Boldt Machinery & Tools, Inc. v. Wallace

• Decision Date: 05 August 1976
• Citation: 469 Pa. 504,366 A.2d 902
• Parties: BOLDT MACHINERY & TOOLS, INC. v. Glenn W. WALLACE, Appellant.
• Court: Pennsylvania Supreme Court

Page 902

366 A.2d 902

469 Pa. 504

BOLDT MACHINERY & TOOLS, INC. v. Glenn W. WALLACE, Appellant.

Supreme Court of Pennsylvania.

Aug. 5, 1976.

Argued Sept. 26, 1975.

Decided Aug. 5, 1976.

[469 Pa. 507] Robert B. McCullough, Erie, for appellant.

T. Warren Jones, MacDonald, Illig, Jones & Britton, Erie, for appellee.

OPINION OF THE COURT

PER CURIAM.

This appeal is from a decree in equity enforcing a post-employment restraint on competition in a contract of employment. Mr. Justice EAGEN, Mr. Justice O'BRIEN, Mr. Justice ROBERTS and Mr. Justice POMEROY are of opinion that the covenant is enforceable to the extent indicated in the appended opinions of Mr. Justice POMEROY, speaking for himself and Justices EAGEN and O'BRIEN, and of Mr. Justice ROBERTS, respectively.

Mr. Justice NIX and Mr. Justice MANDERINO would hold the covenant unenforceable in its entirety.

With regard to the territorial area in which competition is proscribed, Justices EAGEN, O'BRIEN, ROBERTS and POMEROY believe that the covenant is overly broad, and would therefore vacate the decree and remand the case for the entry of a decree limited to the sales territory appellant covered while employed by the appellee. IT IS SO ORDERED.

With respect to the duration of the restraint, Mr. Justice EAGEN, Mr. Justice O'BRIEN, and Mr. Justice POMEROY are of opinion that the covenant is enforceable, whereas Mr. Justice ROBERTS is of opinion that the decree should be remanded for modification by the trial court. There being no majority opinion as to the proper disposition of the decree insofar as it enforces the covenant as to time, this aspect of the decree of trial court remains undisturbed.

Costs to be equally divided between the parties.

JONES, C.J., did not participate in the consideration or decision of this case.

POMEROY, J., filed an opinion in support of affirming in part and vacating and remanding in part, which was joined by EAGEN and O'BRIEN, JJ.

ROBERTS, J., filed an opinion in support of modification.

NIX and MANDERINO, JJ., filed opinions in support of reversal.

POMEROY, Justice (in support of affirming in part and vacating and remanding in part).

This is a suit in equity ¹ for enforcement of a covenant against post-employment competition contained in a contract of employment. The plaintiff, Boldt Machinery & Tools, Inc. (hereinafter 'Boldt') is a seller and distributor of industrial machinery and tools (lathes, drill presses, etc.) in an area comprised of western Pennsylvania, southwestern New York, and eastern Ohio. The defendant, Glenn Wallace, was employed by Boldt as a salesman in 1959 and was assigned a sales territory composed of portions of northwestern Pennsylvania and southwestern New York. On February 9, 1973, Wallace voluntarily terminated his employment. A contract entered into by the parties at the time Wallace was hired by Boldt contained a clause (paragraph 24) which provided:

'Upoon termination of employment, whether by resignation or dismissal, Employee shall return to Employer all price lists, lists of customers, stationery, catalogs, and other literature pertaining to Employer's business and Thereafter shall not engage directly or indirectly in the sale or distribution of any items regularly sold by Employer in the territory covered by Employer for a period of five (5) years.' (Emphasis added).

It is the italicized portion of this paragraph which Boldt seeks to enforce by this suit.

Upon leaving Boldt, Wallace was employed as a salesman of industrial machinery by Tri-State Machinery Company, a competitor of Boldt, in roughly the same territory he had covered for Boldt. Boldt contends that Wallace's activities on behalf of Tri-State constitute a breach of the restrictive covenant contained in paragraph 24, Supra, of the contract between the parties. The chancellor agreed, and enjoined Wallace 'from directly or indirectly selling or attempting to sell or distributing or attempting to distribute any items regularly sold by the plaintiff in the western Pennsylvania, southwestern New York and eastern Ohio areas for a period of five years from the date of this Order, even though the items he sells may be of different quality or purchase price than those sold by the plaintiff.' Exceptions to the chancellor's adjudication were dismissed by a court en banc, and this appeal followed. ² In this Court Wallace argues that he has not violated paragraph 24, and that, in any event, the restrictive covenant contained in that paragraph is unenforceable as an impermissible restraint on trade.

(1) Wallace first argues that he has not breached his promise to refrain from competing with his former employer. He contends that, as used in paragraph 24, the term 'items' means 'the same items', i.e., machinery of the same make and model as machinery he sold for Boldt, and that the machinery he is now selling for Tri-State is 'more expensive, much larger and performs a completely different function than the machinery he formerly sold. . . .' (Appellant's brief, p. 6). The chancellor read the term 'items' more broadly, however, construing it to mean 'similar items' or all machinery in competition with the machinery which Wallace sold for Boldt; he found that some of the machinery Wallace now sells, without specifying which, is competitive with machinery he formerly sold.

We agree with the chancellor that appellant's interpretation of the term 'items' is too narrow. Paragraph 24 is to be interpreted in light of its obvious purpose, the protection of Boldt against a loss of customers and business as a result of Wallace's efforts on behalf of another seller of industrial machinery. Bangor Peerless Slate Co. v. Bangor Slate Co., 270 Pa. 161, 113 A. 190 (1921); Restatement (Second) of Contracts § 228 & Comment C (Tent.Draft No. 5, 1970); Restatement of Contracts § 236 (1932). ³ So viewed, the words 'any items regularly sold by (Boldt)' must be read as relating to any machinery which is competitive with the machinery regularly sold by Boldt, rather than items which are identically and completely alike. At trial, Boldt offered evidence that it and Tri-State sold some of the same brands of machinery and solicited many of the same customers, and that Tri-State had taken accounts from Boldt in the past. Wallace himself admitted that he was now calling on some of the same customers he had solicited for Boldt, and that he was now selling some of the same 'small tools' he had sold for Boldt. Our review of the record satisfies us that there was ample evidentiary support for the chancellor's finding that some of the machinery Wallace now sells is in competition with machinery he sold formerly.

(2) Wallace's second argument is that paragraph 24 is unenforceable as an impermissible restraint on trade. A post-employment restraint on competition is enforceable if it is ancillary to an employment relationship between the parties, is designed to protect a legitimate business interest of the employer, and is reasonably limited in duration and area. Sidco Paper Co. v. Aaron, 465 Pa. 586, 351 A.2d 250, 252 (1976); Girard Investment Co. v. Bello, 456 Pa. 220, 318 A.2d 718 (1974); Bettinger v. Carl Berke Associates, Inc., 455 Pa. 100, 314 A.2d 296 (1974); Jacobson & Co. v. International Environment Corp., 427 Pa. 439, 235 A.2d 612 (1967). ⁴ Wallace argues that the second and third aspects of this test are here lacking.

With respect to protectible interest, appellant contends that Boldt is not entitled to any protection from competition by him because the company did not provide him with any specialized training or skills or with access to any trade secrets. But this argument is based upon too restrictive a view of the interests an employer may legitimately seek to protect by means of such restraints. As we recently iterated, an employer has a protectible interest in the customer goodwill developed by its employees. Sidco Paper Company v. Aaron, supra at 591--594, 351 A.2d at 252--54. ⁵ The instant record contains evidence that while he was employed by Boldt, Wallace regularly had direct, personal contact with Boldt's customers at the customers' places of business, that this contract was an important element in making sales of machinery, and that Wallace's calls on the trade constituted the only contract between Boldt and many, although not all, of its customers in Wallace's sales territory. We are satisfied that the chancellor was justified in concluding that paragraph 24 protects Boldt's interest in customer relationships developed by Wallace. The absence of a formal specialized training given to Wallace does not deprive this interest of protectibility.

Wallace also attacks the duration of the restraint as too long and the area within which competition is prohibited as too widespread. The reasonableness of the temporal and geographic aspects of a restrictive covenant must be determined in light of the nature of the employer's interest sought to be protected. The time should be no longer and the area should be no greater than are reasonably necessary for the protection of that interest. Helpful observations as to the permissible duration of a provision designed to protect the employer's interest in customer relationships are contained in Professor Blake's article:

'In determining whether a restraint extends for a longer period of time than necessary to protect the employer, the court must determine how much time is needed for the risk of injury to be reasonably moderated. When the restraint is for the purpose of protecting customer relationships, its duration is reasonable only if it is no longer than necessary for the employer to put a new man on the job and for the new employee to have a reasonable opportunity to demonstrate his effectiveness to the customers. If the selling or servicing relationship is relatively complex, a longer period may be called for. Courts seldom criticize restraints of six months or a year on the grounds of duration as...