Vendo Co. v. Stoner

• Decision Date: 30 January 1969
• Docket Number: Gen. No. 68--1
• Citation: 245 N.E.2d 263,105 Ill.App.2d 261
• Parties: The VENDO COMPANY, a foreign corporation, Plaintiff-Appellee, v. Harry B. STONER and Stoner Investments, Inc., a foreign corporation, Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 263

245 N.E.2d 263 105 Ill.App.2d 261 The VENDO COMPANY, a foreign corporation, Plaintiff-Appellee,
v.
Harry B. STONER and Stoner Investments, Inc., a foreign
corporation, Defendants-Appellants. Gen. No. 68--1. Appellate Court of Illinois, Second District. Jan. 30, 1969.
Rehearings Denied March 24, 1969.

[105 Ill.App.2d 265]

Page 265

Barnabas F. Sears, Gerald M. Sheridan, Jr., James E. S. Baker, Robert A. Downing, Chicago, Sidley & Austin, Boodell, Sears, Sugrue & Crowley, Chicago, of counsel, for defendants-appellants.

Reid, Ochsenschlager, Murphy & Hupp, by Lambert M. Ochsenschlager and Stephen J. Mrkvicka, Aurora, for plaintiff-appellee.

SEIDENFELD, Justice.

Defendants, Harry B. Stoner and Stoner Investments, Inc., appeal from judgments in a suit for breach of a sales and employment contract and for injunctive relief, heard without a jury.

Judgment was entered in favor of the plaintiff and against the defendants as follows: (1) against Harry B. [105 Ill.App.2d 266] Stoner in the amount of $250,000; (2) against Harry B. Stoner and Stoner Investments, Inc., in the amount of $1,100,000; (3) against Harry B. Stoner, restraining him from 'engaging, directly or indirectly, in the vending machine manufacturing business, individually

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or as a partner, employee or agent, anywhere in the United States or in any foreign country in which the Vendo Company engaged in such business (as of June 1, 1959), until June 1, 1969; and (4) against Stoner Investments, Inc., restraining it in similar terms.

A question is also raised on the pleadings, arising out of the court's order striking certain defenses and counterclaims based upon the Federal and State Antitrust laws.

In April, 1959, the defendant corporation was principally engaged in the business of manufacturing and selling candy vending machines throughout the United States, and was about to license a company to sell its machines in England. This corporation will herein be referred to as Stoner Investments, its present name, notwithstanding that it was named Stoner Mfg. Corp. in 1959. The corporate shares of Stoner Investments were owned in 1959 by defendant Harry B. Stoner, his wife, his mother and his sister-in-law, Ruth Netrey. Mr. Stoner was, without dispute, the principal officer and in control of the management of the corporation.

The Vendo Company, in 1959, had been one of the leading manufacturers and sellers of vending machines for hot and cold beverages, ice cream and certain other products. The company did not manufacture or sell vending machines for candy, cigarettes, hot sandwiches and instant coffee and tea at that time, but such machines had been considered and were in various stages of research and development. Vendo machines were then being sold in 58 countries in every continent. Clearly, Vendo was a considerably larger and more diversified company than Stoner Investments.

[105 Ill.App.2d 267] On April 3, 1959, a contract was executed by which Vendo agreed to purchase Stoner Investments' assets, excluding real estate and improvements thereon, cash on hand or on deposit, and receivables. In essence, Vendo was to pay $3,400,000 in cash, subject to certain adjustments, deliver 60,000 shares of its fully paid and non-assessable common stock, pay a portion of its profits in excess of $250,000 in any calendar year from the assets being purchased for a period of ten years, pay 25% Of monies received from sales outside the United States of Stoner Investments' products, also for a period of ten years, assume responsibility for the collection of accounts receivable, and pay all debts, obligations and liabilities of Stoner Investments. The sales agreement imposed the following restriction on the selling corporation:

'Section 15. From and after the closing, the Company (Stoner Investments) will not own, directly or indirectly, manage, operate, join, control or participate in the ownership, management, operation or control of, or be connected in any manner with, any business engaged in the manufacture and sale of vending machines under any name similar to the Company's present name, and, for a period of ten (10) years after the closing, the Company will not in any manner, directly or indirectly, enter into or engage in the United States or any foreign country in which Vendo or any affiliate or subsidiary is so engaged, in the manufacture and sale of vending machines or any business similar to that now being conducted by the Company.'

In addition to the sales agreement, an employment contract was executed whereby Mr. Stoner would serve Vendo in an executive capacity for five years, or until June 1, 1964, at an annual salary of $50,000. This agreement also contained a noncompetition clause which reads as follows:

[105 Ill.App.2d 268] '5. During the term of this agreement and for a period of five (5) years following the termination of his employment hereunder, whether by lapse of time or by termination as hereinafter provided, Stoner shall not directly or indirectly, in any of the territories in which the Company or its subsidiaries or affiliates is at present conducting business and also in territories which Stoner knows the Company or its subsidiaries or affiliates

Page 267

intends to extend and carry on business by expansion of present activities, enter into or engage in the vending machine manufacturing business or any branch thereof, either as an individual on his own account, or as a partner or joint venturer, or as an employee, agent or salesman for any person, firm or corporation or as an officer or director of a corporation or otherwise, provided however that the Company, its subsidiaries and affiliates shall be excluded from the restrictions hereof and provided also that Stoner shall be permitted to own, hold, acquire and dispose of stocks and other securities which are traded in the investment security market whether on listed exchanges or over the counter.'

The employment contract provided that Mr. Stoner 'shall regulate his own hours of employment and shall determine the amount of time and effort which he shall devote' to Vendo, and that the value of his services are not to be measured by the time and effort he devotes to the business, but by his advice, counsel, know-how and experience. The contract further provided, Inter alia, that Vendo 'shall have the right to terminate this agreement upon thirty (30) days notice in the event of the substantial violation of the terms hereof by Stoner.'

There was evidence offered to show that Mr. Stoner, after the signing of the sales agreement but before the closing of the transaction, had second thoughts about the wisdom of the sale. He made statements to this effect [105 Ill.App.2d 269] to the business representative of the union for the plant's employees, intimating at the time that many of the employees would be losing their jobs and that equipment was being moved out of the plant. It does not appear that the union took any action--other than to investigate--as a result of these conversations.

Almost immediately after the takeover by Vendo, several points of friction developed between Mr. Stoner and certain of Vendo's other executives. Essentially, Mr. Stoner complained that his services were not being utilized, that he was being treated as nothing more than a 'figurehead,' and that the procedures and employees of Vendo were ineffectual.

For several years prior to the sale to Vendo, R. W. Phillips (Rod) had been the Stoner plant superintendent, and his son, William Phillips (Bill), had been assistant superintendent. Rod was liaison engineer between the engineering and production departments, and participated in design work on a day-to-day basis. Bill had a degree in aeronautical engineering and Navy training in electronics.

Bill resigned from Vendo in June or July of 1960, ostensibly because he was no longer in line to become the plant manager, and because he purportedly disagreed with Vendo's philosphy and attitude concerning product quality. Within two months of his resignation, Bill met with Mr. Stoner and proposed that the latter finance the development by Bill of an electronic coin detecting device which he had conceived, and which would be of considerable value in the vending machine as well as in other industries. That discussion concluded with the agreement that Stoner Investments would pay Bill a salary of $650 per month to develop such a device, and any patents thereon would belong to Stoner Investments. Bill's father, Rod Phillips, was present at the time of this conversation.

Working primarily in his basement at home, Bill nearly completed the coin detector by the end of 1960. A patent [105 Ill.App.2d 270] was issued in October of 1961, and was assigned to Stoner Investments. Except for a 'breadboard' model, the coin detector was never produced. Bill received a total of $3,250 as salary from Stoner Investments for his work on the coin detector, and in addition was reimbursed nearly $1,000 for expenses.

Rod Phillips also resigned from Vendo in mid-1960, at about the same time as Bill resigned. Rod's stated reason for leaving was that he resented 'spying' on the progress of another company which manufactured slug-rejectors. Rod spent approximately

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six months after his resignation in retirement, and it was during this period of time that his son, Bill, was designing the electronic coin detector with the financial aid of Stoner Investments.

In late 1960 or early 1961, when Bill's design of the coin detector was virtually completed, Rod approached Mr. Stoner with the request that Stoner provide sufficient funds to enable Rod of engineer and develop a particular type of vending machine. Mr. Stoner agreed to have Stoner Investments make non-interest bearing loans to Rod for that purpose. According to the testimony of defendants, neither Mr. Stoner nor Stoner Investments was to have any ownership or control in Rod's venture, it being their position that Rod was...