waters of North Carolina, and did a large fish business in North Carolina, South Carolina, Georgia, and in Northern and Eastern markets. They were the only fish dealers at Morehead City, except two, but there are now since the organization of the plaintiff as many fish dealers in Morehead City as there were at the time of the organization of the plaintiff. On the 12th of March, 1914, all of said eleven fish dealers formed the plaintiff corporation, known as Morehead Sea Food Company, and upon the organization of the company each entered into a contract of sale with the plaintiff by which he sold his business and good will as a fish dealer to the plaintiff and the personal property used in connection with his business, and in each bill of sale there was the following covenant:
"The vendor hereby covenants with the purchaser that they will not directly, indirectly, solely, or jointly, as principal agent, manager, or otherwise, be concerned or interested in the same business heretofore carried on as aforesaid by them within the counties of Carteret and Craven, in the state of North Carolina, and within 100 miles from the town of Morehead City aforesaid, for ten years from the date hereof, nor permit their names to be used in connection with such business."
Upon the hearing of the motion to dissolve the restraining order therefore issued his honor continued the order to the hearing, and the defendant excepted and appealed.
Moore & Dunn, of Newbern, for appellant.
Julius F. Duncan, of Beaufort, and Guion & Guion, of Newbern, for appellee.
ALLEN, J. (after stating the facts as above).
Two questions are presented by the appeal:
(1) Is the agreement entered into between the plaintiff and the defendant a violation of the statute of this state enacted to prevent illegal trusts and combinations in restraint of trade?
(2) If not, is the agreement unlawful under the common law?
The first question is answered by the statute wherein it is provided:
"That nothing herein shall be construed to prevent a person, firm or corporation from selling his or its business and good will to a competitor, and agreeing in writing not to enter the business in competition with the purchaser in a limited territory, as is now allowed under the common law."
The contract under consideration comes within the class described in the statute, and is authorized by it, unless condemned by the common law.
We must then examine the principles of the common law applicable to contracts of this character. In the early cases contracts in restraint of trade were very generally held to be void as against public policy, upon the ground that they tended to lessen the opportunities of the party restrained to earn a livelihood and to deprive the community of the benefit of competition. 6 Ruling Case Law, 785. The distinction was, however, soon recognized between contracts in general restraint of trade which were held invalid and these in partial restraint of trade which were sustained, if not unreasonable. The changes that have taken place in the methods of doing business and the increased opportunities for communication and the enlarged facilities for transportation have also materially modified the views of the courts as to what is an unreasonable restraint upon trade. Many new industries unknown to the ancient common law have developed which makes it easier for one engaged in business to seek other employment when he has contracted to give up his old business, and this has reduced the hardship of such a contract upon the individual, and the danger to the community has been greatly reduced because of the increased opportunities to deal with distant communities. The good will of a business was soon regarded as an important and valuable interest which the law would recognize and protect (20 Cyc. 1276), and, while there is authority for the position that the sale of the good will of a business by implication will prevent the seller from prosecuting the same business in competition with the purchaser, the weight of authority seems to be that the purchaser can only protect himself fully by a written agreement upon the part of the seller to refrain from entering into the same business.
This stipulation, while primarily for the benefit of the purchaser, inures to the advantage of the seller by enhancing the value of the good will, and--
6 Ruling Case Law, 793.
There was also a tendency in the early cases to establish as the standard for determining the reasonableness of the contract the duration of the contract as to time and the extent of the territory in which it was to operate, but under changed conditions, and in the effort to make the good will a valuable asset, these tests have been abandoned, and the true test now generally applied is whether the restraint is such as to afford a fair protection to the interests of the party in whose favor it is given, and not so large as to interfere with the interests of the public. 16 Ann. Cas. 254.
As said in Southworth v. Davison, 106 Minn. 119, 118 N.W. 363, 19 L. R. A. (N. S.) 769, 16 Ann. Cas. 253:
In other words, the good will of a business being recognized as intangible property which the owner may sell, and it being for the benefit of the seller that it should be sold for its full value, and it being necessary for the protection of the purchaser that the seller should not after the sale enter into competition with him, contracts restraining the seller from engaging in the same business are upheld, and they are not unreasonable if they go no further than to remove the danger to the purchaser of competition with the seller.
The opinion in Anchor Electric Co. v. Hawkes, 171 Mass. 101, 50 N.E. 509, 41 L. R. A. 189, 68 Am. St. Rep. 403, contains a learned and instructive discussion of the question. In that case the business managers of three corporations agreed to form a new corporation of which they were to be the officers and directors. Each corporation was to sell its assets and good will to the new corporation, and as a part of the contract of sale each corporation represented by the managers agreed that it would not in any way interfere with or compete with the business of the new corporation for a period of five years. The contract was sustained, and, among other things, the court said:
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