United States Cordage Co. v. William Wall's Sons Rope Co.

Majority

p. 602

United States Cordage Company, Resp’t, v. William Wall’s Sons Rope Company et al., App’lts.

(Supreme Court, General Term, First Department,

Filed November 15, 1895.)

Headnote

1. Contract—Restraint of trade.

A covenant not to engage in any business by a vendor, made in connection with a sale of his business and good will, is valid and enforceable.

2. Injunction—Trade name.

A corporation is entitled to an injunction restraining ,a general member of a firm which sold out their business and good will from doing business under their own name, where they covenanted not to engage in such business within the limits of the United States except as an employe of the vendee.

3. Same—Nominal partners.

Where a general partner executes a contract, on behalf of his firm, to convey the property and good will of the firm and not to engage in the

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Arm’s business, persons who are nominal partners only, as trustees of a deceased partner, are not prohibited by such contract from engaging in the same business in their own- names, nor from soliciting business from former customers of such Arm.

Appeal from an order granting an injunction pendente lite.

Adrian H. Joline, for app’lt; John L. Cadwalader, for resp’t.

The order under review enjoins the defendants, during the pendency of this action, “ from using or displaying the name William Wall’s Sons,’ either separately or conjunctively with any other words, and from using the name William Wall’s Sons Eope Company,’ or either of such names, upon any signs, cards, bill-heads, or letter-heads, or otherwise, or from any way holding themselves out as successors to the firm of William Wall’s Sons and from in any manner soliciting business from the customers formerly of William Wall’s Sons.” In support of the motion fat ■an injunction pendente lite the plaintiff caused it to appear, by its motion papers that prior to July 15, 1887, William Wall’s Sons had established a reputation as manufacturers of cordage, and on or about that day such firm, with three other firms engaged in the same business, established the National Cordage Company, a New Jersey corporation, with a capital of $1,500,000, and caused leases of their several plants to be made to such company for ninety-nine years, and at the same time arranged to take back subleases for thirty-eight years each, with two renewals of the several leased plants, and in consideration of the leases caused the entire capital stock to be issued to themselves. After the execution of the leases, the temporary directors resigned, and the representatives of these four concerns became directors, and entered into the management of the joint business as they had before managed their separate business in concert; Frank T. Wall, the active partner of William Wall’s Sons, becoming a director and vice-president In August, 1890, the same individuals continuing in the management, a plan was devised to get a large amount of preferred stock, ánd to divide a still larger amount of common stock among themselves. The foundation for this issue of stock was the alleged necessity of the purchase by the company of the fees of the four properties which had been leased for ninety-nine years, and the procuring of assignments from the several owners of the mills of the good will of the business of the firms and corporations owning them, together with covenants not to engage in the cordage business except for the company. In pursuance of this scheme, the directors, on August 25, 1890, appointed a committee, of which Frank T. Wall was a member, “ to make a careful valuation of the assets looking to an increase of the capital stock.” The committee reported that the capital stock should be increased to the extent of $13,500,000, $5,000,000 of the stock to be preferred and $8,500,000 of the common stock; the preferred stock to be offered to the public for sale, the proceeds to be devoted to the acquisition of the fees of the four leased properties; and that the company, as a part consideration for the proceeds of the preferred stock, should receive the assignments from the several owners “ of the good will of their

p. 604

business, their trade-marks, and covenants not to engage in business except for the National Cordage Company; ” the common stock to be divided among themselves as stockholders, as representing undivided profits. Frank T. Wall, the active member of the firm of William Wall’s Sons, offered the resolutions at the stockholders’ meeting accepting the recommendations of the directors to devote the proceeds of' the 50,000 shares of preferred stock to the purchase of the fees, together with an assignment of the good will of the respective business, trade-marks, and labels, with a covenant not to go into business except with the National Cordage Company. The scheme was subsequently carried out so far as the company was concerned. The preferred stock was offered to the public, and subscribed for, and the proceeds devoted in accordance with the recommendations of the directors and the resolutions of acceptance by the stockholders. The price paid to William Wall’s Sons in cash and preferred stock was $970,579.40. The common stock, amounting to $8,500,000, was turned over to the stockholders. Prior to the passage of the resolutions by the directors and stockholders to which we have referred, and on August 21st, Frank T. Wall, on behalf of his firm, executed an agreement which recited that William Wall’s Sons were about to convey their mill property, with the tools, etc., “ together with the good will of the said business of the said parties of the first part, and the exclusive right of the use of their name therein, and the exclusive right to all their trade-marks and labels as heretofore owned by them, for use, or in fact used, in connection with their said business.” After the adoption of the resolutions no formal transfer was executed by William Wall’s Sons in accordance with the resolutions or otherwise, although the consideration therefore was accepted by them. In May, 1893, the National Cordage Company passed into the hands of receivers, who in due course demanded and obtained from the firm of William Wall’s Sons a deed of the real estate on which the mill property was situated. Subsequently there was a reorganization of the new corporation bearing the name of the United States Cordage Company, and to it was transferred all of the property and property rights of the National Cordage Company, including the good will of the business of William Wall’s Sons, and the right to use the firm name. By this transfer the new corporation succeeded to all the property, property rights, and interests of the original corporation, and acquired all of the benefits arising from and growing out of the contracts to which we have referred. Frank T. Wall, William F. Wall, and Edwin R. Brinkerhoff, notwithstanding these facts, made preparations to engage in the business of manufacturing and selling cordage ; and to facilitate the sale of the goods undertook to make such use of the name William Wall’s Sons as would enable them to derive substantial benefit from the good will which had been established in that name. To that end they organized a corporation known as William Wall’s Sons.Rope Company, under the laws of the state of New Jersey. At their office on South street a large sign bore the na'me of William Wall’s Sons, and they made use of other signs to the same effect. , Circulars were issued, addressed to their

p. 605

customers, inviting custom, in which reference was made to the old firm of William Wall’s Sons, and signed’William Wall’s Sons Eope Company.

From these facts it is apparent that there is no room to question so much of the order as enjoins the defendants, during the pendency of this action, from using in any manner whatever the name William Wall’s Sons in connection with the manufacture and sale of cordage. The appellant Frank T. Wall, insisting that the only rights secured by the National Cordage Company were under and by virtue of the so-called “agreement” of August 21, 1890, urges that he is "at liberty to engage in the cordage business under his own name, and to solicit custom of any person or persons whomsoever. By the agreement he claims that the good will of William Wall’s Sons was transferred, and nothing more; and that, in the absence of an express statement to the contrary, the vendor of a name and good will of a business the same business, and invite all the world, including the old customers of the vendor, to come there and purchase of him, provided he does not lead any one to believe that the articles that he offers for sale are manufactured by the vendee, or that he was the successor to the business of the old firm, or that the vendee was not carrying on the business formerly carried on by the old firm. Marcus Ward & Co. v. Ward, 40 St. Rep. 792 . But since the Diamond Match Co. v. Roeher, 106 N. Y. 473 ; 11 St. Rep. 47 , it has been the law of the state that a covenant not to engage in business by a vendor, made in connection with a sale of his business and good will, is valid and enforceable. The agreement of August 21st contains a covenant that the parties of the first part shall not, directly or indirectly, engage in the manufacture or sale of cordage and binding twine within the limits of the United States, except as an employe of the party of the second part, and except upon certain conditions precedent in the agreement specified, which it does not appear the parties have performed or attempted to perform. And it seems a reasonable construction to place upon that agreement to hold that the covenant included Frank T. Wall individually as well as the firm of William Wall’s Sons, of which he was the only ■active member. But, independently of this agreement, which, as we have said, was executed prior to the recommendations of the board of directors and the stockholders to purchase the fees of the property and the good will will, it would seem that the National Cordage Company became the owner of the property and good will of the business of William Wall’s Sons, and they became bound not to engage in a similar business, except as employes of the company. The recommendation of the directors, made pursuant to a report of a committee of which Frank T. Wall was a member, was that the proceeds of the preferred stock should be devoted to procuring the fees of the properties and obtaining the good will of their business, trade-marks, and covenants not to engage in business except for the National Cordage Company. This recommendation of the directors was adopted by the stockholders bv a resolution offered by Frank T. Wall. The proposition was accepted by the owners of the several properties, and they received

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therefor the full consideration. The making of the propositions, their acceptance, and the payment of the money, the parties apparently regarded as binding upon them without a formal written agreement; and so it was, if that was their understanding and intention. We discover nothing in the present record to lead us to think that it was not so intended, and, that being the case, it would seem that Frank T. Wall bound himself not to engage in the cordage and binding-twine business except as an employe of the National Cordage Company. It was claimed upon the argument that it does not appear from the record that Brinkeroff' and William F. Wall bound themselves not to engage in the cordage business under their own names, nor from soliciting business from customers formerly of William Wall’s Sons. This position seems to us well founded. The eighth clause of the complaint alleges that in the year 1888 the firm of William Wall’s Sons was dissolved by the death of Michael W. Wall, and thereupon a new partnership was formed, consisting of Frank T. Wall and Eliza A. Wall as general partners, William F. Wall and Edwin R. Brinkerhoff, as trustees under the last will and testament of Michael W. Wall, as nominal partners. It does not appear that either Brinkeroff or William F. Wall derived the slightest benefit from the transactions between William Wall’s Sons and the National Cordage Company, or that they had any connection whatever with the business other than as trustees under the will of Michael W. Wall. That being so, we can discover no ground upon which to base an injunction restraining them from engaging in the business under their own names, or from soliciting business from the customers of the old firm of William Wall’s Sons.

The order should be modified by adding at the end thereof the following: “But so much of the order as enjoins the defendants from in any manner soliciting business of customers formerly of William Wall’s Sons” shall not apply to Edwin R. Brinkeroff and William F. Wall. As thus modified, the order should be affirmed. All concur.

Cases cited

Diamond Match Co. v. Roeber 106 N. Y. 473 N.Y. 1887-10-04 p. 605