Kern Horse Remedy Co. v. Selner — 172 A.D. 152

Majority

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Kern Horse Remedy Co., Inc., Appellant, v. William Selner and Gustave Selner, Respondents.

First Department,

April 7, 1916.

Headnote

Injunction — agreement not to divulge secret formulae — breach — illegal change of corporate place of business immaterial.

Where the defendants, owners of receipts and formula for horse medicines,on transferring their rights to a corporation organized by them, and in consideration of stock received, agreed not to divulge any of the formula sold or make use thereof for their own personal advantage, and further agreed that an injunction should issue should they make a breach of their agreement irrespective of proof of damage, the corporation suing to enforce the agreement by injunction is entitled to an injunction pendente lite restraining the defendants from vending the horse medicines on their own account.

Such injunction should issue although the corporation may have unlawfully changed its principal place of business without complying with the requirements of section 13 of the Stock Corporation Law.

Appeal by the plaintiff, Kern Horse Remedy Co., Inc., from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 14th day of February, 1916, denying its motion for an injunction pendente lite.

Charles Weishaupt, for the appellant.

--, for the respondents.

Plaintiff is a domestic corporation organized under the Business Corporations Law of the State of New York. Prior to Feb

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ruary 2, 1914, one George F. Kern, a duly licensed veterinary surgeon, authorized to practice as such within the State, discovered, compounded and sold throughout the United States, under the business name and style of< 1 Kern Horse Remedy Company,” various horse medicines and compositions and remedies, the names of which are set forth in the complaint. On February 2, 1914, Kern, for a valuable consideration, sold his rights to the manufacture of these medicines and the formulae therefor to Josephine J. Schnurmacher, Hector Garten and the two defendants herein. Thereupon the four vendees organized the plaintiff corporation and transferred their rights to said corporation by a bill of sale dated the 14th day of February, 1914. Upon the 4th day of March, 1914, Schnurmacher, Garten and these two defendants executed an agreement covenanting one with the other as follows:

“ That neither or any of them will divulge, expose, sell or communicate in any way, shape, form or manner whatsoever, any of the formulas above mentioned, and that neither or any of them will make use of said formula or formulas for their own personal use or advantage, directly or indirectly, except while in the employ, or in any way connected with the said corporation known as Kern Horse Remedy Co., Inc.

“It is further agreed between the parties hereto that in the event of a breach, or a threatened breach of the terms of this agreement, that any or all of the parties thereto shall be entitled to an injunction restraining said party or parties about to commit any breach of this agreement, or who have committed a breach thereof, without showing or proving any actual damage sustained by any or either of them, or by the said Kern Horse Remedy Co., Inc., and that this agreement is made for the benefit of themselves as well as for the benefit of said Kern Horse Remedy Co., Inc.”

At the original formation of this corporation each of the parties had apparently twenty-five per cent of the stock, which consisted of 100 shares. These four persons were directors of this corporation. Thereafter Gustave Seiner, one of the defendants, sold out his interest to his codirectors and separated himself from the business. William Seiner, his brother, sold all except 8% shares of the stock of the corporation. He remained,

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however, as treasurer of the company and a director. The place of business of the corporation was 247 North Seventh street, Brooklyn. That location was held under a lease by Marcus Schnurmacher, who was the husband of Josephine Schnurmacher, a stockholder and director of plaintiff corporation. He ran a sales and exchange stable. He afterwards transferred his lease to a man by the name of Kelly, and the corporation moved its business to 426 East One Hundred and Tenth street, Manhattan. The two Seiners, however, made some arrangement with Kelly, the assignee of the lease, to retain space in the old building at North Seventh street, Brooklyn, and advertised that the corporation was still there and sold these horse remedies from that place at cut prices, retaining the proceeds thereof and materially interfered with the plaintiff’s business. This action is brought for a permanent injunction, and a temporary injunction is asked during the pendency of the action. From the order of the court denying the plaintiff’s motion for a temporary injunction this appeal has been taken.

Upon the facts recited the plaintiff would seem to be entitled to the injunction asked for. These defendants transferred their interest in these remedies to the corporation, and covenanted for a valuable consideration not to divulge the formulae of the medicines and not to sell except as employees of the corporation, and consented that in case of violation of their agreement an injunction might be granted by the court restraining such violation. The only justification which they urge in answer to this action is that the plaintiff unlawfully changed its principal place of business and that the requirements of section 13 of the Stock Corporation Law (Consol. Laws, chap. 59 [Laws of 1909, chap. 61], as amd. by Laws of 1915, chap. 117) were not complied with in making such change. A failure to comply with such requirements, however, in no way authorizes these defendants to violate their covenants and to sell these remedies independently and for their own personal use. The defendants claim that William Seiner, holding eight and one-third shares of stock, did not consent to the change of the place of business. He is overborne, however, by the weight of the testimony to the effect that he did consent. But whether

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or no he consented, he is not justified in proceeding to sell these medicines at the old place of business of the corporation.

The order should, therefore, be reversed, with ten dollars costs and disbursements, and the motion granted, with ten dollars costs.

Clarke, P. J., McLaughlin, Dowling and Davis, JJ., concurred.

Order reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs.