Combined Insurance Co. of America v. McDonald

243 S.E.2d 817 (1978)

COMBINED INSURANCE COMPANY OF AMERICA
v.
Robert Wayne McDONALD.

No. 773SC338.

Court of Appeals of North Carolina.

May 2, 1978.

Sanford, Cannon, Adams & McCullough by H. Hugh Stevens, Jr. and J. Allen Adams, Raleigh and Speight, Watson & Brewer by W. H. Watson, Greenville, for plaintiff-appellee.

Boyce, Mitchell, Burns & Smith by G. Eugene Boyce and Lacy M. Presnell, III, Raleigh, for defendant-appellant.

MITCHELL, Judge.

The defendant, Robert Wayne McDonald, brought forward and argued numerous exceptions and assignments of error. All of them center around the single issue of whether the trial court erred in holding that the plaintiff, Combined Insurance Company of America, forfeited its rights to enforce the covenants against competition in its two contracts with the defendant by its failure to provide him with the ten days' notice of termination of his employment provided for in the last of those contracts.

The defendant first contends that the plaintiff's failure to give ten days' notice of the termination of his employment was, as a matter of law, a material breach of the contracts which would prohibit the plaintiff from enforcing the covenants of the contracts requiring the defendant withhold from competing with the plaintiff within the specified area for two years from the date of termination of each contract.

The record before us is absolutely devoid of any evidence or other indication that the plaintiff in any way breached any of the terms or conditions of the "District Manager's Contract." We find, therefore, that the trial court properly enjoined the defendant from violating the covenant against competition in that contract and from competing with the plaintiff prior to 3 June 1976 in the geographical area designated in the contract.

During oral arguments before us, counsel for the plaintiff acknowledged, however, that the plaintiff did terminate the defendant on 31 March 1975 without the ten days' notice provided for in the "Representative Standard Contract." The defendant contends that the plaintiff's breach of this provision of the contract relieved him of his obligation not to compete with the plaintiff for two years from the date of the termination. He contends injunctive relief was, therefore, erroneously granted the plaintiff. We do not agree.

Our courts have long recognized that a party seeking equitable relief, such as injunctive relief, must come before the court with "clean hands." Those who seek equitable remedies must do equity, and this maxim is not a precept for moral observance, but an enforceable rule. 5 Strong, N.C. Index 3d, Equity, § 1.1, p. 623. Injunctive relief to enforce the terms of a contract will not be granted a party who has himself breached the terms of the contract when his breach is substantial and material and goes to the heart of the agreement. Where the breach by the party seeking enforcement of a contract by injunctive relief is not material, however, it will not prevent him from obtaining such equitable relief. Wilson v. Wilson, 261 N.C. 40, 43, 134 S.E.2d 240, 243 (1964).

The defendant relies primarily upon the case of Felton Beauty Supply Company v. Levy, 198 Ga. 383, 31 S.E.2d 651, 155 A.L.R. 647 (1944) in support of his contention that the plaintiff's failure to give the notice of termination required by the contract was a material breach as a matter of law which would bar equitable relief to enforce the defendant's covenant not to compete with the plaintiff. In that case the Supreme Court of Georgia specifically stated that its decision was, in large measure, based upon the fact that the contract before it for consideration was clearly intended by the parties to be one contract and entire and not severable. Thus, it was held that the covenants of the contract must stand or fall together, and a breach by one of the parties relieved the other party of its obligations.

We do not find the opinion of the Supreme Court of Georgia in Felton Beauty Supply to establish a rule substantially differing from the rule long followed by our courts in similar instances. Our courts have also held that contracts which are entire may not be violated without violating the whole, and a breach by one party of a material part will discharge the whole at the option of the other party. Edgerton v. Taylor, 184 N.C. 571, 577, 115 S.E. 156, 159 (1922).

The "Representative Standard Contract" in question here, however, specifically stated in its terms that it was to be "construed as being severable" and not as entire. Additionally, that contract specifically provided that the covenants prohibiting the defendant from competing with the plaintiff for two years after termination "are especially of the essence" of the contract. The provision for notice of termination was not made "of the essence." In cases involving contracts very similar to the one before us, the Supreme Court of Georgia has distinguished its prior decision in Felton Beauty Supply and held that, in situations involving severable contracts, failure to give notice of termination as required by the contracts did not defeat the right to enforce the covenant prohibiting competition. Orkin Exterminating Company v. Gill, 222 Ga. 760, 152 S.E.2d 411 (1966); Mansfield v. B. & W. Gas, Inc., 222 Ga. 259, 149 S.E.2d 482 (1966).

Other Georgia cases cited by the defendant do not indicate whether the contracts involved were by their terms made severable or entire and are of no assistance to us. We have also reviewed the cases from other jurisdictions cited by both parties and find them not to be determinative of the issues presented.

We hold that the mere failure of an employer to give the notice of termination of employment provided for in its contract of employment with its employee, nothing else appearing, does not as a matter of law constitute a material breach which will prevent the employer's seeking equitable remedies to prevent a breach of a covenant prohibiting the employee from competing with the employer within a reasonable area and time. See, Annot. 155 A.L.R. 652 (1945). Where such contracts are severable, covenants against competition will be defeated only if the party seeking to enforce them has engaged in a breach which is material and, thus, goes to the heart of the contract. Wilson v. Wilson, 261 N.C. 40, 43, 134 S.E.2d 240, 243 (1964); Edgerton v. Taylor, 184 N.C. 571, 577, 115 S.E. 156, 159 (1922).

Whether a failure to perform a contractual obligation is so material as to discharge other parties to the contract from further performance of their obligations thereunder is a question of fact which must be determined by the jury or, in appropriate cases such as this case, by the trial court without a jury. See, Restatement of Contracts, §§ 274-275 (1932). Here, the clear intent of the parties to the contract, as expressed therein, and the stipulated fact of the defendant's employment with another company within two days, constituted evidence of the parties' intent that the notice of termination provision not be deemed material. This conclusion was also amply supported by other evidence before the trial court.

We hold that the trial court's judgment of 1 December 1976, granting injunctive relief and ordering that the defendant recover nothing of the plaintiff by reason of the entry of the prior restraining order and injunction, was proper. For the reasons stated, the judgment of the trial court is

Affirmed.

VAUGHN and ERWIN, JJ., concur.