Cottrell v. Babcock Printing Press Manufacturing Co.

Pardee, J. (after stating the facts). The plaintiffs’ appeal presents the following reasons of appeal:— 1. That the court erred in ruling that the plaintiffs upon these facts had not “ acquired a valuable trade name and good-will in the business so advertised and conducted, which it was the duty of a court of equity to protect.” 2. That the court erred in refusing to rule that the plaintiffs were the lawful and sole successors of the late firm of Cottrell & Babcock, and that the defendant had no right so to advertise or conduct its business as to induce the public to believe that it, or any of its officers, represented or were the successors of said firm. 3. That the court having found as a fact that “ the card gives prominence to the name of Cottrell & Babcock,” that “ the words ‘ of the late firm of ’ were printed in much smaller type than any other words printed on said card,” and “ that said card was distributed among many of the old customers of the old firm of Cottrell & Babcock,” erred in ruling that said card “ was not adapted to mislead any person who had it.” — 138 — 4. That the court having found as a fact that said Nathan Babcock, after the conveyance aforesaid, personally and by letter, and that the defendants by their circulars, cards and advertisements, did solicit the patronage of customers of the old firm to the new firm, erred in ruling “ that such an attempt to divert their custom was not an unlawful interference with the plaintiffs’ rights.” Of course in the use of similar names, signs, advertisements, labels and cards, there is a wide field for efforts to mislead the public. There is the slight resemblance which would deceive only the most careless and the almost perfect reproduction which would deceive all save the most careful person of a thousand. And it must always remain a question of fact, as to whether the resemblance rises to the degree which constitutes it an injurious deception. Under our practice in this case the Superior Court inspected the card, saw the style and size of type, noted what is said and what is left unsaid, and heard evidence as to confusion of names, as to the misleading of possible customers and as to all other matters, and from the whole deduced and conclusively determined the resulting fact that no person would be led by the card to believe that the printing presses therein mentioned are manufactured by the plaintiffs, or that they have ceased to manufacture, or that the Babcock Printing Press Manufacturing Company had upon their cessation from the manufacture taken up and continued the business which they had dropped. By that finding tins court is bound, and it answers the first three reasons for appeal. In the contract terminating the partnership relation which had existed between Cottrell and Babcock, it is provided that no business shall thereafter be carried on in the name of that firm ; thus reserving to each the full right to the use of his name. Cottrell did not require Babcock to agree, and the latter did not agree, to abstain from the manufacture of printing presses. By purchasing the goodwill merely, Cottrell secured the right to conduct the old business at the old stand, with the probability in his favor — 139 — that old customers would continue to go there. If he 'desired more he should have secured it by positive agreement; the matter of good-will was in his mind; presumptively he obtained all that he desired. At any rate the express contract is the measure of his right; and since that conveys a good will in terms but says no more, the court will not upon inference deny to the vendor the possibility of successful competition by all lawful means with the vendee in the same business. ISTo restraint upon trade may rest upon inference. Therefore, in the absence of any express stipulation to the contrary, Babcock might lawfully establish a similar business at the next door, and by advertisement, circular, card, and personal solicitation, invite all the world, including the old customers of Cottrell & Babcock, to come there and purchase of him; being very careful always, when addressing individuals or the public, either through the eye or the ear, not to lead any one to believe that the presses which he offered for sale were manufactured by the plaintiffs, or that he was the successor to the business of Cottrell & Babcock, or that Cottrell was not carrying on the business formerly conducted by that firm. That he may do this by advertisements and general circulars courts are substantially agreed, we think. But some have drawn the line here and barred personal solicitation. They permit the vendor of a good-will to establish a like business at the next door, and, by the potential instrumentalities of the newspaper and general circulars, ask the old customers to buy at the new place, and withhold from him only the instrumentality of highest power, namely, personal solicitation. To deny him the use of the newspaper and general circulars is to make successful business impossible, and therefore is to impose an absolute restraint upon the right to trade. This the courts could not do except upon express agreement. But possibly the old customers might not see these; and in some cases the courts have undertaken to preserve this possibility for the advantage of the vendor and found a legal principle upon it. Other courts have been of the opinion that no legal principle can be — 140 — made to rest upon this distinction; that to deny the vendor personal access to old customers even, would put him at such disadvantage in competition as to endanger his success; that they ought not upon inference to bar him from trade either totally or partially; and that all restraint of that nature must come from his positive agreement. And such we think is the present tendency of the law. The plaintiffs cite Burrows v. Foster, 82 Beavan, 18; Labouchere v. Dawson, 13 L. R., Eq. Cas., 332; Quinn v. Cooper, 14 Ch. D., 596; and Leggott v. Barrett, 43 Law Times, N. S., 641. The Court of Appeal, in Pearson v. Pearson, 27 L. R., Ch. D., 145, commented upon the last three of these eases in 1884. In that case Theophilus Bear-son, as trustee of a will, carried on a business which had been carried on by the testator under the name of James Pearson. By an agreement made to compromise a suit, James Pearson, a son of the testator, and a beneficiary under his will, agreed to sell to Theophilus Pearson all his interest in the business, and in the property on which it was carried on; and it was provided that nothing in the agreement should prevent James Pearson from carrying on the like business where he should think fit and under the name of James Pearson. Theophilus Pearson brought an action to enforce this agreement and to restrain James Pearson from soliciting the customers of the old firm. An injunction was accordingly granted by Kay, J., on the authority of Labouchere v. Dawson, Law Reps., 13 Eq. Cas., 322, and the cases in which it had been followed. It was held by Baggallay and Cotton, L. Js. (Lindley, L. J., dissenting,) that Labouchere v. Dawson was wrongly decided and ought to be overruled, and that even apart from the proviso in the agreement, the plaintiff was not entitled to the injunction which he had obtained. The judges remarked substantially as follows:— Baggallay, L. J., said:—“ In this case the defendant agreed to sell to the plaintiff his interest in a business, which agreement was carried into effect by an order of the 27th of March, 1884, in another action. In the present — 141 — action Mr. Justice Kay has granted an injunction restraining the defendant from issuing a certain circular and from privately by letter, or personally, or by traveller, asking any person who prior to the 27th of March, 1884, was a customer or correspondent of the late firm whose business was that day sold to the plaintiff, to deal with the defendant or not to deal with the plaintiff. The defendant has not appealed as to the circular, but has appealed from the latter branch of the injunction. If the first clause of the agreement, which was confirmed by the order of the 27th of March, 1884, stood alone, I should be of opinion that the sale included the defendant’s interest in the good-will, and I will first deal with the case as if that clause stood alone. Treating the case as a simple sale of the defendant’s interest in the good-will, then if Labouchere v. Dawson is to be treated as laying down the law correctly, the plaintiff is entitled to retain his injunction. I have before expressed doubts as to the decision in that case, and the argument which we have now heard not only has not removed those doubts, but has led me to the conclusion that they were well founded. I am aware that the decision in that case has been followed on two or three occasions; it has been approved by one judge and disapproved by another; but it has never been either approved or disapproved by the Court of Appeal collectively. In that case an agreement in writing was entered into for the sale of a brewery at Kirkstall, and the plant, fixtures, utensils and machinery in and about the same, and the good will of the brewery, business theretofore carried on upon the premises. Lord Romilly there laid down that the seller of a business with its good-will may, in the absence of any express agreement to the contrary, carry on the same business wherever he pleases, and solicit customers in any public manner, but that he must not apply to any of the old customers privately, by letter, personally, or by traveller, asking them to continue their custom with him and not to deal with the vendees. His lordship went on the principle that persons are not at liberty to depreciate the thing which they have sold. Be — 142 — fore that decision the law was to be collected from the cases of Churton v. Douglas, Johnson, 174, and the earlier cases of Cook v. Collingridge, Collyer on Partnership, 2d ed., p. 215; Cruttwell v. Lye, 17 Ves., 385; and Johnson v. Helleley, 2 DeG. J. & S., 446. The effect of Lord Hatherley’s judgment in Churton v. Douglas is that the vendor may carry on the same business where and as he pleases, and deal with the customers of the old firm, provided only that he does not represent himself as carrying on the old business or as being the successor of the old firm. It is admitted that Labouchere v. Dawson went beyond anything to be found in the earlier cases. There are three decisions on the subject by Sir George Jessel. In Ginesi v. Cooper & Co., 14 Cha. Div., 599, it was distinctly laid down by that learned judge that a trader who had sold Ms business and the good-will of it could not deal with the old customers. The injunction, however, as granted, did not go that length, wMch may be the reason why there was no appeal. In Leggott v. Barrett, 15 Cha. Div., 306, Sir George Jessel granted an injunction to restrain the defendant from applying to any customer of the firm privately, or by letter, personally or by a traveller, ashing such customer to continue to deal with the defendant or not to deal with the plaintiff, or from actually dealing with such customer as a customer. There was no appeal from the first part of the injunction, but the defendant appealed from the second part, and the Lords Justices James, Brett and Cotton all agreed that there ought not to be any injunction against dealing with the customers of the firm. As the defendant submitted to the first part of the injunction the Court of Appeal did not deal with it, but Lords Justices James and Cotton suggested doubts as to its propriety. In Walker v. Mottram, 19 Cha. Div., 355, Sir George Jessel extended the doctrine of Labouchere v. Dawson to a case where the good-will had been sold, not by the trader himself but by Ms trustee in bankruptcy. The Court of Appeal held that the doctrine could not be extended to compulsory sales, and that the bankrupt could — 143 — not be restrained from soliciting the customers of the old business. My colleagues, Lords Justices Lush and Lihdlby did not in that case express any dissent from Labouchere v. Dawson, but used expressions which may be read as tending to show that they approved of it. I expressed my opinion that it went beyond what any of the previous decisions would have sanctioned, and I reserved my judgment as to its correctness in case the question should ever come before the Court of Appeal. Thus the matter was left in 1881, the Court of Appeal never having in any case given collectively an opinion upon Labouchere v. Dawson. The case which I then suggested has now occurred. The point calls for our decision, and I feel bound to say that in my opinion, Labouchere v. Dawson was not correctly decided. It went beyond a number of decisions of a higher court, and I think without sufficient reason. It has been argued that as it has stood for twelve years and been acted upon, it ought not to be overruled, but should be treated by this court as binding and open to be reviewed only by the House of Lords. In support of this the respondent relied much on Pugh v. Golden Valley Railway Company, 15 Cha. Div., 330, where no doubt stress was laid on the fact that a decision had been standing unimpeached for twenty years, and it was said that it was very undesirable to disturb a rule which had been so long acted upon. The court, however, did not proceed solely or even mainly on that ground j they were of opinion that the decision referred to was right and they followed it. The decision in Labouchere v. Dawson has not stood wholly unquestioned, and I do not think that we are bound to follow it merely because it has stood for twelve years without being authoritatively overruled. Taking the case then on the first clause of the agreement alone, I am of opinion that the plaintiff is not entitled to the second branch of the injunction. But assuming the first clause, taken per se, to amount to a sale of the goodwill, are not its consequences modified by clause third? That clause, which expressly gives the defendant a right to carry on any business wherever he goes under the name of — 144 — James Pearson, having regard to its terms, I think that, even assuming Labouchere v. Dawson to be right, the defendant has done nothing which would entitle the plaintiff to the second branch of the injunction. I rest my decision however upon this—that Labouchere v. Dawson was wrongly decided, and that under the first clause taken alone the plaintiff is not entitled to the injunction.” Cotton, L. J., said:—“Mr. Justice Kay granted this injunction considering that he was bound by the authorities. The case of the plaintiff is founded on contract and the question is—what are his rights under the contract? There is no express covenant not to solicit the customers of the business; but it is said that such a covenant is to be implied. I have a great objection to straining words so as to make them imply a contract as to a point upon which the parties have said nothing particularly, when it is a point which was in their contemplation. From what is this implied covenant to be inferred? It is said that there was a sale of the good-will, and according to the proper meaning of the word ‘ good-will ’ I think that there was. The plaintiff purchased all the interest of the defendant in certain old pottery works. Taking good-will in the sense given by Lord Eldon in Cruttwell v. Lye, 17 Ves., 335, 346, ‘ the probability that the old customers will resort to the old place,’ we find that here the purchaser has a right to the place and a right to get in the old bills; so the purchaser gets the good-will as defined by Lord Eldon. But the word ‘ good-will ’ is not used, and when a contract is sought to be implied we must not substitute one word for another. Such a right as is here contended for might be inferred from a contract to sell the ‘ good-will,’ and yet not be inferred from such a contract as we have here. But suppose the word did occur, what is the effect of a sale of ‘ goodwill ? ’ It does not per se prevent the vendor from carrying on the same class of business. But in Labouchere v. Dawson it is laid down that it implies a contract not to solicit the old customers. I think that decision wrong. In Cruttwell v. Lye the point did not directly arise, for the — 145 — sale was by assignees in bankruptcy; but Lord Eldon says in that case—‘ The good-will which has been the subject of sale is nothing more than the probability that the old customers will resort to the old place. Fraud would form a different consideration; but if that effect is prevented by no other means than those which belong to the fair course of improving a trade in which it is lawful to engage, I. should by interposing carry the effect of an injunction tó a much greater length than any decision has authorized or imagination ever suggested.’ It is involved in this that if the good-will is sold and fraud is used to prevent the sale from having full effect, the court will interfere; but if customers are prevented by fair means from coming to the old place it will not interfere. In Kennedy v. Lee, 3 Mer., 441, 452, expressions are used which are material as regards a contract in the present form. ‘ The words concern and inheritance are used inartificially, and cannot be construed as having any reference but to the actual subjects of valuation. And when the plaintiff offers to take the business himself, he could not have forgotten that the defendant’s own estate lay contiguous to the partnership property, and therefore his introducing no stipulation with reference to the fact of its contiguity is a clear intimation that when he wrote this letter he had no intention, in offering to take the partnership property, to purchase with it the good-will, in the sense of restricting the defendant from carrying on trade in its vicinity. In that sense at least, therefore, the good-will of the trade was not the subject of contract or treaty even, between the parties.’ This, it is true, seems rather to favor the view that a sale of good-will might imply a covenant not to carry on the same trade in the neighborhood. In Cook v. Collingridge, Collyer on Partnership, 2d ed., p. 215, a partnership business was sold by order of the court, with liberty for any of the partners to bid, and Lord Eldon made an elaborate order by which, after a declaration that there was no obligation restraining any of the partners from carrying on the same business after the sale of the business of the late partnership, and no — 146 — obligation to restrain them from uniting in a new partnership in the same business after such sale, and that the claim to have any estimated value put upon any subject that could be considered as described by the term 4 good-will ’ could not be supported on the same grounds or principles as those upon which a compensation or value was in that establishment received from a partner buying the share of the partner going out of the business of this establishment and retiring from trade or business altogether, it was declared 4 that in this case, if the property of the then present establishment were sold, and the then present partners, or any of them, with any other persons, engaged in a new establishment carrying on the same trade or business, (which they were at full liberty to do,) it was obvious that if by good-will were meant the value of the chance that the customers of partners retiring altogether would deal with those who purchased from such retiring partners and succeeded to their establishment, a good-will of that nature could not be valued on the same principles, as the persons retiring, but not retiring altogether from trade, had also a chance of conveying the old customers with their new establishment, which must most materially affect, if it did not destroy, the chance that the persons purchasing the old establishment would retain many of the customers of the old establishment.’ A partner then, in Lord Eldon’s opinion, might 4 convey ’ the customers from the purchaser. He must not do so by unfair means; and it is unfair if he represents that he is carrying on the old business; but I think that Lord Eldon was against the notion that the vendor of the good-will of a business, in the absence of express contract, is to be restrained from carrying on a similar business in the way in which he might lawfully carry it on if there had been no sale of the good-will. Lord Romilly rests his decision in Labouchere v. Dawson on the principle that a man cannot derogate from his own grant. But it is admitted that a person who has sold the good-will of his business may set up a similar business next door and say that he is the person who carried on the old — 147 — business, yet such proceedings, manifestly tend to prevent the old customers going to the old place. I cannot see where to draw the line ; if he may by his acts invite the old customers to deal with him and not with the purchaser, why may he not apply to them and ash them to do so ? 1 think it would be wrong to put such a meaning on ‘ goodwill ’ as would give a right to such an injunction as has been granted in the present case. I have thought it right to rest my judgment on the ground that Labouchere v. Dawson is not to be followed, but the present case is less favorable to the plaintiff than that case, for not only have we no contract against carrying on the business, but the third clause shows it to have been in the minds of the parties that the defendant should carry on business, and I think that this stipulation entitles him to get customers in any fair way of managing his trade. It is urged that Labouchere v. Dawson has so long been treated as settled law that we ought not to disturb it. It is true that for eight years that decision does not appear to have been questioned by any judge, and there is no doubt it has been followed by other judges in courts of first instance. It was however doubted in Leggott v. Barrett, 15 Cha. Div., 306, by Lord Justice James and myself, and has never received the sanction of the Court of Appeal. I think that under these circumstances we ought not to treat it as binding and encourage parties to shape their contracts on the authority of a case which the House of Lords may determine to have been erroneously decided. It is not generally desirable to decide an important point on an interlocutory application; but as we come to the conclusion on a question of law that the plaintiff is not entitled to the injunction, it is, we think, right for us to decide the matter now.” Lindley, L. J., said:—“ The rights of the parties in this action depend on the agreement into which they have entered. That agreement was not an ordinary contract for sale, but an agreement to settle disputes between the parties. If we look at the position of the parties we find — 148 — that the plaintiff, Theophilus Pearson, as trustee, had carried on this business, and that James Pearson, the defendant, was one of the cestuis que trust, had helped in the business, and had been employed in it as a traveller. By the agreement James Pearson gives up all his interest in the business for ¿£2,000. Pausing there, although the good-will is not in terms mentioned in the agreement, I think that it is included; for a man who sells all his interest in a business cannot retain any interest in the good-will. Then by clause third it is provided that nothing in the agreement shall be deemed to restrict or prevent James Pearson from carrying on the business of a potter, earthenware manufacturer, or any other business, at such place as he may think fit, and under the name of James Pearson. That is an important stipulation which obviously was introduced for the benefit of James Pearson. By it he says in substance —Though I have sold to you all my interest in this business I am to have liberty to carry on business in my own name where I please. That means,—I am to be as free to carry on business as if I had not sold to you, and in the same way as if I had not sold to you. I think, therefore, that this case is not governed by Labouchere v. Dawson, and that the defendant, assuming that case to have been rightly decided, may yet solicit the custom of any. As to Labouchere v. Dawson, there has been a difference of opinion. For my own part I am of the opinion that it was rightly decided. It is true that, as was pointed out in Walker v. Mottram, 19 Cha. Div., 355, it went beyond the preceding cases; but did it go beyond them so far as to be wrong ? It was on the principle that a person who has sold the good-will of his business shall not derogate from his own grant by doing what he can to destroy the good-will which he has sold. It is true that if this principle were logically carried out it would prevent the vendor carrying on the same sort of business as he has sold; and if the court had held that he could not I do not think that the decision could have been complained of. It startles a non-lawyer to be told that if he buys a business and its good-will, the — 149 — seller can immediately enter into competition with Mm next door. The courts however have held that tins can be done; but I think that Lord Romilly was right in not applying tliis doctrine to a case where the vendor directly applies to Ms old customers to induce them to continue dealing with Mm instead of the purchaser. Sir George Jessel and the Lord Justice Lush were of the same opinion; but I believe there are other judges besides my learned brothers who thrnk the decision in Labouchere v. Dawson wrong.” The plaintiffs cite Hall’s Appeal, 60 Penn. St., 458, and Angier v. Webber, 14 Allen, 211. In the first case it is said that “ good faith requires of a party who has sold the goodwill of Ms business that he should do notMng wMch tends to deprive the purchaser of its benefit and advantages. The bill charges and the evidence shows that he is holding himself out to the public by advertisement as having removed from Ms former place of business, No. 1313 Vine street, to his present place of business, No. 1539 Vine street, where he will continue Ms former business. It is clear that he has no right to hold Mmself out as contmuing the business which he sold to the plaintiff, or as carrying on his former business at another place to wMch he has removed.” In Angier v. Webber the defendant sold the good-will of a busmess to the plamtiff, and stipulated in writing not to do anytMng “ wMch should in anywise impair or injure said interest and good-will.” It was held that it was a violation of this agreement to carry on the same kmd of business at a place near the old one. In Bergamini v. Bastian, 35 Louis. Ann., 60, there was a sale of a commercial establishment, together with the goodwill thereof. The court said:—“ Holdrng, as we do, that he was not in the least precluded by any stipulation in Ms contract with the plaintiff from resuming the business of a saloon and lunch house in any portion of the city, we must recognize his right to resort to ordinary means of advertising Ms business, and to other modes of soliciting patronage or custom; and the evidence, wMch we have read carefully — 150 — and considered materially, fails to show that he directed his efforts to draw custom from Bergamini more than from any other dealer in the same line of business.” In Hanna v. Andrews, 50 Iowa, 462, the court said:— “ What the appellee agreed to do was to transfer his list of lands and correspondence and the good-will of his business, and give letters of introduction. If we should concede that the sale of the good-will of a business, without restriction upon the seller, would raise an implied agreement not to re-engage in the same business in the same place, such concession would not, we think, aid the plaintiff. By the terms of the appellee’s contract it was allowable for him, after three years, to xe-engage in the land agency business, and the only question is as to what extent he may do so. It appears to us that when the appellant provided for the return of the appellee to the business after three years, he opened the door to the appellee to come in and compete with him in every respect. The appellee, if applied to, could certainly accept the agency of the lands in question. He could certainly compete for the agency by general advertisement, by acquaintance and by fidelity to business. The courts, we think, could not properly undertake to draw the line between such competition and that which should be carried on by more or less direct solicitation.” In Barrett v. Percival, 5 Allen, 345, the marginal note says that “ a bill of sale of a stock of goods in a store and the good-will of the vendor’s trade and all the advantages connected with the store, does not import an agreement by the vendor not to engage in a similar business; and parol evidence is incompetent to prove such an agreement as a part of the consideration for the price named in the bill of sale.” The court said:—“The other objection is equally decisive. The parties having reduced their contract to writing, their rights under it must depend on . the true interpretation of its terms, irrespective of any parol evidence of what took place previously to or at the time of the making of the agreement. Looking only at the written contract, we are unable to see any clause which can be — 151 — construed into an agreement by the defendant’s testator to refrain from engaging in a similar business to that which he sold to the plaintiffs. There was no express agreement to that effect, nor can any be implied from that clause of the bill of sale by which the vendor conveys the good-will of his trade and all the advantages connected with the store and premises. It was nothing more than a sale of the custom or trade which appertained to the place where the vendor was then carrying on his business. This was the real subject matter of the contract between the parties, and it cannot be construed as imposing any personal restraint on the vendor, or as restricting his right to transact a similar business in another place at a subsequent time. WheneVer such is the intent of the parties, it is carried into effect by an express stipulation which, if not in undue restraint of trade, may be valid and binding. But we know of no case where any such agreement has been raised by mere implication arising from the sale of the good-will of a person’s trade in connection with a particular place of business where it has been carried on.” *> In White v. Jones, 1 Abbott’s Practice Reps., N. S., 337, it is said:—“ The sale by Jones to White on the dissolution of their copartnership of his interest in it, and of the good-mil of the entire business, did not deprive Jones of the legal or equitable right to engage in and prosecute a similar business in the vicinity of the place of business of the dissolved firm. This seems to be so well settled that nothing more is necessary than to refer to some of the prominent eases affirming this doctrine. Crutwell v. Lye, 17 Ves., 344; Davis v. Hodgson, 25 Beav., 177; Churton v. Douglas, 1 H. V. Johnson, 176; Howe v. Searing, 6 Bosw., 354; Dayton v. Wilkes, 17 How. Pr., 510. The complaint does not allege that the defendant in prosecuting his business at 710 Broadway represents it to be the same business which the dissolved firm carried on at 658 Broadway, or that he is conducting business at 710 Broadway as successor to the late firm of Jones & White. It does allege that Jones has opened letters, etc., directed to Jones & White, to Jones, — 152 — White & Co., and to Jones, White & McCurdy, intended for the plaintiff; that such letters were from customers of the late firm of Jones & White, and contained orders for goods; and that Jones has filled such orders and received payment for the goods ordered; and judgment is prayed that Jones be enjoined from receiving or opening any letters or orders directed as aforesaid, or from filling the orders, or from in any way interfering with the business of the former firm or the good-will thereof; and for damages. The defendant has a right to establish and carry on in his own name a business similar to that of the late firm so long as he does no act to lead customers into the belief that he is carrying on business as the successor of the old firm, or that when dealing with him they are dealing with White or with the person succeeding to the business of the late firm of Jones & White.” If, therefore, we subject the defendant to the obligation which rests upon Nathan Babcock, the plaintiff’s fourth reason of appeal remains without foundation. There is no error in the judgment complained of. In this opinion the other judges concurred.