RESTRAINT OF TRADE.

[Greene Circuit Court,

April Term, 1893.]

Stewart, Shauck and Shearer, JJ.

#### PARAGON OIL CO. v. HALL.

:1. Contract in Partial Restraint oe Trade not Necessarily Void.

One who purchases a business may lawfully stipulate in the contract that the seller shall not engage in the business anywhere in the state for a period of five years,

i. Contract may be as Large as Business Protection may Require.

Where such contract is made as an incident to the bona fide purchase of a business and its good will, and the restraint is such only as affords a fair protection to the interests of the vendee, and not so large as to unnecessarily interfere with the interests of the public, it will be upheld, without regard to the time or extent of such restraint.

*5773. Location of Business Immaterial. . ,

. , The location or extent of the vendor’s business is not material in determining the ■ validity of such a contract.

4. Injunction the Proper Remedy.

Where such a contract is being violated by an insolvent vendor, the vendee is entitled to an injunction to prevent any further violation thereof.

Error to the Common Pleas Court of Greene county.

The error assigned in this case is that the court below erred in sustaining ^ general demurrer to the amended petition filed by the plaintiff in error. Said amended petition reads as follows:

“Plaintiff is a corporation, duly incorporated under the laws of the State of. West Virginia. Plaintiff says that it was on and previous to the 4th day of October, 1892, and still is engaged throughout the state of Ohio, outside of the city of Cleveland, in selling and delivering oil and gasoline at the houses of consumers by horse and wagon and otherwise; and expects and intends to carry on said business throughout said entire state outside of the city of Cleveland, including the city of Xenia, in the county of Greene, in Ohio, and also all the cities, towns, villages, country districts and territory of said state, except said city of Cleveland. Plaintiff says that for a long time previous to the 4th day of October, 1892, the defendant was engaged in selling and delivering oil_ and gasoline at the houses of consumers in the city of Xenia, Greene county, Ohio; that said defendant had built up and established a trade and business in the sale and delivery of oil and gasoline in said city, and had secured many customers, who regularly purchased oil and gasoline from said defendant.

Plaintiff further says that on or about the 4th of October, 1892, defendant and plaintiff entered into a written contract, whereby defendant, for the consideration of_ $300.00, to him paid by plaintiff, sold, transferred and conveyed to plaintiff, all his right, title _and_ interest in and to his oil and gasoline plant and business, in said city of Xenia, including its good will and reputation, and all and singular the materials, chattels and personal property of any nature and kind whatsoever, belonging to or in any way appertaining^ to or used in or about said oil and gasoline business. Said defendant, in part consideration of the above mentioned $300.00, agreed and covenanted with plaintiff, its successors and assigns, that he would not, during the period of five years next ensuing after the 5th day of October, 1892, do anything within the state of Ohio outside of the city of Cleveland, in the line of selling and delivering oil or gasoline at the houses of consumers by horse and wagon, or otherwise, neither in his own name, nor in his own behalf, nor in connection with any oartnership or corporation, nor as the agent of any other person, partnership or corporation, during said period of five years. Said defendant further agreed and covenanted that he would not during said period of five years within said territory accept any employment, directly or indirectly, nor receive, solicit or fill orders, in any capacity whatsoever, for any oil or gasoline, to be sold direct to and delivered at the houses of consumers by wagon or other conveyance after the manner of the business bjf him theretofore carried on. Plaintiff has duly performed all the conditions of said agreement on its part to be performed.”

Plaintiff further says that immediately after buying and paying for defendant’s business and good will as above mentioned, it employed defendant at a salary to sell and deliver oil and gasoline for plaintiff in said city of Xenia; that on or about the- day of December, 1892, defendant left the employment of plaintiff, and began and still continues the sale and delivery of oil and gasoline in said city of Xenia to consumers, in violation of said contract and agreement above set forth.

Plaintiff says that the position heretofore occupied by defendant in the oil and gasoline ^business in said city gives him a knowledge of the business secrets and methods of plaintiff, and an acquaintance with and a knowledge of the customers of said plaintiff, which he may now use so as to benefit a rival, and seriously injure the plaintiff; and that he is now so using his peculiar knowledge and skill thus acquired, in competition with plaintiff, and threatens to, and will, unless restrained by this court, continue to carry on the same, to the great and irreparable damage of plaintiff; that said acts of defendant in violation of said agreement, are a continuing injury to and interference with plaintiff’s business, and prevent its establishment, and greatly reduce the plaintiff’s profits, and plaintiff cannot be fully compensated in damages; that defendant is not responsible financially; is without any property which could be reached by process at law, and that an action at law for damages would be useless and vain, and wholly inadequate to prevent the damage and injury to plaintiff resulting from the said violation of said agreement.”

Wherefore plaintiff asks that said defendant be temporarily restrained from committing each and all of the wrongs aforesaid, or any of them, and that defendant be permanently enjoined during said five years from carrying on said business in said_ city of Xenia, and throughout said state of Ohio, excepting the city of Cleveland, either in his own name. Of the name of any other person or persons or as their agent, and from endeavoring to induce *578any person or persons who were customers of defendant, to cease or abstain from buying oil or gasoline from plaintiff or its successors and assigns, and to cease doing any and all other acts in violation of said agreement, and for such other relief as is just and equitable.

STEWART, C. J.

It is claimed by the defendant in error that the judgment of the court below should be affirmed, for the reason that the contract set forth in the amended petition, if enforced, would result in an unreasonable restraint of trade, and therefore be inimical to the interests of the public. If this is a true statement of the effect to be given to this contract, the claim of tire defendant in error must be sustained. In the solution of the question in this case, we may start with the statement of the law as laid down by Shauck, J., in Cordage Co. v. Cordage Co., 3 O. C. D., 618, ‘That every contract is void, whose only purpose is to place a restraint upon trade, however nairow may be the field of its operationciting Coal Co. v. Coal Co., 68 Pa. St., 173. This is the form in which all modern authorities state the rule, and thus make it a decided departure from the law which was first announced in ihe Year Books as that “all stipulations in restraint of trade are void.” To follow in detail the changes through which this rule passed, and the modifications put upon it, in accordance with the changed condition of society and the increased facilities for communication among men, would not be profitable, for we are only concerned with the law as it now is, and we think the principles applicable to this case have been settled by the decisions of our own supreme court. In the case of Lange v. Werk, 2 O. S., 519, 528, Ranney, *J.,*at p. 528, quotes from Mitchell v. Reynolds, 1 P. Williams, 181, as a correct statement of the law, the following:

> “In all restraints of trade, where nothing more appears, the law presumes them bad; but if the circumstances are set forth, that presumption is excluded, and the court is to judge of those circumstances and determine accordingly; and if upon them it appears to be a just and honest contract, it ought to be maintained.”

And further, in order to show the light in which the modification or addition to the old rule, announced in the case of Mitchell v. Reynolds, *supra,*should be regarded, the same judge quotes from the opinion of Tindal, Ch. J., in Horner v. Graves, 7 Bing., 743, as follows: “We cannot see how a better test can be applied to the question, whether the restraint is reasonable or not, than by considering whether the restraint is .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. Whatever restraint is larger than the necessary protection of the party, can be of no benefit to either: it can only be oppression, and if oppression, it is in the eye of the law unreasonable. Whatever is injurious to the interests of the public is void, on the ground of public policy." The principles laid down in the cases from which these quotations are made, are approved and applied in the determination of this case of Lange v. Werk, *supra,*and also in Grasselli v. Lowden, 11 O. S., 349; Salt Company v. Guthrie, 35 O. S., 666, and Morgan v. Perhamus, 36 O. S., 517, and may therefore be regarded as the law by which the validity of the contract in the case at bar is to be tested. An examination of its terms shows that it is not void by reason of its being in total restraint of trade, as was the contract in the case of Salt Company v. Guthrie, *supra,*and in view of all the allegations of the amended petition .cannot be regarded as having been entered into for the purpose of creating a monopoly, and therefore void within the principles of Emery v. Candle Co., 47 O. S., 320, and Cordage Co. v. Cordage Co., *supra.*

The remaining tests to be applied to this contract are, whether under all the circumstances the restraint imposed upon the defendant was *bona tide*for the fair protection of the business of the plaintiff, and are the limits of the restraint reasonable looking to the nature and extent of plaintiff’s business. One objection which is urged to this contract is, that as the defendant was only engaged in business in Xenia, it was unreasonable to require him to agree not to engage in the *579business of selling and delivering oil or gasoline, after the manner in which plaintiff’s business was conducted, for five years within the state of Ohio, outside the city of Cleveland. In making this objection it seems to us that the defendant loses sight of the well established principle that such contracts are for the protection of the vendee; he buys the established business of the defendant at the particular place, but to obtain the full benefit of his purchase may, as a part of such contract, make the additional stipulation, that the vendor shall not engage in the business, and this stipulation may be for such time and space as the nature and extent of the vendee’s business may require for his fair protection, regardless of the place or extent of the vendor’s business. 3 Amer. & Eng. Enc., 882, and notes; Ellerman v. R. R., (N. J. Eq.) 23 Atl. Rep., 287.

Nash & Lentz and Little & Spencer, for plaintiff.

Nesbitt & Hartley and Chas. H. Kyle, for defendant.

The plaintiff alleges that prior to the making of this contract, and at the time of bringing the suit, it was engaged in the business of selling and delivering oil and gasoline at the houses of consumers throughout the state of Ohio, outside the city of Cleveland, and that it expects and intends to continue in said business over said territory, and all of it; that-defendant was engaged in the same business in the city of Xenia at the time of making the contract, and had been long prior thereto; that for a valuable consideration the defendant sold and transferred all his chattels, his oil and gasoline'plant and good will, and at the same time, as incident to said sale and transfer, agreed not to carry on or be engaged in said business in any form or manner within the state of Ohio outside the city of Cleveland, for the space of five years immediately succeeding the making of said contract; that plaintiff ;bas performed all the conditions of the contract on its part to be performed, but defendant has violated his contract by engaging in the business of selling and delivering oil and gasoline at the houses of consumers within said territory; that defendant is insolvent, and prays for an injunction. That the remedy by injunction is the proper method of procedure, is laid down in the case of Morgan v. Perhamus, *supra.*

It thus appears that the only restraint placed by the contract upon defendant was that he should not engage in the business within the territory where the plaintiff was conducting its business. That it considered if necessary to make this stipulation to protect the business which it had established and was carrying on, and intended to carry on, is obvious; and that it was not an unreasonable requirement, seems to us equally clear.

We have then, a *bona tide*purchase of the good will and plant of an established business 'by a company engaged in and expecting to continue to engage in the same business over a specified territory; as incident to the purchase and transfer the agreement by the vendor not *'to*engage in the same business within the territory in which .the vendee is carrying on this business for five years; performance by the vendee; a breach of the contract by the insolvent vendor; and no infringement of the rights of the public.

Tested by the rules governing such contracts, we find nothing legally objectionable in this contract, and are satisfied upon reason and authority that if the plaintiff can sustain the allegations of the amended petition if will be entitled to the relief prayed for

It follows then that the court below erred in sustaining the demurrer to the amended petition, and for that error the judgment will be reversed, the demurrer overruled, and the cause remanded for further proceedings.