Orchard Container Corp. v. Orchard

• Decision Date: 29 April 1980
• Docket Number: No. 41412,41412
• Citation: 601 S.W.2d 299
• Parties: ORCHARD CONTAINER CORPORATION, Plaintiff-Respondent, v. Edgar L. ORCHARD and Consolidated Industries, Inc., Defendants-Appellants.
• Court: Missouri Court of Appeals

Page 299

601 S.W.2d 299

ORCHARD CONTAINER CORPORATION, Plaintiff-Respondent, v. Edgar L. ORCHARD and Consolidated Industries, Inc. Defendants-Appellants.

No. 41412.

Missouri Court of Appeals, Eastern District, Division Two.

April 29, 1980.

Motion for Rehearing and/or Transfer to Supreme Court Denied

June 20, 1980.

Mastorakos & Dunne, Paul A. Hennerich, III, Chesterfield, for defendants-appellants.

Whaley & McAuliffe, Donald H. Whaley and Robert H. Koester, Clayton, for plaintiff-respondent.

GUNN, Presiding Judge.

A covenant not to compete is the subject of this appeal.

Prior to 1977 defendant-appellant Edgar Orchard (defendant Orchard) had been president of the plaintiff-respondent Orchard Container Corporation (plaintiff Corporation), a manufacturer and seller of corrugated cardboard containers. In 1971, Bennett Paper Corporation ¹ purchased all of the corporate stock of the plaintiff Corporation from defendant Orchard. Among the terms of the acquisition agreement and transaction was defendant Orchard's retention as president of the plaintiff Corporation, and an employment agreement was drafted to effectuate this purpose. Defendant Orchard executed the contract in two capacities signing for the plaintiff Corporation as its president and for himself as the employee. The only other signature to the agreement was by the plaintiff Corporation's secretary attesting to the execution. The portion of the contract material to this case provides:

Covenant Not to Compete Orchard agrees that he will refrain, directly or indirectly, within three (3) years after his services with the Company are terminated, whether such termination occurs during the period of the contract, at the end of the term of the contract, or any time thereafter in the event Orchard continues working with the Company, from the creation, production, management of production or sale of the items hereinabove described within an area of Two Hundred (200) miles distant from any office or plant operated by the Company now or in existence at the time of termination. The parties hereto realize that the non-compete clause herein given is to be fully essential in the development of the Company's business during its formative years and is a material and essential portion of this contract.

Except for the above recited covenant not to compete provision, the employment contract was to expire at the end of 1973. While defendant Orchard contended that an officer of Bennett Paper Corporation had waived the strictures of the non-compete covenant as a condition of his continued employment, the officer specifically denied discussing or waiving them.

Over the years there was a substantial deterioration in the relationship between defendant Orchard and Samuel Bennett, owner of Bennett Paper Corporation. Early in September, 1977, Mr. Bennett removed the entire board of directors of plaintiff Corporation, amended its by-laws to reduce the number of directors from five to one and appointed himself as its sole director. On September 23, 1977, Mr. Bennett effected defendant Orchard's discharge by the plaintiff Corporation.

Immediately after his discharge, defendant Orchard's wife and sister-in-law formed Orchard Consolidated Industries (Consolidated), and he became affiliated with it in the capacity of "consultant". Consolidated operated in direct competition with plaintiff Corporation. Mrs. Orchard ceased daily activity with Consolidated shortly after its organization and defendant Orchard actively participated in its operations and held himself out to be its president. The record is inconclusive as to precisely when plaintiff Corporation became aware of defendant Orchard's competition pursuant to his new affiliation, but on July 27, 1978, it filed this action for preliminary and permanent injunctive relief enforcing the non-compete covenant and for damages. ² A preliminary injunction was granted September 20, 1978, but the trial court's order excepted certain of defendant Orchard's customers from its restrictions.

At trial, plaintiff Corporation adduced evidence as to certain of its former customers whose business had been appropriated by defendant Orchard, either by himself or through Consolidated, together with dollar amounts for lost profits attributable to his competition. The bulk of plaintiff Corporation's business activities were centered in the St. Louis Metropolitan area, generally in Illinois and Missouri within a 50 mile radius of St. Louis. But plaintiff also had important customers in Illinois and Missouri 125 miles beyond St. Louis and extending even into Oklahoma, 400 miles distant. After finding, inter alia, that the parties had entered into a valid and binding covenant not to compete, and that the agreement was enforceable both as to time and scope, that defendant Orchard had breached and engaged in conspiracy with defendant Consolidated to compete with plaintiff Corporation, causing it actual damages in the amount of $61,273, the court entered the following judgment:

IT IS HEREBY ORDERED, ADJUDGED AND DECREED, that the Defendants Edgar L. Orchard and Orchard Consolidated Industries, Inc., are hereby permanently enjoined for a period commencing on the date of this Judgment, Order and Decree, and ending September 23, 1980, from soliciting away from Plaintiff any of Plaintiff's customers known to Defendants to be such and who were on September 23, 1977, with intent to divert, take away or attempt to divert, take away or solicit any of the customers of the Plaintiff within an area of 200 miles from St. Louis, Missouri.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED, that judgment be entered for Plaintiff and against Defendants, Edgar L. Orchard and Orchard Consolidated Industries, Inc., under Count I and Count II of Plaintiff's petition, jointly and severally in the amount of $61,273.00 for actual damages, and $7,500.00 for punitive damages.

Within the thirty day period following the entry of the original judgment, the trial court entered the following order amending its judgment:

ORDER NUNC PRO TUNC

By order of the Court, Judgment entered January 29, 1979 corrected "Nunc Pro Tunc" as of said date as follows:

It is hereby ordered, adjudged, and decreed that the Defendant, EDGAR L. ORCHARD, is hereby permanently enjoined for a period commencing on the date of this Judgment, Order and Decree, and ending September 23, 1980, from directly or indirectly engaging in the creation, production, management or production, or sale of corrugated paper products or other related products within an area two hundred (200) miles distant from St. Louis, Missouri.

It is further ordered, adjudged, and decreed that Defendant, ORCHARD CONSOLIDATED INDUSTRIES, is hereby permanently enjoined for a period commencing on the date of this Judgment, Order and Decree and ending September 23, 1980, from soliciting away from Plaintiff any of Plaintiff's customers known to Defendant's Officers and Directors to be such and who were such on September 23, 1977, with the intent to divert, take away or attempt to divert, take away or solicit any of the customers of Plaintiff within an area of two hundred (200) miles from St. Louis, Missouri.

On appeal, defendants argue five points of alleged error: (1) the entire employment contract was invalid from its inception for want of any authority on defendant Orchard's part to bind the plaintiff Corporation to an employment contract; (2) that the 200 mile restriction on competition is unreasonable and, hence, invalid, and that the use of the time restriction language "formative years" in the covenant is fatally vague; (3) that the trial court erred in failing to find that defendant Orchard had been released from the restrictive covenant pursuant to an oral agreement; (4) that plaintiff abandoned the restrictive covenant due to laches in seeking its enforcement; (5) that if the damage award of the original judgment is not found to have been deleted by the later judgment (the nunc pro tunc order), that award of damages is erroneous as it is unsupported by evidence.

Defendant Orchard views the fact of his signing the employment contract on behalf of himself and as president of the plaintiff Corporation as failing to breathe life into the contract; that the contract was void for want of corporate authorization or board of directors approval. It is generally true that a corporate officer should not represent his corporation in transactions in which he has a personal interest out of danger of taking advantage of his position. But here defendant Orchard, as president, possessed authority to bind the plaintiff Corporation under the circumstances. Fair Mercantile Co. v. Union-May-Stern Co., 359 Mo. 385, 221 S.W.2d 751 (1949). Furthermore, as defendant Orchard reaped the benefits of the employment contract, he may not challenge or deny its validity. Long v. Huffman, 557 S.W.2d 911 (Mo.App.1977); Labor Discount Center, Inc. v. State Bank & Trust Co. of Wellston, 526 S.W.2d 407 (Mo.App.1975). Accord: William R. Bush Const. Co. v. Bambrick-Bates Const. Co., 176 Mo.App. 608, 159 S.W. 738 (1913).

Defendant Orchard's second point relates to the unreasonableness of 200 mile limit and vagueness of the duration of the restriction by use of "formative years". The objection as to the area designation has some merit; the vagueness objection has none.

Because non-compete agreements are considered to be in restraint of trade, they are presumptively void and enforceable only to the extent that they are demonstrably reasonable. Continental Research Corp. v. Scholz, 595 S.W.2d 396 (Mo.App.1980); Accord: National Starch and Chemical Corp. v. Newman, 577 S.W.2d 99 (Mo.App.1978); Reed, Roberts Associates, Inc. v. Bailenson, 537 S.W.2d 238 (Mo.App.1976). Further, an employer may only seek to protect "certain narrowly defined and well recognized interests"...