Voices, Inc. v. Metal Tone Mfg. Co., Inc.

• Decision Date: 27 January 1936
• Citation: 182 A. 880
• Parties: VOICES, Inc., v. METAL TONE MFG. CO., Inc., et al.
• Court: New Jersey Court of Chancery

182 A. 880

VOICES, Inc.,

v. METAL TONE MFG. CO., Inc., et al.

Court of Chancery of New Jersey.

Jan. 27, 1936.

Syllabus by the Court.

1. When parties consent to an agreement, the court assumes they mean just what they say, and that they did it unqualifiedly and without any mental reservation.

2. An agreement in restraint of trade may be sustained where it is no more than is necessary to the protection of the interest involved.

3. An agreement in restraint of trade must be reasonable as to time and space.

4. A trade restraint to be reasonable must be such only as to afford a fair protection to the interests of the party in favor of whom it is given and not so large as to interfere with the interests of the public. Suit by Voices, Inc., against the Metal Tone Manufacturing Company, Incorporated, and others. On final hearing.

Order for complainant.

Gross & Gross, of Jersey City, for complainant.

C. Wallace Vail, of Newark, for defendants.

EGAN, Vice Chancellor.

The complainant is the owner of a number of patents covering sound producing devices known as "voices" and "criers" which are used in dolls and toys. On January 4, 1932, it and the defendant, with others, entered into an agreement, of which paragraph 8 thereof reads as follows: "8. The parties of the second part, including not only the corporate parties, Karl Ohlbaum & Son, Inc., and Metal Tone Mfg. Co., Inc., but also the principals thereof, namely, Karl Ohlbaum and Samuel B. Ohlbaum of Karl Ohlbaum and Son, Inc., and Elias B. Kriegsfeld and Matteo De Cesare of Metal Tone Mfg. Co., Inc., severally and jointly hereby undertake and agree not to engage in the United States or its territories, directly or indirectly, in the business of manufacturing and/or selling any sound producing devices either of the type known in the trade as 'criers' or that known as 'mama voices,' for a period of eighteen (18) years beginning Jan. 1, 1935, the date of the termination of the license aforesaid. The said parties and each of them severally and jointly hereby specifically agree that they will not for the stated period of eighteen (18) years, directly or indirectly make or cause to be made, sell or cause to be sold, or in any manner organize, set up, participate in, enter, join, be employed by, or be directly or indirectly interested in any organization, business, firm, or corporation engaged in the manufacture or/and sale of either said 'crier' or 'mama voice' sound producing devices."

The fifth paragraph of the same agreement reads: "5. The parties of the second part jointly and severally agree to assign, transfer and set over at and upon the termination of the license period aforesaid all the certain tools and dies which were, have been and shall during said license period be employed by them and each of them in the manufacture of the 'crier' aforesaid unto the party of the first part, and further agree that all such tools and dies will be delivered to the party o? the first part at its place of business at 146— 8 Center Street, Newark, New Jersey, or any other place that may be designated by the party of the first part not later than January 31st, 1935."

The bill of complaint seeks to restrain the violation of the terms of paragraph 8, and prays also for the specific enforcement of the terms of paragraph 5.

The agreement which contains the above-quoted paragraphs arose through differences and difficulties between the complainant and Karl Ohlbaum & Son, Inc., of New York. A patent infringement suit was instituted by the complainant against the last named, who was the sole and exclusive selling agent of the defendant company. The stock of the defendant company is closely held, and it is controlled by, the individual defendants, Elias B. Kriegsfeld and Matteo De Cesare, both of whom are the executive officers of the defendant company. Kriegsfeld and De Cesare actively participate in the conduct and control of its affairs.

The agreement discloses that the defendants recognize the validity of all of the letters patent set forth and mentioned in the final consent decree, adverted to in the agreement. These defendants agreed not to contest or aid others in contesting the validity of the patents referred to. The agreement granted to Karl Ohlbaum & Son, Inc., and the defendant company, a nonexclusive, nontransferable right and license to manufacture and sell sound producing devices under complainant's patents, for which royalties were to be paid, and suitable books of account were to be kept, etc. Under the terms of the agreement, Karl Ohlbaum & Son, Inc., and the defendant company, were required to transfer and deliver the tools and dies used by them in the manufacture of the sound producing devices on the termination of the license, to the complainant.

In accordance with the terms of the agreement, Karl Ohlbaum & Son, Inc., divested itself of its patent rights, and agreed to assign to the complainant, not only the patent rights, but all improvements thereon made during the license period. In the agreement, these defendants stipulated and agreed not to engage in the United States, or its territories, directly or indirectly, in the business of manufacturing and selling any sound producing devices, either of the type known as "criers" or that known as "mama voices" for a period of eighteen years beginning January 1, 1935 (as above provided in paragraph 8). The answer to the complaint filed herein admits that the defendant company manufactured and sold sound producing devices for dolls, and that it is "now selling sound producing devices."

The defendants set up five separate defenses. The first is, in effect, that the restrictive covenant contained in paragraph 8 of the agreement of January 4, 1932, was part of a general scheme and design to create a monopoly, and that the covenant is therefore unenforceable. The second defense is that the covenant contained in paragraph 8 is greater than was necessary for the protection of the complainant in its business. The third defense is that the covenant in paragraph 8 was not ancillary to a contract of sale or the transfer of a business, or good will, and that, in consequence, it is unenforceable. The fourth defense is that the covenant in paragraph 8 related only to the seven patents enumerated in the agreement and the particular type of "criers" then being manufactured by the defendant Metal Tone Manufacturing Company, Inc.; and that, the "criers" now being manufactured by the Metal Tone Manufacturing Company, Inc., do not in any way violate the terms of the agreement. The fifth defense is that the relief sought by the complainant is for the protection of patents, and, therefore, is not within the jurisdiction of this court.

As a purported recognition of the terms of paragraph 5 of the agreement, the defendant company delivered certain tools and dies to the complainant, which it rejected and refused to accept. The complainant says that they are not the tools and dies which were the subject of paragraph 5 of the agreement. The evidence submitted by the complainant in support of its attitude of refusal, in my opinion, establishes the fact that the defendant company evaded its obligation and presented to the complainant, not the discussed tools and dies, but a spurious imitation of them. Part of the testimony furnished by the complainant on this phase of the suit was given by a former employee of the defendant company, who for several years had been using the tools and dies of the defendant company. He declared, after an inspection by him of the delivered tools and dies in the presence of the court, that those tools and dies which the defendant admittedly offered to the complainant were not the specified tools and dies of the agreement.

The defendants, without qualification, solemnly declared and covenanted that they would not, for a period of eighteen years, manufacture or sell either "criers" or "mama voice" sound producing devices in these United States. In consequence of their declaration, they received, evidently, a satisfactory and valuable consideration. The agreement, and every feature of it, was approved by the defendants at the time of its execution by the parties to it. The objections they have since raised against the agreement existed when they indicated their approval of it by their signatures and corporate seals. Why did they not then protest? Why did they wait until they had received and enjoyed the benefits of the consideration due under the agreement? No satisfactory or equitable reason appears for their delayed protest. Their consent to it "is an act of reason accompanied with deliberation, the mind weighing as in a balance the good and evil on each side; and equity assumes when competent and informed men state it they mean just what they say." Hall v. Finn, 116 N.J.Eq. 34, 172 A. 531, 533. The defendants accepted and presumably were satisfied with the consideration given them by the complainant in return for their promise to observe the terms they specifically promised to perform. The court assumes that when these defendants consented to become parties to the agreement, that they did it unqualifiedly and without any mental reservation, and that they intended to make a binding and valid agreement. Chancellor Walker, when a Vice Chancellor, said in Artistic Porcelain Co. v. Boch, 76 N.J.Eq. 533, 74 A. 680, 681, that: "In these cases it is held that the court will presume that the parties intended to make a valid contract, and that they designed to provide a restrain which will be reasonable." To the same effect, Chief Justice Gummere, speaking for the Court of Errors and Appeals, in the case of Fleckenstein Bros. Co. v. Fleckenstein, 76 N.J.Law, 613, 71 A. 265, 267, 24 L.R.A.(N.S.) 913, said: "The construction of this contract which makes the description of the restricted area divisible is certainly a possible one; and it seems to me that, when a vendor endeavors to steal from his vendee the...