Licocci v. Cardinal Associates, Inc.

• Decision Date: 22 February 1983
• Docket Number: No. 283S67,283S67
• Citation: 445 N.E.2d 556
• Parties: Samuel J. LICOCCI, Appellant, v. CARDINAL ASSOCIATES, INC., Appellee. Gil PAPP, Appellant, v. CARDINAL ASSOCIATES, INC., Appellee.
• Court: Indiana Supreme Court

Page 556

445 N.E.2d 556

Samuel J. LICOCCI, Appellant, v. CARDINAL ASSOCIATES, INC., Appellee.

Gil PAPP, Appellant, v. CARDINAL ASSOCIATES, INC., Appellee.

No. 283S67.

Supreme Court of Indiana.

Feb. 22, 1983.

R. Eugene Johnson, Thomas J. Kimpel and Donald J. Fuchs, Merrill, Schroeder & Johnson, Evansville, for appellant.

Charles L. Martin, Boonville, for appellee.

ON PETITION TO TRANSFER

PIVARNIK, Justice.

This cause comes to us by way of a Petition to Transfer from the Fourth District Court of Appeals. Respondents-Appellants-Plaintiffs Licocci and Papp originally appealed from the Gibson Circuit Court's refusal to dissolve a preliminary injunction enforcing two of three restrictive covenants in their respective employment contracts with Petitioner-Appellee-Defendant Cardinal Associates, Inc. The contested contracts restricted Licocci and Papp from competition in the following ways:

1) they were prohibited from soliciting sales from anyone in their former assigned sales territories during the sixty (60) day period following the respective dates on which they individually terminated their employment with Cardinal Associates;

2) they were prohibited during said sixty (60) day period from calling upon, talking to or soliciting any business from any customer of Cardinal Associates within or outside their former territories; and

3) they were prohibited from selling the same products to any of their former Cardinal customers for one year following termination with Cardinal.

The trial court enforced two of the restrictions by ordering compliance with the first and third, but not the second.

Licocci and Papp contended before the Court of Appeals that the trial court abused its discretion in granting the injunction because the non-competition restrictions were invalid and relief in equity was unjustified. They specifically argued that both the second and third restrictions were unreasonable because the limitations therein pertained to areas outside the geographic limits of their assigned sales territories at the time of their respective terminations. Licocci and Papp did not dispute the reasonableness of the first restriction. The Court of Appeals affirmed the trial court in its enforcement of restriction number one but reversed the judgment of the trial court in its enforcement of restriction number three. Transfer is now sought to challenge the Court of Appeal's reversal regarding restriction number three.

The Court of Appeals refused to enforce restriction number three for two reasons. The Court held that the one year non-competition clause was invalid because it did not contain an adequate spatial limitation. The Court also held that the possibility of repeat business in certain products was not a protected interest of sufficient character to justify the covenant's restraint of trade. We find the Court of Appeals wrong in its judgment on restriction number three and accordingly vacate its opinion and hereby grant transfer. Since we do agree with the Court of Appeals in its disposition of certain collateral issues, however, we adopt that Court's language on those specific issues and incorporate it into our opinion as follows:

"SUMMARY OF THE FACTS

Cardinal Associates sold products to educational, civic, business, recreational and religious organizations for resale as fundraising projects. The corporation hired Licocci and Papp as commissioned salesmen to promote those products and to solicit orders.

On May 9, 1978, Licocci signed an employment contract for a one-year term beginning August 1, 1978. Among other things the contract provided that for 60 days after termination of employment, Licocci would neither compete with Cardinal within his assigned territory nor contact any of Cardinal's customers anywhere. Upon expiration of that contract, Licocci signed a new contract on July 31, 1979, which, in addition to the above two restrictions, contained a third: That for one year he would not sell or help anyone else sell the same products to the same customers he dealt with while working for Cardinal Associates.

On May 2, 1979, Papp signed an employment contract for a one-year term beginning August 1, 1979. The substance of the agreement was similar to Cardinal Associates' 1978 contract with Licocci. On July 31, 1979, Papp agreed to a substitute contract which added the one-year restriction on sales of the same product to former customers.

On January 17, 1980, the contracts of both salesmen were amended to create escrow accounts from which they could withdraw funds against their commissions, earned or to be earned, on a weekly basis. Twenty percent of the accumulated commissions, if any, could be drawn twice a year, and the balance, less $1,000, was to be paid each September 15, after the close of Cardinal Associates' fiscal year.

This procedure of drawing against commissions was to be in effect only so long as Licocci and Papp worked fulltime for Cardinal Associates. The contract did not provide a procedure for settling the account if the employees left or were fired.

Licocci and Papp worked for Cardinal Associates until the Spring of 1981. Papp sent the company a 30-day notice of termination on March 2. At that time he was drawing $1,200 a week from his account. On March 6, Licocci sent the company a 30-day notice of termination. His weekly draw was $800. Licocci asked for a 20 percent draw from the accumulated earnings, but Cardinal refused.

The company's position was essentially that when Licocci and Papp resigned, they were no longer entitled to any weekly or special draws and payment of any commissions were not due until the regular settlement date of September 15. Moreover, Cardinal Associates believed its two former employees were violating the non-competition agreement. Licocci and Papp responded by suing for immediate payment of the commissions owed, and Cardinal Associates counterclaimed for an injunction to prevent competition. The cases were consolidated and the trial court granted a preliminary injunction enforcing the 60-day ban on competition within the assigned territory and the one-year ban on selling identical products to old customers. Licocci and Papp appealed the court's refusal to dissolve that preliminary injunction.

I. VALIDITY OF THE CONTRACTS

Licocci and Papp first argue the injunction was improper because it enforced invalid contracts. They contend the contracts lacked "mutuality of obligation" because Cardinal was not required to accept any of the orders solicited by its salesmen. Item 3 provided:

"No orders solicited by or on behalf of the Representative shall be binding upon the Corporation unless and until acceptance thereof by the Corporation. The Corporation may reject any orders obtained or reported by the Representative, at its sole discretion."

While it is fundamental that a contract is unenforceable if it fails to obligate the parties to do anything, Davis v. Davis, (1926) 197 Ind. 386, 151 N.E. 134; Seco Chemicals Inc. v. Stewart, (1976) 169 Ind.App. 624, 349 N.E.2d 733; International Shoe Co. v. Lacy, (1944) 114 Ind.App. 641, 53 N.E.2d 636; Grimm v. Baumgart, (1951) 121 Ind.App. 626, 96 N.E.2d 915, the court necessarily will consider the entire contract and the presence of an acceptance clause alone will not invalidate it. Imel v. Travelers Indemnity Co., (1972) 152 Ind.App. 75, 281 N.E.2d 919.

Licocci and Papp rely on Zeyher v. S.S. & S. Manufacturing Co. (7th Cir.1963) 319 F.2d 606. That opinion affirmed the trial court's decision that an employment contract with a provision similar to Cardinal's Item 3 was unenforceable for want of certainty and mutuality in that it created "no obligation which either party can legally enforce against the other." 319 F.2d 607. That conclusion rested on its finding

"the contract did not bind plaintiff to secure any orders, nor to sell a minimum or maximum, of S.S. & S. products; did not provide for a reasonably certain way of determining the sales price or prices of S.S. & S. products; did not bind S.S. & S. to accept any orders submitted by plaintiff and did not provide a formula for determining when, if any, an obligation to accept an order would arise."

Unlike the parties in Zeyher, Licocci and Papp obtained the exclusive right of representation in designated areas. Moreover, Cardinal Associates agreed to provide equipment, samples, literature, sales material, price lists, consumer lists and specialized training. In turn, Licocci and Papp agreed to solicit orders on a commission basis exclusively for Cardinal and to endeavor to sell a minimum of 80,000 units per year.

The exclusivity agreements alone remove this case from the rationale of the Zeyher decision, which noted at 319 F.2d 608:

"In Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214 (1917), the court implied consideration where defendant gave an exclusive agency, and unless the agent 'gave his efforts, she could never get anything.' That is not true of S.S. & S. because plaintiff did not have an exclusive agency. We do not find in the case at bar the facts which in Lady Duff-Gordon impelled the court to conclude that the transaction there 'was instinct with obligation.' "

Despite the employer's escape clause on accepting orders, we find Licocci's and Papp's contracts as a whole were instinct with obligation. In exchange for their promises to solicit orders, Licocci and Papp obtained exclusive territorial rights in handling Cardinal Associates' products and Cardinal Associates gave up the right to send any additional salesmen into their territories. See Seco Chemicals, supra.

The contracts did not fail because of the mere presence of a reservation nor was a preliminary injunction improper for that reason.

II. BREACH OF CONTRACT

Licocci and Papp next contend it was an abuse of the trial court's discretion to grant an injunction to a party which had breached the contracts it sought to enforce and had illegally withheld compensation from those it...