TREGO v. HUNT, H.L.

or otherwise, which tend to make it permanent, that constitutes the goodwill of a business. It is this which constitutes the difference between a business just started, which has no goodwill attached to it, and one which has acquired a goodwill. The former trader has to seek out his customers from among the community as best he can. The latter has a custom ready made. He knows what members of the community are purchasers of the articles in which he deals, and are not attached by custom to any other establishment. What obligations, then, does the sale of the goodwill of a business impose upon the vendor ? I do not think they would necessarily be the same under all circumstances. In the case of Cook v. Collinridge (14) Lord Chancellor Eldon had to determine what orders were to be given where a partnership had expired by effluxion of time, and where the goodwill had to be valued. He declared that there existed no obligation upon the partners to restrain them from carrying on the same trade, or any of them wanting to do so; that a claim to have an estimated value put upon any subject that could be considered as described by the term "goodwill" could not be supported upon the same grounds or principles as those in which a value was received from a partner buying the share of the partner going out of the business and retiring from the trade altogether. He thought that all that could be valued was the chance of the customers adhering to the old establishment, notwithstanding that the previous partners, or any of them, carried on a similar business elsewhere. In Johnson v. Helleley (11) a bill was filed by the surviving partner to wind up the business of the partnership. The usual decree was made. The chief clerk certified that it was most beneficial that the business should be sold as a going concern. The Master of the Rolls ordered it to be stated in the advertisement and particulars that the surviving partner would be at liberty to continue carrying on the business of a wine merchant in the same

(14) Cited in Collyer on Partnership (2nd ed.), p. 209.

In

town and place. This judgment was affirmed by the Lords Justices. In Hall v. Barrows (13) Lord Chancellor Westbury said: "I think the direction to value the goodwill should be accompanied by a declaration defining what is meant by it, at least negatively-that is to say, that a declaration that the goodwill is not to be valued upon the principle that the surviving partner, if he were not the purchaser, will be restrained from setting up the same description of business." cases of this description, where a partnership has been dissolved by effluxion of time or death, the goodwill is regarded as a part of the assets, and subject therefore to realisation on winding up the partnership; but it would obviously be absurd that, because a partnership becomes thus dissolved, those who formerly constituted the firm, or the survivors thereof, where the dissolution has been due to death, should thereafter be restrained from carrying on what trade they pleased. Whatever restriction the sale of the goodwill may impose, it is clear that in this class of cases it could not extend to prevent the former partners carrying on a similar trade to that in which they were previously engaged. It is noteworthy that in Johnson v. Helleley (11) it was thought necessary to warn intending purchasers that, though the goodwill was being sold, one of the persons who had previously carried on the business might continue to trade in the same town; and Lord Westbury thought it necessary to give the same warning to the person who was to value the goodwill in Hall v. Barrows (13). These circumstances appear to me to afford an indication that the Courts recognised that their view of what was meant by "goodwill" and the effect of a sale of it differed from the popular conception. Where the goodwill of a business is not sold under circumstances such as I have been discussing, but the sale is the voluntary act of the vendors, I am by no means satisfied that a different effect might not have been given to the sale and the obligations which it imposed. might have been held that the vendor was not entitled to derogate from his grant by seeking in any manner to withdraw from

It

TREGO v. HUNT, H.L.

the purchaser the customers of the old business, as he would do by setting up a business in such a place or under such circumstances that it would immediately compete for the old customers. It is now, however, too late to make any such distinction. I think it must be treated as settled that whenever the goodwill of a business is sold the vendor does not, by reason only of that sale, come under a restriction not to carry on a competing business. This is really the strong point in the position of those who maintain that Labouchere v. Dawson (1) was wrongly decided. Lord Justice Cotton says: "It is admitted that a person who has sold the goodwill of his business may set up a similar business next door, and say that he is the person who carried on the old business. Yet such proceedings manifestly tend to prevent the old customers from going to the old premises. I cannot see where to draw the line. If he may, by his acts, invite the old customers to deal with him and not with the purchaser, why may he not apply to them and ask them to do so?" I quite feel the force of this argument; but it does not strike me as conclusive. It is often impossible to draw the line and yet to be perfectly certain that particular acts are on one side of it or the other. It does not seem to me to follow that because a man may, by his acts, invite all men to deal with him, and so, amongst the rest of mankind, invite the former customers of the firm, he may use the knowledge which he has acquired of what persons were customers of the old firm, in order, by an appeal to them, to seek to weaken their habit of dealing where they have dealt before, or whatever else binds them to the old business, and so to secure their custom for himself. This seems to me to be a direct and intentional dealing with the goodwill and an endeavour to destroy it. If a person who has previously been partner in a firm sets up in business on his own account and appeals generally for custom, he only does that which any member of the public may do, and which those carrying on the same trade are already doing. It is true that those who were former customers of the firm to which he belonged, may, of their

own accord, transfer their custom to him; but this incidental advantage is unavoidable, and does not result from any act of his. He only conducts his business in precisely the same way as he would if he had never been a member of the firm to which he previously belonged. But when he specifically and directly appeals to those who were customers of the previous firm, he seeks to take advantage of the connection previously formed by his old firm, and of the knowledge of that connection which he has previously acquired, to take that which constitutes the goodwill away from the persons to whom it has been sold, and to restore it to himself. It is said, indeed, that he may not represent himself as a successor of the old firm, or as carrying on a continuation of their business; but this, in many cases, appears to me of little importance, and of small practical advantage, if canvassing the customers of the old firm were allowed without restraint. I do not think that in cases where an injunction was granted in the terms employed in Labouchere v. Dawson (1) there would be any real difficulty in drawing the line and determining whether there had been a breach of it or not. In several cases such injunctions were granted, and there is nothing to shew that any practical difficulty arose in enforcing them. It is not material to consider whether, on the sale of a goodwill, the obligation on the part of the vendor to refrain from canvassing the customers is to be regarded as based on the principle that he is not entitled to depreciate that which he has sold, or as arising from an implied contract to abstain from any act intended to deprive the purchaser of that which has been sold to him, and to restore it to the vendor. I am satisfied that the obligation exists, and ought to be enforced by a Court of equity. I have, so far, dealt with the case as if the goodwill had been sold; but I think the rights and obligations must be precisely the same, for present purposes, when on the creation of a partnership it has been agreed that the goodwill shall belong exclusively to one of the partners.

For these reasons, I think the judgment must be reversed, and that an injunction

TREGO v. HUNT, H.L. should be granted in the form adopted in Labouchere v. Dawson (1), with the modification rendered necessary by the circumstance that here the partnership has not yet expired.

Under the very peculiar circumstances I think that no costs should be given here or in the Court of Appeal, but that the respondent should pay the costs of the

action.

LORD ASHBOURNE concurred.

LORD MACNAGHTEN.-The question for the House to determine is this: Is a person who has sold the goodwill of his business, or one in the position of the respondent, who has been taken into partnership upon the terms that, on the expiration of the partnership, the goodwill shall belong solely to his partner, at liberty to solicit the old customers of the business to give their custom in preference to him? In 1872, Lord Romilly, the then Master of the Rolls, decided the question in the negative in Labouchere v. Dawson (1). In 1884 the question was determined the other way by the Court of Appeal in Pearson v. Pearson (10); and Labouchere v. Dawson (1) was overruled by Lord Justice Baggallay and Lord Justice Cotton, differing from Lord Justice Lindley, who thought Lord Romilly's decision right. In Labouchere v. Dawson (1) the question arose out of a sale of goodwill. In the present case there is a subsisting partnership between the appellants and the respondent in the business of varnish manufacturers. One of the terms of the partnership is, that the goodwill"shall be and remain the sole property" of the appellant Anna Trego. The partnership will expire on the 1st of January, 1896. The business is extremely lucrative: the connection very large. The respondent is, or was when this action was commenced, employing one of the clerks in copying out the names and addresses of the customers of the firm, with the avowed intention of soliciting their custom as soon as the partnership expires.

The object of the action was to obtain an injunction to restrain this proceeding

It is not

on the part of the respondent. necessary to consider whether the action at the outset was or was not open to objection on technical or other grounds. For this much, at least, is to be said in favour of the respondent, that he met the case fairly and frankly from the very first, without any attempt to embarrass the plaintiff or to conceal his own object. His case was- "The law allows it." There was, indeed, or there seemed to be at the last moment, if I am not doing injustice to the respondent, an attempt on his part to recede from the position which up to that time he had maintained, and to suggest difficulties in the way of any judgment in favour of the appellants. But I am quite sure that your Lordships will not for a moment listen to such a suggestion after the case has been fought out in all the Courts on the real issue between the parties.

After the observations of my noble and learned friend on the woolsack (Lord Herschell), I do not think it is necessary to deal with the question at any length. The arguments on the one side and on the other are summed up in Labouchere v. Dawson (1) and Pearson v. Pearson (10), and little remains but to choose between the conflicting views of very eminent lawyers. Nor do I think it necessary to do more than allude to the case in which the late Master of the Rolls (Sir G. Jessel) held that a person who had sold the goodwill of his business could not even deal with his former customers. There I think the Master of the Rolls went too far. The decision trenched on the rights of the public. On the other hand, the Master of the Rolls was, I think, clearly right in refusing to extend the principle of Labouchere v. Dawson (1) to a sale in bankruptcy. There is, I think, all the difference in the world between the case of a man who sells what belongs to himself and receives the consideration and a man whose property is sold without his consent by his trustee in bankruptcy, and who comes under no obligation, express or implied, to the purchaser from the

TREGO v. Hunt, H.L. (15) in 1817, "could not imagine that when the goodwill and trade of a retail shop were sold the vendor might the next day set up a shop within a few doors and draw off all the customers. The goodwill of such a shop in good faith and honest understanding must mean all the benefit of the trade, and not merely a benefit of which the vendor might the next day deprive the vendee. The authorities, however, are strong to shew that the sale of a goodwill does not import restraint, and that a person selling the goodwill of a business for however large a consideration is not prevented setting up the trade."

I agree, in substance, with the ViceChancellor's observations. What "goodwill" means must depend on the character and nature of the business to which it is attached. Generally speaking, it means much more than what Lord Eldon took it to mean in the particular case before him in Cruttwell v. Lye (3), where he says, "The goodwill which has been the subject of sale is nothing more than the probability that the old customers will resort to the old place." Often it happens that the goodwill is the very sap and life of the business, without which the business would yield little or no fruit. It is the whole advantage, whatever it may be, of the reputation and connection of the firm, which may have been built up by years of honest work, or gained by lavish expenditure of money. I do not think that "a person not a lawyer," to use the Vice-Chancellor's phrase, would suppose that a man might sell the goodwill of his business and then set to work to withdraw from the purchaser the benefit of his purchase. However, authorities, which it is now too late to question, do undoubtedly shew that a man who has sold the goodwill of his business may do much to regain his former position, and yet keep on the windy side of the law. The common law has always been jealous of any interference with trade. It was a lighter matter to interfere with freedom of contract and avoid covenants under seal. And so, the common law being the final arbiter on these questions, too little at

(15) 2 Mad. 219.

tention perhaps was paid to what was fair and just between man and man. A person who has sold the goodwill of his business is under no obligation to retire altogether from the field. Trade he undoubtedly

may, and in the very same line of business. If he has not bound himself by special stipulation, and if there is no evidence of the understanding of the parties beyond that which is common to all cases, he is free to set up in business wherever he chooses. But, then, how far may he go? He may do everything that a stranger to the business, in ordinary course, would be in a position to do. He may set up where he will. He may push his wares as much as he pleases. He may thus interfere with the custom of his neighbour as a stranger and an outsider might do; but he must not, I think, avail himself of his special knowledge of the old customers to regain, without consideration, that which he has parted with for value. He must not make his approaches from the vantage. ground of his former position, moving under cover of a connection which is no longer his. He may not sell the custom and steal away the customers. That, at all events, is opposed to the common understanding of mankind and to the rudiments of commercial morality. Is it conceivable that the respondent would ever have been taken into partnership if he bad hinted at such a manœuvre while negotiations for a partnership were pending? It was said that you cannot draw the line; but I think the line may be drawn at this point. It is quite true that you cannot protect the purchaser completely. With Lord Justice Lindley, I am disposed to regret it. It is quite true that it would be better that the purchaser should protect himself by taking apt covenants from the person with whom he is dealing But this, I think, is rather a counsel of perfection than a reason for leaving the purchaser entirely at the mercy of the vendor.

The principle on which Labouchere v. Dawson (1) rests has been presented in various ways. A man may not derogate from his own grant; the vendor is not at liberty to destroy or depreciate the thing which he has sold; there is an implied covenant on the sale of goodwill that the

TREGO v. HUNT, H.L.

vendor does not solicit the custom which he has parted with: it would be a fraud on the contract to do so. These, as it seems to me, are only different turns and glimpses of a proposition which I take to be elementary. It is not right to profess and purport to sell that which you do not mean the purchaser to have; it is not honest to pocket the price, and then to recapture the subject of sale, to decoy it away or call it back before the purchaser has had time to attach it to himself and make it his very own.

I am of opinion that the appellants are entitled to judgment.

LORD DAVEY.-This appeal comes before your Lordships in a somewhat unsatisfactory form. The plaintiffs and the defendant are partners together for a term which will expire on the 1st of January, 1896. On the expiration of the partnership the goodwill of the trade or business will be the sole property of the plaintiff Anna Trego. The notice of motion asked that the defendant might be restrained from making any copy or extract from the books of the partnership for any purpose other than the business of the partnership. In my opinion, the relief asked was misconceived. As well under the general law as under the express provision of the articles of partnership, the defendant was entitled during the partnership to have access to the books and to make copies thereof or extracts therefrom. It is conceivable that, if the defendant proposed to use such extracts for purposes injurious or hostile to the interests of his firm, he might be restrained from so doing. But in such case it would not be the obtaining of the information, but the use the partner proposed to make of it when obtained, which would be restrained. In my opinion, the plaintiffs have no right to prevent the defendant from making any extracts from the books he thinks fit. Indeed, in the present case, as was observed at the Bar, the list of the creditors of the firm would be of service to the defendant if the law as laid down in Labouchere v. Dawson (1) be maintained in order to enable him to know whom he may not solicit, and to keep himself within the law. It was, however, admitted that the

defendant intends after the expiration of the partnership to set up a business on his own account similar to that carried on by his firm, and he claims the right, if he thinks fit to do so, to solicit custom for his own business from the customers of his present firm. The question which has been argued before your Lordships is whether he has any such right. Upon this question there has been a remarkable difference of judicial opinion.

The defendant has contracted for valuable consideration that, at the expiration of the partnership, the goodwill shall belong to the plaintiff Anna Trego. To the lay mind it would undoubtedly seem a remarkable state of the law that a person who has entered into such a contract should be at liberty to go to the customers of the old firm and solicit them not to deal with the plaintiff, but to deal with him, and thus endeavour to secure for himself the business connection which he has contracted shall belong to the plaintiff. But it would probably seem to the lay mind equally remarkable that a man who has sold a business and goodwill to another should be at liberty to set up a similar business on his own account in the same street, next door, or opposite to the premises on which the business he has sold was and is carried on; nay, more, that he may advertise himself as having been a partner in or the founder or manager of the business which he has sold, provided he does not represent that the business which he is carrying on is the same or identical business with that which he has sold. Yet it is well settled that he may do all this. It has been established by a series of cases that in the sale of a goodwill or business no covenant is implied that the vendor will not start a new business in opposition to the purchaser of the old business. It is enough to refer to Cruttwell v. Lye (3), Churton v. Douglas (6), Johnson v. Helleley (11), and the dicta in Hookham v. Pottage (16). An express covenant not to carry on business would be incapable of being enforced as a restraint of trade, if it was larger than the necessity of the case, having regard to the particular character of the business, demanded, or, perhaps

(16) Law Rep. 8 Ch. 91.