Club Properties, Inc. v. Atlanta Offices-Perimeter, Inc., OFFICES-PERIMETE

• Decision Date: 18 September 1986
• Docket Number: OFFICES-PERIMETE,No. 72547,INC,72547
• Citation: 180 Ga.App. 352,348 S.E.2d 919
• Parties: CLUB PROPERTIES, INC. et al. v. ATLANTA
• Court: Georgia Court of Appeals

Page 919

348 S.E.2d 919

180 Ga.App. 352

CLUB PROPERTIES, INC. et al. v. ATLANTA OFFICES-PERIMETER, INC.

No. 72547.

Court of Appeals of Georgia.

Sept. 18, 1986.

Timothy J. Sweeney, Perry A. Phillips, Thomas I. Kent, Jr., Atlanta, for appellants.

William H. Mathieu, James J. Brissette, Decatur, for appellee.

CARLEY, Judge.

Appellant-defendants Club Properties, Inc. and Mr. Gene Eidelman (Lessees) entered into a written lease agreement with appellee-plaintiff Atlanta Offices-Perimeter, Inc. (Lessor). The lease was for a six-month term, commencing on January 1, 1984 and ending on June 30, 1984. The lease also provided that the Lessor would make certain services, including the use of its own employees, available to the Lessees "and there shall be no charge for same." Paragraph 16 of the agreement provided: "Employment of Lessor's Employees. Lessee recognizes that Lessor has expended considerable time, effort and expense in training Lessor's employees so as to provide high quality service to Lessee, and that the hiring by Lessee of Lessor's employees would save Lessee considerable time and expense in training and procurement. Lessee further acknowledges that were Lessee to hire any such employees, Lessor would be forced to expend additional time, effort and expense in training new employees, the amount of which cannot be determined with certainty. Therefore should Lessee offer employment to and subsequently employ any employee of Lessor who was an employee of Lessor at any time during the six month period immediately preceding the offer of such employment by Lessee, Lessee shall pay to Lessor as a procurement fee the sum of $5,000.00."

At the end of the lease term, the Lessees vacated the premises and moved to another location. In July of 1984, Ms. Rosemary Fletcher began work as the Lessees' office manager. Ms. Fletcher had terminated her employment in the Lessor's secretarial pool only the preceding month. As the result of Ms. Fletcher's new employment, the Lessor demanded payment of $5,000 from its former Lessees pursuant to Paragraph 16 of the lease. When this demand was refused, the Lessor instituted the instant action, seeking to recover under that provision of the lease. The Lessees answered and subsequently moved for summary judgment on the ground that Paragraph 16 of the lease was unenforceable as a restraint of trade. The trial court denied the Lessees' motion, holding that Paragraph 16 was a valid and enforceable liquidated damages provision. The trial court certified its order for immediate review and the Lessees applied to this court for an interlocutory appeal. The application was granted and this appeal results.

1. That Paragraph 16 of the lease may purport to be a liquidated damages provision, rather than a personal covenant enforceable in equity, is not dispositive. It is the legal effect of a contractual provision, not the parties' specified manner of enforcement of the provision, that determines enforceability vel non. Notwithstanding the fact that a liquidated damages provision represents the parties' agreement as to compensation for a breach of contract, if the underlying contract itself violates some principle of law, the liquidated damages provision cannot be enforced. See OCGA § 13-6-7. Pursuant to OCGA § 13-8-2(a)(2), contractual provisions which are in general restraint of trade are, as a matter of law, unenforceable. Thus, the mere fact that such a provision may happen to be couched in terms of liquidated damages, rather than as the personal covenant of the contracting party, will not suffice to render it enforceable. See generally T.E. McCutcheon Enterprises v. Snelling & Snelling, 232 Ga. 609, 212 S.E.2d 319 (1974) (provision for damages as well as injunctive relief unenforceable); Heller v. Magaro, 148 Ga.App. 591, 252 S.E.2d 11 (1978) (damages for unenforceable covenant not recoverable). Compare Brown Stove Works v. Kimsey, 119 Ga.App. 453, 167 S.E.2d 693 (1969) (a provision for the loss of accrued employee rights and privileges upon engagement in competitive activity not in restraint of trade).

2. Having determined that a mere contractual specification of relief in the form of monetary damages is not the dispositive factor in determining underlying contractual enforceability, we turn to the issue of whether, when properly construed Paragraph 16 of the instant lease constitutes a restraint of trade. Although the actual agreement is solely that of the Lessees, its limiting effect also extends to any and all of the employees of the Lessor. By its terms, none of the Lessor's employees may enter into a contract of employment with the Lessees for a six-month period unless the Lessees are willing to pay $5,000. The ultimate effect of the provision is thus no different than if the Lessor had secured the agreement of each of its individual employees to forgo the right to contract freely for employment with the Lessees for the six-month period and to negotiate such employment only upon condition of payment by the Lessees to the Lessor of a $5,000 "procurement fee." There is no dispute that, absent the provision, the Lessees and any employee of the Lessor would be mutually free to negotiate employment without any extraneous conditions whatsoever. The provision is thus unquestionably a restraint on "the freedom of individuals to contract. [Cits.]" Beckman v. Cox Broadcasting, 250 Ga. 127, 130, 296 S.E.2d 566 (1982). What has, in effect, been secured is...