National Gum & Mica Co. v. Braendly

Rumsey, J.:

The appellant is' a domestic corporation organized for the purpose of making mica pulp, flour paste, gums and like articles which are extensively used in the manufacture of wall paper and other business of that kind. It is alleged in.the complaint that on the 14th day of September, 1895, one Delery was the sole owner of a manufacturing business of that kind which was carried on in the city of New York. The' plant was worth but- little, the value ■of the business, consisting almost entirely in the secret processes for making the different articles in which Delery dealt. These secret processes, although owned by Delery, were known only to the defendant, who was at that time Delery’s manager. At the time'above mentioned the defendant approached the president of the plaintiff and endeavored to. induce him to biiy the business carried on by Delery. It was agreed between the plaintiff and the deféndant that, if the plaintiff would purchase the business from Delery and carry- it on, and would engage the defendant as its agent at a salary of twentydive dollars a week and give the defendant an interest in the profits of the business, the defendant would work as the. agent of the plaintiff; would disclose and show to the plaintiff the secret processes which the plaintiff was about to purchase from Delery would agree not to communicate said processes to anybody else, and would agree not to manufacture the articles from said processes, himself, should he thereafter leave the plaintiff’s employ, nor to. engage in the same line of business. Relying upon that agreement, the plaintiff purchased the business from Delery at the price of $2,100; it engaged the defendant at the agreed salary, which was paid to him so long as he saw fit to stay with the plaintiff, and proceeded to carry on the business in which Delery had been engaged and which it had bought from him. The defendant remained in the plaintiff’s employ a comparatively short time, but he refused to-disclose to the plaintiff, or to its agents, the secret processes for making the articles in which he dealt, and finally, without any reason, left the plaintiff and organized a corporation for the purpose of carrying on the same business and the manufacture of the same class of articles.

For a second cause of action it was alleged that, as a part of the same contract, the defendant agreed that any improvements which he made in the process of manufacture while he was in the employ of the plaintiff as its agent, and any secret processes he might discover, should belong to the plaintiff, and that he would not disclose them to any other person; but that he had disclosed them or was about to disclose them to the corporation which he had organized to compete with the plaintiff’s ‘business.

For a third cause of action it was alleged that it was agreed that the defendant would not disclose any secrets or secret process which he should learn from the plaintiff’s other. employees while he was so engaged as plaintiff’s agent. It is further alleged that the plaintiff had in its employ certain persons who discovered other secret processes and improvements in the processes used by’ the plaintiff in its business; that these were disclosed to the defendant to enable him to carry on the business, but that the defendant after leaving the plaintiff had disclosed or threatened to disclose these processes to the competitor of the plaintiff in whose employ he had entered.. Upon the trial the defendant was not called upon to give evidence, but the complaint was dismissed at the close of the plaintiff’s case. There was practically no dispute about the facts, and the only questions presented are whether the contract was a valid one, and one which can be enforced by the courts, and, if it was, whether the plaintiff had proved facts from which the court should have inferred that the defendant was violating his agreement not to disclose the secret processes or to make use of them.

The contract was established by the testimony of the general manager of the plaintiff, who stated in substance that the defendant, being in the employ .of Delery, came to the witness and asked him tb purchase Delery’s business, giving the reasons .why he desired him to do so. After some negotiation with Delery, the general manager told the defendant that they were about to close a bargain with Delery for the purchase of the business, but that they would •be practically powerless to carry on the business because none of them knew anything about it, unless the defendant would stay with them and show them tire business, and it waá agreed between 'the witness and the defendant that if plaintiff bought the business from Delery and employed him as manager and paid him twenty-five dollars a week as a salary, he would show them all the formulae and would not go out and start another business or disclose those secrets to anybody else. The defendant said also in the same conversation, by way of further inducement to the purchase of the property, that there were other things which he thought he could make and which he would make for the benefit of the business. This is a concise statement of the agreement in that behalf which was sworn to by the general manager of the plaintiff. It is not denied that after that agreement was made and in reliance upon it, the plaintiff bought the business of Delery, entered upon it, hired the defendant as its agent at a salary of twenty-five dollars a week, which was regularly paid to him so long as he saw fit to stay in the plaintiff’s employ.

It is objected by the defendant that there was no consideration for his entering into this contract, because there was no agreement on the part of the plaintiff to employ him for any particular time, or,, indeed, to employ him at all, but that the plaintiff was at liberty to discharge him whenever it saw fit. To this objection there are two sufficient answers, each one of which is based upon an elementary rule of the law of contracts. In the first place it is conceded by the evidence that the plaintiff was induced to enter into this bargain by the promise of the defendant to do the things which are alleged in the complaint. The purchase from Delery by the plaintiff at the request of the defendant was of itself a sufficient consideration from the plaintiff to make this a binding contract. It hardly needs the citation of authority to establish the proposition that the consideration of a contract may be furnished, not only by a benefit moving to the promisor, but by the fact that the promisee will be injured if the promisor does not keep his promise. (Rector, etc., v. Teed, 120 N. Y. 586.) It is quite clear that the investment of the plaintiff’s money in this business at the request of the defendant, which would prove practically worthless unless the defendant kept the promise which he made, was, in a legal sense, an injury to the plaintiff.

In the second, place it appears without dispute that, although the plaintiff did not agree to keep the defendant in its employ for any particular time, yet it did employ him and pay him the agreed salary and kept him there until he saw fit to leave, and the performance of the condition supplied the lack of a previous obligation, if there was one. The thing which the defendant expected to get, in addition to the plaintiff’s purchase, was employment. That, it is conceded, he did get, and kept just so long as he desired. Although there might have been no obligation on the plaintiff to keep him for any particular time, yet, co long as it did keep him and was willing to keep him, and paid the salary which it had agreed to pay him, it performed its part of the contract and he was bound to perform his. (Miller v. McKenzie, 95 N. Y. 575; Beckwith v. Brackett, 97 id. 52.)

But it is said that the plaintiff did not give to the defendant the interest in the profits which it had agreed. The answer to this is two-fold. In the first place it did not appear that any profits had been made, and in the second place it was quite clear from the testimony .that the defendant did not base his leaving the employ of the plaintiff and his threatened disclosure of these processes to the other corporation upon any such ground, so far as the evidence showed. The reasons which he had for leaving the plaintiff’s employ were not based upon any complaint that its contract with him had been violated.' So far as the contract, therefore, is concerned, it is quite clear that it was a valid contract; that the plaintiff had performed its part of it so far as the evidence shows that it was capable of performance, and. that the defendant had refused to perform.

It is said by the defendant, however, that there was no evidence that he had violated his contract. It is proved that the defendant had left the employ of the plaintiff; had organized another corporation for the purpose of competition with the plaintiff, and which, did compete with the plaintiff, and that he had refused to furnish to-the plaintiff the secret processes which were within his knowledge while he was in Delery’s employ, so that after he had left the . employment of the plaintiff, it was not able to carry on the business in competition with the new corporation with which he was engaged: All these facts were made to appear from the testimony, and there is no doubt that, upon the 'case as it was finally presented to the court at the trial, there had been on the part of Braendly a violation of his contract to the serious injury of the plaintiff in its business.

There.is no doubt that so much of the contract as provided that the defendant would disclose, to the plaintiff the secret processes used in the manufacture of its goods, and would not disclose those-secrets to anybody else, nor use them in the business of any other-person, was valid and could be enforced. (Jarvis v. Peck, 10. Paige, 118 ; Alcock v. Giberton, 5 Duer, 76.) .

It is said that the court cannot compel the disclosure of these-secret processes. In one sense that may be very true, but, as a step-towards compelling the defendant to perform that part of its agreement, it certainly has the power to restrain him from disclosing-those processes to anybody else, and tó punish him if' he violates an. injunction imposing that restraint. It may do this not only in performance of the contract by which he agreed not to disclose these-secrets, but also, in the absence' of that negative stipulation, by way of compelling him to perform the contract which he made to disclose those processes to the plaintiff. (Lumley v. Wagner, 1 DeG., M. & G. 604; Catt v. Tourle, L. R. [4 Ch. App.] 654; Peabody v. Norfolk, 98 Mass. 452.) As to the power of the court, therefore,, there can be no question. Neither is there, as we apprehend, any doubt that the plaintiff made a case entitling it to some portion, at-least, of the relief which it demanded. These trade secrets were-the most valuable portion of the business which the plaintiffs bought.. from Delery. They constituted practically all there was of it. While they were known to the defendant, they were owned by Delery, and the plaintiff was induced to buy them from Delery upon the promise of the defendant not only that he would disclose-those secrets to the plaintiff, but that he would not disclose them to-anybody else. Belying upon this agreement, the plaintiff was-induced to expend a substantial sum of money in the purchase of this business. When that business was purchased, the defendant ■assumed towards the plaintiff with regard to these processes a confidential relation. He had in his hands all -that was of -substantial value to the business which he had induced the plaintiff to buy and one essential part of the transaction was that these processes,, which constituted this large proportion of that value, should be disclosed to the plaintiff, and should not be disclosed to anybody else. The effect of this disclosure, as is quite apparent, and as appears from the testimony, would be to materially depreciate the value of the property which the defendant had induced the plaintiff to buy. Although the processes were not patented, yet as they were secret, and as their secrecy was protected by the contract between the defendant and the plaintiff, the plaintiff is in a situation to insist that the defendant, who agreed to protect the secrecy of these processes and thus preserve their value, should not be permitted to disclose them and thus deprive the plaintiff of the valuable property which he had induced it to purchase. (Baldwin v. Von Micheroux, 5 Misc. Rep. 386; 83 Hun, 43.) The power to restrain the violation of a secret thus protected by contract between the parties is well settled. That power and the extent to which the secret will be protected was examined and determined in this court in the case of Eastman Kodak Company v. Reichenbach (79 Hun, 138), where the cases were examined and the conclusion was reached that when the value of the property rested in the secret processes, which were. not patented, an employee who acquired a knowledge of the processes by virtue, of his employment would be restrained from a disclosure of them at the suit of his employer.

While it appears in this case that the processes were owned by Delery, and the defendant did not acquire them during the time he was in the employ of the plaintiff, yet, as they belonged to Delery, as between Delery and the defendant they were secret processes, and the defendant having, by his representations that they -should remain secret as to the plaintiff, induced it to purchase the business, the rules laid down in the case of the Eastman Kodak Company v. Reichenbach apply here with equal force. The same question was presented to the Appellate Division in the fourth department in the case- of Little v. Gallus (4 App. Div. 569), where it was held that the owner of a process for manufacturing an article which was, kept secret from all but confidential employees, might restrain them after they had left his employ from disclosing or using in a rival establishment their knowledge thereof acquired while occupying such confidential relations.. These two cases were, as we think, well decided,, and they are ample authority for giving to the plaintiff the relief which he demanded as to the processes which were known to . Braendly at the time of the purchase of the business from Delery:

With regard to the processes discovered by employees .of the plaintiff and disclosed- to Braendly, while he was in their employ, to enable him to prosecute his work, the case is still stronger, and it is brought precisely within the rules laid down in the two cases above cited: As to all these secret processes then, upon the case made by the plaintiff, it was clearly-entitled to a judgment restraining the defendant from violating his contract by their disclosure, and it was error to refuse such a judgment to it.

We have not considered whether the plaintiff is entitled to an injunction restraining the defendant from entering into the employ of this competitor corporation. This judgment must .be reversed without regard to that question. The question of the validity of that portion of the contract, and whether upon the whole the plaintiff is entitled to a specific performance of it if it is valid, is one which need not be decided until the defendant’s Version of the case shall have been made to appear, and then,, upon the whole case as presented to it, the court will be in a situation to decide whether that portion of the contract should be enforced or how far its enforcement is necessary to the complete protection of the business which this defendant induced the plaintiff to invest its money in.

The judgment should be reversed and a new trial ordered, costs to appellant to abide event.

Yan Brunt, P. J., and McLaughlin, J., conauiTed; Barrett and Ingraham, JJ., dissented.