Seaboard Industries, Inc. v. Blair

• Decision Date: 03 February 1971
• Docket Number: No. 7118SC17,7118SC17
• Parties: SEABOARD INDUSTRIES, INC. v. Jerry BLAIR.
• Court: North Carolina Court of Appeals

Page 781

178 S.E.2d 781

10 N.C.App. 323

SEABOARD INDUSTRIES, INC. v. Jerry BLAIR.

No. 7118SC17.

Court of Appeals of North Carolina.

Feb. 3, 1971.

Smith, Moore, Smith, Schell & Hunter, by Richmond G. Bernhardt, Jr., Greensboro, for plaintiff appellee.

Jordan, Wright, Nichols, Caffrey & Hill, by Welch Jordan and William L. Stocks and Falk, Carruthers & Roth, by Herbert S. Falk, Jr., and Walter, rand, III, Greensboro, for defendnat appellant.

GRAHAM, Judge.

The order appealed from is interlocutory. However, appeal from such an order will not be considered premature if a substantial right of appellant would be adversely affected by continuance of the injunction in effect pending final determination of the case. G.S. § 1--277; Board of Provincial Elders of Southern Province of Moravian Church v. Jones, 273 N.C. 174, 159 S.E.2d 545; Western Conference of Original Free Will Baptists v. Creech and Teasley v. Creech and Niles v. Western Conference of Original Free Will Baptists, 256 N.C. 128, 123 S.E.2d 619; Cablevision of Winston-Salem Inc. v. Winston-Salem, 3 N.C.App. 252, 164 S.E.2d 737. A substantial right of defendant is affected by the order restraining him from engaging in business in the manner set forth, and we therefore consider his appeal.

The parties agree that the contract involved was executed in Atlanta, Georgia. 'It is settled that 'matters bearing upon the execution, interpretation, and validity of a contract are determined by the law of the place where it is made. '' Cannady v. R.R., 143 N.C. 439, 442, 55 S.E. 836, 837. Further, paragraph 12 of the contract expressly provides that '(t)his Agreement, and the rights and liabilities of the parties hereto, shall be construed under the laws of the State of Georgia.' We therefore look to the law of Georgia in considering this appeal.

The leading case in Georgia on the subject of restrictive covenants is Rakestraw v. Lanier, 104 Ga. 188, 30 S.E. 735 (1898), wherein it is stated:

'In determining whether such restriction is reasonable, the court will look alone to the time when the contract was entered into. * * *

'It is, however, satisfactorily established that, as a matter of law, such a contract is to be upheld if the restraint imposed is not unreasonable, is founded on a valuable consideration, and is reasonably necessary to protect the interest of the party in whose favor it is imposed, and does not unduly prejudice the interests of the public. * * *'

These general principles are identical to those which prevail in this State. '(T)he Georgia rule--as well as that of North Carolina and most other jurisdictions--is that a restraint on trade in the form of a restrictive covenant will be countenanced when, under all the circumstances it is a reasonable one.' Budget Rent-A-Car Corporation of America v. Fein, 342 F.2d 509 (5th Cir. 1965). To determine the validity of a covenant in a contract of employment providing that, upon termination of the employment, the employee will nto engage in competition with the employer, it is necessary to apply these tests: (1) Is it founded on a valuable consideration? Fox v. Avis Rent-A-Car Systems, Inc., 223 Ga. 571, 156 S.E.2d 910; Ogle v. Wright, et al., 187 Ga. 749, 2 S.E.2d 72; Waldron Buick Co. v. Motors Corp., 254 N.C. 117, 118 S.E.2d 559; Henley Paper Co. v. McAllister, 253 N.C. 529, 117 S.E.2d 431. (2) Is it reasonably necessary to protect the legitimate interest of the employer? Orkin Exterminating Co., Inc. of South Georgia v. Dewberry, 204 Ga. 794, 51 S.E.2d 669; Rakestraw v. Lanier, Supra; Noe v. McDevitt, 228 N.C. 242, 45 S.E.2d 121; Kadis v. Britt, 224 N.C 154, 29 S.E.2d 543. (3) Is the limitation or restriction reasonable as to time, Day Companies v. Patat, 403 F.2d 792 (5th Cir. 1968); Shirk v. Loftis Brothers and Company, 148 Ga. 500, 97 S.E. 66; Engineering Associates v. Pankow, 268 N.C. 137, 150 S.E.2d 56, and as to territory, J. C. Pirkle Machinery Company, Inc. v. Walters, 205 Ga. 167, 52 S.E.2d 853; Orkin Exterminating Co., Inc. of South Georgia v. Dewberry, Supra; Jewel Box Stores Corp. v. Morrow, 272 N.C. 659, 158 S.E.2d 840; Waldron Buick Co. v. Motors Corp., Supra?

Defendant argues that the covenant enforced by the trial court in the instant case fails to meet any of the tests enumerated above.

We consider first the question concerning consideration. Defendant relies upon Greene Co. v. Kelley, 261 N.C. 166, 134 S.E.2d 166, and Worth Chemical Corp. v. Freeman, 261 N.C. 780, 136 S.E.2d 118. Both of these cases involved new contracts, entered after employment, which were not based upon any new or additional consideration. The covenants involved here were a part of an original contract of employment between the parties and were therefore founded upon a valuable consideration. The fact that the written contract may not have been formally executed until several weeks after defendant started work is of no significance under the circumstances presented. Moreover, under the Georgia statute of frauds an agreement not to be performed within one year must be in writing. Georgia Code Annotated, Chapter 20--4. Therefore, before the written agreement came into being, defendant had no enforceable five-year contract of employment. Also, the occasion for delay, if any, in the actual execution of the contract (which incidentally is dated 1 April 1968, the date defendant first assumed his employment responsibilities) was to arrive at a stock option plan more favorable to defendant than the one first set forth in the written agreement. The more favorable stock option plan is a part of the agreement signed. Thus, the trial judge's conclusion that the covenants were based upon valuable consideration is supported by any one of several available theories which arise on his findings and the evidence.

The covenant enforced, in our opinion, was clearly reasonably necessary to protect the interest of plaintiff. Greater latitude is generally allowed in these covenants given by the seller in connection with the sale of a business than in covenants ancillary to an employment contract. Orkin Exterminating Co., Inc., of South Georgia v. Dewberry, Supra. (For a review of the North Carolina cases enforcing covenants given in connection with the sale of a business see Jewel Box Stores Corp. v. Morrow, Supra.) Among reasons often given for the greater acceptability of 'sale of business covenants' are that covenants not to compete enable the seller of a business to sell his goodwill and thereby receive a higher price; and they also furnish a material inducement to the purchaser who purchases a business with the hope of retaining its customers. On the other hand, covenants restricting an employee's right to engage in an occupation of his choice after termination of his current employment may tend to produce hardships for the employee and to deprive the public of the service of men in the area where they are most experienced. Budget Rent-A-Car Corporation of America v. Fein, Supra; Orkin Exterminating Co., Inc. of South Georgia v. Dewberry, Supra; Hood v. Legg, 160 Ga. 620, 128 S.E. 891.

It may well be, as defendant argues, that plaintiff is not entitled to have the covenants contained in the employment contract now before us interpreted with the latitude afforded those related to the sale of a business, in that defendant was not the seller, and owned none of the stock of either company purchased by plaintiff.

We nevertheless find the circumstances surrounding the purchase of the companies by plaintiff particularly pertinent to the question of whether the covenant agreed to by defendant in paragraph 9(c) of the contract was reasonably necessary to protect plaintiff's interest. Although defendant never owned any interest in South Oil Company, he had participated in its organization. The two owners were his uncles. Defendant managed the company from the time it came into being in 1964 until purchased by plaintiff. He testified that hundreds of customers were secured for the company primarily through his efforts. He was familiar with the company's customers, suppliers and brokers, and was well experienced in the oil business. The chairman of plaintiff's Board of Directors testified:

'I have told the Court that one of the purposes in discussing with Mr. Blair and in securing from him an employment contract and covenant not to compete was to preserve the management of this company. And as to whether there was any consideration in securing the covenant not to compete concerning customers of Seaboard Oil Company or South Oil Company, customers, source of supply. As to what considerations we gave for that, well, we gave considerable consideration because without customers and without a source of supply, you couldn't stay in business. As to whether Mr. Blair occupied a unique position concerning the customers, yes, he knew the customers; he attended the directors' meetings when he was a director and information was exchanged between Jack Blase and Mr. Blair in their daily operations, * * *

'As to what consideration I gave about his connection with the customers of the company and the sources of supply of the company, well, we gave serious consideration. That's why it was part of the restrictive covenant that he would not compete, because he would have knowledge of the customers and source of supply and all other things pertaining to this business, and people were putting their life savings into the investment, such as Mr. Byron Cohen and others, and we wanted to protect them, to protect the company, and here he had a contract as chief executive officer at the division, and he had the knowledge there and all the information, and he was Mr. Blase's nephew, and if he walked off and left us, we'd have no business, and this was a very important consideration in the restricted covenant in making an investment of this type--one of the principal considerations. * * *'

The concern expressed by plaintiff's board chairman was a...