Wright & Seaton, Inc. v. Prescott

• Decision Date: 15 September 1982
• Docket Number: No. 80-1962,80-1962
• Citation: 420 So.2d 623
• Court: Florida District Court of Appeals
• Parties: WRIGHT & SEATON, INC., Appellant, v. Raymond W. PRESCOTT, Appellee.

Page 623

420 So.2d 623

WRIGHT & SEATON, INC., Appellant, v. Raymond W. PRESCOTT, Appellee.

No. 80-1962.

District Court of Appeal of Florida Fourth District.

Sept. 15, 1982.

Rehearing Denied Nov. 1, 1982.

Larry Klein, West Palm Beach, and Nixon, Hargrave, Devans & Doyle, Palm Beach, for appellant.

Edna L. Caruso, West Palm Beach, and Susan J. O'Hara, West Palm Beach, for appellee.

GLICKSTEIN, Judge.

This is an appeal from a final judgment entered against an employer insurance agency in favor of the agency's former employee. We reverse and remand.

Appellant is a general insurance agency which has been in business for over forty-five years in Palm Beach County. It employed appellee in May of 1978 and paid him a salary of $14,000 per year. In early 1979 appellee received a raise of $1,000, and on May 1, 1979, he and appellant executed an employment agreement.

By the terms of the agreement, appellant employed appellee for one year, reserving the right to terminate his employment at any time, with or without cause, upon written notice. Appellee's salary was raised to $20,000 per year and he was to receive ten percent of net commission income on new business he produced. In return he was to perform such executive, administrative, sales or other duties as appellant assigned to him. Appellee also agreed not to engage in a business similar to or in any way competitive with the business of appellant or to solicit appellant's customers during his employment and for three years following termination thereof. ¹

Although the parties performed their agreement for over eleven months, appellee testified that in December of 1979, he had discussed the possibility of other employment with one of appellant's former employees. At the time, they projected that appellee could work for the former employee were the latter to open an insurance agency and appellee to resolve the conflict created by his covenant not to compete with appellant. On April 16, 1980, fourteen days before the agreement expired, appellee delivered to appellant a letter of resignation, effective as of the end of the month, in which he stated the agreement was "void for failure of consideration, inadequate consideration, and lack of mutuality." Immediately two letters were sent to appellee on behalf of appellant. One expressed regret and advised that appellant's management had intended to extend the agreement. The other accepted appellee's resignation immediately, rather than as of the end of the month.

Appellee then went to work for the new agency appellant's former employee had established in West Palm Beach. Appellant filed a complaint and the trial court, after conducting an evidentiary hearing, issued a temporary injunction. At trial, however, the court dissolved the injunction, dismissed the complaint with prejudice, and retained jurisdiction to assess appellee's damages.

I

It was the trial court's opinion that appellee's covenant not to compete was unenforceable because the agreement lacked mutuality, which we interpret to mean a lack of mutuality of obligation. ² One of the most illuminating discussions we have come across with respect to "mutuality of obligations" appears in Meurer Steel Barrel Co. v. Martin, 1 F.2d 687, 688 (3d Cir. 1924):

As an unilateral contract is not founded on mutual promises, the doctrine of mutuality of obligation is inapplicable to such a contract. It is applicable, however, to a bilateral contract containing mutual executory promises because there both parties are bound by reciprocal obligations and the promise of one is the consideration for the promise of the other. If for any reason the promise of one party is not binding upon him, it is not a sufficient consideration for the promise of the other and the contract is void for want of consideration. Velie Motor Car Co. v. Kopmeier, 194 F. 324, 114 C.C.A. 284; Bernstein v. W.B. Mfg. Co., 238 Mass. 589, 131 N.E. 200. The terms "consideration" and "mutuality of obligation" are sometimes confused. "Consideration is essential; mutuality of obligation is not unless the want of mutuality would leave one party without a valid or available consideration for his promise. The doctrine of mutuality of obligation appears therefore to be merely one aspect of the rule that mutual promises constitute considerations for each other. Where there is no other consideration for a contract, mutual promises must be binding on both parties. But where there is any other consideration for the contract, mutuality of obligation is not essential."

See also Bales v. Journeymen Barbers', Hairdressers', Cosmetologists' & Proprietors' International Union Local No. 867, 239 So.2d 624 (Fla. 4th DCA 1970); 17 C.J.S. Contracts § 100 (1963).

We start out with the proposition that, in this case, the parties entered into a bilateral contract containing mutual executory promises. Appellant agreed to continue to employ and pay appellee; appellee agreed to work for appellant and not to compete with it for a period of time in a certain area when his employment terminated. Appellant retained the right, however, to terminate the employment without cause. But this right could only be exercised upon the giving of written notice. Given the foregoing, the initial inquiry (although, as we shall see, not the determinative one) is whether there was mutuality of obligation at the inception of the agreement and, if not, whether it was unnecessary because of the existence of other consideration; both are questions of law.

Our inclination is that mutuality of obligation did not exist when the parties executed their agreement because appellant had a right to terminate without cause, although we do not hold so expressly. ³ Two Florida cases lead us in that direction. The first is DeMarco v. Publix Super Markets, Inc., 384 So.2d 1253, 1254 (Fla.1980), wherein the supreme court approved and quoted the following language from the opinion of the Third District Court of Appeal that was being reviewed:

"[W]here the term of employment is discretionary with either party or indefinite, then either party for any reason may terminate it at any time and no action may be maintained for breach of the employment contract."

The second is the decision of the Second District Court of Appeal in Pick Kwik Food Stores, Inc. v. Tenser, 407 So.2d 216, 218 (Fla. 2d DCA 1981), in which it held:

[T]he executory features of the contract were void from the beginning for lack of consideration or, as the rule is sometimes expressed, for lack of mutuality.

... If one party has the unrestricted right to terminate the contract at any time, that party makes no promise at all and there is not sufficient consideration for the promise of the other.

It should be borne in mind that in DeMarco, Pick Kwik, and all the authorities upon which the latter decision relies the claims were based upon a refusal of one party to carry on with the contract: one of the parties reserved the right to cancel and did so and the other sought relief based on some executory theory resulting from the cancellation. The courts all held the cancellation cut-off relief, thus they denied same. We only mention this because legal principles arise out of factual contexts and the actions bred thereby and bilateral executory contracts characteristically, but not necessarily, seem to involve the type of claim just mentioned.

Nevertheless, we will disregard the foregoing concern over mutual obligation at the inception of the agreement for two reasons. One may appear to be a thin reed, but the other is determinative. First, the obligation on appellant's part to give written notice of termination can be held to be the consideration eliminating the need for mutual obligation. In Mangus v. Present 135 So.2d 417, 418 (Fla.1961), the supreme court said:

In Henderson v. Kendrick, supra [82 Fla. 110, 89 So. 635, 637], we held, "The detriment which will constitute a consideration for a promise need not be an actual loss to the promisee. It is sufficient if he does something that he is not legally bound to do."

In the absence of the parties' agreement, appellant was not bound to provide appellee with written notice. The requirement that it do so can be held to be sufficient consideration to support the promise of the other party. It is stated in 1 S. Williston, A Treatise on the Law of Contracts § 105, at 418-19 (3d ed. 1957):

An agreement wherein one party reserves the right to cancel at his pleasure cannot create a contract.

Since the courts, however, do not favor arbitrary cancellation clauses, the tendency is to interpret even a slight restriction on the exercise of the right of cancellation as constituting such legal detriment as will satisfy the requirement of sufficient consideration; for example, where the reservation of right to cancel is for cause, or by written notice, or after a definite period of notice, or upon the occurrence of some extrinsic event, or is based on some other objective standard.

(Footnotes omitted.) See also 17 C.J.S. Contracts § 100(6) (1963).

Second, and more important, is the rule stated in 17 C.J.S. Contracts § 100(3), at 799-800 (1963):

Although a contract is lacking in mutuality at its inception, such defect may be cured by the subsequent conduct of the parties. Want of mutuality is no defense in the case of an executed contract, and a promise lacking mutuality at its inception becomes binding on the promisor after performance by the promisee.

(Footnotes omitted.) Not only does Florida follow that rule, Russell v. Martin, 88 So.2d 315 (Fla.1956); Sanchez v. Crandon Wholesale Drug Co., 173 So.2d 687 (Fla.1965), adopting Florida-Georgia Chemical Co. v. National Laboratories, Inc., 153 So.2d 752 (Fla. 1st DCA 1963), but it is applicable under the circumstances of this case.

If appellant continued to employ appellee, the latter promised that upon termination of his employment he would not compete with appellant. Even if we were to assume--and for the...