On appeal to the Appellate Division from a judgment in the Superior Court, Chancery Division, whose opinion is reported in 3 N.J. Super. 385. Certified by us on our own motion.
For affirmance -- Chief Justice Vanderbilt, and Justices Case, Heher, Oliphant, Wachenfeld, Burling and Ackerson. For reversal -- None. The opinion of the court was delivered by Case, J.
The primary question is whether a corporate lessor may lawfully burden a lessee with a covenant in restraint of trade when the covenant is effective against property not involved in the lease and is made for the benefit of another corporation with which the lessor has no privity and in which it has no interest.
Irving Investment Corporation, one of the plaintiffs, owned a property located at the southwest corner of Mulberry Street and Edison Place, known as 147 Mulberry Street, in the City of Newark. Defendants, David Gordon and Irving Gordon, were, and had been since October 31, 1947, owners of the property at the northwest corner, known as 145 Mulberry Street, and for sixteen years and more had, as partners, there engaged in business as electrical contractors and in selling electrical motors, tools and equipment. Plaintiff, Newark Hardware & Plumbing Supply Company, a corporation, rented a property on the opposite side of Mulberry Street, numbered 148, from David Meyers and wife and had there conducted, for many years, a business which included the sale of radios, heaters and stoves. The stock in both plaintiff corporations was closely held by David Meyers and the members of his family. The two corporations had no interest in each other. The sole point of contact, if it may be so-called, was that holders of shares in one were also holders of shares in the other.
On September 1, 1946, the defendants, uncertain of their tenure at 145 Mulberry Street, and with the purpose of transferring their business to the new location, entered into a five year lease, with option to purchase at the end of the term,
with Irving Investment Corporation for the premises at number 147. The lease contained these covenants:
"Thirtieth: It is the general intention of the parties hereto that the tenants are to have the right to use the demised premises for the business now conducted by them at No. 145 Mullberry Street, Newark, N.J. and are not to enter into competition with the business of the Newark Hardware & Plumbing Supply Co. at 148 Mullberry Street, Newark, N.J., and whereas the lessees are now dealing with a few items which are also carried by the said Newark Hardware & Plumbing Supply Co., and for the purpose of avoiding misunderstanding, it is agreed that lessees may sell the items set forth in Schedule 'A' annexed hereto."
"Thirty-First: Lessees covenant and agree not to engage in same or similar line of business as the said Newark Hardware and Plumbing Supply Co., except as hereinto set forth, within a radius of one-eighth of a mile from demised premises, nor place signs advertising such a business within said area, so long as Newark Hardware & Plumbing Supply Co. shall continue in said business at 148-50 Mulberry St., Newark, N.J., either directly or indirectly, as principals, agents, servants or otherwise."
However, the necessity for the contemplated change of location never arose. Defendants bought their old store premises and continued the business there. They sublet the newly demised premises for the same uses as theretofore, namely, the first floor as a saloon and the upper floors as lodgings.
Plaintiffs, the one as covenantee and the other as the person for whose benefit the restrictive covenants were imposed, filed their joint complaint in the Superior Court, Chancery Division, setting up the covenants, alleging that defendants, at their number 145, were selling and advertising articles of merchandise in violation thereof, and seeking an injunction and damages. Affidavits were submitted by both sides and on them and the bill defendants moved for summary judgment. The court, relying upon controverted evidence, found that the restrictive covenants were invalid and unenforceable with respect to any area or place outside the confines of the demised premises and granted summary judgment to the defendants. Plaintiffs appeal from that much of the judgment. The finding with respect to the validity of the covenants
against 147 Mulberry Street is not under appeal, and we do ...