H & R Block, Inc. v. Lovelace
| Decision Date | 22 January 1972 |
| Docket Number | No. 46182,46182 |
| Citation | 50 A.L.R.3d 730,493 P.2d 205,208 Kan. 538 |
| Parties | , 50 A.L.R.3d 730 H & R BLOCK, INC., Appellant, v. Earl LOVELACE, Appellee. |
| Court | Kansas Supreme Court |
1. A covenant not to compete in a business is valid if ancillary to any lawful contract, subject to the test of reasonableness of the covenant and whether it is inimical to the public welfare.
2. Although there is no rigid, absolute norm by which the reasonableness of a covenant against competition may be determined, the rights of the promisee, the promisor and the general public are to be taken into account. Area and time limitations must be reasonable under the facts and circumstances of the particular case.
3. In determining the reasonableness of a covenant not to compete a distinction is to be made between such a covenant incident to an employment contract and one ancillary to a sale or other transfer of a business, practice or property. Courts of equity will construe restrictive covenants between employer and employee more strictly against the employer-promisee and are less prone to enforce such covenants.
4. A franchise agreement containing a covenant not to compete is considered and under the particular facts is determined to be akin to a contract of employment and sufficiently of that character to make the rule of strict construction against the promisee appropriate in determining the reasonableness of the covenant.
5. In an action for injunctive relief seeking to enforce a covenant not to compete upon termination of a franchise agreement, the record on appeal is examined and it is held: The trial court correctly construed the agreement between the parties as to the territorial extent of the restrictive covenant, and properly determined the covenant to be unreasonable and therefore unenforceable.
James M. Immel, of Immel & Immel, Iola, argued the cause and was on the briefs for the appellant.
J. D. Conderman, of Conderman & Talkington, Iola, argued the cause and was on the brief for the appellee.
HARMAN, Commissioner:
This is an appeal by a plaintiff franchisor in an action brought by it to restrain an individual franchisee from violating a covenant not to compete in the business of preparation of tax returns upon termination of the franchise. The issue here is the validity of the restrictive covenant.
The action was submitted to the trial court for determination upon undisputed facts which may be summarized as follows:
Plaintiff H & R Block, Inc. is a corporation engaged in franchising individuals and other concerns to operate a business solely for the preparation of income tax returns and services incident thereto under the name of H & R Block.
On or before January 1, 1961, plaintiff and defendant Earl Lovelace entered into the following written agreement:
'AGREEMENT, made and entered into this _ _ day of _ _, 19_ _ between H & R BLOCK, INC., a _ _ corporation, First Party, and EARL LOVELACE 600 East Madison of Yates Center, Kansas, Second Party:
'WHEREAS, First Party is engaged in the business of franchising individuals and concerns to operate a service dealing exclusively with the preparation of tax returns; and
'WHEREAS, Second Party desires to operate such a service;
'NOW, THEREFORE, BE IT AGREED:
Pursuant to this agreement, on January 1, 1961, defendant commenced the operation of a tax return business in Yates Center under the name H & R Block, which he continued to operate during the income tax seasons of 1961 through 1968.
On October 29, 1968, defendant gave plaintiff notice of his intent to terminate the contract and on January 1, 1969, he commenced an income tax preparation business under his own name at the same location in Yates Center at which he had conducted business under the Block name and he has continued to operate an office at that location in competition with plaintiff since that time.
On March 17, 1969, plaintiff commenced this action by the filing of its petition in which it sought damages for breach of contract and an order restraining defendant 'from competing with the plaintiff for a period of five (5) years from the termination of said contract as provided by the aforesaid agreement.'
Thereafter defendant answered, alleging among other defenses that the purported restriction of competition contained in paragraph 4 of the franchise agreement was an unreasonable restraint of trade and contrary to public policy. At a pretrial conference issues were defined and the trial court made the following ruling:
'I feel that the...
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