Source: https://supreme.justia.com/cases/federal/us/87/64/
Timestamp: 2019-04-24 18:39:15+00:00

Document:
Questions about contracts in restraint of trade must be judged according to the circumstances on which they arise and in subservience to the general rule that there must be no injury to the public by its being deprived of the restricted party's industry and that the party himself must not be precluded from pursuing his occupation and thus prevented from supporting himself and his family. Accordingly, where A., engaged in navigating waters of California alone, sold in 1864 a steamer to B., engaged in navigating a particular river (the Columbia River) of Oregon and Washington Territories (regions to the north of California), subject to a stipulation that he, B., would not employ it or suffer it to be employed for ten years from the date of the sale in any waters of California, and B., three years afterwards, i.e., in 1867, sold the same steamer to C., engaged in navigating Puget's Sound (water in the extreme northwest corner of Washington Territory and remote from all the other waters described), subject to a stipulation that she should not be run or employed upon any of the routes of travel, or the rivers, bays, or waters of the State of California or the Columbia River and its tributaries, for the period of ten years from May 1, 1867, held that the contract was not void as in restraint of trade.
had expired -- that it was so divisible in regard to the California portion that it could stand for the seven years for which B. was bound to protect it, though it was void as to the remaining three, and accordingly that B. could sue for a breach of it occurring within the first seven years of it -- that is to say, occurring within the time that he was to protect A.
company, the plaintiffs, were likewise engaged in the navigation of the Columbia River and its branches, and that at the time of said sale to the defendants, the latter were engaged in navigating the waters of Puget Sound, [Footnote 2] and were in nowise engaged in the navigation of the waters of Oregon or California or of any of the waters described in the stipulation. The breach complained of was that the steamer had been engaged from the 1st of November, 1868, to the commencement of the suit, in the transportation of passengers and freight from the City of San Francisco to Vallejo, in the State of California, being a route of travel on the waters of the State of California embraced in the stipulation and covenant.
The complaint was demurred to, and the demurrer was sustained and the action dismissed. The plaintiff brought a writ of error to the supreme court of the territory, which affirmed the judgment, and that judgment was now here on the present writ of error.
"not to run or employ, or suffer to be run or employed, the said steamboat New World upon any of the routes of travel, or the rivers, bays, or waters of the State of California or the Columbia River and its tributaries for the period of ten years from the first day of May, 1867,"
&c., was valid. The objection urged against it was that it was a contract in restraint of trade, and as such contrary to public policy.
which operates merely in partial restraint of trade is good provided it be not unreasonable and there be a consideration to support it. [Footnote 3] In order that it may not be unreasonable, the restraint imposed must not be larger than is required for the necessary protection of the party with whom the contract is made. [Footnote 4] A contract, even on good consideration, not to use a trade anywhere in England is held void in that country as being too general a restraint of trade, but a contract not to use a trade at a particular place, if it be founded on a good consideration, and made for a proper and useful purpose, is valid. [Footnote 5] Of course, a contract not to exercise a trade generally would be obnoxious to the rule, and would be void.
where the other resides and carries on business, and that the latter shall not sell the article in New York, where his associate is to reside and carry on business. Can there be any doubt that such an agreement would be valid and binding? Cases must be judged according to their circumstances, and can only be rightly judged when the reason and grounds of the rule are carefully considered.
There are two principal grounds on which the doctrine is founded that a contract in restraint of trade is void as against public policy. One is the injury to the public by being deprived of the restricted party's industry; the other is the injury to the party himself by being precluded from pursuing this occupation and thus being prevented from supporting himself and his family. It is evident that both these evils occur when the contract is general not to pursue one's trade at all, or not to pursue it in the entire realm or country. The country suffers the loss in both cases, and the party is deprived of his occupation or is obliged to expatriate himself in order to follow it. A contract that is open to such gave objection is clearly against public policy. But if neither of these evils ensues and if the contract is founded on a valid consideration and a reasonable ground of benefit to the other party, it is free from objection and may be enforced.
upon the circumstances of the particular case, although, from the uncertain character of the subject, much latitude must be allowed to the judgment and discretion of the parties. It is clear that a stipulation that another shall not pursue his trade or employment at such a distance from the business of the person to be protected as that it could not possibly affect or injure him would be unreasonable and absurd. On the other hand, a stipulation is unobjectionable and binding which imposes the restraint to only such an extent of territory as may be necessary for the protection of the party making the stipulation, provided it does not violate the two indispensable conditions that the other party be not prevented from pursuing his calling and that the country be not deprived of the benefit of his exertions.
"that agreements in restraint of trade, whether under seal or not, are divisible, and accordingly it has been held that when such an agreement contains a stipulation which is capable of being construed divisibly, and one part thereof is void as being in restraint of trade, whilst the other is not, the court will give effect to the latter and will not hold the agreement to be void altogether."
are Chesman v. Nainby, [Footnote 7] Wood v. Benson, [Footnote 8] Mallan v. May, [Footnote 9] Price v. Green, [Footnote 10] Nicholls v. Stretton. [Footnote 11] In Price v. Green, the contract was not to exercise the trade of a perfumer in London or within six hundred miles thereof, and it was held divisible and good for London only. This case was carried through all the courts. In Nicholls v. Stretton, the stipulation was that an attorney's apprentice, who was to serve five years, should not, after his term expired, be concerned as attorney for any persons who had, previous to the expiration of said apprenticeship, been a client of the attorney with whom the contract was made or who should at any time thereafter become his client. It was strenuously and fully argued that whilst the contract might have been good as to past clients, it was certainly not good as to future ones, and, being an entire contract, the whole was bad. But the court followed the previous decision of the Exchequer Chamber in Price v. Green, held the contract divisible, and sustained the action. We see no reason why this principle should not be followed in the present case. The line of division between the period which is properly covered by the restriction and that which is not so is clearly defined and easily drawn. It is subject to no confusion or uncertainty, and the court can have no difficulty in applying it.
simply to protect the vendors, and if we except the three years before considered in its relation to California, its restraining effect extended no farther than was necessary for their protection.
We are unable, therefore, to see anything in the contract, so far as it is now in question, which militates against public policy.
There are no other points adverted to which demand the serious consideration of the court.
Judgment reversed and the case remanded to be proceeded in according to law.
Dissenting, JUSTICES CLIFFORD, SWAYNE, and DAVIS.
These territories are immediately north of California.
This bay is the northwest extremity of Washington Territory, and at quite a distance from all parts of the Columbia River.
Chitty on Contracts 576, 8th American edition.
Ib.; Tindal, C.J., in Horner v. Graves, 7 Bingham 743.
2 Williams' Saunders 156, note 1.
Taylor v. Blanchard, 13 Allen 375; Dunlop v. Gregory, 6 Selden 241.
2 Crompton & Jervis 94.
11 Meeson & Welsby 653.

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