Rinker Materials Corp. of West Palm Beach v. Holloway Materials Corp., 4644

• Decision Date: 11 September 1964
• Docket Number: No. 4644,4644
• Citation: 167 So.2d 875
• Parties: RINKER MATERIALS CORPORATION OF WEST PALW BEACH, a Florida corporation, Appellant, v. HOLLOWAY MATERIALS CORPORATION, a Florida corporation, and Frank L. Williamson, Appellees.
• Court: Florida District Court of Appeals

Page 875

167 So.2d 875

RINKER MATERIALS CORPORATION OF WEST PALW BEACH, a Florida corporation, Appellant, v. HOLLOWAY MATERIALS CORPORATION, a Florida corporation, and Frank L. Williamson, Appellees.

No. 4644.

District Court of Appeal of Florida, Second District.

Sept. 11, 1964.

Rehearing Denied Oct. 20, 1964.

Monroe E. McDonald, of Sanders, McEwan, Schwarz & Mims, Orlando, for appellant.

Fred M. Peed, of Gurney, Gurney & Handley, Orlando, for appellees.

ALLEN, Judge.

The plaintiff-appellant, Rinker Materials Corporation, brought this action against the defendant-appellees, Holloway Materials Corporation and Frank L. Williamson, to restrain them from violating a covenant not to compete.

Holloway-Rinker Materials, Inc., a corporation formed by the plaintiff and defendants, had been engaged in the concrete products business in Cocoa, Florida, for two or three years prior to September 12, 1958. The parties found it increasingly difficult to do business together and, on September 12, 1958, entered into an agreement whereby the plaintiff Rinker Materials Corporation was to purchase the stock of Holloway-Rinker Materials, Inc., owned by defendants Holloway Concrete Products Company, Inc. and/or Frank L. Williamson for $45,000, and was also to buy from the defendants a certain note given by Holloway-Rinker Materials, Inc., for $105,000 plus interest. The said Holloway Concrete Products Company, Inc. and Frank L. Williamson agreed not to engage directly or indirectly in the merchandising of any line of merchandise being sold by Holloway-Rinker Materials, Inc. within a radius of 25 miles of the Cocoa plant (the territory north of Route 50 was open territory) for a period of ten years from the date of the agreement. The said Holloway Concrete Products Company, Inc. and Frank L. Williamson further agreed to assist Holloway-Rinker Materials, Inc. in the sale and merchandising of products handled by Holloway-Rinker Materials in the area outlined above and the plaintiff agreed to pay $50,000 over a period not to exceed ten years. Subsequent to September 12, 1958, Holloway-Rinker Materials, Inc. was merged into Rinker Materials Corporation, the plaintiff herein.

On or about May 10, 1963, a little over four and one-half years after the agreement was entered into, the defendants began active solicitation of business in competition with the plaintiff within the restricted area in violation of the agreement. A suit to enjoin this violation and for damages ensued.

After an initial delay the cause came on for hearing on the application for preliminary injunction on August 16, 1963. At this hearing certain evidence, largely portions of depositions therefore secured, was introduced. No defensive pleadings had been filed prior to this hearing, but an Answer, subsequently amended to include a counterclaim for amounts allegedly due defendants under the terms of the 1958 agreement, was served. At the conclusion of this initial plenary hearing the court announced its intention to deny plaintiff any relief and the parties agreed to permit the court to consider the hearing as a final hearing on the merits. A final decree holding that plaintiff-appellant was not entitled to relief under Fla.Stat. § 542.12, F.S.A., eventuated. It is from this decree that plaintiff brings this appeal.

Fla.Stat. § 542.12, F.S.A., provides that contracts in restraint of trade are void except in certain cases as where a person sells the good will of a business or where any shareholder sells or disposes of all of his stock. In these situations the seller may agree with the buyer to refrain from engaging in a similar business 'within a reasonably limited time and area' so long as the buyer continues to carry on a like business. The statute further provides that such 'agreements may, in the discretion of a court of competent jurisdiction be enforced by injunction.'

The chancellor held that since the 'continuation of the restriction beyond four and one-half years would exceed the time necessary for a newcomer to establish a business similar to the one sold,' the 'purpose of the restrictive covenant, i. e., to protect the good will of the business purchased, had been fulfilled,' and since the company sold had only operated for a period of less than three years, the covenant for ten years was not 'within a reasonably limited time.' He, therefore, denied the injunctive relief asked for by the plaintiff.

The plaintiff on appeal claims the chancellor erred in his construction of Fla.Stat. § 542.12, F.S.A., abused his discretion in denying relief to the plaintiff after having found the equities to be with the plaintiff and committed error by considering the question of 'public policy.'

The chancellor filed a comprehensive opinion dealing with the facts and conclusions of law. Among other things stated in the Conclusions of Law was the following:

'As between these parties, the plaintiff should prevail. The defendant contracted not to compete within a limited area for ten years. He has received in excess of $20,000.00 under that agreement. If the people of Florida had no interest in this contract, as the Legislature indicates they have, the defendant should be enjoined from selling concrete materials within the area prohibited by his solemn agreement. However, the Court cannot concern itself with only Rinker and Williamson. There are over five million Floridians whose rights are almost as much involved as those of the two principals.'

It should be mentioned that the $20,000 excess mentioned by the chancellor was in addition to other considerations involved in the contract for sale. This was paid to the defendants or one of them for aiding the plaintiff under the contract to secure business in the limited territory set forth above. Plaintiff had also paid to the defendants or one of them $105,000 plus interest on a note owed by Holloway-Rinker Materials, Inc., and the sum of $45,000 for shares of stock of Holloway-Rinker Materials, Inc. owned by the defendants or one of them.

The lower court also concluded:

'* * * While here the result would seemingly penalize the plaintiff, the Court feels it unreasonable to enforce a non-competitive provision or a contract for ten years when the business sold has not operated even three years at the time of sale.

'This Court adopts the view as expressed by the annotator in writing on this subject in 45 ALR [2d] at pages 99-102.

"* * * there is no absolute test rendering the provision as to time in a covenant not to compete ipso facto and automatically either enforceable or unenforceable regardless of whethert the duration is limited or unlimited in time.

"* * *

"* * * the reasonableness of the duration of a restrictive covenant not to compete depends on the need of the covenantee for protection of the good will of the business or practice transferred to him against competition by the former owner. The object of such protection is the good will of the business, which is primarily characterized by a personal relationship and specifically by the customer contracts which the former owner of the business was abe to develop. Protection against the potential loss of these assets is the true test to be applied in determining the necessary duration of the restraint as far as it is influenced by the principle of reasonableness as to the convenantee. Stated more concretely, the covenantee's need for protection exists so long, but only so long, as the seller's relationship with the customers and suppliers is still such that his re-entry into the business would draw business away from the purchaser. (Emphasis supplied)

"* * *

"Since a restrictive covenant aims merely to give the purchaser the advantages flowing from the fact that the business he purchases has good will or, in other words, is an established business, but does not aim to exclude the seller from competition if in competing he is not in a better position than any other person newly entering this particular field of business, the duration of the restriction should not exceed the time it would take such a newcomer to establish a business similar to the one sold.'

'The annotator goes on to suggest that as a starting point the duration of a restrictive covenant should be measured by the length of time the business sold has been in existence. In the instant case, plaintiff and defendants had been operating Holloway-Rinker Materials, Inc. for approximately two to three years prior to September 12, 1958, the date plaintiff bought out defendants' interest in said business. The first breach of defendants' covenant not to compete is alleged to have occurred on or about May 10, 1963, approximately 4 1/2 years after the date of said agreement and almost 5 years have passed from the date of the agreement to the present time.

'Under these circumstances, the Court finds that the purpose of the restrictive covenant, i. e., to protect the good will of the business purchased, has been fulfilled. The Court further finds that continguation of the restriction beyond 4 1/2 years would exceed the time necessary for a newcomer to establish a business similar to the one sold.

'Therefore, the Court holds that plaintiff is not entitled to either a temporary or a permanent injunction enforcing the covenant not to compete.'

The evidence taken showed that there were many other persons and corporations engaged in the same business as the parties to this suit in Brevard County at the time of the contract and that such business has increased during the last several years. Williamson testified that his competing with Rinker had no effect with regard to prices.

We do not believe the rule adopted by the chancellor in his opinion, which was enunciated by the annotator and quoted from 45 A.L.R.2d, is a fair or reasonable one under the facts of this particular case. As a matter of fact, the annotator himself states:

'* * * This rule does not have the support of any authority; it rather represents...