Court Opinion

ID: 3507669
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:18:03.226411+00
Date Added: 2024-06-11T14:24:24.063958
License: Public Domain

1. In our prior opinion, filed October 11, 1946 (supra, p. 1), we directed attention to the case of Pelc v. Kulentis, 257 Ill. App. 213 (supra, pp. 10, 17), where the Illinois court upheld a contract notwithstanding one of its provisions was in unlawful restraint of trade under Illinois public policy. Many other authorities support this viewpoint. In Paramount Famous Lasky Corp. v. National Theatre Corp. (4 Cir.) 49 F.2d 64, 66, this rule was expressed as follows: *Page 23 
"It has been expressly held that, where agreements in restraint of trade were unlawful in part, they were enforceable as to the parts that were not unlawful, and this holding runs back to the earliest authorities." (Citing cases.)
The rule was expressed in Hall Mfg. Co. v. Western Steel  Iron Works (7 Cir.) 227 F. 588, 593, L.R.A. 1916C, 620, as follows:
"* * * Unless injury to the public manifestly outweighs the public policies of honesty and of freedom of alienation, restrictive covenants should be enforced. Here, of course, honesty condemns the conduct of appellee. Freedom of alienation is a byword, if appellee may sell property, retain the proceeds, and then repossess itself of the property with impunity. And what injury to the public was done that proponderates over honesty and freedom of alienation in the other scale? * * *
"But, apart from the covenants, we think appellant is not remediless. If the covenants were considered void, that would not vitiate the contract in other respects, since there is nothing immoral or criminal in making such covenants. They are merely unenforceable civilly at the worst." (Citing cases.)
In F. F. East Co. Inc. v. United Oystermen's Union, 128 N.J. Eq. 27,35, 15 A.2d 129, 134, the New Jersey court held a contractual provision contrary to public policy, but stated:
"* * * But we have the further insistment by the complainant that the whole contract must fall and that it is not divisible. It seems to me that as to the other provisions of the contract,i. e., fixing specifications for the measuring cup * * * fixing rates of pay and wages and providing for the sanitary conditions * * * the provision in reference to shop steward and his duties, * * * and, in general, the other provisions of the contract * * * are and have uniformly been held to be proper subjects and objects of contracts * * * and that as to these terms and provisions, the public is not interested * * * so as to permit complainant to take advantage of the rule above invoked and permit it to escape the contract because of the superior rights of the public to have it terminated as illegal. *Page 24 
* * * * *
"Mr. Justice Heher, in Cameron v. International, etc., Union,119 N.J. Eq. 577 (at p. 589), 183 Atl. Rep. 157 [163], said:
" 'It is the rule, well grounded in our jurisprudence, that, where a contract contains a promise in reasonable restraint of trade and one in unreasonable restraint, the former promise is enforceable, unless the entire agreement is part of a plan to obtain a monopoly obnoxious to the law.' "
In Central New York Tel.  Tel. Co. v. Averill, 199 N.Y. 128,138, 140, 92 N.E. 206, 209, 210, 32 L.R.A.(N.S.) 494,139 A.S.R. 878, the court stated:
"It is on this broad ground that I think we ought to condemn the exclusive clause of this contract as against public policy and, therefore, void. * * *
* * * * *
"Having reached the conclusion that the exclusive clause of the contract in controversy is void, we are brought to the question whether its invalidity necessarily avoids the whole contract. I think that it does not. * * * [citing Oregon Steam Nav. Co. v. Winsor, 87 U.S. (Wall.) 64, 22 L. ed. 315, in which the court quotes with approval] Chitty's statement * * * 'that agreements in restraint of trade, whether under seal or not, are divisible; and, * * * 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.' "
See, also, 36 Am. Jur., Monopolies, Combinations, etc., § 199; Nicholson v. Ellis, 110 Md. 322, 73 A. 17, 24 L.R.A.(N.S.) 942, 132 A.S.R. 445; Schibi v. Miller (Mo.App.)268 S.W. 434; Oregon Steam Nav. Co. v. Winsor, 87 U.S. (Wall.) 64,22 L.ed. 315; Stewart v. Lehigh Valley R. Co. 38 N.J.L. 505.
In Fox Film Corp. v. Ogden Theatre Co. Inc. 82 Utah 279, 286,17 P.2d 294, 297, 90 A.L.R. 1299, the applicable law was stated as follows: *Page 25 
"Provisions in restraint of trade are held by most courts tobe severable from the body of the contract and no bar toenforcement of the remaining portion of the agreement,especially in cases where one party has obtained the benefitsof performance by the other. There are cases in whichcontractual provisions that are felonious or malum in se mayinvalidate the whole contract, but the provision at bar is notin that category. It is, however, a provision that is tainted with evil design and deserves no praise. But it is clearly severable, and we are of the opinion that it comes within the rules laid down by a great majority of the decisions concerning similar provisions." (Italics supplied.)
2. It is to be noted that Nicol has complied with all the provisions of the agreement on his part to be performed. He has transferred his stock to plaintiff's assignor. He has refrained from competing with plaintiff or its assignor in any similar type of business for the past 12 years. He has not disclosed the formula for the cleansing compound or made it available to others who might compete with plaintiff or its assignor. He has not used the trademark or copyrighted label. He has surrendered all claims for past-due wages. He has surrendered any rights under the original 1933 sales agreement whereunder plaintiff's assignor was to invest an additional $10,000 in the corporation. He has waived his right to compel plaintiff's assignor to transfer the Barnes shares of stock as agreed in 1933.
The contractual provision attacked by plaintiff was inserted in the contract by plaintiff's assignor for its benefit. It was drafted by its counsel. It was of no concern to Nicol whether such provision was omitted or inserted. Certainly, he was unaware that it was contrary to public policy under the Illinois law; while counsel for plaintiff's assignor, who drafted the instrument, might be deemed cognizant of such fact. Plaintiff's assignor has profited throughout by the arrangement. It has had the exclusive use of the formula, the trade-mark, and the copyrighted label. It has excluded Nicol from the corporate affairs and management. Its sales of the compound have increased substantially through the years. Notwithstanding this, plaintiff asserts that Nicol has no further right to his formula, to the *Page 26 
shares of stock transferred by him, to the Barnes stock, to the back wages due him, to the trademark and copyrighted label, or for the damages sustained by his long abstention from competitive enterprises. At the same time, plaintiff asserts that it is entitled to retain all such rights and assets as its absolute property, without obligation of any kind to make the required payments therefor; that this result is achieved solely and simply because Nicol acquiesced in the request of plaintiff's assignor that an unlawful provision in its favor be included in the contract.
3. It is suggested that this court erred in construing the restrictive covenant as a covenant not to use the "Brite-Ize" formula in competition with plaintiff's assignor. It is also urged that because said contract does not use the word "secret" in describing the formula the law applicable to secret formulas cannot be applied here. The covenant in question restricts Nicol from manufacturing or selling directly or indirectly any abrasive compound competitive to "Brite-Ize." Aside from the principal question of time and space affecting such agreement, can it be said that thereunder Nicol would have the right to manufacture and sell the "Brite-Ize" compound, made in accordance with the formula involved, without being held in violation of such covenant because no reference is made therein to this particular formula? It is obvious that any such action on his part would constitute a direct violation of this covenant. Hence, there must be implied in this paragraph a covenant not to use this particular formula, as well as any similar formula, and likewise a covenant not to engage in any competitive business. The failure to use the word "secret" in describing the formula would not change its character as such. Throughout the negotiations, and even subsequent thereto, when the original corporation was sold to plaintiff herein, the formula was to be carefully guarded and disclosed to no one. Applying ordinary logic to the covenant in question, it is clear that therein are two distinct undertakings by Nicol, namely (1) not to engage in any competitive enterprises with Barnes-Noble Company, and (2) not to use this or any similar formula as long as the contract should remain in force and effect. *Page 27 
4. It is suggested that, since only one consideration covered both covenants, the agreement is not divisible. But one consideration covered the covenants in each of the cases cited here. Nevertheless, the courts held such covenants divisible and enforced the valid covenant to the full extent for the consideration involved. Here, it may be said that plaintiff's assignor is not compelled to pay the whole consideration for only part performance. Nicol has fully performed both covenants. Were he to refuse to perform the invalid one and insist upon full performance on plaintiff's part, plaintiff might then have just cause for complaint. It is plaintiff who asserts the invalidity of the covenant and seeks to escape his obligations thereon, while retaining the full benefits of the agreement.
The circumstances outlined as aforesaid might reasonably be held to estop plaintiff from now asserting the invalidity of the agreement. For these reasons, as well as those previously expressed, the original opinion herein is adhered to.