Gann v. Morris
| Decision Date | 29 March 1979 |
| Docket Number | CA-CIV,No. 2,2 |
| Citation | 596 P.2d 43,122 Ariz. 517 |
| Parties | Alfred W. GANN and Connie A. Gann, husband and wife, Plaintiffs-Appellees, v. Gerry MORRIS, Defendant-Appellant. 3049. |
| Court | Arizona Court of Appeals |
Following a court trial, the buyers of a silk screening business were awarded damages for the seller's breach of a covenant not to compete. On the seller's appeal we must determine whether the trial court was correct in upholding the covenant and computing damages as it did. We find no error and affirm.
We view the facts in the light most favorable to upholding the judgment. Polk v. Koerner, 111 Ariz. 493, 533 P.2d 660 (1975). On April 11, 1974, Gerry Morris entered into an agreement to sell his "silk screening business or lettering shop" to Alfred and Connie Gann. The agreement provided in part:
Seller agrees not to enter into silk screening or lettering shop business within Tucson and a 100 mile radius of Tucson, a period of ten (10) years from the date of this Agreement and will not compete in any manner whatsoever with buyers and seller further agrees that he will refer all business contacts . . . to buyers.
The trial court found that seller "breached the contract in that he competed with (buyers) and failed to refer all business under the terms of that contract." Seller urges that the contract, including the covenant not to compete, is unenforceable as a restraint of trade which violates public policy.
Covenants not to compete, although amounting to partial restraints of trade, will be enforced where they are ancillary to contracts for employment or sale of a business and are reasonably limited as to time and territory. Piercing Pagoda, Inc. v. Hoffner, 465 Pa. 500, 351 A.2d 207 (1976). What is reasonable depends on the whole subject matter of the contract, the kind and character of the business, its location, the purpose to be accomplished by the restriction, and all the circumstances which show the intention of the parties. Farmer v. Airco, Inc., 231 Ga. 847, 204 S.E.2d 580 (1974).
Courts distinguish between covenants incidental to employment contracts and those incidental to sales of businesses because the policy considerations necessarily differ. Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838, 846 (1957). In the case of employment contracts, an employee is restricted from using his personal skills and experience, which may seriously impair his ability to earn a living. In light of the potential hardship and uneven bargaining position of the parties, courts scrutinize employer-employee agreements closely. Erikson v. Hawley, 56 App.D.C. 268, 12 F.2d 491 (1926); Morgan's Home Equipment Corp. v. Martucci, supra. Courts have shown greater reluctance to interfere where the contract involves the sale of a business. Taylor Freezer Sales Company v. Sweden Freezer Eastern Corporation, 224 Ga. 160, 160 S.E.2d 356 (1968). In either case, whether the contract is reasonable is generally held to be a matter of law for the court to decide. See, e. g., Jewel Box Stores Corporation v. Morrow, 272 N.C. 659, 158 S.E.2d 840 (1968); Greer v. Lifsey, 128 Ga.App. 785, 197 S.E.2d 846 (1973).
Where limited as to time and space, the covenant is ordinarily valid unless it is to refrain from all business whatsoever. Henderson v. Jacobs, 73 Ariz. 195, 239 P.2d 1082 (1952). Here, the seller agreed not to enter into the silk screening or lettering shop business within Tucson and a 100-mile radius of Tucson for 10 years. Although the covenant goes on to say that seller will not compete in any manner whatsoever, that language is clearly limited by the subject matter of the entire contract to the kind and character of the business sold. The rationale for enforcing covenants not to compete is particularly valid in the case of a small business, operated by an individual who had...
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