Gompers v. Rochester

The opinion of the court was delivered, January 7th 1868, by Thompson, C. J.

In the view we take of this case, the question whether the sum mentioned in the covenant, whereby the defendant Rochester bound himself not to engage in the business of merchandising in the town of Marion, or within a boundary of ten miles thereof, for a period of five years, is to be regarded as liquidated damages or as a penalty, is an abstraction, and not necessary to be determined in order to decide this case.

On the 18th of July 1863, the plaintiffs bought out the defendant’s store of goods and the buildings and lot of ground whereon it was situated, in the town of Marion, Indiana county, and the latter entered into a covenant not to engage in business as stated above. The purchasers, and one Joseph Flude, continued the business of merchandising in the property, under the firm name of Kinter & Co., until the 17th of October 1864, when Gompers *197 and Flude sold out all their interest in the store to F. M. Kinter, and Gompers also sold to him his interest in the real estate— Kinter becoming bound to pay all the debts due by the firm. A ■week later, viz., on the 24th of October, McQuaide sold his interest in the store and accounts due the firm, together with all his interest in the real estate, to Kinter.

No complaints by either of these parties up to that time were made, of a breach of the covenant by Rochester. He had been living and doing business in Bethlehem, Clarion county, after the sale by him in 1863. On the 11th of February 1865, Kinter resold the property and his store-goods to the defendant and his son. Nominally, at least, the son was the purchaser of the goods, and the defendant of the real estate. In that sale F. M. Kinter released the defendant from his covenant not to engage in the business of merchandising in Marion or within the specified boundary, “ so far as he had power to do it,” as the release says. After the completion of this purchase, the business was continued in the name of Rochester & Son, at the same place.

The plaintiffs contend that Kinter, although the sole owner of the goods and real estate, had not power on a resale to Rochester, to release him from his covenant, and that his engaging again in the business after his purchase was a breach of his covenant.

It would be very unjust if it were so. Agreements in restraint of trade generally, are void. They are not so when limited in time or partial in their operation, and when there is a sufficient consideration: Metcalf on Contracts 233. In the case in hand, the consideration manifestly was the sale of the store of goods, and the real property on which it stood. No other consideration is mentioned; and it is said that an agreement of this kind is the only exception to the rule, that a contract under seal imports a consideration which a party is not permitted to deny: Id. 233. In this class of cases there are numerous decisions in support of this doctrine, to the effect that a consideration must appear on the face of the agreement, and that a declaration on a bond that sets forth no actual consideration is bad on demurrer: Metc. 232; 7 Dowl. 739; 11 M. & W. 665; 3 Y. & J. 330; 2 Ohio State Rep. 519.

Again, the consideration in this case, as already said, we think was the sale of the goods and property, and the covenant was for the protection of 'the purchasers while they continued doing business,'and would pass doubtless to their assignee. Undoubtedly it passed to F. M. Kinter, as incident to the property and business when he bought out his partners. It could not exist in their favor, after they had ceased to require its protection. In whose favor did it exist ? Certainly, if it existed at all, it existed in favor of their successor, who had acquired all their interest in the store as well as in the realty. He might need its protection; *198 they would not. As he was the only person interested in it, his partners having left the neighborhood and gone beyond the prescribed limits to engage in business, it would be strange if he could not relinquish what was for his own benefit. In other words, where was the covenant, to prevent the partners selling back to Rochester ? If none existed as to them, why might not their assignee ? The fallacy of the position of the plaintiffs in error, seems to consist in regarding the covenant as attaching, or incident to them personally; whereas, it was alone an incident to property which they had parted with, and the business also. It would not have been binding for want of a consideration, unless as incident to the property sold at the time of the relinquishment covenanted for. I doubt if any case can be found in which such a covenant has been enforced, where it had no effect to protect the business or trade of the covenantee. Indeed it would be against public policy, and every principle upon which such contracts are sustained. If any breach existed at the time of the several sales of Gompers and McQuaide to Kinter, in which they had an interest, it passed by the terms of their several transfers. If no breach had transpired, they could not be injured afterwards, for they had ceased business in Marion and returned to Indiana, a distance of some fourteen miles. As already said, the covenant, at all events, passed with the business, which it had been its object to protect, and with its transfer might 'certainly be released.

The court below having answered the plaintiffs’ 3d point properly in the negative, conclusively determined the case against them. As there js nothing else to be noticed in order to a determination of the case here, the judgment is affirmed.