Botha and Another v Carapax Shadeports (Pty) Ltd

• Jurisdiction: South Africa
• Citation: 1992 (1) SA 202 (A)

Botha and Another v Carapax Shadeports (Pty) Ltd
1992 (1) SA 202 (A)

1992 (1) SA p202

Citation	1992 (1) SA 202 (A)
Court	Appellate Division
Judge	Botha JA, Smalberger JA, Milne JA, F H Grosskopf JA and Kriegler AJA
Heard	August 15, 1991
Judgment	September 27, 1991

Flynote : Sleutelwoorde B

Cession — Of rights — Contractual right to enforce restraint of trade agreement forming part of goodwill of business sold and thus intended to C pass to purchaser — Cession of right comprising sale of the goodwill, including the contractual right, and delivery by the seller and acceptance by the purchaser of the physical possession of the business pursuant to the sale — Incorporeal assets comprising the goodwill incidental to the business itself and transferred together, in the intendment of the law.

D Sale — Of a business — The contract — The merx — Close corporation selling its business, including the goodwill, to private company — Employees of close corporation continuing their employment with private company — Close corporation warranting in deed of sale that its contracts with its employees of full force and effect according to their E terms — Such contracts including restraint of trade clauses in favour of close corporation — Restraints imposed on employees agreed upon, for benefit of the business of the close corporation - Such restraints incidental to the business and forming part of its goodwill — Contractual right to enforce restraints, which vested in the close F corporation, sold to private company as part of the goodwill — Cession of the right effected together with delivery of the business by the close corporation to the private company, pursuant to the sale — Benefit of restraints passing from close corporation to private company.

Trade and trade mark — Trade — Restraint of trade — Restraint of trade agreement entered into for the benefit of a business — In such a G case the benefit of it incidental to the business and part of its goodwill — As such, benefit will ordinarily pass to the purchaser of that business and its goodwill, as part of the goodwill, if no contrary intention appears and all other things are equal.

Headnote : Kopnota

H The two appellants had been employed, since August 1986 and June 1987 respectively, in the sales division of Carapax Shadeports CC (Carapax CC) which carried on business as a manufacturer and marketer of shadeports and hailnet steel structures. In May 1988 the appellants entered into identical written contracts of employment with Carapax CC in terms whereof they, inter alia, bound themselves to Carapax CC not to become involved in trading in competition with the business of Carapax I CC within a certain area for a period of one year after termination of their services. Thereafter, in terms of a deed of sale entered into on 21 September 1988, a certain company Alnet, acting as trustee for a company to be formed (the respondent), purchased from Carapax CC, with effect from 31 August 1988, its business as a going concern, together with the goodwill. The respondent was incorporated on 4 November 1988 and it duly ratified and confirmed the agreement of 21 September 1988, it being common cause that it had stepped into the shoes of Alnet as the J purchaser of the business and its goodwill. The two members of

1992 (1) SA p203

A Carapax CC, S and M, carried on with the business after 31 August 1988 and continued to do so after respondent's incorporation on 4 November 1988, being as from the latter date in control of the business as managers employed by the respondent. There was thus no interruption in the conduct of the business. As between Carapax CC and the respondent it was contemplated that the employees of the former would continue their employment with the latter, Carapax CC warranting in an annexure to the deed of sale of 21 September 1988 that its contracts with its employees, B copies whereof had been handed to the purchaser, were of full force and effect according to their terms. The appellants, for their part, continued working as salesmen in the business during the take-over. Upon being told by S and M, however, that, when once the business was transferred to the new owner, their terms and conditions of employment would be altered, they became dissatisfied and decided to leave. During a discussion in November 1988 between the appellants and S and M the C second appellant was told to leave immediately. He agreed to do so, but insisted that he would take all his customer quotations with him. A dispute ensued, which was resolved by a written agreement drawn up and signed by the parties which recorded, inter alia, that the second appellant agreed 'that existing quoted clients cannot be approached by himself for a period ending 30/6/89'. The second appellant then left the business. The first appellant agreed to stay on until February 1989 when, after entering into a similarly worded agreement with S and M, he D too terminated his association with the business. The appellants thereupon joined forces and set up their own business, within the area of the restraint, in competition with the business of the respondent. This caused the respondent to apply to a Provincial Division for orders enforcing against the appellants the restraint provisions contained in their contracts with Carapax CC. The appellants opposed the application.

The Court a quo granted the respondent the relief it sought, holding that the 'deed of sale by virtue of which the business and the goodwill E of the close corporation were sold clearly ceded to the purchaser . . . the rights the close corporation had in the restraint agreements and the restraint agreements were not personal to the close corporation'.

On appeal the main issue was whether the benefit of the restraints had been transmitted from Carapax CC to the respondent. Counsel for the appellants challenged the correctness of the Court a quo's reasoning on F a threefold basis, submitting (1) that the benefit of the restraints could not have been transferred from Carapax CC to the respondent as a matter of law, since there was no legal principle to such effect; (2) that, as a matter of fact, there was no cession to the respondent of the right of Carapax CC to enforce the restraints, since the evidence did not disclose such a cession; and (3) that, in any event, even if the evidence did reveal a cession, it was invalid and ineffective as against the appellants, since their consent to it was necessary and such consent G was not proved in evidence.

Held, after reviewing the South African and English authorities, that these reflected the view that the benefit of an agreement in restraint of trade, which existed for the advantage of a business, passed to the purchaser of that business and its goodwill, as part of the goodwill.

Held, further, that that view, as a general proposition, had everything to commend itself, being in consonance with the common understanding of H what goodwill comprised and with the exigencies of modern commerce and also being in harmony with the principles of South African law, and that it should accordingly be approved.

Held, further, that what the sale of the goodwill of a business comprised in any particular case was essentially a question of fact, not law, there being no fixed or invariable rule by which the benefit of an agreement in restraint of trade passed to the purchaser of the goodwill of a business: where such an agreement in terms conferred a purely I personal benefit on the owner of the business only, the benefit of it did not enure to the advantage of the business, not being part of the goodwill and therefore not passing to the purchaser; where the agreement was entered into for the benefit of the business, the benefit was incidental to the business and part of its goodwill and as such would ordinarily pass to the purchaser of the goodwill, if no contrary intention of the parties appeared and all other things were equal; ultimately, one was dealing here with an inference of fact as to the J intention of the parties.

1992 (1) SA p204

A Held, further, that 'the benefit' of an agreement in restraint of trade pertaining to a business was, in the eyes of the law, the contractual right to enforce the restraint, which vested in the owner of the business, he being the creditor in respect of it: when such owner sold the goodwill of the business the merx embraced that contractual right, so that one then had to do with the sale of a contractual right, or claim.

Held, further, that in South African law the transfer of a contractual B right, or claim, by the creditor to another person took place by means of a cession of the right: in casu this comprised the sale of the goodwill, including the contractual right, and the delivery by the seller and the acceptance by the purchaser of the physical possession of the business, pursuant to the sale, the incorporeal assets comprising the goodwill being incidental to the business itself and being transferred together, in the intendment of the law.

C Held, further, that in the context of a situation as the present one, and in accordance with modern trends of thought, nothing more was required by law to render the cession effective as between cedent and cessionary.

Held, further, applying these views to the facts of the present case, that the restraints imposed on the appellants by their contracts of employment were clearly agreed upon for the benefit of the business of Carapax CC, being incidental to that business and forming part of its goodwill.

D Held, further, that the contractual right to enforce the restraints, which vested in Carapax CC, was sold to the respondent as part of the goodwill, the cession of the right being effected together with the delivery of the business by Carapax CC to the respondent pursuant to the sale.

Held...