Allen v. Rose Park Pharmacy

• Decision Date: 19 November 1951
• Docket Number: No. 7672,7672
• Citation: 120 Utah 608,237 P.2d 823
• Parties: ALLEN, v. ROSE PARK PHARMACY.
• Court: Utah Supreme Court

Page 823

237 P.2d 823

120 Utah 608

ALLEN, v. ROSE PARK PHARMACY.

No. 7672.

Supreme Court of Utah.

Nov. 19, 1951.

Harry D. Pugsley, Salt Lake City, for appellant.

Robert S. Richards, J. Richard Bell and Jacque Bell, all of Salt Lake City, for respondent.

WOLFE, Chief Justice.

Osbourne Allen was discharged as manager and pharmacist at the defendant's drug store. This is an action for a declaratory judgment to determine the validity of the following negative covenant in the contract of employment under which Allen was employed. 'Osbourne agrees that in the event of termination of this contract for any reason, * * * he shall not directly or indirectly compete, as an employee or principal in the operation of a drug store or pharmacy within a radius of two miles of this drug store for a period of five years thereafter.' The trial court found that the five year period of non-competition was reasonable as to time, but the two-mile radius was more than necessary to protect the defendant's business and was therefore an unlawful restraint of trade. The restrictive covenant was held to be unenforceable for lack of consideration, lack of mutuality of obligation and because it was an unreasonable restriction as to area.

In the fall of 1949 plaintiff, a registered pharmacist, entered into an agreement whereby he was to manage a drug store, being built by the defendant at 4th North and Oakley Streets (between 11th and 12th West) in Salt Lake City, Utah. He was to be paid a weekly salary, and also a bonus of 10% of the net profits. The bonus was to be credited to his purchase of stock in the corporation to the extent of 25% ownership. This provision was written into the contract at plaintiff's insistence because as he testified he knew the people in that neighborhood and wanted to make this job his lifetime work. Plaintiff worked for the defendant in his off-hours for four or five weeks before he was put on the payroll, November 18, 1949. He purchased all the equipment, supplies and merchandise for the new store which opened for business December 20th. The contract of employment was executed between the parties on approximately December 28th, 1949. Plaintiff and his wife worked long hours at the store and the business soon became profitable. A daily average of 20 prescriptions were filled. Plaintiff and his wife resided close to the store in an area known as Rose Park. They had many friends and neighbors who patronized the store because of this close friendship. On the 14th day of November, 1950, defendant gave plaintiff 30 days notice of intention to terminate the employment. It appears that a son of one of the directors of the corporation was given the job as manager.

Plaintiff contends that the negative covenant was not supported by a proper consideration nor was there mutuality of obligation. He argues that if he worked for only one week, then under this contract defendant could terminate the employment, and enforce the plaintiff's promise not to compete for five years within a two-mile radius; that unless the contract provides employment for a definite period of time, there is a lack of mutuality of obligation necessary to support the negative covenant. In Schneller v. Hayes, 176 Wash. 115, 28 P.2d 273, an optician's employee covenanted never to enter the same business in the same city upon termination of employment. The court reasoned that because the employee was already working for his employer when the covenant was executed and because the contract of employment was terminable at will, there was no mutuality of consideration. The following passage was quoted from Meurer Steel Barrel Co. v. Martin, 3 Cir., 1 F.2d 687, 688: 'If for any reason the promise of one party is not binding upon him, it is not a sufficient consideration for the promise of the other and the contract is void for want of consideration.'

A collection of cases and quotations taken therefrom, which express this view may be found in Ridley v. Krout, 63 Wyo. 252, 267, 180 P.2d 124, 128. In the Meurer Steel Barrel Co. case the court explained the doctrine of mutuality as follows: 'As an unilateral contract is not founded on mutual promises, the doctrine of mutuality of obligation is inapplicable to such a contract. It is applicable, however, to a bilateral contract containing mutual executory promises because there both parties are bound by reciprocal obligations and the promise of one is the consideration for the promise of the other. If for any reason the promise of one party is not binding upon him, it is not a sufficient consideration for the promise of the other and the contract is void for want of consideration (citing cases). The terms 'consideration' and 'mutuality of obligation' are sometimes confused. 'Consideration is essential; mutuality of obligation is not unless the want of mutuality would leave one party without a valid or available consideration for his promise. The doctrine of mutuality of obligation appears therefore to be merely one aspect of the rule that mutual promises constitute considerations for each other. Where there is no other consideration for a contract, mutual promises must be binding on both parties. But where there is any other consideration for the contract, mutuality of obligation is not essential.' Moreover, a contract does not lack mutuality merely because its terms are harsh or its obligations unequal, or because every obligation of one party is not met by an equivalent counter obligation of the other party.' (Emphasis added.)

In Genola Town v. Santaquin City 96 Utah 88, 80 P.2d 930, 934, this court said 'The development of the doctrine of mutuality as to remedy reveals that it was founded on the idea that one party should not have from equity what the other party could not have obtained had it applied. The doctrine that at the time of making of the contract there must be mutual fixed obligations is not tenable.'

The argument that there is no mutuality of obligation in the instant case simply conveys the objection that the defendant's promise of employment, being terminable at will, is not sufficient consideration to sustain the negative covenant. Professor Williston states that 'no briefer definition of sufficient consideration in a bilateral contract can be given than this: Mutual promises in each of which the promisor undertakes some act or forbearance that will be, or apparently may be, detrimental to the promisor or beneficial to the promisee, and neither of which is void, are sufficient consideration for one another.' Williston on Contracts, Revised Edition, Volume I, § 103 F.

The defendant, Rose Park Pharmacy, agreed: to employ plaintiff as pharmacist and manager, to pay him a stipulated weekly wage of $100.00, to pay him a 10% bonus from net profits, to permit plaintiff to acquire up to 25% of its stock and to give him 30 days prior notice of intention to discharge him. On plaintiff's part, he agreed to devote his best efforts to the promotion and operation of the drug store, to perform services as pharmacist and manager, to give 60 days notice of intention to quit, to account for all funds in the event of termination and not to compete for five years within two miles of the store. It is a continuing contract of employment with an exchange of promises expressing a legal detriment and benefit to both parties, the entire agreement subject to termination by either.

Our conclusion that there is consideration for the covenant not to compete within the interdicted area for a period of five years after termination, though the contract of employment was terminable upon giving the required notice, is supported by the following authorities: Wark v. Ervin Press Corp., 7 Cir., 48 F.2d 152; Wisconsin Ice & Coal Co. v. Lueth, 213 Wis. 42, 250 N.W. 819; Torrington Creamery v. Davenport, 126 Conn. 515, 12 A.2d 780; City Ice & Fuel Co. v. Snell, Mo.App., 57 S.W.2d 440; Smithereen Co. v. Renfroe, 325 Ill.App. 229, 59 N.E.2d 545; Economy Grocery Store Corp. v. McMenamy, 290 Mass. 549, 195 N.E. 747.

The argument that there is no 'mutuality of consideration' in contracts of employment of the kind here involved is often intended to raise the issue of the inequities and hardship incurred by enforcing the restriction when the term of employment was short and the parties bargaining power was unequal. Such contention is answered by the following quotation from Wark v. Ervin Press Corp., 48 F.2d 152, 156: 'If such a covenant were made in bad faith, with intent on the part of the employer that the employment would be only long enough to bind the employee to the covenant, and with a view only of preventing him from working elsewhere, a different situation would be presented. The facts disclosed by the pleadings do not raise a suspicion of the bona fides of the contract; * * *.'

The evidence sustains the trial court's finding that 'the parties dealt in good faith'. Thus, in this jurisdiction, we believe that as long as the restrictions as to time and space are reasonably necessary to the protection of the business and the hardship features of the case do not constitute equitable grounds for rescission, or call for the intervention of other rules of equitable relief, then the court is powerless to relieve a party from the effects of his contract.

Restrictive covenants are generally upheld by the courts where they are necessary for the protection of the business for the benefit of which the covenant was made and no greater restraint is imposed than is reasonably necessary to secure such protection. 9 A.L.R. 1456, 20 A.L.R. 861, 67 A.L.R. 1002, 98 A.L.R. 963, and 155 A.L.R. 652. Plaintiff contends that his services at the defendant's drug store are not of such a character as to permit acquisition of special business secrets. All prescriptions are prepared in conformance with specifications listed in United States Pharmacopoeia and National Formulary. No methods of buying, displaying or the selling of...