Plaintiff company, by written agreement, purchased the dairy business, equipment and good will of N.H. Winans Sons, a copartnership, consisting of Claude L. Winans, Harry H. Winans and Theron R. Winans, paying therefor the sum of $150,000. Defendants Case G. Winans and Howard R. Winans were employees and not members of the partnership but signed the agreement of the sellers to remain out of a competing business for a period of 10 years. For a time Case G. Winans and Howard R. Winans were in the employ of plaintiff but resigned and organized a corporation styled Winans Dairy Company, to carry on a competing business. The bill herein was filed to enjoin such competition as in violation of the mentioned agreement, signed by Case G. Winans and Howard R. Winans.
The individual defendants admit: "That they have organized a corporation for the purpose of engaging in business for the purpose of selling dairy *Page 82 products in the city of Lansing, * * * and that such sales will probably be in competition with the plaintiff, but deny that such business is contrary to the express terms of said contract, and conditions of said contract, said alleged contract being illegal and void" and contrary to 3 Comp. Laws 1929, §§ 16667, 16672.
The confession and avoidance present the question of whether the invoked avoidance is good in point of law.
The circuit judge held that Case G. and Howard R. Winans were not bound by their gratuitous signing of the contract of sale and covenant for they sold nothing and received nothing. The case is here by the appeal of plaintiff. The facts are conceded.
Case G. Winans and Howard R. Winans were employees of the sellers, had no financial interest in the business but agreed, in writing, to refrain, directly or indirectly, from engaging in a competing business during the period of 10 years. They entered plaintiff's employ and after a time quit and organized defendant corporation as a competitor, directly contrary to their covenant. They claim immunity by virtue of statutory declaration of public policy. Public policy and private pecuniary desire, in this instance, seem to coincide.
The covenant was not ancillary to any contract of sale between plaintiff and Case G. and Howard R. Winans for they sold nothing to plaintiffs and received no consideration for their covenant to refrain from competition.
"Restraining contract must be ancillary. The covenant or contract by which the restraint is imposed must be incidental to and in support of another contract or a sale by which the covenantee acquires some interest in the business needing protection. *Page 83 Contracts which have for their object merely the removal of a rival and competitor in a business are unlawful under all circumstances." 13 C. J. p. 477.
"Where, without a sale of good will, or other legitimate dealing therewith, one party agrees with the other to abstain from business, such contract is invalid without regard to its reasonableness as to either space or time." 2 Page on Contracts (2d Ed.), § 803.
3 Comp. Laws 1929, § 16667, provides:
"All agreements and contracts by which any person, copartnership or corporation promises or agrees not to engage in any avocation, employment, pursuit, trade, profession or business, whether reasonable or unreasonable, partial or general, limited or unlimited, are hereby declared to be against public policy and illegal and void."
Plaintiff contends that 3 Comp. Laws 1929, § 16672, excepts the instant covenant. The invoked part of that statute reads:
"This act shall not apply to any contract mentioned in this act, nor in restraint of trade where the only object of restraint imposed by the contract is to protect the vendee, or transferee, of a trade pursuit, avocation, profession or business, or the good will thereof, sold and transferred for a valuable consideration in good faith, and without any intent to create, build up, establish or maintain a monopoly."
This section provides an exception to the inhibition of the previous section but clearly applies only to an ancillary covenant by a transferor.
It is accepted law in this State that a contract may be enforced by a third person for whose benefit *Page 84 it is made. But where in this case is the third party? The contract was not made for the benefit of defendants, and the third-party rule has no applicability to the case at bar. Plaintiff made the contract for its own benefit and not for that of defendants and so did the sellers, N.H. Winans and Sons. If it be held that defendants became parties to the contract for the benefit of the purchaser and the seller then they were not third parties at all. The consideration between the purchaser and the sellers did not in any part reach them. The strongest statement, available to plaintiff, is the supposition that it would not have purchased the business without defendants' agreement not to engage in a competing business. In such case the covenant would not be ancillary to the purchase or sale but an agreement in restraint of trade and intended by plaintiff to prevent competitive business and, therefore, clearly within the inhibition of the statute. Suppose the exaction had included all others within the territory likely to engage in a competing business? Would it be held valid?
I find no authority supporting plaintiff's claim of right to be granted relief. An extensive search has failed to find a like or similar case.
Thompson v. Andrus, 73 Mich. 551, might, at first glance, appear to be somewhat in point but, upon examination, will be found not to be so. There a father sold his hardware store and agreed not to compete with the purchaser, and his son, who was in his employ, also signed the agreement. The seller turned some of the money over to his wife and she opened a competing hardware store and employed the son. The court found the new store in the name of the wife only a subterfuge, employed by the seller in perpetrating a fraud and enjoined its operation. *Page 85
The case at bar carries no intimation of any such subterfuge, for it is not claimed that plaintiff's vendors are at all interested in the competing business.
The business and good will purchased by plaintiff belonged to Claude L. Winans, Harry H. Winans and Theron R. Winans, as copartners, and they sold the same to plaintiff and, by permissible covenant, protected the value and use thereof from their competition. Case G. Winans and Howard R. Winans were not vendors of the business, nor of the good will thereof and the purpose of obtaining their agreement was manifestly to bar them from becoming competitors. The mentioned statute forbids enforcement of the covenant of Case G. and Howard R. Winans. See Lyzen v. Lyzen, 221 Mich. 302.
Decree should be affirmed, with costs to defendants.
EDWARD M. SHARPE, J., concurred with WIEST, J.