public policy because in restraint of trade. The courts
of late years have relaxed the old rules so that the re-
strictive covenant may be unlimited as to area. "It
cannot be said that the early doctrine that contracts in
general restraint of trade are void, without regard to
circumstances, has been abrogated. But it is manifest
that it has been much weakened, and that the founda-
tion upon which it was originally placed has, to a con-
siderable extent at least, by the change of circumstances,
been removed. â– â– ^â– '
In the absence of a covenant not to re-engage in busi-
ness, the vendor may employ any method of soliciting
1 Bradford v. Peckham, 9 R. I. 250-253; Herbert v. Dupaty, 42 La.
Ann. 343.
2Welz V. Rhodius, 87 Ind. 1; Spier v. Lambdin, 45 G a. 319.
sCostello V. Eddy, 12 N. Y. Supp. 236; Herbert v. Dupaty, 42 La.
Ann. 343.
^Onondaga Co. Milk Association v. Wall, 17 Hun, 494.
^Cassidy v. Metcalf, 1 Mo. App. 593-601; S. c, 66 Mo. 519; Hollis
V. Shaffer, 38 Kas. 492.
« Andrews, J., in Diamond Match Co. v. Roeber, 106 N. Y. 473-484..
The cases are reviewed at length in this opinion.
144 LAW OF UNFAIR TRADE. [§64
trade which does not involve a false or fraudulent repre-
sentation.^ But the English rule is that he cannot so-
licit former customers. ^ A covenant not to re-engage
in business will not be implied from the vendor's cove-
nant in the bill of sale "to warrant and defend the sale
of the said property and interest, as herein stated."^
The good-will of the business of a decedent does not
carry with it the right to use the decedent's name.* Such
good-will is an asset to be accounted for by the personal
representative, and if that representative takes charge
of the business and conducts it as his own he is charge-
able with the value of the good-will.^
Equity looks with disfavor upon any method of divert-
ing from the purchaser of a good-will the benefits which
ought to come to him by reason of his purchase. Thus,
where partners sold out their interest in the good-will of
a partnership known as the Kalamazoo Wagon Company,
and then organized a corporation under the name of
Kalamazoo Buggy Company, they were enjoined, at the
suit of their vendee, from the use of that name; and the
court held that the writ of injunction properly ran against
all persons connected with the corporation.^
iCottrell V. Babcock, 54 Conn. 122; Vonderbank v. Schmitt, 44 La.
Ann. 264; Marcus Ward & Co. v. Ward, 40 N. Y. State Rep. 792;
Knoedler v. Boussod, 47 Fed. Rep. 465; Close v. Flesher, 59 N. Y.
State Rep. 283; Knoedler v. Glaenzer, 55 Fed. Rep. 895.
2Tregov. Hunt, 65 L. J. Ch. 1; L. R. (1896) A. C. 7; 12 Eng. Rul-
ing Cas. 442.
•■^Costellov. Eddy, 12 N. Y. Supp. 236. Agreements upon dissolu-
tion are construed by the same rules as other contracts, with a view
of ascertaining the actual intent in the minds of the parties. Thus
in a covenant which read "the said Rivers covenants that he will not
engage in the manufacture of furniture so long as said Bagby con-
tinue such business," it was held that Bagby 's conveyance of the
business to a corporation was a discontinuance of the business by
him, and Rivers was entitled to resume the furniture business if he
saw fit. Bagby & Rivers Co. v. Rivers, 87 Md. 400; 40 L. R. A. 632.
^Morgan v. Schuyler, 79 N. Y. 490; Re Randall's Estate, 8 N. Y.
Supp. 652-654.
â– 'Re Randall's Estate, 8 N. Y. Supp. 652.
"Myers v. Kalamazoo Buggy Co., 54 Mich. 215; Brass & Iron Works
Co. v. Payne, 50 Ohio St. 115; 19 L. R. A. 82.
§64] GOOD-WILL. 145
In another case one Thomson was a partner of his
brother, in Europe, and a partner of other persons in a
separate establishment in New York. Both hou.ses were
dealing in "Thomson's Glove-fitting" corsets. Thomson
sold out his interest in the New York house and after-
ward attempted to sell the corsets made by him in Europe,
in the United States. He was enjoined from so doing,
the court holding that, when he assigned his interest in
the good-will of the New York partnership, the good-will
carried with it all his right to use the trade-mark "Thom-
son's Glove-fitting" in the United States.^
In a sale of a physician's practice, where the vendor,
after three months, returned to the same city and opened
an office fifteen rods away from, in the nearest house but
one to, his former olfice, the supreme court of Massachu-
setts held his conduct to be a breach of an implied cove-
nant "that the vendor will not himself do anything to
disturb or injure the vendee in the enjoyment of that
which he has purchased. '"'-
When an article of manufacture has had the manufac-
turer's name applied to it, and he sells his business,
good-will and "confers the authority to use his name,"
so applied, to his vendee, he will be enjoined from again
engaging in a similar business under his own name.^
A covenant by the vendor not to re-engage in business
may not specify the territory in which he is precluded
from doing business. If from all the circumstances of
iBatchellor v. Thomson, 86 Fed. Rep. 630.
2Endicott, J., in Dwight v. Hamilton, 113 Mass. 175-177. Where
the vendor re-engaged in the same (a mercantile) business in the
same vicinity, a bill in equity brought by him to reform the contract
of sale was dismissed on the ground that he had not done equity.
Cassidy v. Metcalf, 1 Mo. App. 593-601. This decision was reversed
by the supreme court of Missouri, but that court agreed with the St.
Louis court of appeals in holding that "the plaintiff's conduct was
not characterized by that good faith with which a party should
always approach a court of equity when asking its assistance."
Cassidy v. Metcalf, 65 Mo. 519.
^Frazer v. Frazer Lubricator Co., 121 111. 147; Ayer v. Hall, 3
Brewst. 509; Filkins v. Blackman, 13 Blatch. 440; Probasco v. Bou-
j'on, 1 Mo. App. 241.
10
146 LAW OF UNFAIR TRADE. [§64
the case it appears that it was the intention of the par-
ties to limit that territory to a town, county or state, the
contract will be so construed, and the vendor will be en-
joined from continuing or re-entering business in the ter-
ritory so fixed. ^
A vendor of a good-will may not do indirectly what he
is forbidden, by the terms of his contract, from doing
directly. So if he form a corporation to carry on his
business, and the other incorporators have knowledge
of his contract, the corporation will be enjoined from
conducting business with or for the vendor. ^ If he re-
engages in business under the pretense of acting as a
broker or commission agent only, the same rule applies
and he will be enjoined.^ And again, the rule applies
where the defendant re-engages in the prohibited busi-
ness as the salaried employee of a third person, and he
will be enjoined.* In a case where the vendor covenanted
to make the good-will as valuable as he could, Lord
Eldon held that the vendee was not bound to take the
actual profit made, but that he would "have an action of
covenant, if he can establish his title to more through the
default of the vendor.""^
Where a limit of time is fixed in the covenant against
re-engaging in business, the vendor may re-engage in the
business upon the expiration of the time. But where the
covenant was made jointly with a conveyance of the ven-
dor's good-will, he was restrained after he re-engaged in
business from making personal solicitation of his former
customers and using extracts from their books in relation
to the business."
1 Hubbard v. Miller, 27 Mich. 15.
2Beal V. Chase, 31 Mich. 490.
3 Richardson v. Peacock, 33 N J. Eq. 597.
■» Finger v. Hahn, 42 N. J. Eq. 606.
•5 Scott V. Mackintosh, 1 V. & B. 503. As a matter of course such a
covenant will not be created by implication. Where the vendor con-
veyed the good-will of a school, it was held that the sale did not bind
him by implication to exert his efforts thereafter to secure the attend-
ance of pupils. McCord v. Williams, 96 Pa. St. 78.
"Armstrong v. Bitner, 71 Md. 118-127.
§65] GOOD-WILL. 147
§66. Partnership good-will.— Disputes as to good-
will arise most frequently between partners. The vari-
ous text-writers who have treated the law of jjartner-
ship have dwelt at leng-th upon the principles of the law
of good-will which are applicable in this connection, .so
that for the purpose of this book a brief glance at the
leading principles will suffice.
As we have seen elsewhere, every man has the right to
use his own name in business so long as he does not use
it in such a way as to establish an unfair competition.
The use of the name of a withdrawing partner, as part
of the firm name, in such a way as to expose him to
liability or to the possibility of being sued, will be en-
joined at his suit.^ The better rule would seem to be
that in the absence of express agreement the firm name
will not pass to one who purchases the assets of a part-
nership. ^
When one partner has been expelled from the partner-
ship because of his violation of its articles, he will not,
in the absence of contract binding him not to re-engage
in the business, be enjoined from doing similar business
in his own name, and soliciting patronage from custom-
ers of the old firm.=^ A surving partner who has the
right to use the firm name may enjoin his deceased part-
iMcGowan v. McGowan, 22 Ohio St. 370; Peterson v. Humphrej-,
4 Abb. Pr. 394.
2 Williams V. Farrand, 88 Mich. 473; Horton Mfg. Co. v. Horton Mfg.
Co. , 18 Fed. Rep. 816. This rule is not yet clearly established. Thus
the supreme court of Ohio says: "Upon the dissolution of a trad-
ing copartnership its assets, including the good-will of the business,
may be sold as a whole, either by the partners directly, or through
a receiver under an order made by a court in a case to which they
are parties; and that a purchaser thereof under either method of
sale is entitled to continue the business as the successor of the firm,
and make use of the firm name for that purpose. And further, that
when the purchaser transfers the property so acquired by him to
a corporation of which he is a member, organized to succeed to the
business, it may carry on the business in the same manner under a
corporate name including the name which had been used by the
firm." Williams, J., in Snyder Mfg. Co. v. Snyder, 54 Ohio St.
86-96; citing Brass & Iron Works v. Payne, 50 Ohio St. 115.
s Dawson v. Beeson, L. R. 24 Ch. D. 504.
148 LAW OF UNFAIR TRADE. [ § (>5
ner's executor from using the firm name for his own bene-
fit.i
Upon the appointment of a receiver for the firm assets,
either member of the firm will be enjoined from so using-
his own name as to mislead the public into the belief
that he has acquired the good-will, since such injunction
is necessary to the preservation of the good-will as part
of the firm assets. ^
A retiring partner who has sold the other the firm
property, without making mention of the good-will, will
be granted an injunction against any use of the firm name
by the continuing partner which would give the public
reason to believe he was still a member of the firm, to
the injury of his new business.^
Upon the dissolution of a partnership the partner who
retains the use of the old premises may lawfully advertise
the premises as being "formerly occupied by" the old
firm, and either partner may advertise himself as being
"formerly of" or "late of " the firm, using words that
convey only the facts and have no tendency to deceive
or mislead the firm's customers or the public generally.*
Where the retiring partner permits the old firm name
(of which his name is a part) to be used, and makes no
publication of the fact of his retirement, he is estopped
from denying the copartnership, as against a creditor of
the continuing partner, who has extended credit on the
belief that he is still a member of the firm.^
Upon administration of a partnership estate, the good-
will should be included in the appraisement of the part-
nership assets, and if the surviving partner appropriates
1 Lewis V. Langdon, 7 Sim. 422.
2Bininger v. Clark, 60 Barb. 113. Where a retiring partner stipu-
lated that the continuing partner might continue the use of his name
in the style of the firm, it has been held that the assignment of the
right to use the name is personal and cannot be transferred by the
continuing partner to another. Horton Mfg. Co. v. Horton Mfg. Co.,
18 Fed. Rep. 817; Bagby & Rivers Co. v. Rivers, 87 Md. 400; 40
L. R. A. 632.
â– 'McGowan v. McGowan, 22 Ohio St. 370.
4 Morgan v. Schuyler, 79 N, Y. 490.
^Backus V. Taylor, 84 Ind. 503; Richards v. Hunt, 65 Ga. 342.
§66] GOOD-WILL. 149
it to his own use by continuing the partnership business,
he may be compelled to account for its value to the estate
of the deceased partner.^
Where a partner came into a partnership for a fixed
period, agreeing "to carry on business with the defend-
ants for one year, and then to leave it in their hands,"
he was held to have acquired thereby no interest in the
good-will of the business.''
;^ 66. Remedies. — The purchaser of a good-will whose
enjoyment of it is interfered with may have his remedy
either at law or in equity. These remedies are adminis-
tered on the same general principles which apply to
other cases of unfair competition, and which are dis-
cussed elsewhere in this book.
The jurisdiction of equity in this class of cases is predi-
cated upon the fact that the injury is continuous, that its
further operation can only be restrained by the exercise
of the injunctive power of the chancellor, and that dam-
ages at law afford no adequate compensation for the in-
jury.
If, however, the plaintiff resorts to an action at law,
the measure of his damages is well defined by the supreme
court of Missouri: "If plaintiffs lost less than the de-
fendant made, they cannot recover the whole of de-
fendant's profits; if plaintiffs lost more than the defend-
ant made, they would not be limited to defendant's
profits. What the plaintiffs have lost by the defendant's
breach of covenant, and not what the defendant has
gained thereby, is the legal measure of damages in this
case."^
iRammelsberg v. Mitchell, 29 Ohio St. 22.
2VanDyke v. Jackson, 1 E. D. Smith (N. Y.),419; Duden v. Maloy,
63 Fed. Rep. 183; 11 C. C. A. 119. In the latter case the partnership
articles provided that the incoming partner's interest should be as-
certained annually, and further provided for the sale of his interest
to his partner on dissolution at the price ascertained in determining
his share. The court held that this disposed of his propertj' in the
good-will.
"Hough, J., in Peltz v. Eichele, 62 Mo. 171-180. And to the same
effect see Burckhardt v. Burckhardt, 36 Ohio St. 261,
150 LAW OF UNFAIR TRADE. [§66
The parties to a contract for the sale of a good-will
may provide in the contract for a fixed amount of dam-
ages. In the absence of fraud, the sum so fixed will be
adopted as the measure of damages by the court. ^ Where
the parties have so agreed upon the amount of damages,
the vendee, in case of a breach of covenant, has an ade-
quate remedy at law, and injunction will not lie.^ The
remedy is for the recovery of the sum so fixed. ^
Where there are no damages stipulated, and no sub-
stantial injury is proven, the plaintiff is entitled only to
nominal damages. "The loss of profits, if there are data
from which the amount may be ascertained with reason-
able certainty, the diminution in value of the property
sold, all may be regarded as elements of the damages
which go to make up the measure of recovery."*
^Tode V. Gross, 127 N. Y. 480-487; Dakin v. Williams, 17 Wendell,
447; Bagley v. Peddie, 16 N. Y. 469; Wooster v. Kisch, 26 Hun, 61.
2 Martin v. Murphy, 129 Ind. 464-467. Unless the defendant is in-
solvent, which fact will make a case for injunctive relief. Pickett v.
Green, 120 Ind. 584.
The general doctrine that equity will not interfere to restrain a
person from doing an act which he has agreed not to do, when liqui-
dated damages have been provided in case he does the act, is sub-
ject to this qualification. "The question in every case is, what is
the real meaning of the contract? And if the substance of the agree-
ment is that the party shall not do a particular act, and that is the
evident object and purpose of the agreement, and it is provided that,
if there is a breach of this agreement, the party shall pay a stated
sum, which does not clearly appear to be an alternative which he
has the right to adopt instead of performing his contract, there would
seem to be no reason why a court of equity should not restrain him
from doing the act, and thus carry out the intention of the parties.
. . . In other words, naming a sum to be paid as liquidated dam-
ages does not in itself conclusively establish that the parties contem-
plated the right to do the act upon payment of the compensation, and
make an alternative agreement for the benefit of the party who has
done what he had agreed not to do." Endicott, J., in Ropes v. Up-
ton, 125 Mass. 258-261.
"Martin v. Murphy, 129 Ind. 464.
^Howard v. Taylor, 90 Ala. 241-244; Burckhardt v. Burckhardt, 47
Ohio St. 474; Mitchell v. Read, 84 N. Y. 556; Mellesch v. Keen, 28
Beavan, 453; Rawson v. Pratt, 91 Ind. 9; Lashusv. Chamberlain, 6
Utah, 385.
§66] GOOD-WILL. 151
For the greater part the remedies open to the owner
of a good-will whose rights are invaded are administered
by courts of equity. But injury to a good-will may be
effected in many various ways, for each of which an ap-
propriate remedy will be found either at law or in equity.
Thus where a defendant's good- will has been destroyed
by a wrongful attachment, he will be allowed compensa-
tion therefor in an action for damages against the attach-
ing creditor. 1
In an action at law a petition which alleges that
plaintiff has purchased defendant's business and good-
will, an agreement that the defendant was not to re-
engage in the same line of business for two years, and
that, in violation of his agreement, he has re-engaged in
the same line of business during such period, and thereby
damaged plaintiff, has been held good on demurrer.^
The action for damages for breach of contract involv-
ing good-will is governed by the general principles in-
volved in similar actions in trade-mark cases, which are
considered elsewhere in this book.
A contract for the sale of a business and good-will will
be rescinded if the vendor has falsely stated facts in re-
gard to the value of the good- will; as where he has rep-
resented that his receipts from the business were greater
than they actually had been,^ or that the premises sold
have brought a higher rental than they actually did.^
And the misrepresentation has been held to rescind the
contract where the misstatement was not made directly
to the vendee, but to a third party who communicated it,
with the vendor's knowledge, to the vendee.^ On the
other hand, the duty is imposed upon the vendee to act
at once upon learning the facts which justify a rescission.
Where he fails to do so he will be bound by his contract,
and his remedy lies in an action for damages.^
1 Miller v. Beck (Iowa), 72 N. W. Rep. 553.
2Erwin v. Hayden (Texas), 43 S. W. Rep. 610.
SDobell V. Stevens, 3 B. & C. 623.
^Lysney v. Selby, 2 Ld. Raym. 1118.
^Pilmore v. Hood, 5 Bing. N. C. 97.
«Dobell V. Stevens, 3 B. & C. 623.
152 LAW OF UNFAIR TRADE. [§66
Whenever the false representations amount to a war-
ranty, an action for damages will lie even in the absence
of proof of fraud. Otherwise the burden is upon the ven-
dee to show that the representation was fraudulently
made.^
Covenants against re-engaging in business may be spe-
cifically enforced, as we have seen, or the vendor may be
enjoined from their violation. It has been held in Eng-
land that with an action for specific performance a claim
for damages may be made as an alternative.'^
It has been held that a debtor's good-will cannot be
reached by a creditor's bill, because it is not subject to
levy in satisfaction of their debts. ^
The application for injunctive relief is governed by the
rules concerning similar applications in trade-mark cases.
A plaintiff need not allege or prove damages as a pre-
requisite to an injunction to restrain a defendant from
re-engaging in business, in breach of a covenant between
the parties.* When a vendee in applying for an injunc-
tion also asked judgment for the possession of the books
and papers used by the vendor in the business in which
it had engaged in violation of its covenant, the order was
refused because there was a remed}'- at law for their re-
covery.^
In cases where the vendor of a good-will is sought to
be restrained from re-engaging in business in violation
of his covenant, the amount in controversy is the value
of the good-will, and the federal courts cannot acquire
jurisdiction unless the value of the good-will exceeds
$2,000.« â–
^Redgrave v. Hurd, L. R. 20 Ch. D. 1.
2Hipgrave v. Case, L. R. 28 Ch. D. 356.
^Lilienthal v. Drucklieb, 84 Fed. Rep. 918.
^Anderson v. Rowland, 18 Tex. Civ. App. 460; 44 S. W. Rep. 911.
•^Lawrence v. Times Printing- Co., 90 Fed. Rep. 24-26.
^Lawrence v. Times Printing Co., 90 Fed. Rep. 24-28.
CHAPTER VII.
TRADE SECRETS; RIGHTS OF PRIVACY.
J^ 67. Introductory. — "A secret in trade is fully rec-
ognized as property in equity, the disclosure of which
will be restrained by injunction."^ A contract in refer-
ence to such a secret cannot be in restraint of trade,
"because the public has no rights in the secret."'-*
When the name applied to a secret preparation is a
trade-mark, no one but the owner of the mark can apply
it to the preparation. But if it be not a valid trade-mark,
then the manufacture of the secret preparation, and the
placing- of it upon the market under the same name, is
open to any one who can lawfully discover the secret pro-
cess.^ But "it is settled that a secret art is a legal
subject of property,"* and its owner has a vested right
to the secrecy of all those who occupy a fiduciary re-
lationship to his business. So that no one who obtains
^ Smith, p. J., in Champlin v. Stoddart, 30 Hun, 300-302.
^Morse Machine Co. v. Morse, 103 Mass. 73-75; Vickery v. Welsh,
19 Pick. 523-527.
â– 'Watkins v. Landon, 52 Minn. 389; 54 N.W. Rep. 193; Davis v. Ken-
dall, 2 R. I. 566; Siegert v. Findlater, L. R. 7 Ch. D. 801 ; Comstock v.
White, 18 How. Pr. 421; Condy v. Mitchell, 37 L. T. N. S. 268, 766;
James v. James, L. R. 13 Eq. 421; Canham v. Jones, 2 V. & B. 218.
"It may also be observed, in this connection, that the word 'prop-
erty,' as applied to trade secrets and inventions, has its limitations;
for it is undoubtedly true that when an article manufactured by some
secret process, which is not the subject of a patent, is thrown upon
the market, the whole world is at liberty to discover, if it can by any
fair means, what the process is, and, when discovery is thus made,
to employ it in the manufacture of similar articles. In such a case,
the inventor's or manufacturer's property in his process is gone; but
the authorities all hold that, while knowledge obtained in this
manner is perfectly legitimate, that which is obtained by any breach
of confidence cannot be sanctioned." Adams, J., in Eastman Co. v.
Reichenbach, 20 N. Y. Supp. 110-116; affirmed, 29 N. Y. Supp. 1143;
79 Hun, 188.
■•Gray, J., in Peabody v. Norfolk, 98 Mass. 452.
153
154 LAW OF UNFAIR TRADE. [§68
knowledge of the secret by fraud or unfair means will be
permitted to avail himself of the fruits of his fraud, by
disclosing the secret or manufacturing under it.^
§ 68. Where equity will not interfere. — "Courts of
equity will not interfere by injunction in disputes be-
tween the owners of quack medicines, meaning thereby
remedies or specifics whose composition is kept secret,
and which are sold to be used by the purchasers without
the advice of regular or licensed physicians. "^ And in
1817 Lord Eldon said: "I do not think that the court
ought to struggle to protect this sort of secrets in med-
icine."^
And, broadly stated, equity will not interfere to pre-
vent the disclosure of secrets by means of w^hich frauds
have been committed.*
Then there are limits to the extent of the injunction,
which will be suggested by the facts in each particular
case. For example, in one case which has been fre-
quently cited, the plaintiff was a tanner and manufacturer
of leather, owning secret processes in regard to the treat-
ment of leather. Two of his former employees were en-