Rosenbaum v. U.S. Credit-Sys. Co.

• Decision Date: 25 January 1901
• Parties: ROSENBAUM v. UNITED STATES CREDIT-SYSTEM CO.
• Court: New Jersey Supreme Court

48 A. 237

65 N.J.L. 255

ROSENBAUM

v. UNITED STATES CREDIT-SYSTEM CO.

Court of Errors and Appeals of New Jersey.

Jan. 25, 1901.

(Syllabus by the Court.)

Error to supreme court.

Action by Martin Rosenbaum against the United States Credit-System Company. Verdict for defendant. Plaintiff brings error. Reversed. See 44 Atl. 966.

Cortlandt & R. Wayne Parker, for plaintiff.

Howard W. Hayes, for defendant.

COLLINS, J. On December 1, 1892, the defendant, a New Jersey corporation engaged in the business of indemnifying against losses on credits, made a written contract with the plaintiff, appointing him its agent in and for the state of Massachusetts for the term of five years, for a percentage on the amount of business secured, as his compensation. The plaintiff on his part in said written contract agreed to act as such agent for the term named, and to procure business to an extent stated each quarter, failing which the defendant might, at its option, terminate the contract, and further agreed that, should he cease to be the defendant's agent, he would not engage in like business for three years thereafter. On September 4, 1894, the defendant was adjudged insolvent, and a receiver was appointed for its creditors and stockholders. On October 2, 1894, its charter was forfeited, except for the purpose of collecting and distributing its assets. The plaintiff presented to the receiver a claim for damages for breach of said contract. The claim being disputed, the chancellor authorized an issue or issues at law to determine its validity. The supreme court overruled a demurrer by the plaintiff to a plea of such Insolvency and forfeiture, but on writ of error it was adjudged by this court that there was a breach of the contract, and that the forfeiture of the defendant's charter would not bar recovery of damages for such breach. Rosenbaum v. Credit-System Co., 61 N. J. Law, 543, 40 Atl. 591, reversing 60 N. J. Law, 294, 37 Atl. 595. The supreme court had also decided to overrule the plaintiff's demurrer to a plea that the business of the defendant was unlawful in Massachusetts; but after the announcement of the decision that plea was withdrawn, as were also certain other pleas held to be faulty, so that the judgment reviewed went only on the plea of insolvency and forfeiture. After the reversal the pleadings were recast and the cause proceeded to issue of fact. Trial was had in the Essex circuit, resulting in a verdict for the plaintiff, which was set aside and a new trial ordered by the supreme court in banc. The report of the decision is in 44 Atl. 966. Legal questions only were discussed—First, whether the plaintiffs agreement not to engage in business like that of the defendant for three years after he should cease to be its agent invalidated the entire contract; and, second, the effect of alleged unlawfulness in Massachusetts of such business, a plea of that purport having been renewed. The first question was decided in favor of the plaintiff on the authority of Fishell v. Gray, 60 N. J. Law, 5, 37 Atl. 606. The second question was decided in favor of the defendant Under the pleadings as recited in the opinion read by Mr. Justice Van Syckel, the unlawfulness alleged was not disputed. The court's decision was merely that the plaintiff's ignorance of it gave him no right of action for breach of the contract, but that concealment from him by the defendant of its knowledge of it would entitle him to damages in tort, under pleadings to be molded accordingly. Before the new trial, now the subject of review, I judge that new replications and subsequent pleadings were filed. In the present record the first plea is non est factum, on which issue is joined. The second plea is that the contract is void because a part of the consideration far the defendant's agreement was an agreement by the plaintiff not to engage, for three years after he should cease to be agent for the defendant, in any business like that of the defendant which restriction is alleged to be unreasonable. The replication is that the restriction was reasonable, and on this issue is joined. The third plea sets out in extenso the statute of Massachusetts hereinafter referred to, and avers that the business of the defendant for which the plaintiff was agent was at the time of the contract unlawful in that state. To this plea there are four replications. The first avers that at the time of the contract the plaintiff was a resident of Illinois, and ignorant of the laws of Massachusetts; the second avers to the same effect, and also that the defendant was cognizant of those laws, and had been refused a license to transact its business in Massachusetts, which matters it fraudulently concealed from the plaintiff; the third avers that the defendant knew, and the plaintiff was ignorant of, the laws of Massachusetts; and the fourth avers that defendant's business was not unlawful in that state. Issue is tendered on these several replications by divers rejoinders concluding to the country, and accepted by formal similiter. At the new trial the evidence at the former trial was used by consent The plaintiff moved to mold the pleadings so as to present an issue of tort but the learned trial judge refused to make order to that effect and his ruling, being discretionary, is not reversible. Verdict in favor of the defendant was directed on the third plea, and the bill of exceptions of the plaintiff presents this direction for our review, under the present writ of error brought on the consequent judgment against him. On the first plea a case was made by the plaintiff that the defendant did not attempt to confute, and no support for the direction of a verdict is claimed under that plea. The issue raised on the second plea was ignored by the trial judge, but the plea is now pressed, and must be considered.

How far the ancient doctrine that contracts in general restraint of trade are void has been modified, need not be discussed. The modern doctrine seems to be that the restraint may properly be made as extensive as the reasonable need of protection. The subject may be profitably considered in the light of its excellent presentation by Mr. George Stuart Patterson in his monograph on "The Law of Contracts in Restraint of Trade," published by the University of Pennsylvania in 1801, where many decisions are collected and analyzed, and of the intimation of the chancellor in his opinion read in the decision of this court in the case of Potteries Co. v. Olyphant, 58 N. J. Eq. 507, 43 Atl. 723, 46 L. R. A. 255. The reasonableness of an agreed restraint is a court question, and should be deducible from facts and circumstances recited in the contract or averred in pleadings. Mallan v. May, 11 Mees. & W. 652. In the present case the parties have framed an issue under a general replication of reasonableness. It was testified at the trial that the defendant's business was conducted in nearly every state of the Union, and was capable of indefinite extension. If it be proper to so raise the question, this was evidence requiring consideration; but, even if not, I think that the case has an aspect that precludes a decision in favor of the defendant. The contract between the parties was based on sufficient reciprocal consideration, apart from the plaintiff's restrictive agreement. Both parties must be presumed to have known the law as to contracts in restraint of trade, and therefore the restrictive covenant, if invalid, ought not to be held to avoid the valid covenants. Contracts in undue restraint of trade are loosely spoken of in the books as "illegal contracts." It is more accurate to style them "unenforceable contracts." It is not against the law to make such a contract, or illegal to perform it. As was said by rollock, C. B., in Green v. Price, 13 Mees. & W. 695: "It is not like a contract to do an illegal act. It is merely a covenant which the law will not enforce, but the party may perform it if he choose." In the case cited there was a covenant to pay £1,500...