Frederick C. Smith Clinic v. Lastrapes

170 N.E.2d 497, 111 Ohio App. 42, 13 Ohio Op. 2d 411, 1959 Ohio App. LEXIS 677

• Court: Ohio Court of Appeals
• Decided: October 16, 1959
• Docket: 1098
• Status: Published

Opinions

Guernsey, J.

This is an appeal on questions of law and fact from a judgment of the Common Pleas Court for the defendant in an action for a restraining order brought by plaintiff partnership, the appeal being heard by this court de novo on the fourth amended petition, the answer and reply thereto, the transcript of the testimony adduced in the lower court and the exhibits thereto, and on the briefs and arguments of counsel.

It is undisputed that from a time prior to the commencement of any relationship between the parties to this action to the time this appeal was heard a medical clinic was operated in Marion County, Ohio, under the firm name of The Frederick C. Smith Clinic, by doctors of medicine associated together in a series of partnerships. Doctors F. G. Smith, P. W. Smith, J. W. Bull, R. E. Logsdon, R. W. Mills, C. W. Wilson and D. H. MacPherson have been members of each of these partnerships. The additional members of the respective partnerships and the dates of operation of the clinic by each of the partnerships are as follows:

Partnership No. 1 operatéd the clinic from February 1, 1954, to January 31,1955, and included Doctors F. C. Smith and EL A. Cregg.

Partnership No. 2 operated the clinic from February 1, 1955, to January 31,1956, and included Doctors F. C. Smith and F. C. Vogt.

Partnership No. 3 operated the clinic from February 1,1956, to July 16, 1956, and included Doctors F. C. Smith, F. C. Vogt, T. N. Quilter, I. E. Michael and L. H. Birch.

Partnership No. 4 operated the clinic from July 16, 1956, to January 31, 1957, and included Doctors F. C. Vogt, T. N. Quilter, I. E. Michael, L. H. Birch, and F. G. Smith and P. W. Smith, as the coexecutors of the estate of Doctor F. C. Smith, deceased.

Partnership No. 5 operated the clinic from February 1, 1957, to January 31,1958, and included Doctors F. C. Vogt, T. N. Quilter, I. E. Michael, L. H. Birch, and H. C. Blount, Jr.

Partnership No. 6 operated the clinic from February 1, 1958, to at least January 31, 1959, and included Doctors F. O. Vogt, T. N. Quilter and H. O. Blount, Jr.

Partnerships Nos. 2, 3, 5 and 6 were, in each case, evidenced by formal and detailed articles of copartnership, which, in each case, created a partnership which included one or more persons who had not been members of the preceding partnership. Partnership No. 1 is evidenced by an addendum to the formal and detailed articles of copartnership for, a pre-existing partnership, the addendum incorporating the terms of the formal articles. Partnership No. 4 came into being by reason of the death of Doctor F. C. Smith, and existed under the provisions of the formal articles of copartnership for partnership No. 3 which became operative on the death of any partner. Each time a new partnership was created the books of the preexisting partnership were closed and new books of account were opened for the new partnership.

It is also undisputed that, desiring his services, partnership No. 1 which was then operating the clinic entered into negotiations with the defendant Thomas S. Lastrapes, an orthopedic surgeon, which culminated in a written contract of employment executed on June 21,1954. This contract, in the form of a letter of offer by the partnership and an acceptance by defendant, was signed by defendant and, on behalf of the then partnership, by each of the individual doctors composing the partnership. Among other things the contract provided:

“2. You will enter your employment on or about the 1st day of July, 1955, and * * *

ÍÍ # * #

“5. This agreement shall automatically terminate in the event of your death or the dissolution of the partnership.

“6. In the event of the termination of your employment for any reason whatsoever, you covenant and agree that you will not engage in the practice of medicine within the limits of Marion County, Ohio, for a period of four (4) years from the date of such termination.”

The formal articles of copartnership existing between the partners at the time this contract of employment was executed, and incorporated by the addendum executed under date of February 1, 1954, “admitting” Doctor MacPherson to the partnership, among other things, provided:

“7. * * * Said partnership shall continue from the date hereof until January 31, 1954, and thereafter from year to year unless sooner terminated under the provisions hereof.

“8. Continuation of Partnership: A new partner or partners may be admitted to the partnership upon the same terms and provisions hereof, by endorsement hereon of all partners.

“9. Termination of Partnership: Except as provided in the paragraph next following, the partnership herein created shall terminate upon the happening of any one of the following events:

“(a) The giving of notice, in writing, by any one of the partners to the other partners of his withdrawal from said partnership, specifying a future date to become effective as of the close of the fiscal year in which the partnership is then operating;

6 6 * # #

“In the event of the happening of any of the foregoing events, the remaining partners, excluding the one involved therein, shall continue partners, subject to all the terms and provisions hereof. * * *” (Emphasis added.)

On June 3, 1955, defendant reported to the clinic for work and there performed services as an orthopedic surgeon until January 1, 1957. From the date of the signing of the employment agreement hereinbefore referred to until the date on which defendant terminated his relationship with the clinic, no serious question was raised by the defendant, or by any of the various partnerships or the members thereof, as to the validity of the employment agreement, and the defendant was, during the time while he worked at the clinic, periodically paid for his services by the respective partnerships in accordance with the same formula for payment as that set forth in the written agreement of employment.

Following the termination of his employee relationship with the operators of the Smith Clinic, defendant engaged in the practice of medicine in Marion County, Ohio, and was still so engaged at the time this case was heard by the lower court and by this court. The original petition was filed in the lower court on January 16,1957, by and on behalf of the partnership known as partnership No. 4,. omitting however the executors of the estate of F. C. Smith, from those partners therein named. The fourth amended petition, on which this action was heard, was filed on October 23,1957, by and on behalf of partnership No. 4, including the executors of the estate of F. C. Smith. The fourth amended petition seeks to restrain defendant from practicing medicine within the limits of Marion County, Ohio, for a period of four years from January 1, 1957.

The issue thus before this court is whether the provision in the written employment contract of June 21, 1954, limiting defendant’s professional practice as to time and area on the termination of his employment can be enforced by restraining order in an action brought by partnership No. 4.

The theory of plaintiff’s case is that partnership No. 4, by reason of the continuous course of employment of defendant, his acceptance of pay from the various partnerships, his knowledge of the changes in personnel of the respective partnerships, his various acts and statements made after reporting for work with reference to the written employment contract, the provisions of the formal partnership agreements providing for the title of assets of the pre-existing partnership to pass to a succeeding partnership, and, on the legal theory of novation, has succeeded to and become possessed of all of the rights and benefits belonging originally to the partnership which signed the employment contract with defendant. The theory of defendant’s case is that the withdrawal of Dr. Cregg from the partnership which signed the employment contract constituted a dissolution of the partnership and thereby terminated the written employment agreement under the provisions of paragraph 5 thereof, as of January 31, 1955, before defendant’s employment was to, or did, begin.

Notwithstanding any provisions of the formal partnership agreement pertaining to partnership No. 1 by which the parties thereto appear to have attempted to obtain continuity of the partnership entity, it is apparent from the plain and ordinary meaning of its provisions, hereinbefore quoted, and from the conduct of the respective partners in forming a new partnership under a new formal agreement, that the withdrawal of Dr. Cregg from the partnership as of January 31, 1955, operated to terminate partnership No. 1. To the extent that dissolution and termination do not coincide termination follows dissolution (Section 1775.29, Revised Code). If termination occurs then dissolution is either coincident therewith or has already occurred. Therefore, by the plain, ordinary, and unambiguous meaning of the provisions of the written employment agreement, that agreement, by reason of the dissolution of the partnership, automatically terminated not later than January 31, 1955. If such be the case defendant’s employment under the terms and provisions of the written agreement never began, nor could he be charged under the terms and provisions of the written agreement with a restraint on the practice of his profession, which was conditional only on the termination of his employment thereunder. His employment not having begun under such agreement the same could not thereafter terminate under the agreement. Such must be the case unless there was a novation, or a series of novations, of the written employment •agreement which would serve to bestow the benefits belonging to the employer thereunder, partnership No. 1, upon the plaintiff herein, partnership No. 4.

To be legally effective novation must occur, in point of time, on or before the date upon which the original agreement to which it pertains would otherwise expire.

“The doctrine of novation can never apply unless there is an existing, valid, and enforceable obligation to be discharged.” 39 American Jurisprudence, 259, Novation, Section 12.

“ ‘Novation’ may be defined as a substitution of a new contract for an old one which is thereby extinguished.” (Emphasis added.) 66 Corpus Juris Secundum, 681, Novation, Section 1.

It necessarily follows that since the written employment agreement herein would otherwise be terminated not later than January 31,1955, novation would have to first occur on or before that date.

Moreover, it is basic to the law of novation that all the par ties to the original contract as well as all substituted parties must assent to the novation.

“It is a well-settled principle that an essential element of every novation is a new contract to which all the parties concerned must agree, and in the absence of such agreement or consent a novation cannot be effected.” (Emphasis added.) 39 American Jurisprudence, 262, Novation, Section 17..

“As a general rule, in order to effect a novation involving the introduction of a new party, it is necessary that there be a mutual agreement among the parties to the old and the new obligations whereby the new obligation is substituted for the prior one.” (Emphasis added.) 66 Corpus Juris Secundum, 699, Novation, Section 18.

See, also, Grant-Holub Co. v. Goodman, 23 Ohio App., 540 at page 549, 156 N. E., 151.

Plaintiff partnership’s cause of action, if any, must be based on a series of novations, and it would be necessary that each novation be assented to by the defendant, by the partnership being released from the obligation, and by the partnership becoming a new party to the obligation, and if complete assent were lacking to any novation plaintiff’s action would fail.

The issue may be resolved by determining whether defend-, ant assented to a contract of novation on or before January 31, 1955. To have done so defendant hád to be aware on or before that date of the dissolution of the partnership which had contracted with him caused by the withdrawal of Dr. Gregg therefrom. The evidence as to this knowledge by defendant is in dispute. There is no evidence that the defendant was specifically informed that the partnership had been dissolved, and the earliest date in evidence at which time he could have become aware of Dr. Cregg’s withdrawal was that testified to by Dr. P. W. Smith as being “in the latter part of February, 1955.”

There is therefore no evidence of an assent by defendant to a contract of novation on or before January 31, 1955. There being no initial contract of novation, there could not be any series of novations. There being no novation, the restrictive covenant of the written employment contract terminated with the contract of which it was a part and was thereafter no longer enforeible, and defendant’s employment commencing June 3, 1955, was not under or subject to the written contract.

Taking this view of the case, it is not necessary for us to determine, nor do we determine, whether the provisions of the restrictive covenant were reasonable as to time and area. And since this view completely disposes of this action, neither is it necessary for us to determine, nor do we determine, whether the plaintiff partnership, which itself has been dissolved and is merely winding up its affairs, can suffer such continuous irreparable injury as to be a proper party plaintiff in this action for injunctive relief.

Judgment for defendant.

Middleton, J., concurs.