Smith, Bell & Hauck, Inc. v. Cullins

• Decision Date: 22 June 1962
• Docket Number: No. 379,379
• Citation: 183 A.2d 528,123 Vt. 96
• Court: Vermont Supreme Court
• Parties: SMITH, BELL & HAUCK, INC. v. Philip G. CULLINS and The Philip G. Cullins Insurance Agency, Inc.

Page 528

183 A.2d 528

123 Vt. 96

SMITH, BELL & HAUCK, INC. v.Philip G. CULLINS and The Philip G. Cullins Insurance Agency, Inc.

No. 379.

Supreme Court of Vermont.

June 22, 1962.

Edmunds, Austin & Wick, Burlington, for plaintiff.

Joseph C. McNeil, Francis D. Foley, Burlington, for defendants.

Before HULBURD, C. J., and HOLDEN, SHANGRAW, BARNEY and SMITH, JJ.

HOLDEN, Justice.

The plaintiff corporation purchased on insurance agency which was owned and operated by the defendant Cullins' former employer.By this action in equity it seeks to enforce the employee's covenant that he would not engage in the insurance business in the county of Chittenden for a period of three years after the termination of his employment.Equitable relief was denied and the plaintiff appeals.

The essential facts determined by the chancellor are not in serious dispute.During the latter part of 1949, the defendantPhilip G. Cullins became employed by the corporate insurance firm of Smith, Bell & Company, Inc., with its offices in the city of Burlington.A few months later, on January 18, 1950, these parties signed a formal contract of employment.The writing recites that the character of the employee's services are such that he will acquire a close relationship with the employer's customers.It is stated that if the contacts and information thus acquired are used in competition with the employer, irreparable injury will result.The agreement then provides:

'3.That Employee will not engage in the insurance business or real estate brokerage business so as to compete with Employer, either directly or indirectly, either as owner or as employee, or in any manner be connected with such a business in the County of Chittenden and State of Vermont for a period of three years (3) from the termination of his employment by Employer and this undertaking shall be valid and binding upon Employee notwithstanding the fact that the employment provided by this agreement may be terminated within a very short time after the execution of this instrument and regardless of the reason for the termination of such employment.

'4.It is thoroughly understood and agreed by and between the parties hereto that this employment may be terminated at any time by either party and Employer does not guarantee the Employee a permanent position or a position for any specific period of time.Should the employment herein provided be terminated by either party for any reason whatsoever Employee agrees on his part that for the period set forth in the preceding paragraph and within the area set forth in said paragraph that he will not engage in, either directly or indirectly, in the insurance or real estate brokerage business, all as provided for in the preceding paragraph of this agreement.

'5.It is specifically understood and agreed by and between the parties hereto that said agreement not to compete as above provided in the two preceding provisions of this agreement is an important consideration for the employment of Employee by Employer.'

The language of the contract makes no provision concerning assignment.No reference is made to successors or assigns of either party.

The defendant Cullins rose to a position of prominence in the affairs of Smith, Bell & Company, Inc.He became well and favorably known throughout the Burlington community as an experienced insurance broker.His services with this agency were profitable both to his employer and to himself.Cullins was satisfied in his employment by Smith, Bell & Company and would have continued with this corporation had he been permitted to do so.His employment by the firm was concluded on August 17, 1961.

During the time of his service with this agency its capital stock was closely held by Ernest B. Smith, who owned fifty one per cent and Phillips M. Bell, the beneficial owner of the remainder.On July 21, 1961 these stockholders granted a written option to George K. Hauck, or his nominee, which provided for the purchase of all of the outstanding shares of stock in Smith, Bell & Company, Inc.

The option agreement provided among other things, that in the event of purchase, the sellers would deliver written resignations of all officers in the Smith, Bell & Company, Inc.The agreement also acknowledges that the parties have examined the employment contract between the corporation and Philip Cullins, that the enforceability of the contract is understood by the parties and the sellers shall not be deemed to have assumed any personal liability as to its validity.

The option to purchase was exercised according to a formal and detailed plan.The execution of the arrangements specified accomplished these results.All of the capital stock and assets of Smith, Bell & Company, Inc., were transferred to the George K. Hauck Agency, Inc., including the Cullins contract.The stock certificates in the transferring corporation were cancelled.On August 17, 1961, Smith and Bell, as officers of the old agency, filed a certificate of dissolution of Smith, Bell & Company, Inc., as provided in 11 V.S.A. § 531.The articles of association of the purchasing corporation were amended to change its name from George K. Hauck Agency, Inc., to Smith, Bell and Hauck, Inc., the plaintiff in this action.

At or about the time of the transfer, George K. Hauck, the owner and president of the plaintiff, advised the defendant Cullins that he would like him to remain with the 'new corporation' in the capacity of vice president and director at the same income he received from the Smith, Bell & Company, Inc. Cullins declined and never entered the employ of the plaintiff.

During the ensuing month Cullins organized The Philip G. Cullins Insurance Agency, Inc.The chancellor has found that Cullins intends to use the knowledge, experience and customer contacts which he acquired during his service with Smith, Bell & Company, Inc., to further the business interests of his newly formed agency.

The essential and controlling question is the right of the plaintiff, as the successor to Smith, Bell & Company, Inc., to enforce the restrictive agreement provided in Cullins' contract of employment with his former employer.In dealing with the problem it is not important whether Cullins knew of the proposed assignment of his undertaking to the purchaser of his former agency.The plaintiff's criticism of a negative finding on this point is of no consequence in view of the undisputed fact that the employee did not authorize the assignment.The plaintiff's claim to equitable relief must stand or fall on its right to be substituted as covenantee over the opposition of the employee who made the undertaking with the plaintiff's predecessor.If the employee's agreement not to compete is assignable equitable relief should not be withheld.On the other hand, if the covenant is personal, incapable of extension beyond the original parties, the plaintiff has no standing to enforce its restraint.

Our statutes recognize and authorize the transfer of corporation assets by sale, merger and consolidation between different corporate entities.And it is provided that the acquiring corporation shall possess all the rights, privileges and benefits of the original...