Barbara Rogers and Nicholas Marrone v. Runfola & Associates, Inc., and Thomas Runfola Etc.

• Decision Date: 01 June 1989
• Docket Number: 88AP-691,89-LW-1691
• Parties: Barbara ROGERS and Nicholas Marrone, Plaintiffs-Appellees, v. RUNFOLA & ASSOCIATES, INC., and Thomas Runfola etc., Defendants-Appellants.
• Court: Ohio Court of Appeals

Barbara ROGERS and Nicholas Marrone Plaintiffs-Appellees, v. RUNFOLA & ASSOCIATES, INC., and Thomas Runfola etc Defendants-Appellants.

No. 88AP-691. Judgment affirmed in part, reversed in part and cause remanded, 57 Ohio St. 3d 5 (1991).

89-LW-1691 (10th)

Court of Appeals of Ohio, Tenth District, Franklin County

June 1, 1989

APPEAL fron the Franklin County court of Common Pleas.

Bricker & Eckler, Richard T. Taps and Catherine Ballard, for appellees.

Squire Sanders & Dempsey, Thomas E. Palmer, Catherine Adams and Steven W. Tigges, for appellants.

OPINION

YOUNG Judge.

This matter is before this court upon the appeal of Runfola &amp Associates, Inc., and Thomas Runfola, appellants, from a decision of the court of common pleas rendered in favor of Barbara Rogers and Nicholas Marrone, appellees. Both appellees were employees of appellants, Rogers since 1972, and Marrone since 1977. In 1975, Rogers signed an employment contract with appellants which included a noncompetition clause. At the time, appellant, Runfola & Associates, Inc., was a sole proprietorship. In 1977, appellants incorporated. Marrone signed a similar employment contract in 1977. Both contracts were for a term of one year and were to continue in subsequent one year terms. On April 28, 1988, both Rogers and Marrone tendered their resignations. Both agreed to remain on staff until a mutually agreeable date. Rogers' last day of work was May 31, 1988. By letter dated June 3, 1988, Marrone was advised that he was terminated "effective immediately."

On May 20, 1988, appellees initiated an action in the common pleas court for a declaratory judgment as to the rights and obligations of the parties under the employment contracts. Trial began July 1, 1988. Following trial, on July 12, 1988, the court ruled in favor of appellees and adopted their proposed findings of fact and conclusions of law. Appellants appealed in case No. 88AP-628. However, this court ruled that the July 12, 1988 entry was not a final appealable order. On August 2, 1988, the trial court entered a second judgment entry from which appellants appeal and raise the following assignments of error:

"I.The trial court erred in holding that Ms. Rogers' employment contract with Runfola & Associates is unenforceable.

"(A) The trial court erred in holding that Ms. Rogers' contract could not be assigned. The court's decision promotes form over substance, in disregard of the fact that there was no change in the business or its ownership.

"(B) The trial court erred in holding that there was no consideration for the noncompetition covenant in the employment contract between Runfola and Ms. Rogers. Runfola's agreement to employ Rogers for one year and not to discharge her except for just cause, instead of at will, constituted good and valuable consideration for the contract.

"II.The trial court erred in holding that Mr. Marrone's contract with Runfola & Associates is unenforceable.

"(A) The trial court erred in holding that Mr. Marrone's contract is null and void because the employer was mistakenly identified in the contract as a proprietorship rather than a corporation.

"(B) The trial court erred in holding that Runfola breached the contract with Mr. Marrone. Marrone's repudiation of the contract constituted an anticipatory breach which justified termination of the contract by Runfola.

"III.The trial court erred in holding that the restrictive convenants are unreasonable and hence unenforceable by injunction.

"(A) The restrictive covenants should be enforced by injunction.

"(B) Even if the contracts are not enforceable by injunction, Runfola has a right to money damages for breach of the contracts."

In the first assignment of error, appellants argue that the trial court erred in holding that the employment contract of Rogers is invalid and unenforceable. According to appellants, the trial court erroneously determined that the contract could not be assigned from "Runfola & Associates," a sole proprietorship owned by Thomas Runfola, to "Runfola & Associates, Inc.," a corporation owned solely by Thomas Runfola and that the contract lacked consideration.

The facts which pertain to the issue of the assignment of the contract are not disputed by the parties. Thomas Runfola began his business in 1971 as a sole proprietorship known as "Runfola & Associates." (Stip. No. 1.) In April 1977, Mr. Runfola incorporated the business as "Runfola, Inc.," but he continued to do business under the name "Runfola & Associates." (Stip. No. 2-3.) ®1¯ At the same time, Mr. Runfola executed an assignment which purported to transfer the assets of his sole proprietorship to his corporation. (Stip. No. 4.) The assignment specifically refers to employment contracts as assets of the sole proprietorship which were being transferred to the corporation. (Stip. No. 4, Joint Exhibit H.)

It is well-established in Ohio that a covenant not to compete, while strictly construed, will be enforced to the extent necessary to protect the employer's legitimate interests. Raimonde v. Van Vlerah (1975), 42 Ohio St.2d 21. On the question of the assignability of restrictive covenants, however, there are divergent opinions. Compare Safier's, Inc. v. Bialer (C.P.1950), 58 Ohio Law Abs. 292 with Pester Milk Co. v. Model Dairy Products Co. (App.1943), 39 Ohio Law Abs. 197.

In Safier's, Inc., the court held:

" * * * [T]hat the contract involved in the case at bar was assignable for the protection of the employer under the restrictive covenant provision and that it would have been so assignable for that limited purpose even though it had not been made for the benefit of the "successors and assigns' of the original employer. * * * " Id. at 300.

In Pestel Milk Co., the court held that in the absence of a finding that an employee has assented to the assignment, a noncompetition clause is not enforceable by the successor employer. Id. at 206.

Upon review of the case law, it is clear that under certain circumstances, covenants not to compete may be assignable. In the case sub judice, there are several factors which persuade us that the employment contract and the covenant not to compete were assignable. First, the business itself did not change hands. Thomas Runfola was the sole owner of "Runfola & Associates, Inc." The business simply changed from a sole proprietorship into a corporation. Whatever Mr. Runfola's business reasons were for changing the status of the business, the employees, including Rogers, were not affected in any way.

Second, according to the testimony, the day-to-day workings of the business remained the same. There was no change in the business, its management or its day-to-day operations. (Tr. II at 15-16.) The only change in the business was in its corporate status and, consequently, in its accounting procedures.

Third, Rogers admitted that she knew the business had been incorporated and that she continued to work as she always had. (Tr. II at 15-16.) She did not approach Mr. Runfola with any questions as to her employment status, and there was no reason for any such questions.

Clearly, this case represents a situation where an assignment should be allowed. Therefore, the employment contract of Rogers was assigned from "Runfola & Associates" to "Runfola & Associates, Inc."

Appellants also contend that the trial court erred in finding that the contract was invalid because there was no consideration for the restrictive covenant. Rogers had worked for one year before she entered into a written contract of employment.

This court dealt with a similar argument in Columbus Medical Equip. Co. v. Watters (1983), 13 Ohio App.3d 149, wherein this court stated, as follows:

"The following well-established principle of contract law is dispositive of defendant's first assignment of error:

" "While it is necessary that the consideration of a promise should be of some value, it is sufficient if it be such as could be valuable to the party promising; and the law will not enter into an inquiry as to the adequacy of the consideration, but will leave the parties to be the sole judges of the benefits to be derived from their contracts, unless the inadequacy of consideration is so gross as of itself to prove fraud or imposition.' (Emphasis sic. ) Judy v. Louderman (1891), 48 Ohio St. 562, paragraph two of the syllabus." Id. at 150.

In the present case, Rogers promised not to compete with appellants within Franklin County for a period of two years after she left appellants' employ. In exchange, the terms of Rogers' employment were changed from her being an employee at will, subject to discharge at any time and for any reason, to an employee with a specific term of employment who could be terminated only for limited purposes. Also, Rogers testified that she understood the covenant not to compete when she agreed to it and she received bargained for benefits from appellants in exchange for her promise. The consideration supporting the agreement is not grossly inadequate. Based on the foregoing, appellants' first assignment of error is well-taken and is sustained.

In the second assignment of error, appellants contend that the trial court erred in finding that the employment contract of Marrone was invalid. The trial court found Marrone's contract unenforceable for two reasons. First, the court found that the contract was null and void because the employer's name was listed as "Runfola & Associates," the sole proprietorship, when the employer should have been "Runfola & Associates, Inc." Second, the court determined that "Runfola & Associates, Inc.," had breached the contract when Marrone was terminated before his contract term had expired.

Marrone signed his employment contract and began working for "Runfola &...