Chandler v. Mastercraft Dental Corp. of Texas Inc.

• Decision Date: 07 October 1987
• Docket Number: No. 2-85-283-CV,2-85-283-CV
• Citation: 739 S.W.2d 460
• Parties: H.H. CHANDLER and R.W. Johnston, Appellants, v. MASTERCRAFT DENTAL CORPORATION OF TEXAS INC., and Robert Ross, Appellees.
• Court: Texas Court of Appeals

Page 460

739 S.W.2d 460

H.H. CHANDLER and R.W. Johnston, Appellants, v. MASTERCRAFT DENTAL CORPORATION OF TEXAS INC., and Robert Ross, Appellees.

No. 2-85-283-CV.

Court of Appeals of Texas,

Fort Worth.

Oct. 7, 1987.

Price & Swander and Steven H. Swander, Fort Worth, for appellants.

Bankston & Lobingier and David B. Lobingier, Fort Worth, for appellees.

Before JOE SPURLOCK, II, FARRIS and KELTNER, JJ.

OPINION

JOE SPURLOCK, II, Justice.

Appellants, H.H. Chandler and R.W. Johnston, appeal a judgment against them for breach of the covenant not to compete pursuant to the sale of their business. The jury assessed a total of $100,000 damages plus attorney's fees.

We affirm.

This appeal arises from the sale of the assets of a corporation, Mastercraft Dental Corporation, to Robert Ross. Ross purchased the assets of the dental equipment manufacturing concern from Chandler and Johnston in March 1982 by a sales/purchase agreement signed by Chandler, Johnston and Ross. One provision of the agreement was a covenant not to compete for a duration of "not less than five (5) years." Johnston and Chandler remained as employees of the corporation, and signed employment contracts containing a covenant not to compete for a three year duration. Shortly after Ross purchased the business, he reincorporated it as Mastercraft Dental Co. of Texas, Inc. In October, 1984 Paul Dayton, a former employee of Mastercraft Dental Corporation, formed Dayton Dental Corporation with help from Chandler and Johnston.

In August, 1984 Chandler and Johnston sued Ross and Mastercraft alleging a breach of the employment contracts and for declaratory judgment. After filing an answer, Ross counterclaimed, alleging breach of the sales/purchase agreement. In March, 1985, a temporary injunction was granted in favor of Ross and Mastercraft Dental Corporation prohibiting Chandler and Johnston from participating in dental equipment manufacture, sales, or service in Texas. The court also found no conflict between the covenants not to compete in the employment contracts and the covenant not to compete in the sales/purchase agreement. Chandler and Johnston then dropped Mastercraft Dental Corporation as a defendant from their pleadings and requested construction of the sales/purchase agreement under the declaratory judgments act. See TEX.CIV.PRAC. AND REM.CODE ANN. ch. 37 (Vernon 1986). Ross amended his pleading to add Mastercraft Dental Corporation back into the lawsuit as a counter-plaintiff.

The live pleadings at trial were as follows: Chandler and Johnston sought declaratory relief against Ross to declare unenforceable the covenant not to compete in the sales/purchase agreement, as it contained an indefinite duration clause. They also sought the $30,000 remaining unpaid balance due for the purchase of the business. This sum had been paid into the court registry. Ross and Mastercraft initially sought relief against Paul Dayton and Dayton Dental Corporation (a straw-man corporation set up by Chandler and Johnston). Paul Dayton and the Dayton Corporation were severed from the law suit. Ross and Mastercraft sued for breach of the covenant not to compete in the sales/purchase agreement, conversion of trade secrets, and attorney's fees against Chandler and Johnston. Because Ross and Mastercraft had the burden of proof on the factual issues before the jury, the parties were realigned and Ross and Mastercraft had the right to open and close. The jury found all issues in favor of Ross and Mastercraft. The court entered judgment accordingly, ordering the temporary injunction be made permanent. Chandler and Johnston appeal the trial court's judgment in nine points of error.

In point of error one appellants argue the trial court abused its discretion by allowing appellees to amend their pleadings after the trial began, adding a new party claimant. Appellees respond that the trial amendment was to correct a misnomer, not to add a new party to the suit. When trial began, the appellees were identified as Robert Ross and Mastercraft Dental Corporation. During the trial, the appellants established, through the testimony of Robert Ross, that after Ross bought Mastercraft Dental Corporation he formed a new company called Mastercraft Dental Company of Texas, Inc., in 1983. This company purchased Mastercraft Dental Corporation. Throughout the trial the corporation was loosely referred to as Mastercraft. The pleadings were amended when it became apparent that Mastercraft Dental Company had not been properly named as a party in the pleadings, in either the original or counter-suit.

On appeal, appellants argue the amendment was error because they had no opportunity to obtain discovery of the new party plaintiff, and were unable to properly prepare a defense against the Dental Company, which was seeking to recover damages against them. Appellees maintain appellants did not preserve this point because there was no plea challenging the appellees' capacity to bring suit as required under TEX.R.CIV.P. 93. Additionally, appellees present an argument essentially based on estoppel; that appellants suffered no harm by virtue of the trial amendment because they initially brought the suit against Ross and Mastercraft Dental Corporation.

The proper method to challenge the capacity of a party to sue or be sued is by verified plea prescribed by TEX.R.CIV.P. 93. See Mercure Co., N.V. v. Rowland, 715 S.W.2d 677, 680 (Tex.App.--Houston [1st Dist.] 1986, writ ref'd n.r.e.); Van Voorhies v. Hudson, 683 S.W.2d 809, 810 (Tex.App.--Houston [14th Dist.] 1984, writ ref'd n.r.e.); Biggs v. Garrett, 651 S.W.2d 342, 343 (Tex.App.--El Paso 1983, no writ.). There is no such plea in the record of this case, and we hold its absence is a failure to preserve the point for appeal. We further note that the party problem was established by appellants' attorney during the morning of the first day of trial and the court considered the merits of appellees' trial amendment before granting it. We hold the trial court did not abuse its discretion by allowing the trial amendment, and the error, if any, was not preserved for appeal. Point of error one is overruled.

In point of error two, appellants complain the trial court erred in awarding damages to the appellees because the covenant not to compete in the sales/purchase agreement was unreasonable as to duration. The covenant not to compete provided:

Seller, H.H. Chandler and R.W. Johnston (except for the development and marketing of bonding material for dental braces), and except for employment by Buyer, agrees to restrain from participation in the dental equipment manufacturing, sales or service in the State of Texas and the State of New York, for a period of not less than five (5) years.

Appellants argue the five year clause is unreasonable because it is inconsistent with their employment agreements providing noncompetition covenants lasting three years. Appellants cite no authority and give no explanation why this inconsistency makes the duration clause unreasonable. Appellants also argue that the "not less than five (5) years" provision in sales/purchase agreement renders the clause unreasonable because the duration is indefinite. Appellants further contend the trial court's failure to construe the covenant as indefinite in duration resulted in the improper awarding of damages for breach of the covenant. The trial court construed the problematic duration clause as being five years. The final judgment, entered on September 23, 1985, recited the temporary injunction that was signed on March 4, 1985 should be made permanent, and that appellants were enjoined until March 3, 1987, from taking any actions or acts designed or calculated to violate the covenant not to compete in the sales/purchase agreement. The judgment also sets forth specific acts which appellants were enjoined from doing until March 3, 1987. It is clear from the judgment that the court did, as appellants point out, construe the covenant to have a duration of five years. Any indefiniteness stemming from the "for at least five (5) years," language was cured by the court's interpretation that the covenant's duration was five years.

Having determined the duration of the covenant was not indefinite, we must determine whether the five year duration of the covenant was reasonable. Covenants against competition are not favored by the courts because of public policy considerations against restraints of trade. Bob Pagan Ford, Inc. v. Smith, 638 S.W.2d 176, 178 (Tex.App.--Houston [1st Dist.] 1982, no writ). Such a contract will not be enforced unless its terms are reasonable. Hill v. Mobil Auto Trim, Inc., 725 S.W.2d 168, 170 (Tex.1987); Weatherford Oil Tool Company v. Campbell, 161 Tex. 310, 340 S.W.2d 950, 951 (1960); Bob Pagan Ford, 638 S.W.2d at 178. Whether a covenant not to compete is reasonable is a question of law for the court. Hill 725 S.W.2d at 170; Henshaw v. Kroenecke, 656 S.W.2d 416, 418 (Tex.1983). In determining the reasonableness of the duration of a covenant not to compete the trial court has considerable discretion. Bob Pagan Ford, 638 S.W.2d at 178.

Prior to the Hill case, whether a covenant not to compete was enforceable was essentially determined by a balancing test: "if it is greater than is required for the protection of the person for whose benefit the restraint is imposed or imposes undue hardship upon the person restricted," the covenant is unreasonable. Hill, 725 S.W.2d at 170; Henshaw, 656 S.W.2d at 418; Weatherford Oil Tool Company, 340 S.W.2d at 951. In the Hill case, the Supreme Court of Texas identified four requirements that must exist in order to have a reasonable covenant not to compete: (1) the covenant must be necessary to protect the promisee (appellees here); (2) the covenant must not be oppressive to the promisor (appellants); (3) the covenant must not be injurious to the public; and (4) the promisee must give consideration. Hill, 725 S.W.2d at 170-71.

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