Court Opinion

ID: 8038011
Source: CourtListenerOpinion
Date Created: 2022-09-09 03:23:13.019898+00
Date Added: 2024-06-11T16:37:12.761789
License: Public Domain

Ellis, District Judge,
dissenting.
I am unable to agree with the conclusion reached in the opinion adopted by the majority of the court.
I think the plaintiff’s evidence establishes two bases requiring condemnation of the restrictive clause, either of which standing alone would be sufficient. First, that the clause is unreasonable and unnecessarily broad in its territorial scope and, second, that it was not actually ancillary to the purchase of property but was in fact the primary purpose — the clause, without which, the contract would not have been entered into.
The plaintiff’s second amended petition alleges that plaintiff at all times mentioned was engaged in business “in that part of the eastern half of the state of Nebraska tvhieh is south of the Platte river.” In its reply the plaintiff alleges that at the time the contract was executed the McCook territory was “not then adequately served by any rendering establishment.” In support of these allegations the plaintiff’s president testified as follows: “Q. So prior to 1937 the McCook territory, the South Platte territory west of Oxford was not adequately served by a' rendering plant? A. That is right. Q. Were there any other plants in Nebraska doing business out there? A. I don’t think so. Q. There wasn’t any plant in Nebraska that was in a position to reach that territory? A. Yes.” *700Plaintiff’s evidence also shows that its western-most agencies were at Franklin and Hastings and that its trucks from these points “might go out as far as Oxford.” This seems to dispose of the suggestion in the majority opinion that other plants were free to compete in the whole of the restricted territory and especially in view of the fact that at the time the contract was made the only other plant south of the Platte was located at Tecumseh.
As indicated in the majority opinion, the defendant had merely begun the construction of a plant in Fairbury. It was not in any degree in operation and necessarily had no established business or value or good-will as a going concern. There is no contention that the prospective territory to be served by this plant was not included and within the territory already being served by the plaintiff. Conceding that a legitimate purpose of such a contract may include the protection of the business enjoyed by the purchaser before the purchase as well as the protection of the business being purchased, mere statement seems to demonstrate the unreasonableness of attempting to include all the territory south of the Platte and west of Oxford — a territory in which the plaintiff was not operating, had no business to protect and, by the plaintiff’s own proof, a territory not adequately served by any plant.
An examination of our own cases reveals no case in which the court has upheld such contracts except where the facts disclosed a reasonable basis for the scope of the territorial restriction and an apparent necessity to afford fair protection to the purchaser. This is apparent from the pains taken by the court to demonstrate the reasonableness of the territorial restriction in Tarry v. Johnston, 114 Neb. 496, 208 N. W. 615. In that case this court said: “The reasonableness of such a restraint is the test of its validity.” Wittenberg v. Mollyneaux, 60 Neb. 583, 83 N. W. 842: “But partial restraints are not deemed to be unreasonable when they are ancillary to an actual purchase of property made in'good faith, and are apparently necessary to afford fair protection to the purchaser. (Italics ours.) * * * *701Of course, if it be shown that the main purpose of the agreement is to secure a monopoly, and that the purchase of the property was a mere incident or means to that end, it is within the rule applicable to ordinary combinations in restraint of trade, and will not be enforced.”
If this contract is to be approved, covering as it does a substantial territory in which the purchaser had no business to protect, it will be rather difficult in the future for the bench and bar to know whether there is a limit and, if so, where and on what basis it is to be determined.
With reference to the purpose or intent of the plaintiff in entering into the contract the plaintiff’s president testified as follows: “Q. Mr. Swingle, would you have entered into the agreement Exhibit A if the provision relating to Reynolds reentering business in the territory south of the Platte River in Nebraska had not been in the contract? 'A. No. Q. Why not? A. Because there would have been no benefit there. It would have been worthless to us.” He also testified that the land and improvements thereon at Fairbury were of no use to plaintiff. On cross-examination plaintiff’s president testified as follows: “Q. So, Mr. Swingle, the real purpose of entering into this contract was to obtain this provision that Mr. Reynolds would stay out of the South Platte territory for five years. A. It was to get that and to get his services at the McCook plant that we proposed to build.” With reference to the latter part of this answer, it is based on the provision in the contract in question which is set forth in the majority opinion. It is quite apparent that this provision did not give the plaintiff any option on defendant’s services and was, of course, wholly unenforceable by defendant against some other corporation not a party to the contract. The plaintiff did not build a plant at McCook and neither were the persons who built the plant there all stockholders in the plaintiff corporation. If plaintiff thought that the contract gave it a legal claim to defendant’s personal services for a plant at McCook, it increases the difficulty in justifying his exclusion from the territory of the plant he would be in charge of.
*702'The suggestion by plaintiff’s president that the only other purpose (other than to exclude defendant from the whole South Platte territory) of the contract was to get defendant’s services is so naive and so utterly without foundation in law or fact as to justify the inference that plaintiff was aware of the glaring need for justification of the actual and unlawful purpose of the restrictive provision. In most of these cases the court is necessarily compelled to rest condemnation on justifiable inferences of unlawful purpose, but here we have an express admission of the purpose which the law condemns.
With reference to the suggestion that no monopoly was created by this contract, it is rarely true that a monopoly is created by one such contract but rather by a series of them successively negotiated. It is the purpose and tendency to create a monopoly which is proscribed. The public policy involved will not be served if condemnation is withheld until the final and consummating contract is submitted. It may be pertinent at this point to note that plaintiff’s evidence shows that the only other plant located in the south Platte territory was the one located at Tecumseh. In this same connection it may be pointed out that the record shows that the plaintiff was forced by competition during a part of the period since the contract was made to pay the farmers for the carcasses collected. While not of great importance, it gives point to the public policy which condemns such contracts where unreasonable in territorial scope and made with ulterior purpose. It likewise makes clear the value of the protection from competition to be obtained from only a few such contracts.
2 Eestatement, Contracts, in covering this topic contains the following:
Section 513. “A bargain is in restraint of trade when its performance would, limit competition in any business or restrict a promisor in the exercise of a gainful occupation.”
Section 514. “A bargain in restraint of trade is illegal if the restraint is unreasonable.”
*703Section 515. “A restraint of trade is unreasonable, in the absence of statutory authorization or dominant social or economic justification, if it
“(a) is greater than is required for the protection of the person for whose benefit the restraint is imposed, or
“(b) imposes undue hardship upon the person restricted, or
“(c) tends to create, or has for its purpose to create, a monopoly, or to control prices or to limit production artificially, or
“(d) unreasonably restricts the alienation or use of anything that is a subject of property, or
“ (e) is based on a promise to refrain from competition and is not ancillary either to a contract for the transfer of good-will or other subject of property or to an existing employment or contract of employment.
“Comment: * * *
“c. Neither the period of time during which a restraint is to last, nor the extent of the territory that is to be included is conclusive but the length of time and even more the extent of space are important factors in the determination of the reasonableness of a restrictive agreement. * * *
“Illustrations of Clause (a) : * * *
“2. A sells his business to B, and as part of the bargain promises not to engage in a business of the same kind within a hundred miles. The scope of neither A’s nor B’s business extends so far. The restraint is more extensive than is necessary for B’s protection and the promise is illegal. * * *
“Illustrations of Clause (b) : * * *
“7. A and B enter into a contract of employment in which B promises not to engage in a similar business anywhere within the State after the termination of the employment. A’s business does not extend throughout the State but he hopes *704that it may later do so. B’s promise to refrain from entering into a similar occupation is illegal.”
The Restatement is in accord with all previous holdings of this court and there is therefore no reason why the desirable purpose of the Restatement should not be furthered by keeping the law of the state in accord with it.
I submit that the restrictive clause in issue is within four out of the five separate proscribing tests set forth in the Restatement.
The majority opinion finds that the inclusion of the territory west of Oxford “would make the territorial scope of the restrictive clause excessive and require a finding that the limitation was unreasonable,” but that the clearly indicated condemnation of the contract is to be avoided by another provision, viz., the provision relating to defendant’s employment by plaintiff. Referring to this provision, as quoted in the majority opinion, it seems apparent that it did not purport to and did not create any enforceable right in the plaintiff. If it had any significance and was legally enforceable under any circumstances, which is at least doubtful, the provision was for the benefit of the defendant alone or, in other words, was part of the consideration flowing to the'defendant. There is utterly no basis for any claim that the provision afforded any protection to the plaintiff or its business. This being true, it seems to me that the majority opinion introduces a new and dangerous test to be applied and perhaps superimposed on those heretofore recognized as determining- the validity of such contracts. It amounts to a pronouncement by the court that in the future, in passing upon the validity of a restrictive provision, the bench and bar must consider the nature and amount of the consideration moving to the restricted party.
Heretofore it has only been necessary to consider the time and territorial scope of the restriction in the light of the other party’s business, its nature and extent. If this test produced a result of unreasonableness, then the contract was unenforceable and the consideration and other pro*705visions of the contract became wholly immaterial.
In the future, in order to make legal a contract otherwise illegal because in unreasonable restraint of trade, it will only be necessary to put into the contract some nebulous provision in favor of the restricted party. Having in mind that we are not here concerned with the promises; or obligations of the contracting parties under the ordinary law of contracts but rather with a rule arising out of the public interest and) for the public benefit, I consider that the majority opinion can only result in confusion and the ultimate nullification of the rule itself.
As to the holding in the majority opinion that defendant’s answer in this action made this contract (which, as indicated above, is found by the majority to be illegal) a legal contract, it contains implications which will be received with profound shock and especially by the bar. It is true that the defendant’s answer contains the matter quoted, but the answer also sufficiently pleaded illegality of the contract. As indicated, I think the plaintiff’s evidence fully established this latter defense.
Under the prevailing rules of pleading any defendant has a right to plead as many defenses as he may have so long as they are not incompatible in the sense that proof of one necessarily disproves the other. See Comp. St. 1929, sec. 20-812; Tighe v. Interstate Transit Lines, 130 Neb. 5, 263 N. W. 483, and cases cited. I think it will be conceded by all that the defense of illegality was a legitimate defense properly asserted and in good faith. Perhaps the judicial history of this case will serve as justification for the defendant’s alternative defense. However, he will find little satisfaction in this justification since by pleading his alternative defense he destroyed the one which, except for the other, the majority finds would have been a complete defense. Those members of the bar who are retained to defend will need to look well to the danger of pleading more than one defense.
The appellant’s contention that it is inequitable and unconscionable to permit the defendant to retain the bene*706fits of the contract in the face of his breach is not without appeal, but it overlooks the fundamental premise that the condemning rule of law has its source in the public interest and resultant public policy. This rule overrides the contract, the interests and equities of the parties and ought not be parried aside by an incidental, though abhorrent, result which necessarily has been produced in every case where the courts have denied enforcement of such contracts.
The contract in question apportions the total consideration paid by the plaintiff among some eight different items of property acquired from the defendant but does not apportion any part of the consideration to the exclusion clause. Without encumbering the record with the evidence as to the character and value of the property received by the plaintiff, it may be said that the plaintiff received seven acres of land and other property of substantial value to it, so that no unconscionable amount was paid for defendant’s promise which disabled him from engaging in business for a substantial period of time and in an unconscionably large territory. The purchaser in this case was not without fault in demanding a restriction wholly unnecessary and unreasonable.
The foregoing indicates the basis of my opinion that the trial court was correct .in his appraisal of the facts, justified in his application of the rule, and that the judgment ought not to be reversed.