Tobin v. Cody

• Decision Date: 05 March 1962
• Citation: 343 Mass. 716,180 N.E.2d 652
• Parties: Paul L. TOBIN et al. v. William P. CODY, Senior, et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 652

180 N.E.2d 652

343 Mass. 716

Paul L. TOBIN et al. v. William P. CODY, Senior, et al.

Supreme Judicial Court of Massachusetts, Bristol.

Argued Jan. 4, 1962.

Decided March 5, 1962.

Chris Byron, New Bedford (Jack London, New Bedford, with him), for defendants.

William A. Torphy, Fall River, for plaintiff, submitted a brief.

Before WILKINS, C. J., and SPALDING, WILLIAMS, WHITTEMORE, CUTTER, KIRK and SPIEGEL, JJ.

KIRK, Justice.

The defendants have appealed from a final decree permanently enjoining them from engaging in the scrap metal business in Bristol county and from soliciting customers of the plaintiffs. There is also an appeal from an interlocutory decree confirming the master's report.

We dispose of the appeal from the interlocutory decree first. The master's report does not disclose error on its face. It appears to be complete in all essentials and is not inconsistent, contradictory or plainly wrong. No motion was filed to recommit the report for a fair summary of the evidence or for any other purpose. In these circumstances the interlocutory decree confirming the report was properly entered. We need not consider the objections to the report. We accept the master's findings as final. Dodge v. Anna Jaques Hosp., 301 Mass. 431, 435, 17 N.E.2d 308. Macera v. Mancini, 327 Mass. 616, 620-621, 99 N.E.2d 869. Shaw v. United Cape Cod Cranberry Co., 332 Mass. 675, 678-680, 127 N.E.2d 296. New England Overall Co., Inc. v. Woltmann, Mass., 176 N.E.2d 193 ^a and cases cited.

The main question presented is whether the facts found by the master justify the relief granted by the final decree. More particularly, the issues are whether there was as the result of an agreement in 1956 between the plaintiff and the defendant an implied covenant by the defendants not to compete with the plaintiffs, and if so whether the injunction granted was too broad.

The master found that Cody and Tobin, Inc. (the corporation), one of the plaintiffs, was organized many years ago as the successor to a partnership which was engaged in the scrap metal business in and about New Bedford. The elder Tobin, now deceased, and the defendant William P. Cody, Sr. (Cody, Sr.), were the original partners and later the original and principal stockholders in the corporation. They and their respective families were friendly over the years. A close friendship of long standing existed between the plaintiff Paul L. Tobin (Paul), son of the now deceased elder Tobin, and the defendant William P. Cody, Jr. (Cody, Jr.). In due time Paul and his brother Joseph, and Cody, Jr., entered the family business. Each of the families held fifty shares of the one hundred shares of stock issued by the corporation. Of the fifty shares held by the Code family, Cody, Sr., owned forty-nine and Cody, Jr., one.

In 1942, Cody, Jr., and Paul left their work with the corporation. For some years thereafter the business was run by the elder Tobin and Joseph, and Cody, Sr. Upon the elder Tobin's death, his stock went to his sons.

By 1956, Cody, Jr., and Paul had rentered the family business. At that time the corporation in addition to buying scrap metal was to a limited extent buying and selling new steel. Early in 1956, Cody, Jr., stated to Paul that he 'saw no future in the scrap metal business.' At Cody, Jr.'s suggestion they consulted the Codys' lawyer on March 10, 1956, and, after a lengthy and friendly conference where careful consideration was given to the corporation's assets and liabilities, a purchase and sale agreement was executed by Cody, Sr., and Cody, Jr., as sellers, and the Tobin brothers, as buyers, of the fifty shares of stock owned by the Codys. The good will of the business was never mentioned or evaluated in the discussion or in the purchase and sale agreement. There were no trade secrets in connection with the business and the list of customers was not secret. The purchase price was approximately $25,000. The agreement provided for the execution of a release by the corporation to the sellers of their debts and obligations. Because of the difficulties encountered by the Tobins in raising cash to buy the stock, a supplemental agreement was made by the parties and the corporation on April 6, 1956, ratifying the earlier agreement and providing that 'the stock certificate be sold by the said Codys to the corporation' and that delivery be made at a bank which advanced the money with the stock as security. The check for the stock was payable to Cody, Sr.

The master found that, having in mind the price paid and the relations between the parties, the Tobins intended to buy and reasonably thought they were buying all of the Cody interest in the corporation, including the prospect of any competition from them in 'New Bedford, if not in Bristol County and in adjacent parts of Plymouth County'; and that Cody, Jr., had no 'intention of going back into the scrap metal business.' Cody, Jr., although he owned only one share of the stock, knew of and participated in all details of the transaction. Cody, Sr.'s knowledge of the transaction was equal to Cody, Jr.'s.

Since the purchase, Paul has run the corporation's business at the same place in New Bedford and under the same name. ¹ Cody, Jr., was out of the Commonwealth most of the time after 1956. He returned in 1959, however, and in 1960, activated the defendant Cape Cod Iron Works, Inc. (which had been incorporated somewhat earlier by the Codys), in the scrap metal business. He was unable to get a license to do business in Fall River, and thereupon began operations at a location which is a short distance from the plaintiff corporation's place of business in New Bedford. The plaintiff corporation's customers have been solicited by Cody, Jr.

The master reported that Cody, Sr., although of advanced years was a party to the litigation whose failure to appear or to testify at the trial was not explained in any way. From this fact and other evidence, he inferred on the part of Cody, Sr., knowledge of, and participation in, the business activities of Cody, Jr., and the Cape Cod Iron Works, Inc. He found that the activities of the Codys and Cape Cod Iron Works, Inc., were in derogation of the sale of stock to the plaintiffs in 1956.

We think that the facts found by the master justify the conclusion that there was an implied covenant by the defendants not to compete. The existence and scope of an implied covenant not to compete depend upon the circumstances attending the contract of sale and the nature of the business or the interest which is sold. Hoxie v. Chaney, 143 Mass. 592, 594, 595-597, 10 N.E. 713. Levin, Non-Competition Covenants in New England, 39 B.U.L.Rev. 482, 500-502. Although good will was not mentioned, the sale by the Codys of all the stock held by them, the relinquishment of any offices in the corporation, and the severance of all connection with it constituted a complete divestment of their interest in the corporation and a transfer of that interest to the plaintiffs remaining in the business. It was the equivalent of the sale of 'all the property and assets' which they had. '[O]rdinarily when the entire assets of a business are sold 'it is presumed that the good will passes with the other assets.' Canadian Club Beverage Co. v. Canadian Club Corp., 268 Mass. 561, 568, 168 N.E. 106, 108; Lynn Tucker Sales, Inc. v. LeBlanc, 323 Mass. 721, 723, 84 N.E.2d 127.' Pitman v. J. C. Pitman & Sons, Inc., 324 Mass. 371, 374, 86 N.E.2d 649, 651. And this is so even though the sale agreement omits to mention good will in the transfer of the business. Canadian Club Beverage Co. v. Canadian Club Corp., 268 Mass. 561, 568, 168 N.E. 106, and cases cited. Lynn Tucker Sales, Inc. v. LeBlanc, 323 Mass. 721, 723, 84 N.E.2d 127.

Our decisions have made it clear that in the voluntary transfer of good will, whether by express terms or otherwise, there is implied an agreement by the seller not to compete with the purchaser in such a manner as to derogate from the value of that which is sold. Old Corner Book Store v. Upham, 194 Mass. 101, 104-105, 80 N.E. 228. Highland Laundry Co. of Lowell v. Wotton, 293 Mass. 322, 326-327, 199 N.E. 757. Perkins v. Becker's Conservatories, Inc., 318 Mass. 407, 413, 61 N.E.2d 833. Auslyn, Inc. v. Rousseau, 321 Mass. 735, 75 N.E.2d 641. Lynn Tucker Sales, Inc. v. LeBlanc, 323 Mass. 721, 724, 84 N.E.2d 127. Pitman v. J. C. Pitman & Sons, Inc., 324 Mass. 371, 374, 86 N.E.2d 649. The same rule applies when a partner conveys his interest in a partnership to a copartner. Old Corner Book Store v. Upham, 194 Mass. 101, 106-107, 80 N.E. 228. Foss v. Roby, 195 Mass. 292, 296-297, 81 N.E. 199, 10 L.R.A.,N.S., 1200.

We think that the reasoning underlying the cited cases is applicable to the case before us. While it may be true that the good will of the business belongs to the corporation as an entity and not to the stockholders as such, the value of the good will is reflected in the value of the stock which was the subject of the sale. Where, therefore, the sellers of the stock have been active participants in the business and are in a position to control or affect its good will, we think not only that they may validly bind themselves by an express promise not to derogate from the good will reflected in the value of the stock sold by competing with the buyers remaining in the business, but also that in appropriate circumstances such a promise can be implied in the sale of the stock itself.

This view has support. 'The sale by a shareholder, who participates substantially in the control of the corporation, of his shares and his interest in the good will of the corporation has been treated as if it were a sale by a partner of his interest in the partnership business carrying the usual implied restriction upon a vendor's subsequent competition with the corporate business in derogation of the good will transferred.' Williston, Contracts (Rev. ed.) § 1640, p. 4595. Komow v. Simplex Cloth...