HENLEY PAPER COMPANY v. McAllister

Annotate this Case

117 S.E.2d 431 (1960)

253 N.C. 529

HENLEY PAPER COMPANY v. John C. McALLISTER, Jr.

No. 602.

Supreme Court of North Carolina.

December 14, 1960.

*433 Schoch and Schoch, by Arch K. Schoch, High Point, for plaintiff, appellant.

Haworth, Riggs & Kuhn, High Point, and Jordan, Wright, Henson & Nichols, by Welch Jordan, Greensboro, for defendant, appellee.

HIGGINS, Justice.

The superior court did not assign its reasons for sustaining the demurrer to the evidence and for dismissing the action. The plaintiff contended the restrictive covenant in the contract was entered into at the time and as a part of the consideration for the original employment, and remained in force so long as defendant remained in plaintiff's employment. The plaintiff further contended the contract, because of the character of the business and knowledge thereof by the defendant, was reasonable, both as to time and territory, and should be enforced by injunction.

The defendant contended (1) the contract containing the restrictive covenant was not a part of the original employment agreement but was required after the defendant was already at work and was, therefore, without consideration; (2) was unreasonable and void because of the restraints sought to be imposed upon the defendant; (3) the original contract which contained the covenant was superseded by a new contract of employment which did not embrace the restrictive covenant.

Judge Preyer, not having been requested to do so, did not record findings of fact and conclusions of law. If his decision finds support on any legal ground it becomes our duty to affirm. Mr. McAllister testified that three, four, or possibly six months after he began his employment, Mr. Grant presented the contract and said, "All trainees sign this thing or they don't keep their job." Mr. Grant did not see fit to deny. Whether the evidence shows any consideration for the restrictive covenant is questionable. Kadis v. Britt, 224 N.C. 154, 29 S.E.2d 543, 152 A.L.R. 405; Scott v. Gillis, 197 N.C. 223, 148 S.E. 315. The evidence disclosed the defendant was not advised of any restrictive covenant until he had been at work for three, four, or possibly six months. The evidence is sufficient to support a finding the covenant was without consideration.

*434 The evidence shows the defendant was employed in the Fine Paper Division of the plaintiff's business. Likewise it shows the major part of the fine paper business is confined to North Carolina, South Carolina, East Tennessee, Southwest Virginia, and a small territory in West Virginia. The restricted area covered Virginia, Kentucky, Maryland, North Carolina, South Carolina, Tennessee, Virginia, West Virginia, parts of Alabama, Delaware, Indiana, Ohio, and Pennsylvania. The evidence shows the defendant's activities were confined exclusively to the sale and distribution of fine paper products. The restrictive covenant seeks to prevent "either directly or indirectly" engaging "in the manufacture, sale, or distribution of paper or paper products within a radius of 300 miles of any office or branch of Henley Paper Company or any of its subsidiary divisions." The terms of the restriction, regardless of the cause or manner of discharge, prevented the defendant from taking a job connected with the manufacture, sale, or distribution of paper or paper products. The prohibition would prevent the defendant from cutting pulpwood or gathering linen rags to be used in the manufacture of paper or paper products. Nothing need be added to show the conditions have too many ramifications and impose an undue hardship upon one who had been employed to do no more then sell and deliver fine paper.

As this Court said in Kadis v. Britt, supra [224 N.C. 154, 29 S.E.2d 546]:

"Contracts restraining employment are looked upon with disfavor in modern law. (Citing many authorities.) And they have been held to be prima facie void.* * * "For the most part, cases of this class are concerned with the effort on the part of the employer to protect his business against the subsequent use, by a competitor, of trade secrets confidentially acquired in the course of employment; * * * Such contracts are upheld only when they are `founded on valuable considerations, are reasonably necessary to protect the interests of the parties in whose favor they are imposed, and do not unduly prejudice the public interest.' * * * To this must be added the condition that they do not impose unreasonable hardship upon the covenantor, * * *". See, also, Tobacco Growers' Co-operative Association v. Jones, 185 N.C. 265, 117 S.E. 174, 33 A.L.R. 231. "Contracts in partial restraint of trade are still contrary to public policy and are void if nothing shows them to be reasonable. * * * (restriction covering territory) greater than is required for the protection of the plaintiff, is detrimental to the public interest, and is unreasonable and void." Maola Ice Cream Co. of North Carolina v. Maola Milk & Ice Cream Co., 238 N.C. 317, 77 S.E.2d 910, 916.

According to plaintiff's own allegations, more than 35 competitors engage in the wholesale and distribution of all lines of paper products. The defendant's employment was "in the fine paper field." The plaintiff had a wider field of distribution for its coarse or industrial paper than for its fine paper. The defendant had nothing to do with industrial paper. Yet the contract excludes him from industrial paper. The plaintiff is a distributor, not a manufacturer, yet the contract prevents defendant from "either directly or indirectly" engaging in the manufacture, sale or distribution of paper or paper products in a territory extending in a 300-mile radius from any of plaintiff's divisions. The territory extends from Delaware to Alabama; from Indiana to the Atlantic. The contract excludes the defendant from too much territory and from too many activities. It is, therefore, void and unreasonable. Noe v. McDevitt, 228 N.C. 242, 45 S.E.2d 121, 123.

Whether part of the contract might be deemed reasonable and enforceable is not the question. It comes to us as a single *435 document. We must construe it as the parties made it. "The Court cannot by splitting up the territory make a new contract for the parties. It must stand or fall integrally." Noe v. McDevitt, supra.

The original contract established the relationship of employer and employee. It described duties to be performed by the employeesalesman; and compensation to be paid by the employercommissions. Some time prior to November 4, 1952, the parties entered into another agreement. The memorandum thereof was drawn on that day by the plaintiff. The new agreement provided the defendant's compensation beginning October 1, 1952, should be $400 per month and commission on sales to Tri-Bee Label Company. It changed the defendant's duties completely and he became head of the Fine Paper Kardex-stock control and sales desk department. His duties were to develop sales and train sales personnel. By memorandum dated March 23, 1954, the defendant was guaranteed compensation of $10,000 per year. Thus by agreement subsequent to January 3, 1950, of which the exhibits quoted above are memoranda, the duties of the defendant and his compensation were changed without any reference to or mention of the original contract. Thus the defendant became employed to perform new duties and plaintiff became obligated to pay new and different compensation. Inasmuch as the parties by the subsequent agreement fixed the terms of employment and the obligation of the parties each to the other without any r nfewaceerthee o1bffi-i6lisffiie without any reference whatever to the original contract, it is not unreasonable to assume the new contract was intended as a substitution for and not a modification of the original agreement. With the exception of the restrictive covenant, all other provisions of the original contract were changed. The evidence before the court would warrant a finding the parties intended to make a new contract omitting the restrictions. Tomberlin v. Long, 250 N.C. 640, 109 S.E.2d 365; Roberts v. Mays Mills, 184 N.C. 406, 114 S.E. 530, 28 A.L.R. 338.

For the reasons indicated, the testimony and the record evidence before Judge Preyer offer abundant support from his order, which is

Affirmed.