Standard Register Co. v. Kerrigan

• Citation: 119 S.E.2d 533,238 S.C. 54
• Decision Date: 22 March 1961
• Docket Number: No. 17758,17758
• Court: United States State Supreme Court of South Carolina
• Parties: STANDARD REGISTER COMPANY, Appellant, v. D. C. KERRIGAN and Southern Systems & Forms, Respondents.

Page 533

119 S.E.2d 533

238 S.C. 54

STANDARD REGISTER COMPANY, Appellant, v. D. C. KERRIGAN and Southern Systems & Forms, Respondents.

No. 17758.

Supreme Court of South Carolina.

March 22, 1961.

Turner, Wells, Granzow & Spayd, Dayton, Ohio, Leatherwood, Walker, Todd & Mann, Greenville, for appellant.

Haynsworth, Perry, Bryant, Marion & Johnstone, Greenville, for respondents.

MOSS, Justice.

The Standard Register Company, the appellant herein, brought an equitable action in the Court below, seeking to restrain and enjoin a former employee, D. C. Kerrigan, the respondent herein, from violating a restrictive covenant contained in a contract of employment. The appellant sought a permanent injunction restraining the named respondent from competing, directly or indirectly, with it, in selling to eighteen certain accounts in the Greenville area of South Carolina, formerly assigned to the respondent while he was employed as a sales representative of business forms and equipment for the appellant. The appellant also asks for an injunction to enjoin and restrain the respondent, Southern Systems & Forms, Inc., from interfering with the contractual relationship existing between the appellant and Kerrigan. This appeal is from an order of the Trial Court refusing to grant such injunction.

The appellant is a corporation existing under the laws of the State of Ohio, and is engaged in the business of the manufacturing and sale of business forms, systems, accessories and devices. It appears that in year 1940 the appellant employed Kerrigan, who was then nineteen years of age, as a stenographer. Since the time he has been continuously in the employ of the appellant in one capacity or another, in various sections of the country, with the exception of approximately three and one-half years that he spent in the army, until he voluntarily terminated his employment with the appellant on May 1, 1959. At the time respondent terminated his employment, he was, and had been, a sales representative of the appellant in Greenville, South Carolina, since July 1955.

It appears that the appellant and the respondent did, on August 3, 1953, enter into a written agreement or employment contract, whereby the respondent was employed as a sales representative by the appellant, upon the terms and conditions set forth therein, which said contract provided, inter alia, that:

'(a) The sales representative shall be paid a remuneration as specified in the applicable provisions contained in Standard's Sales Operation Manual and as specified in Sales Department Memoranda furnished the sales representatives from time to time.

'(b) The sales representative will, from time to time, be assigned products of the Company to sell, and a territory or accounts within a territory; and, when so assigned, the sales representative agrees to confine his activities on behalf of the Company to said products and to said territory or accounts. * * *

'(c) * * * The sales representative further agrees, for a period of two years after leaving the employment of the Company, that he will not engage, directly or indirectly, in competition with said Company in selling to the accounts or in the territory in which he has been performing his duties as such sales representative. * * *

'(d) This agreement shall be considered an Ohio contract and construed according to the laws of Ohio.'

Immediately upon the termination of Kerrigan's employment with the appellant, he incorporated Southern Systems & Forms, Inc. with its principal office in Greenville, South Carolina, of which he is president and general manager. Kerrigan and his wife own one-half of the stock of the corporation and are members of its board of directors. The other stockholders and members of the board are J. C. and Jack Keys. It is admitted that this corporation is engaged in the business of manufacturing and selling business forms and devices, comparable to those sold by the appellant.

It was stipulated by the parties to this action that Kerrigan had contacted all but one of the eighteen accounts set forth in the complaint, for the purpose of making or promoting sales to such accounts by Southern Systems & Forms, Inc. It was further stipulated that some sales were made by Kerrigan for the benefit of his new company, to some of these accounts, subsequent to the termination of his employment with the appellant. It is admitted that after Kerrigan terminated his employment with the appellant that the eighteen accounts mentioned in the complaint were advised that he was going into business for himself.

The question for determination on this appeal is whether the Trial Judge committed error in refusing to enforce, by injunction, the restrictive covenant contained in the contract of employment made by Kerrigan with the appellant.

According to the early common law of England, an agreement in restraint of a man's right to exercise his trade or calling was void as against public policy. In those days, a man could not lawfully exercise a trade to which he had not been fully apprenticed, and one so admitted was obliged by statute to follow and exercise his trade. Hence, to enforce such an agreement was to deny such person the right to earn his living and to require him to violate an express provision of the law. While the law in this respect has undergone changes, as it exists today, numerous limitations have been engrated on the early rule. Thus, such an agreement or covenant may be enforceable where it is ancillary to a lawful contract and necessary to the protection of the convenantee. As stated by some authorities, in order that the agreement may be enforced, it must appear that insofar as it affects the right of the parties thereto, the contract is reasonable, and that it is consistent with the interests of the public. 36 Am.Jur., Monopolies, Section 50, page 530.

In the case of Welcome Wagon, Inc. v. Morris, 4 Cir. 224 F.2d 693, 698, it was said:

'Such contracts were regarded with high disfavor under the old common law. And they are so regarded, in general, by modern courts, though apparently with some amelioration of the ancient disfavor. Modern courts have usually, in passing on these contracts, employed three criteria: (1) Is the restraint, from the standpoint of the employer, reasonable in the sense that it is no greater than is necessary to protect the employer in some legitimate business interest? (2) From the standpoint of the employee, is the restraint reasonable in the sense that it is not unduly harsh and oppressive in curtailing his legitimate efforts to earn a livelihood? (3) Is the restraint reasonable from the standpoint of a sound public policy?'

The essential question here concerns the enforceability of a contract admittedly in partial restraint of trade. The employer and the employee have stipulated that this question is to be determined by the law of Ohio. Our inquiry must be directed to the decisions of the court of that State, dealing with the subject of contracts in partial restraint of trade or competition. The following Ohio cases have been called to our attention. They are: Briggs v. Butler, 140 Ohio St. 499 45 N.E.2d 757; Toulmin v. Becker, Ohio App., 124 N.E.2d 778; Conforming Matrix Corp. v. Fabor, 104 Ohio App. 8, 146 N.E.2d 447; Arthur Murray Dance Studios of Cleveland, Inc. v. Witter, Ohio Com.Pl., 105 N.E.2d 685; Red Star Yeast & Products Co. v. Hague, 25 Ohio App. 100, 157 N.E. 393; Federal Sanitation Co. v. Frankel, 34 Ohio App. 331, 171 N.E. 339; Harry Livingstone, Inc. v. Stern, 69 Ohio App. 105, 43 N.E.2d 302.

In the case of Briggs v. Butler, supra, it appeared that one Charlotte Butler entered into a contract with Thomas W. Briggs, who operated a Welcome Wagon Service, and in the contract of employment she agreed that for a period of five years, after the termination of her employment she would not engage in the same kind or similar business in competition with Briggs in Toledo, Ohio, or in any other place where Briggs was rendering his service. The employee resigned from her position with the Welcome Wagon Service and entered the employment of Toledo New Comers Service Company, and there performed the same work as she had previously performed for Briggs. The action was one to restrain her from engaging in or conducting a similar business for her new employer in the restricted area referred to in her contract with Briggs. The answer of the employee challenged the validity of the restrictive covenant in her contract with Briggs and resisted its enforcement. The lower Court of Ohio had refused to enforce the restrictive covenant and the Supreme Court of Ohio, in reversing such holding, granted an injunction on the ground that the restrictive covenant of the employment contract did not impose a restraint beyond that reasonably required for the protection of Briggs. It was further held that the provision in the contract of Butler with Briggs was not unreasonably restrictive upon her rights and did not contravene public policy. We quote from the opinion of the Court:

'It is stated in 17 Corpus Juris Secundum, Contracts, p. 636, § 254, that 'it is the rule in the absence of contrary statute that agreements by which an employee as part of his contract of employment undertakes not to enter into a competing business on leaving his employer's service are sustained if they are no wider than reasonably necessary for the protection of the employer's business, and do not impose undue hardship on the employee, due regard being had to the interests of the public.'

'The determination of the necessity for such restriction is dependent upon the nature and extent of the business and the nature and extent of the service of the employee in connection therewith and other pertinent conditions.

'Many cases are cited in the text which involve the application of this rule wherein it is quite generally held that contracts whereby salesmen, agents, canvassers and other employees who come into...