Toch v. Eric Schuster Corp.

• Citation: 490 S.W.2d 618
• Decision Date: 28 December 1972
• Docket Number: No. 18028,18028
• Parties: Konrad TOCH, Appellant, v. ERIC SCHUSTER CORPORATION, Appellee.
• Court: Texas Court of Appeals

Page 618

490 S.W.2d 618

Konrad TOCH, Appellant, v. ERIC SCHUSTER CORPORATION, Appellee.

No. 18028.

Court of Civil Appeals of Texas,

Dallas.

Dec. 28, 1972.

Rehearing Denied Jan. 25, 1973.

James G. Clement, Parnass, Clement & Cline, Irving, for appellant.

Leonard Z. Finger, Finger & Burg, Houston, for appellee.

CLAUDE WILLIAMS, Chief Justice.

At all times pertinent to this litigation Eric Schuster Corporation (hereinafter referred to as Schuster) was engaged in the business of importing, manufacturing and selling wholesale picture frames, moldings and related items. Konrad Toch was employed by Schuster as a salesman pursuant to a written contract between the parties dated October 3, 1960. Among other provisions of this contract Toch agreed that he would devote his full time and his best efforts to learn and perform such duties as may be assigned to him by his employer. Schuster agreed to trian Toch in the performance of his duties and to assign him certain territory in which he would be a salesman. The contract was to be in effect for a period of one year and be automatically renewed for periods of one year thereafter unless either party should elect to terminate the contract by giving the other party notice by registered mail. Paragraph 11 of the contract provided:

'The Employee agrees upon the termination of his employment which is hereby guaranteed for one year, that he will not, for a period of three years thereafter, directly or indirectly engage in the same business as the employer, either individually, or partnership or as a member of any firm, or partnership or as a stockholder, officer or employee of any firm, partnership, corporation or company which competes directly with that done by the Employer.'

Toch performed his duties as salesman for Schuster for approximately eleven years from October 3, 1960 through May 28, 1971, at which time the contract terminated. During the period of about the last ten years of his employment Toch was the exclusive sales representative for Schuster in what is designated as the 'Southwest Territory'. This area consisted of all of the States of Oklahoma, Arkansas, Louisiana, Mississippi, and designated portions of the States of Texas, Tennessee, Missouri, Kansas and Nebraska.

Following termination of the contract separate actions were filed by Toch and Schuster and the same were ultimately consolidated for trial. Toch sued Schuster to recover commissions and bonuses alleged to be due for the years 1970 and 1971, as well as for attorneys' fees incurred in the recovery thereof. He also sought damages for an alleged breach of the contract of employment and for additional damages allegedly resulting from anti-trust violations by Schuster. Schuster's suit against Toch sought equitable relief in the form of an injunction to prohibit violation of the covenant against competition for a period of three years after May 28, 1971 and also for damages against Toch for alleged violation of the employment contract in failing to devote his full time to his employer's business as well as in selling non-competing items without his employer's consent.

During the course of the trial the jury was dismissed by agreement, and all matters were submitted ot the court for determination. The trial court entered its final judgment which, inter alia, included the following:

(1) Toch was awarded $7,216.99 as commissions;

(2) Toch was denied attorneys' fees on his claim for commissions;

(3) Toch was awarded $1,550 for bonus earned in 1970:

(4) Toch was awarded $1,000 for attorneys' fees under his claim for bonuses;

(5) Schuster was found not to have conspired to violate the Texas anti-trust laws and Toch's prayer for damages was therefore denied;

(6) Toch was found to have breached his contract of employment with Schuster by failing to secure Schuster's consent to conduct other business activities, but Schuster's prayer for damages was denied because of lack of proof of amount of damages sought;

(7) Schuster was found not to have breached the contract of employment with Toch and Toch's prayer for damages was therefore denied;

(8) The court found that the covenant against competition contained in the contract was valid and enforceable, as limited by the court, and that the three-year period stated in the contract was found to be reasonable. Toch was therefore enjoined from competing with Schuster (a) in all of Dallas and Tarrant Counties, and (b) from selling to any person or entity listed in an attached exhibit to the judgment, which contains an itemized list of customers in the area known as the Southwest Territory referred to above.

Toch appeals from this judgment and brings forward eleven points of error. In his first three points he contends that since the contract not to compete for a period of three years following termination of the contract was not confined to any geographic area or limitations that the same was void and therefore the trial court erred, as a matter of law, in enjoining appellant from competing with appellee in any geographic area for any period of time. In his ninth and tenth points of error appellant Toch takes the position that if the trial court had legal authority to reform the covenant against competition to apply to a geographic area then the trial court abused its discretion and committed reversible error in enjoining appellant from competing against appellee within an unreasonably large area for an unreasonably long period of time.

The question of the validity of covenants voluntarily entered into between employer and employee not to engage in competition following termination of the employment contract has been the subject of much litigation in Texas in recent years. In John L. Bramlet p Co. v. Hunt, 371 S.W.2d 787 (Tex.Civ.App., Dallas 1963, writ ref'd n.r.e.), we pointed out that there was a time in our jurisprudence when covenants not to compete were held to be unenforceable because in restraint of trade and contrary to public policy. However, under the custom and usages of modern business practices it is now well established that contracts ancillary to employment involving trades or professions which provide for agreements against competition are enforceable, though amounting to limited restraint of trade, where such contracts are reasonably limited as to time and space. Krueger, Hutchinson & Overton Clinic v. Lewis, 266 S.W.2d 885 (Tex.Civ.App., Amarillo 1954, affirmed 153 Tex. 363, 269 S.W.2d 798); Weatherford Oil Tool Co. v. Campbell, 161 Tex. 310, 340 S.W.2d 950 (1960); Restatement of the Law of Contracts §§ 515, 516.

Of course, an essential element of such contracts is that the covenant not to compete be reasonably incident to the contract of employment and essential to the protection of the employer's business and good will. McLean v. Employers Casualty Co., 381 S.W.2d 582 (Tex.Civ.App., Dallas 1964); and Traweek v. Shields, 380 S.W.2d 131 (Tex.Civ.App., Tyler 1964). Also implicit in these contracts is the necessity that same be reasonable as to time and geographic area. The question of whether the duration and area of the covenant are reasonable is one of law to be determined by the court. Lewis v. Krueger, Hutchinson & Overton Clinic, 153 Tex. 363, 269 S.W.2d 798 (1954); Chenault v. Otis Engineering Corp., 423 S.W.2d 377 (Tex.Civ.App., Corpus Christi 1967); Vaughan v. Kizer, 400 S.W.2d 586 (Tex.Civ.App., Waco 1966, writ ref'd n.r.e.); and Eubanks v. Puritan Chemical Co., 353 S.W.2d 90 (Tex.Civ.App., Houston 1962, writ ref'd n.r.e.). In an action to enforce a covenant not to compete in an employment agreement the burden of proof is upon the person seeking to avoid the effect of the covenant. McAnally v. Person, 57 S.W.2d 945 (Tex.Civ.App., Galveston 1933, writ ref'd); and Mosimann v. Employers Casualty Co., 354 S.W.2d 171 (Tex.Civ.App., Houston 1962).

Practically all of the cases dealing with the question of enforcement of covenants not to compete relate to agreements that contain specific limitation of time and area. In Lewis v. Krueger, Hutchinson & Overton Clinic, 153 Tex. 363, 269 S.W.2d 798 (1954), the Supreme Court went a step further and stated that merely because a limit has not been fixed for the duration of the restraint, the agreement will not be struck down but will be enforceable for such a period of time as would appear to be reasonable under the circumstances. The court also struck down the contention that the act of a court of equity in deciding what would be a reasonable time and geographic limitation would constitute the making of a new and different contract for the parties.

This rule was adopted by the Court of Civil Appeals at El Paso in an opinion by Chief Justice Hamilton in Spinks v. Riebold, 310 S.W.2d 668 (1958, writ ref'd).

In Weatherford Oil Tool Co. v. Campbell, 161 Tex. 310, 340 S.W.2d 950 (1960), the Supreme Court, citing Lewis v. Krueger, Hutchinson & Overton Clinic and Spinks v. Riebold, supra, said:

'* * * it can no longer be said that a covenant not to compete is void and unenforceable simply because it is not reasonably limited as to either time or area. These cases hold that although the territory or period stipulated by the...