Licocci v. Cardinal Associates, Inc.

• Citation: 432 N.E.2d 446
• Decision Date: 17 March 1982
• Docket Number: No. 4-681A20,4-681A20
• Parties: Samuel J. LICOCCI, Appellant-Plaintiff, v. CARDINAL ASSOCIATES, INC., Appellee-Defendant. Gil PAPP, Appellant-Plaintiff, v. CARDINAL ASSOCIATES, INC., Appellee-Defendant.
• Court: Court of Appeals of Indiana

Page 446

432 N.E.2d 446

Samuel J. LICOCCI, Appellant-Plaintiff, v. CARDINAL ASSOCIATES, INC., Appellee-Defendant.

Gil PAPP, Appellant-Plaintiff, v. CARDINAL ASSOCIATES, INC., Appellee-Defendant.

No. 4-681A20.

Court of Appeals of Indiana, Fourth District.

March 17, 1982.

Rehearing Denied April 23, 1982.

R. Eugene Johnson, Thomas J. Kimpel, Donald J. Fuchs, Merrill, Schroeder & Johnson, Evansville, for appellants-plaintiffs.

Charles L. Martin, Boonville, for appellee-defendant.

CONOVER, Judge.

Samuel J. Licocci and Gil Papp appeal from the Gibson Circuit Court's refusal to dissolve a preliminary injunction enforcing two of the three restrictions on competition in their employment contracts with Cardinal Associates, Inc. They contend the trial court abused its discretion in granting the injunction because the non-competition agreements were invalid and relief in equity was unjustified.

We affirm in part and reverse in part.

Licocci and Papp raise several specific issues for our consideration.

1. Does a reservation by an employer of the right to reject orders taken by its salesmen render an employment contract unenforceable

for lack of mutuality of obligation?

2. May the trial court assist a party in the enforcement of a contract despite contentions the enforcing party breached the contract and conducted itself in an unjust and inequitable manner?

3. Were the non-competition agreements in Licocci's and Papp's contracts unreasonable?

4. May an employment contract be amended without additional consideration? and

5. Was the evidence presented sufficient to support a preliminary injunction?

SUMMARY OF THE FACTS

Cardinal Associates sold products to educational, civic, business, recreational and religious organizations for resale as fund-raising 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 sought to enjoin from competition. Specifically, Licocci and Papp say Cardinal Associates breached the employment contracts by: 1) reducing and eventually eliminating the amount permitted to be withdrawn from the escrow account; 2) failing to disburse at the next date for withdrawal from the escrow account the balance of the commissions due, thus violating Ind.Code 22-2-5-1; and 3) refusing to comply with Licocci's request for a 20 percent withdrawal from the escrow account.

All of these issues form the substance of Licocci's and Papp's complaints for money owed, which are questions pending before the trial court. Nevertheless, where it appears beyond controversy the appellee violated the contract, an injunction is improper. Bowerman v. First Merchants National Bank, (1937) 211 Ind. 344, 7 N.E.2d 198; Wischmeyer v. Finch, (1952) 231 Ind. 282, 107 N.E.2d 661.

In the case before us, contract violations by the appellee are disputed questions of fact and not at all beyond controversy. The Licocci and Papp contracts only provided for a draw as long as the salesmen remained fulltime employees, and provided no specific method for disbursement of accumulated earnings upon termination of employment. Accordingly Cardinal Associates' discontinuance of the draw pending the September 15 settlement was not beyond controversy a breach of contract.

Licocci and Papp further contend Cardinal Associates failed to comply with Ind.Code 22-2-5-1, ¹ which requires the amount due an employee be paid on the next regular payday after voluntary termination. Even...