Mohawk Maintenance Co. v. Kessler, 52 N.Y.2d 276 (1981)
When a business is sold, the seller has a permanent, implied duty to refrain from soliciting former customers to protect the transferred good will, regardless of any express covenants restricting competition.
Summary
Mohawk Maintenance Co. sued Kessler, the former owner, for soliciting its customers after selling the business. The court addressed whether the duty not to solicit former customers after the sale of a business’s good will is limited in duration. The court held that this duty is permanent and not subject to the “reasonableness” test applied to express covenants restricting competition. The court reasoned that the implied duty protects the transferred good will, a vested property right of indefinite duration, and prevents the seller from undermining the value of what was sold.
Facts
Kessler sold his controlling interest in Mohawk Maintenance Co., a building maintenance business, for $2,000,000. The sale agreement included an express covenant restricting Kessler from competing with Mohawk for five years. Kessler also entered an employment agreement with Mohawk, containing a separate anticompetition clause effective for 24 months after termination. Kessler voluntarily resigned from Mohawk in August 1978 and formed a competing business, Sure-Way Maintenance Services. Kessler allegedly solicited some of his former Mohawk customers.
Procedural History
Mohawk sued Kessler and Sure-Way, seeking damages and an injunction to prevent competition until August 1980 (based on the employment agreement’s anticompetition clause) and a permanent injunction against soliciting Kessler’s former Mohawk customers. Special Term granted partial summary judgment to Mohawk, enjoining Kessler from soliciting customers who were actively dealing with Mohawk in 1972 when the business was sold and finding the contractual limitations on his freedom to compete were intended to remain in effect for the 24-month period following the actual termination of his employment with Mohawk. The Appellate Division affirmed with a minor modification, clarifying that Kessler could accept unsolicited business from former customers. The Court of Appeals granted leave to appeal.
Issue(s)
Whether the duty of a seller of a business to refrain from soliciting the patronage of customers who were actively being served by the business at the time of sale, arising from the transfer of good will, is indefinite in duration or subject to limitations of reasonableness applicable to express covenants not to compete.
Holding
Yes, because the duty to refrain from soliciting former customers is permanent and not subject to the durational limitations applied to express covenants restricting competition. The law imposes this duty to prevent the seller from impairing the good will they purported to sell.
Court’s Reasoning
The court distinguished between the duty to refrain from soliciting former customers (implied upon the sale of good will) and the duty to refrain from competing (arising only from express agreements). While express covenants restricting competition must be reasonable in scope and duration, the implied duty not to solicit is permanent. The court reasoned that the purchaser of good will acquires the right to expect continued patronage from the business’s established customers. The seller is not allowed to derogate from their own grant, and “ ‘[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 good will, that the vendor does not solicit the custom which he has parted with; it would be a fraud on the contract to do so’ ”. The court found that the sale of Mohawk included a transfer of good will, evidenced by the purchase price and the express covenants against competition. The court emphasized that “the defendants remain under a positive and permanent duty to refrain from interfering with the rights acquired by plaintiff as a result of its acquisition of Mohawk’s ‘good will’”.