Meissel v. Finley, 4563

Decision Date26 November 1956
Docket NumberNo. 4563,4563
Citation95 S.E.2d 186,198 Va. 577
CourtVirginia Supreme Court
PartiesHOWARD A. MEISSEL v. JAMES D. FINLEY, II, ET AL. Record

Ernest S. Merrill (Earl W. White, on brief), for the appellant.

P. A. Agelasto, Jr., for the appelles.

JUDGE: BUCHANAN

BUCHANAN, J., delivered the opinion of the court.

This appeal brings under review a decree of the court below holding to be reasonable and enforceable a covenant in a limited partnership agreement restricting the right of a limited partner to write insurance or surety bonds for a specified time and within a specific area after any dissolution of the partnership.

The suit was brought by the appellant, Howard A. Meissel, sometimes referred to as the plaintiff, against the appellees, sometimes called the defendants, for an adjudication of rights under the declaratory judgment statutes. Code §§ 8-578 ff. The defendants answered and two of them, James D. Finley, II, and Lowery D. Finley, Jr., general partners, filed a cross-bill alleging that the plaintiff had violated the covenant and praying for an injunction. The decree appealed from dismissed the plaintiff's bill and granted an injunction restraining the plaintiff from engaging in the insurance business as provided in the covenant. The plaintiff makes six assignments of error to this decree which challenge the validity of the restrictive provisions on the grounds to be noticed.

By a written certificate dated December 13, 1950, and pursuant to Title 50, Chapter 2 of the Uniform Partnership Act, Code § § 50-44 ff., the parties litigant formed a limited partnership under the firm name of Lowery D. Finley & Company, in which James D. Finley, II, and Lowery D. Finley, Jr., two of the defendants, were general partners, and Howard A. Meissel, the plaintiff, and Mary F. Cox and William Rueger, III, the other two defendants, were limited partners. Its purpose was to conduct a general insurance brokerage and agency business. The general partners were entitled to draw against profits $1,000 a months plus 31% of the remaining profits, and the limited partners were to have $500 a month plus 24% of the remaining profits to Meissel and a smaller percentage to the other two limited partners.

By Clause XIV of the agreement it was provided that the partnership would be dissolved by the death of any partner, and that any one of the partners might dissolve it upon 60 days' written notice; and it was further expressly provided as follows:

'* * * in the event of any dissolution of the partnership no limited partner shall enter into the insurance business under his or her own name, or associate himself or herself with any agency, firm or corporation in Norfolk, Virginia, or the geographical territory within fifty (50) miles of the City of Norfolk, which is or may be engaged in the business of writing insurance of any kind or in writing any kind of surety or fidelity bonds, for a period of five (5) years from the dissolution of this partnership, except in association with a successor to this firm, as established by the General Partners, their heirs, executors, administrators or assigns. Each of the Limited Partners in consideration of his or her admission to the firm and the benefits which he or she expects to receive from the firm and association with it, expressly agrees to keep and observe this obligation and undertaking for the time period of five (5) years from the dissolution of the firm, and additionally each agrees that he or she will not solicit personally or by mail, or through any other method, any client, customer or patron of the partnership within such period of five (5) years from and after the dissolution of the partnership created by this certificate.'

Restrictive provisions of this character have been dealt with by courts in almost unnumbered cases. A great array of them are cited in a learned and elaborate opinion by Judge Hoover, of the Court of Common Pleas of Hoio, Cuyahoga County, in the case of Arthur Murray Dance Studios v. Witter, 105 N.E.2d 685, in which he referred to the authorities as constituting a vast sea out of which one could fish out 'any kind of strange support for anything, if he lives so long.' The result of his own expedition is stated to be: 'Each case must be determined on its own particular facts.'

In the case of Welcome Wagon, Inc. v. Morris, 4 Cir., 224 F.2d 693, 698, in an opinion by Judge Dobie, the guide to decision is well stated as follows:

'* * * Modern courts have usually, in passing on these contracts, employed three criteria: (1) Is the restraint, from the standpoint of the employer, reasonable in the sense that it is no greater than is necessary to protect the employer in some legitimate business interest? (2) From the standpoint of the employee, is the restraint reasonable in the sense that it is not unduly harsh and oppressive in curtailing his legitimate efforts to earn a livelihood? (3) Is the restraint reasonable from the standpoint of a sound public policy?'

See also Annotations: 52 A.L.R. 1362, 98 A.L.R. 963, 41 A.L.R.2d 15 (on restrictions as to time; and cases involving restrictions for five years at p. 199), 43 A.L.R.2d 94 (restrictions as to area; and cases involving 50 miles at p. 298); 46 A.L.R.2d 119; Williston on Contracts, Vol. V, §§ 1636-7; Restatement of Contracts, Vol. II, § 516.

In the recent case of Worrie v. Boze, 191 Va. 916, 926, 62 S.E.2d 876, 881, we said:

'That restrictive covenants of this character which reasonably protect the employer's business and are incident and ancillary to the contract of employment and limited as to area and duration are enforceable in equity is not open to question.' They will be enforced in equity "unless found to be contrary to public policy, unnecessary for the employer's protection, or unnecessarily restrictive of the rights of the employees, due regard being had to the subject-matter of the contract and the circumstances and conditions under which it is to be performed."

The subject matter of the present contract and the circumstances and conditions under which it was to be performed appear from these facts:

In September, 1933, the plaintiff first became associated with Lowery D. Finley, Sr., now deceased, who had commenced a general insurance and bonding business in 1910 under the name of Lowery D. Finley & Company.

Plaintiff's first written contract of employment was made with Finley in 1937, by which plaintiff was employed as manager of the insurance offices of Lowery D. Finley & Company, in Norfolk, at a salary of $250 a month and 25% of the annual net profits. By that contract the plaintiff agreed that for a period of five years after its expiration or cancellation the plaintiff would not engage in the insurance business in his own name or in association with any agency in Norfolk engaged in that business; and that he would not solicit any customer of the company in Norfolk or vicinity for a like period.

By a writing dated May 1, 1945, a limited partnership for the conduct of the business was formed in which Lowery D. Finley, Sr., was a general partner, and the plaintiff and Lowery D. Finley, Jr., and Mary F. Cox were limited partners, under the terms of which plaintiff was to receive a salary and a share of the profits. This contract contained a restrictive covenant applicable to the limited partners practically identical with that quoted above from the contract in suit.

Subsequently, by written certificates, all signed by the plaintiff, and dated respectively December 31, 1945; December 31, 1947, and December 31, 1948, changes were made in the personnel and compensation of the limited partners. All contained the same restrictive covenant as to the limited partners.

The partnership so continuing through these years as Lowery D. Finley & Company was dissolved by the death of Lowery D. Finley, Sr., on April 13, 1950; and on April 19, 1950, a new certificate of limited partnership was executed in which James D. Finley, II, and Lowery D. Finley, Jr., were general partners, and the plaintiff and Mary F. Cox were limited partners. This agreement contained the same restrictive covenant as to the limited partners.

Thereafter, on December 13, 1950, the certificate first above mentioned was executed admitting William Reuger, III, as a limited partner and containing the covenant above quoted.

A certificate amending the 1950 agreement was on October 30, 1951, executed by the parties to the 1950 agreement. It revised the latter with respect to the division of profits, but by mutual consent continued in full force all the other terms and conditions of the 1950 agreement.

On July 12, 1954, the general partners gave notice to the limited partners of the dissolution of the partnership as of ...

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