Opinion
Submitted February 12th, 1932.
Decided May 16th, 1932.
1. In selling his bus line to complainant, defendant covenanted not to engage directly or indirectly in the operation of bus lines between the State of New Jersey and any other state. Defendant has, since the sale, become the controlling owner of a bus line between New York, Atlantic City and Washington. Complainant has sold his line to a corporation which runs a New York to Atlantic City line. In this application for a preliminary injunction, held, that covenants like the one in this case are in restraint of trade and for that reason cannot be enforced to prevent the vendor from engaging in a business similar to the one he has sold, in a territory beyond the territory in which the business which was sold was transacted at the time of the sale.
2. Inasmuch as defendant's line in no way enters or interferes with the patronage of the territory in which the line he sold to complainant operated or contemplated operating at the time of the sale, complainant cannot obtain an injunction against him.
3. The business conveyed, and not other unrelated businesses which may be elsewhere owned by the purchaser, delineates the territory within which the covenant may be lawfully enforced.
On appeal from a decree dismissing the bill by Vice-Chancellor Leaming, who filed the following opinion on refusing an application for a preliminary injunction:
"Complainant Schultz purchased from defendant Johnson and the Williamstown-Philadelphia Bus Company, a New Jersey corporation, a certain `bus line,' which was operating between Williamstown, New Jersey, and Philadelphia, Pennsylvania. The purchase embraced the real estate and chattels used in the operation of that bus line, and may be here assumed to have embraced its good will. In the contract of sale defendant, Johnson, who owned the real estate and operated and practically owned the corporation, covenanted as follows:
"`The party of the first part, Earl H. Johnson, agrees that he will not from and after the date of final settlement engage directly or indirectly in the operation of bus lines between the State of New Jersey, and any other state, except as the manager, officer or employe of the said party of the second part.'
"Complainant Schultz has transferred his rights under that agreement to complainant, Public Service Interstate Transportation Company.
"Defendant Johnson has since become president of the Lincoln Lines, Incorporated, and controls and practically owns that corporation. That corporation operates a bus line from New York to Atlantic City and thence to Washington, District of Columbia.
"Complainants now seek to enforce by injunction the covenant of defendant Johnson above quoted. The present application is for restraint pendente lite.
"The obligations arising from covenants of this nature have been considered by our courts so frequently that almost every aspect of the subject has been determined. A review of the cases seems unnecessary. Such contracts are in restraint of trade and for that reason cannot be enforced to prevent the vendor of a business from engaging in a business similar to that which he has sold, in a territory beyond the territory in which the business which was sold was transacted at the time of the sale, or, at most, beyond any extension of that territory, by expansion of the business sold, as might have been reasonably contemplated by the parties, at the time of the sale. The cases of Trenton Potteries Co. v. Oliphant, 58 N.J. Eq. 507, and Fleckenstein Bros. Co. v. Fleckenstein, 76 N.J. Law 613 , need only be cited in support of that established rule.
"Johnson is not operating in that territory. His route from New York to Atlantic City and thence to Washington in no way enters or interferes with the patronage of the territory in which the Williamstown-Philadelphia Bus Company operated or contemplated operating the time of the sale to Schultz.
"The notion that this purchase was made by complainant Schultz in the interest of complainant Public Service Interstate Transportation Company, who now operates a bus line from New York to Atlantic City, adds nothing to the operative force of the Johnson covenant. The business conveyed, and not other unrelated businesses which may be elsewhere owned by the purchaser, delineates the territory within which the covenant may be lawfully enforced.
"Restraint will be denied."
Mr. Patrick H. Harding, for the appellant.
Mr. Louis B. LeDuc, for the respondent.
The decree under review will be affirmed, for the reasons stated in the opinion of Vice-Chancellor Leaming.
The grounds stated by him for refusing a preliminary injunction go to the root of the case, and his decision to dismiss the bill as not showing a case for equitable relief was a necessary result of the reasoning contained in the opinion, which we adopt as adequate for an affirmance of the decree under review.
For affirmance — THE CHIEF-JUSTICE, TRENCHARD, PARKER, CAMPBELL, LLOYD, CASE, BODINE, DONGES, VAN BUSKIRK, KAYS, HETFIELD, DEAR, WELLS, KERNEY, JJ. 14.
For reversal — None.