This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
A contract not to compete in business, if valid, is broken by engaging in such business at such place,1 or by his manufacturing the medical preparation in which he has agreed not to compete, under another name, claiming it to be superior to that sold before.2 A contract not to compete as an attorney within a given area is broken by furnishing advice by letter to persons who reside in such area, or by attempting to collect claims as an attorney from debtors who live in such area, although the place of business of such person is located outside of such area.3
21 Shinsky v. Tracey, 226 Mass 21, L. R. A. 1917C, 1053, 114 N. E. 057.
1 John Slaughter Co. v. Standard Machine Co., 148 N. Car. 471, 62 S. E. 509.
2 Smith v. Billings Sugar Co., 37 Mont. 128, 15 L. R. A. (N.8.) 837, 94 Pac. 830.
3 Smith v. Billings Sugar Co., 37 Mont. 128, 15 L. R. A. (N.S.) 837, 94 Pac. 830.
4 Cox v. Chase, 05 Kan. 531, L. R. A. 1915E, 500, 148 Pac. 766.
5 Abrahams v Campbell , Scotch Cas. 353, [19l l] 1 S. L T 4.
6 Cream of Wheat Co v. Arthur H. Crist Co., 222 N Y. 487, 1 A. L. R. 150, 119 N E. 74.
7 Cream of Wheat Co. v. Arthur H. Crist Co, 222 N. Y. 487, 1 A L R 150, 119 N. E. 74.
8 M P. Smith & Sons Co v Trexler Lumber Co., 216 Fed 134, L. R. A. 1015B, 1086.
1 Knowles v. Jones, 182 Ala. 187, 62 So. 514 (obiter); Nelson v. Hiatt, 38
In order to amount to a breach of such covenant, it is not necessary that the business should be carried on in the name of the party who has entered into such covenant not to compete,4 or that he should be the beneficial owner thereof.5
If a corporation which he has organized and in which he is a stockholder,6 or a partnership of which he is a member,7 competes in such business, the contract is broken. Breach exists if he holds himself out as a partner in a firm, though he is not one in fact,8 or if he acts as an employe or agent of a competitor,9 or if he acts as managing agent,10 or as salesman,11 or as a skilled workman,12 as in a contract not to compete as a barber.13 One who has agreed not to compete breaks such covenant if he competes as trustee for the owner of such business.14 A contract not to act as employe for any share of the proceeds, interest in the business or compensation based on sales is not broken by working in such business as employe on a salary.15 If a partnership agrees not to engage in a certain business, such contract is broken if one of its members so engages.16 A contract not to compete is not broken by engaging in a different though closely allied business;17 nor by making a contract to engage in such business after the time shall expire during which he was not to compete;18 nor by assisting his wife to start in the same business with her own money;19 nor by the act of unauthorized parties who sell his goods within the territory covered by the contract not to compete.20 A contract not to engage in business as long as A is in such business ends when A organizes a corporation and sells his business to it;21 but it does not end if the corporation is merely nominal, and A owns all the stock and controls the business;22 and such contract is said not to be discharged if A is one of the large stockholders in such new corporation and one of the officers thereof.23 If A agrees with B not to engage in a certain business, such contract is not discharged by the fact that A and B subsequently form a partnership, the property of which is on dissolution to belong to whichever of them bids the most for it.24 A sale of the good will of a business is broken by the vendor's soliciting the business of his old customers,25 or by using the former trade name, even if it is his own.26 A contract not to compete in abstracting public records is not broken by doing the clerical work of making an uncertified and unexamined copy of another abstract; 27 nor is such contract broken by the fact that the promisor buys his abstracts at a reduced rate from a competitor of the promisee.28
Neb 478, 66 N W. 1029; Cowan v Fairbrother, 118 N. Car. 406, 54 Am. St. Rep 733, 32 L. R. A. 829, 24 S E. 212.
2 Gregory v. Spicker, 110 Cal. 150, 62 Am St Rep. 70, 42 Pac 676.
3 Edmundson v. Render , 2 Cb. 320.
4 Knowles v. Jones, 182 Ala 187, 62 So 514; Ammon v Keill, 95 Neb 695, 52 L. R. A. (N.S ) 503, 146 N. W 1009; Siegel v. Marcus, 18 N I). 214, 20 L R. A. (NS) 769, 119 N. W. 358.
5 Geiger v. Cawley, 146 Mich. 550, 109 N. W. 1064.
6 Knowles v. Jones, 182 Ala. 187, 62 So. 614; OH Corner Book Store v. Up-ham, 194 Mass. 101, 120 Am. St Rep. 532, 80 N. E 228; Kramer v. Old, 119 N. Car. 1, 56 Am St. Rep. 650, 34 L. R. A. 389, 25 S. E. 813.
Equity will enjoin him from acting as a stockholder, except for the purpose of selling his stock or receiving his proportionate share of such business after it is dissolved. Old Corner Book Store v. Upham, 194 Mass. 101, 120 Am. St. Rep. 532, 80 N. E. 228.
7 Borley v. McDonald, 69 Vt. 309, 38 Atl. 60.
8 Daniels v. Brodle, 54 Ark. 216, 11 L. R. A. 81, 15 S. W. 467.
9 Knowles v. Jones, 182 Ala. 187, 62 So 514; Ammon v. Kelll. 95 Neb. 695,
52 L R. A. (NS.) 503. 146 N W 1009; Siegel v. Marcus, 18 N D 214, 20 L R. A. (N.S) 769, 119 N W 358
10 Smith v Webb, 176 Ala. 596, 40 L. R. A. (NS.) 1191, 58 So 913; Knowles v. Jones, 182 Ala. 187, 62 So. 514; Fleckenstein Bros Co v. Flecken-stein, 66 N J. Eq. 252, 57 Atl. 1025; King v. Fountain, 126 N Car. 196, 35 S. E. 427; Siegel v Marcus, 18 N D. 214, 20 LR.A.(N8) 769, 119 N. W. 358.
The fact that he is conducting a branch for a principal who is located in another place, does not prevent such conduct from amounting to a breach of a covenant not to compete in the place in which such branch is located. Smith v. Webb, 176 Ala. 596, 40 L R. A. (NS.) 1191, 58 So. 913.
Such party can not hold himself out as manager of a competing business, even though he does not take part therein, if such conduct will injure the good will of the business which he has sold. Fleckenstein Bros. Co. v. Fleckenstein, 66 N. J. Eq. 252, 57 Atl. 1025.
11 McCausland v. Hill, 23 Ont App. 738.
See to the same effect, in case of agent, Meyers v. Merrillion, 118 CaL 352, 50 Pac. 662.
12 Ammon v. Keill, 95 Neb. 695, 52 L. R. A. (N.S.) 503, 146 N. W. 1009.
13 Pohlman v. Dawson, 63 Kan. 471, 88 Am. St. Rep 249, 54 L R. A. 913, 65 Pac. 689.
14 Geiper v. Cawley, 146 Mich. 550, 109 N. W. 1064.
15 Haley Grocery Co. v. Haley, 8 Wash. 75, 35 Pac 595.
16 Love v. Stidham, 18 D. C. App. 306, 53 L. R. A. 307.
Contra, Streichen v. Fehleisen, 112 la. 612, 84 N. W. 715 [sub nomine, Steichen v. Fehleisen, 51 L. R. A. 412].
17 Breck v. Ring1er, 129 N. Y 656, 20 N. E. 833. (Contract not to engage in zinc etching not broken by engaging in electrotyping and stereotyping and occasionally buying a zinc etching)
18 Southland Frozen Meat & Produce Export Co. v. Nelson , A. C. 442.
19 Smith v. Hancock , 2 Ch. 377.
20 Dr. Harter Medicine Co. v. Hopkins, 83 Wis. 309, 53 N. W. 501.
21 Bagby & Rivers Co. v. Rivers, 87 Md 400, 67 Am. St. Rep. 357, 40 L. R. A. 632, 40 Atl. 171.
Contra, if A retains a substantial interest in such corporation. Bradford v. Montgomery Furniture Co., 115 Tenn. 610, 0 L. R. A. (N.S.) 979, 92 S. W. 1104.
22 Ragsdale v. Nagle, 106 Cal. 332, 30 Pac. 628.
2 3 Bradford v. Montgomery Furniture Co, 115 Tenn. 610, 9 L. R. A. (N.S.) 979, 92 S W. 1104.
2 4 Drown v. Forrest, 63 Vt. 557, 14 L. R. A. 80, 22 Atl. 612.
For similar facts see, Scudder v. Kil-foil, 57 N. J. Eq. 171, 40 Atl. 602.
One who has agreed not to compete in business with one to whom he has sold such business, does not break such covenant by lending money to a subsequent competitor of such purchaser.29 It is said that a covenant not to compete in business is not broken by transferring the telephone number of the original business to a competitor of the purchaser of such business.30 A contract by a partnership not to compete in business is held not to be broken by the fact that one of the parties acts as a broker for the purchase of such goods if such goods are shipped directly from the seller to the buyer.31