Insurance Agents, Inc. v. Abel

• Decision Date: 30 August 1983
• Docket Number: No. 2-69157,2-69157
• Citation: 338 N.W.2d 531
• Parties: INSURANCE AGENTS, INC., an Iowa corporation, Plaintiff-Appellant, v. Mark ABEL, Defendant-Appellee.
• Court: Iowa Court of Appeals

Page 531

338 N.W.2d 531

INSURANCE AGENTS, INC., an Iowa corporation, Plaintiff-Appellant, v. Mark ABEL, Defendant-Appellee.

No. 2-69157.

Court of Appeals of Iowa.

Aug. 30, 1983.

Curtis Hewett of Smith, Peterson, Beckman & Willson, Council Bluffs, for plaintiff-appellant.

James A. Pratt of Heithoff, Pratt & Heithoff, Council Bluffs, for defendant-appellee.

Heard by OXBERGER, C.J., and DONIELSON, SNELL, SCHLEGEL and HAYDEN, JJ.

SCHLEGEL, Judge.

Plaintiff appeals from a judgment in favor of defendant in this suit to enforce a noncompetition agreement and for damages for the alleged breach of it. On appeal, plaintiff asserts that: (1) given the presumption that all written contracts are supported by consideration and the rule that courts will not inquire into the adequacy of consideration supporting a contract, the district court should not have held that the noncompetition agreement was not supported by consideration; and (2) the agreement was supported by consideration in that defendant received the benefit of continued employment, the defendant received a guaranteed market for resale of his company stock, and the agreement provided defendant with the right to purchase additional shares of stock. We affirm.

Plaintiff is a large corporate insurance agency in Council Bluffs and is owned by 20 shareholders. The largest shareholder is Redlands Enterprises which owns 81% of the plaintiff. Redlands is in turn owned by the founders (or their descendants) of Insurance Agents, Inc. Defendant was the owner of a small insurance agency operating in the same area. In late 1977 defendant agreed to sell his insurance agency to plaintiff in exchange for shares of plaintiff's stock and other consideration. The parties entered into a sale agreement (hereinafter referred to as the 1977 agreement) which provided, among other things, that the defendant would not compete with plaintiff for a period of three years and that the defendant would be employed by plaintiff as an insurance agent for three years.

Defendant began working for plaintiff on January 3, 1978. The stock which defendant received from the plaintiff for the sale of his agency was not delivered until May 15, 1978 because the final sale price was based on a percentage of the insurance agency's commission income. Those calculations could not be performed at the date of closing without some difficulty. The defendant continued to work for the plaintiff as an insurance agent for over four years when he was terminated for reasons not relevant to this appeal. The noncompetition clause of the 1977 agreement had expired by the time defendant was released from plaintiff's employ.

Defendant had, however, signed another agreement with plaintiff shortly after his employment began. Plaintiff's president had asked him to enter into a "Corporate Stock Purchase Plan With Agreement Not to Compete" (hereinafter referred to as the 1978 agreement) as part of the process of delivering to him the shares of stock which he was to receive as payment for the sale of his insurance agency under the 1977 agreement. This agreement was a form agreement which the plaintiff's president normally offered to employees after they had been employed one year by plaintiff. The defendant's attorney had been presented a copy of that form agreement during the prior negotiations for the sale of defendant's insurance agency but it was not made a part of the 1977 agreement. No evidence was presented as to the exact date the 1978 agreement was signed but it was signed by the defendant sometime in the spring of 1978 before May 15, 1978 when he received the shares of plaintiff's stock. The 1978 agreement contained an additional noncompetition agreement which was to run for three years from the date of termination of defendant's employment with plaintiff. All the shareholders, with the exception of the majority shareholder Redland's Enterprises, were required to sign similar agreements.

Following defendant's termination, he re-entered the insurance business on his own and allegedly took over some accounts he handled while in plaintiff's employ. Plaintiff commenced this suit to enforce the 1978 noncompetition agreement requesting an injunction and damages for business allegedly lost to defendant. The 1977 noncompetition agreement is not at issue here as all parties agree that its provisions were performed.

Trial was had below before the court without a jury. The trial court held that the 1978 noncompetition agreement was unenforceable because defendant had not received consideration for it. The trial court's holding while referring to both lack of consideration and adequate consideration appears to be in fact that there was no consideration. ¹

I. Scope of Review. This is an action upon a contract seeking both injunctive relief and monetary damages. The case was tried in equity without objection. We treat it here as it was treated in the trial court. Atlantic Veneer Corporation v. Sears, 232 N.W.2d 499, 502 (Iowa 1975); Brammer v. Allied Mutual Insurance Company, 182 N.W.2d 169, 172 (Iowa 1970); Bjork v. Dairyland Insurance Company, 174 N.W.2d 379, 382 (Iowa 1970).

Our review of this equitable action is de novo. Iowa R.App.P. 4. We review the facts as well as the law to determine rights anew from the credible evidence on issues properly presented and preserved. In re Marriage of Full, 255 N.W.2d 153, 158 (Iowa 1977). While we give weight to the findings of trial court, especially where the credibility of witnesses is involved, we are not bound by them. Iowa R.App.P. 14(f)(7); Basic Chemicals, Inc. v. Benson, 251 N.W.2d 220, 226 (Iowa 1977).

II. Plaintiff claims the trial court erred in ruling that the covenant not to compete contained in the 1978 agreement could not be enforced because the contract failed for lack of consideration. An employment contract containing a covenant not to compete requires consideration to be enforceable. See Farm Bureau Service Co. of Maynard v. Kohls, 203 N.W.2d 209, 212 (Iowa 1972). A new agreement not to compete in the same business, entered into after the sale of a business has been completed and the contract for the sale has been signed, requires new consideration. Carruthers v. McMurray, 75 Iowa 173, 177, 39 N.W. 255, 257 (1888). Whether the 1978 agreement is an employment contract as asserted by the plaintiff or an agreement not to compete entered into after the sale of business as asserted by defendant, it is clear that consideration to support the agreement must be shown if the plaintiff is entitled to relief.

The agreement at issue is a written agreement and signed by both parties. "All contracts in writing, signed by the party to be bound or by his authorized agent or attorney, shall import a consideration." Iowa Code § 537A.2 (1981). This language establishes a presumption of consideration when the agreement sought to be enforced is in writing and signed by the party to be bound. Lovlie v. Plumb, 250 N.W.2d 56, 61 (Iowa 1977) (application of Iowa Code § 537A.3 (1973) to a written and signed deed); Sisson v. Janssen, 244 Iowa 123, 130, 56 N.W.2d 30, 34 (1952) (application of Iowa Code § 537.2 (1950), now § 537A.2, to a sales contract); Beh v. Van Ness, 190 Iowa 151, 154, 180 N.W. 292, 293 (1920) (application of Iowa Code § 3069 (1920), now § 537A.2, to a promissory note). "The want or failure, in whole or part, of the consideration of a written contract may be shown as a defense ...." Iowa Code § 537A.3 (1981). In addition to providing the plaintiff with a presumption of consideration, the defendant who relies upon the defense of lack of consideration where there is a written contract has the burden of proving there is none. Sisson v. Janssen, 244 Iowa 123, 130, 56 N.W.2d 30, 34; Iowa R.App.P. 14(f)(5). We must review the credible evidence presented at trial to determine if the defendant has established lack of consideration by a preponderance of the evidence. Iowa R.App.P. 14(f)(6); Anderson v. Armstrong, 264 N.W.2d 619, 620 (Iowa Ct.App.1978).

Either a benefit to a promisor or a detriment to a promisee constitutes consideration. Doggett v. Heritage Concepts, Inc., 298 N.W.2d 310, 311 (Iowa 1980). A promise to do that which one is already obligated to do will not suffice as consideration. Lovlie v. Plumb, 250 N.W.2d 56, 57-58 (Iowa 1977). The defendant Mark Abel asserts that the sale of his insurance business to the plaintiff, Insurance Agents, Inc., was closed by the agreement of December 30, 1977 (the 1977 agreement). The defendant and plaintiff, both represented by counsel, had engaged in long and detailed negotiations during 1977. Although there was testimony that defendant knew of the "Corporate Stock Purchase Plan With Agreement Not to Compete," the defendant's attorney testified that it was not intended by the parties to be part of the 1977 sale of defendant's business agreement. The December 30, 1977 agreement further provided for employment of the defendant for three years with the plaintiff. When defendant became a stockholder pursuant to the 1977 agreement, he was entitled to the benefits of the resale/repurchase provisions in plaintiff's corporate bylaws. Defendant contends, and we think correctly, that the 1978 agreement extended to defendant no additional benefit nor caused the plaintiff to suffer any additional detriment or costs.

Where a contract contemplates the subsequent execution of a subsidiary agreement, the promises in such agreement are supported by the consideration of the original agreement. Freese v. Town of Alburnett, 255 Iowa 1264, 1271, 125 N.W.2d 790, 794 (1964) (an "extra work" order was an agreement contemplated under the provisions of the principal contract and therefore supported by consideration). The stock defendant received under the 1977 agreement was received...