Forrest Paschal MacHinery Co. v. Milholen

220 S.E.2d 190 (1975) 27 N.C. App. 678

FORREST PASCHAL MACHINERY COMPANY
v.
Harold J. MILHOLEN et al.

Nos. 7518SC454 and 7518SC582.

Court of Appeals of North Carolina.

December 17, 1975.

Brooks, Pierce, McLendon, Humphrey & Leonard by C. T. Leonard, Jr., and John L. Sarratt, Greensboro, for plaintiff.

Smith, Moore, Smith, Schell & Hunter by Stephen P. Milliken, Richard W. Ellis and H. Miles Foy, III, Greensboro, for defendants.

MORRIS, Judge.

Although both plaintiff and defendants docketed separate records and filed briefs with respect to the questions presented by each of the appeals, we deem it practical to address all questions raised in each appeal in one opinion.

The order from which defendants and plaintiff appeal restrains defendant from competing with plaintiff pending trial of the cause on its merits, and is, therefore, interlocutory. Generally, an appeal from an interlocutory order is premature. However, the appeal may be considered by appellate courts if a substantial right of the appellant would be affected adversely by continuing the effectiveness of the injunction pending trial on the merits. G.S. 1-277. Pruitt v. Williams, 288 N.C. 368, 218 S.E.2d 348 (1975) and cases there cited; Industries, Inc. v. Blair, 10 N.C.App. 323, 178 S.E.2d 781 (1971) and cases there cited; Cablevision v. Winston-Salem, 3 N.C.App. 252, 164 S.E.2d 737 (1968). Here, we think that the order entered restraining defendants from engaging in business in the particulars set forth therein affects a substantial right of defendants. We therefore consider their appeal. Industries, Inc. v. Blair, supra. See also U-Haul Co. v. Jones, 269 N.C. 284, 152 S.E.2d 65 (1967); Exterminating Co. v. Griffin and Exterminating Co. v. Jones, 258 N.C. 179, 128 S.E.2d 139 (1962), and Wilmar, Inc. v. Liles and Wilmar, Inc. v. Polk, 13 N.C.App. 71, 185 S.E.2d 278 (1971), cert. denied, 280 N.C. 305, 186 S.E.2d 178 (1972). See also G.S. 1A-1, Rule 62(a) and (c).

By G.S. 75-1, contracts in restraint of trade are made illegal in North Carolina. See also G.S. 75-2 and G.S. 75-4. This State, however, has long recognized the rule that a covenant not to compete is enforceable in equity if it is "(1) in writing, (2) entered into at the time and as a part of the contract of employment, (3) based on valuable considerations, (4) reasonable both as to time and territory embraced in the restrictions, (5) fair to the parties, and (6) not against public policy." Exterminating Co. v. Griffin and Exterminating Co. v. Jones, supra, 258 N.C. at 181, 128 S.E.2d at 141, and cases there cited.

The court found as facts that William was first employed by plaintiff on a permanent basis on 1 February 1966 and that the contract containing the covenant not to compete was executed on or about 23 July 1966. The court further found that he did not receive any promotion or increase in salary at the time of the execution of the covenant not to compete and that thereafter he remained in plaintiff's employ for some 8½ years, received numerous increases in salary and was promoted to the positions of director of engineering, director of sales, and vice-president. There was ample evidence before the court to support these findings. It is clear that, based upon the findings of fact, the covenant not to compete executed by William on 23 July 1966 was not ancillary to a contract of employment nor was it supported by substantial consideration. The court correctly concluded that the covenant not to compete executed by William and plaintiff is not enforceable.

The covenant not to compete entered into by plaintiff and Harold on or about 25 January 1964 is also unenforceable for the same reasons which make William's covenant invalid. However, the contract entered into between plaintiff and Harold dated 7 December 1972 falls into a different category. Harold's affidavit stated that he was made acting general manager on or about 13 November 1972 and that when he signed the contract of employment containing a covenant not to compete some three weeks later, there were no changes in his duties, responsibilities, or compensation. The contract provides "that for the purpose and subject to the terms and conditions hereinafter set forth said parties of the first part [Forrest Paschal Machinery Company and Southern Buildings Company], do hereby employ said party of the second part (Harold) and said party of the second part hereby accepts such employment." It further provides "that the duties to be performed by the party of the second part are as follows: Shall act as General Manager for Forrest Paschal Machinery Company, Southern Buildings Company, Delta Corporation, Pas-Co Industrial and Fabricating Company, PTY Ltd., and Bason & Company Ltd.;" (Emphasis supplied) Harold's affidavit concedes that he was made general manager by the contract but states that there were no changes in his duties or compensation. The contract further provides that "[T]his employment and the compensation therefor shall begin as of the 8th day of November 1972, (sic) unless sooner terminated by mutual consent of both parties, shall exist and continue until the 8th day of November 1974." Harold concedes that the contract did provide for guaranteed two years employment. There is no evidence that this term was discussed at the 7 November conference when Harold was made acting general manager. We think the evidence is sufficient to support the court's finding that "On or about December 7, 1972, a written contract was entered into between plaintiff and defendant Harold J. Milholen, pursuant to which Mr. Milholen was promoted to General Manager of Forrest Paschal Machinery Company for a period of two years." Upon the findings the court concluded that the covenant was supported by consideration, superseded the earlier covenant, and was reasonable both as to time and territory. We agree. While it may be questionable as to whether the covenant was actually ancillary to employment, Harold was promoted from acting general manager to general manager and given a two-year term of employment as general manager. In Greene Co. v. Kelley, 261 N.C. 166, 168, 134 S.E.2d 166, 167 (1964), Justice Higgins, speaking for a unanimous Court, said:

"It is generally agreed that mutual promises of employer and employee furnish valuable considerations each to the other for the contract. However, when the relationship of employer and employee is already established without a restrictive covenant, any agreement thereafter not to compete must be in the nature of a new contract based upon a new consideration. Kadis v. Britt, [224 N.C. 154, 29 S.E.2d 543] supra. Therefore, the employer could not call for a covenant not to compete without compensating for it."

We think the evidence here brings the contract between plaintiff and Harold within the ambit of Greene Co. v. Kelley.

Defendants argue further that the covenant was not reasonable in that it provided that Harold could not accept any kind of employment for any individual, firm, or corporation within a radius of 350 miles of Siler City, North Carolina. This is a strained interpretation of the agreement which reads: "The party of the second part further agrees that he will not on the termination for any cause whatsoever of his employment with the employer engage in the same line of business as now carried on by his employers or engage to work for any individual, firm, or Corporation, within a radius of 350 miles of the Town of Siler City, North Carolina, for a period of two years from the time the employment of employee under this contract ceases;". (Emphasis supplied.) The punctuation employed in the covenant, it seems to us, makes it quite clear that the parties intended the contract to mean that Harold would not himself engage in a business in competition with plaintiff nor would he engage to be employed by anyone in a business competing with plaintiff within a radius of 350 miles of plaintiff's home office for a period of two years from the termination of his employment with plaintiff. This is the interpretation the court gave to the contract, and nothing in the evidence indicates that Harold interpreted it any differently. In our opinion, the court correctly interpreted the contract in its order. Nor does the evidence disclose anything which would indicate that the restrictions with respect to time and territory are unreasonable. On the contrary, the record is replete with evidence of the fact that plaintiff does business over almost all the United States and even beyond its boundaries. Under the facts of this case, we cannot say that two years is an unreasonable time within which Harold may not compete with plaintiff within a radius of 350 miles of Siler City.

Defendants concede that even absent an agreement, former employees may be restrained from divulging confidential information acquired while an employee, but they contend that there is evidence that no information acquired by defendants was confidential; that if they did acquire confidential information, they haven't divulged it; and that no restraining order should lie until and unless defendants use information obtained as an employee to the detriment of plaintiff. There is evidence that within weeks after the cessation of employment with plaintiff, defendants formed a corporation for the purpose of acting as sales representative for plaintiff's competitors and had obtained a contract to represent a California competitor. By their own statement, defendants had, between the date of termination of their employment relationship with plaintiff and the date of the hearing, visited 20 to 25 brick manufacturing plants and made known to those plants that they would be acting as sales representative for Pearne & Lacy, Industrial Metal Flame Sprayers, and Star Engineering Company. Pearne & Lacy is a major competitor of plaintiff and Star Engineering Company and Industrial Metal Flame Sprayers are minor competitors of plaintiff. Each of these companies compete directly with plaintiff throughout the United States. The corporation formed by defendants was for the express purpose of competing with plaintiff. Obviously, the individual defendants could only have acquired their knowledge of the business of plaintiff while employed by it. Neither came to plaintiff from a similar business and each rose to positions of trust and confidence in executive capacities while employed by plaintiff. There is evidence that at the time of the visits referred to, sales proposals for plaintiff were still outstanding to at least six of the plants. While we do not discuss in seriatim the separately enumerated areas of restraint with respect to divulging information, we are of the opinion that there was evidence before the court to justify each of them.

Further, we are of the opinion that the evidence is sufficient to sustain the court's conclusion that there is probable cause to conclude that "the plaintiff will be able, following a trial on the merits, to enjoin Harold Milholen, both individually and through the corporate form of Basic Machinery Company, from violating the covenant not to compete contained in his contract of December 7, 1972 and that it will be able to enjoin both of the individual defendants from revealing information concerning the business of plaintiff which they learned while in plaintiff's employ" and that "there is reasonable apprehension of irreparable loss to the plaintiff unless injunctive relief is granted." Conference v. Creech and Teasley v. Creech and Miles, 256 N.C. 128, 123 S.E.2d 619 (1962).

On plaintiff's appeal—Affirmed.

On defendants' appeal—Affirmed.

HEDRICK and ARNOLD, JJ., concur.