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Free Books / Society / Law / Contracts and Agency | Popular Law / | ![]() |
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Section 45. Agreements In Restraint Of Trade. Part 2 |
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This section is from the book "Popular Law Library Vol3 Contracts Agency", by Albert H. Putney. Also see: Popular Law-Dictionary.
"But then it is said that, over and above the rule that the contract shall be reasonable, there exists another rule, namely: that the contract shall be limited as to space, and that this contract being in its terms unlimited as to space, and therefore extending to the whole of England and Wales, must be void.
"Now, in the first place, let me consider whether such a rule would be reasonable. There are many trades which are carried on all over the kingdom, which by their very nature are extensive and widely diffused. There are others which from their nature and necessities are local. If this rule existed it would afford a complete protection to the latter class of trade, whilst it would prohibit complete protection of the former class, and an injury which ought not to be wrought without good reason would arise. In the next place, the rule if it existed would apply in two classes of cases. It would apply where the want of a limitation of space was unreasonable, and also where it was reasonable. Now, in the former class of cases, those in which the universality was unreasonable, the rule would operate nothing, because the ground is already covered by the rule that the restraint must be reasonable. It would, therefore, only operate in cases in which the universality of the prohibition was reasonable; that is, it would only operate where it ought not. For the existence of such a rule I should require clear authority.
"In the next place, the rule is pressed upon me as an artificial rule, an absolute rule, or, as it was called by the late Vice-chancellor Wickens, a hard and fast rule. Such a rule might always be evaded by a single exception. No exception can be said to be colorable to a rule of this description, because you can only judge whether an exception be colorable or not by the principal of the rule, and if the rule be really an artificial one without principle, there is no criterion for saying whether the evasion is colorable or not. It appears to me for these reasons that I ought not to hold such a rule to exist unless it be clearly established.
"How, then, stand the authorities upon the point? There are undoubtedly cases in which it has been said that the restraint must not be universal. Such are Ward vs. Byrne 5 M. & W., 548, and Hinde vs. Gray, 1 Man. & G., 195; but looking to the judgments in those cases, and reading them with a view to the subject-matter, they appear to me to relate only cases in which the universality is unreasonable, and more than once in Ward vs. Byrne the rule is so explained, although I candidly admit that you may select other passages in which the court seems to say that the universality is of itself an objection to the contract. Undoubtedly, Vice-chancellor Wickens, of whose judgment I can never speak without the highest respect, came to the conclusion that such an artificial rule existed, and he so expressed himself in Allsopp vs. Wheatcroft, Law Rep., 15 Eq., 59. He said (ibid, 64) that 'there has been a natural inclination of the courts to bring within reasonable limits, the doctrine as to these covenants laid down in the earlier cases; but it has generally been considered in the later as well as in the earlier editions, that a covenant not to carry on a lawful trade, unlimited as to space, is on the face of it void. This seems to have been treated as clear law in Ward vs. Byrne, 5 M. & W., 548, and in Hinde vs. Gray, 1 Man. & G., 195, and in other cases; and the rule, if not obviously just is, at any rate, simple and very convenient. No doubt, in the case of Leather Cloth Company, vs. Lorsont, Law Rep., 9 Eq., 345, Lord Justice (then Vice-Chancellor) James threw some doubt on the existence of a hard and fast rule, which makes a covenant in restraint of trade invalid, if unlimited in area.' There are earlier cases than the one before the Vice-Chancellor James which seem to me to be inconsistent with the existence of the sup-possed hard and fast rule. In Whitaker vs. Howe, 3 Beav., 383, a case relating to an attorney's business, it was stipulated that the business should not be carried on in any part of Great Britain for twenty years; again in Jones vs. Lees, 1 H. and N., 189, the covenant was against selling a particular article anywhere in England without the invention of the plaintiff applied to it, and the objection, that the covenant was unlimited as to space was taken. 'It is objected,' said Mr. Baron Bramwell, 'that the restraint extends to all England; but so does the privilege. The cases with respect to the sale of a good-will do not apply, because the trade, which is the subject-matter of the sale, is local, and therefore a prohibition against carrying it on beyond that locality would be useless.' In other words, the learned judge explains the inclination of the courts against the universality of a prohibition as applying only to cases where the subject-matter of the sale was itself local. That is just the view I take of the earlier cases. Still more important are the observations of Lord Justice James in Leather Cloth Company vs. Lorsont, where he undoubtedly came to the conclusion that no such rule had been laid down as has been insisted upon before me. Having referred to the cases, he says, Law Rep., 9 Equ., 353: 'I do not read the cases as having laid down that irrebuttable presumption which was insisted on with so much power by Mr. Cohen. All the cases, when they come to be examined, seem to establish this principle, that all restraints upon trade are bad, as being in violation of public policy, unless that are natural and not unreasonable for the protection of the parties in dealing legally with some subject-matter of contract.' I have, therefore, upon the authorities, to choose between two sets of cases, those which recognize and those which refuse to recognize this supposed rule, and, for the reasons which I have already mentioned, I have no hesitation in saying that I adhere to those authorities which refuse to recognize this rule, and I consider that the cases, in which an unlimited prohibition has been spoken of as void, relate only to circumstances in which such a prohibition has been unreasonable. It follows, therefore, that, in my judgment, the plaintiffs have established their right upon the contract to an injunction, the terms of which I will mention presently." Julian L. Herreshoff vs. Boutineau:22 "For a long time, beginning with the Year Books, contracts limiting the exercise of one's ordinary trade or calling met with much disfavor in the courts. Any limitation whatever was considered, in the first reported case, Year Book, 2 Hen. V, Pasche, fol. 5, case 26, so far contrary to law that a plaintiff suing thereon was sworn at by the judge and threatened with a fine. But it was soon found that, to some extent at least, such contracts help rather than harm both public interests and private welfare; that they are necessary to trade itself, in order to secure the sale, at fair value, of an established business, by protecting it against the immediate competition of the seller; also to enable one to learn a trade or get employment from another, free from the risk of having the knowledge and influence thus gained used to the employer's damage; to encourage investment in business enterprises under reasonable safeguards; and for other equally evident reasons. Accordingly exceptions to the early doctrine were recognized from time to time until the leading case of Mitchel vs. Reynolds, 1 P. Wms., 181, when the Court established in the rule that a contract in restraint of trade, upon consideration which shows it was reasonable for the parties to enter it, is good: 'that wherever a sufficient consideration appears to make it a proper and useful contract, and such as cannot be set aside without injury to a fair contractor, it ought to be maintained, but with this constant diversity, viz., when the restraint is general, not to exercise a trade throughout the kingdom, and where it is limited to a particular place; for the former of these must be void, being of no benefit to either party, and only oppressive.' It is to be observed that the contract in this case was limited in time to five years, the term of the lease of a bakehouse which the plaintiff had bought of the defendant; and also limited in space to the parish of St. Andrew's, Holborn. The case, therefore, did not call for decision upon a contract running throughout the kingdom. Nevertheless, it has since been commonly assumed as the settled rule of law that such a restraint is contrary to public policy and void. The principle upon which this rule is put, is, that the public have the right to demand that even- person should carry on his trade freely, both for the prevention of monopoly and of unprofitable idleness. The argument is, if the restraint is general throughout the realm, the public interest is interfered with, since the party restrained can only resort to his trade for a livelihood by expatriation. But if the restraint be local and partial, the party and the public may still have the benefit of his sendees in his own land, in some other place. While this distinction has frequently been recognized, the cases in which it has had the sanction of a decision have been few. In Rousillon vs. Rousillon, L. R., 14 Ch., Div. 351, Fry, J., mentions only two, and these he says, seem to have been decided upon the ground of unreasonableness, rather than upon the ground of universality. In other words, the universality was held to be unreasonable. This case, following Whittaker vs. Howe, 3 Beav., 383; Jones vs. Lees, 1 H. & N., 188; and Leather Cloth Co. vs. Lorsont, L. R., 9 Eq., 345, expressly holds there is no absolute rule that a covenant in restraint of trade is void if it is unlimited in regard to space. The respondent urges that Rousillon vs. Rousillon has been overruled by the recent case of Davies vs. Davies, L. R., 36, Ch. Div., 359; but we do not think this is so. While Cotton, L. J., showing great willingness, if not anxiety to overrule it, based his opinion upon the ground that the restriction was void because unlimited in space, Bowen, L. J., did not put his decision on that ground, and Fry, L. J., adherred to his opinion in Rousillon vs. Rousillon. That Davies vs. Davies was not received in England as overruling the last-named case, see note to the case in Law Quarterly Review, vol. iv, p. 240. In view of these cases we do not think it is now the rule in England that restraint throughout the kingdom is absolutely void. In this country the cases have been quite similar to those in England. In the recent case of Diamond Match Co. vs. Roeber, 106 N. Y., 473, Andrews, J., says: 'It is worthy of notice that most, if not all, the English cases which assert the doctrine that all contracts in general restraint of trade are void, were cases where the contract before the Court was limited or partial. The same is generally true of the American cases.' In that case the defendant covenanted for the period of ninety-nine years, not to engage in the manufacture or sale of friction matches within any of the states or territories of the United States, except Nevada and Montana. The complainant sought to restrain a breach of that covenant in New York, the respondent claiming that the covenant, being general as to New York, was void. But the Court declared it to be valid, in a strong and thorough opinion, showing the history of litigation and the tendency of recent judicial decision upon this subject. Taking this case in connection with Oregon Steam Navigation Co. vs. Winsor, 20 Wall, 64, we think it cannot be said here, any more than in England, that a restraint is absolutely void, upon grounds of public policy, because it extends throughout a State. Public policy is a variable test. In the days of the early English cases, one who could not work at his trade could hardly work at all. The avenues to occupation were not as open nor as numerous as now, and one rarely got out of the path he started in. Contracting not to follow one's trade was about the same as contracting to be idle, or to go abroad for employment. But this is not so now. It is an every-day occurrence to see men busy and prosperous in other pursuits than those to which they were trained in youth, as well as to see them change places and occupations without depriving themselves of the means of livelihood, or the State of the benefit of their industry. It would, therefore, be absurd, in the light of this common experience, now, to say that a man shuts himself up to idleness or to expatriation, and thus injures the public, when he agrees, for a sufficient consideration, not to follow some one calling within the limits of a particular State. There is no expatriation in moving from one State to another; and from such removals a State would be likely to gain as many as it would lose. We do not think the public policy demands an agreement of the kind in question to be declared void, and we do not think such a rule is established upon authority. We, therefore hold, that the agreement set out in the bill is not void simply because it runs throughout the State.
 
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