Wood v. May

438 P.2d 587, 73 Wash. 2d 307, 1968 Wash. LEXIS 632

• Court: Washington Supreme Court
• Decided: March 14, 1968
• Docket: 38508
• Status: Published

Opinions

Finley, C. J.

In November 1961 appellant, Gordon S. Wood, a master horseshoer with some 15-years’ experience, employed respondent, William R. May, as an apprentice horseshoer. On January 3, 1962 the parties signed a written contract wherein appellant agreed to teach respondent the art of horseshoeing. Respondent agreed that:

[F]or a period of five years from and after the time he shall leave the first party employer, either if by resignation or by discharge, that he shall not engage directly or indirectly in any business or enterprise the nature of which is competitive to the employers business, that is to say he shall not engage in the practice of Horseshoeing or Blacksmithing, within a radius of one hundred (100) miles from the Oakwood Horseshoeing presently situated at Route 1, Box 1491, or any branch of the Oakwood Horseshoeing during the tenure of this time.

The contract further provided that in the event of breach of the agreement not to compete, respondent could be enjoined by a court of equity from engaging in the trade of horseshoeing in the territory and during the time covered by the agreement.

Respondent displayed marked aptitude for horseshoeing, and during the 2 years he worked for appellant he progressed rapidly from the apprenticeship stage. He was soon on his own, so to speak, in shoeing the horses of a substantial number of appellant’s customers. Actually, respondent became the only contact appellant had with many of his customers, and these customers gained confidence in respondent’s ability as a horseshoer. Consequently, when respondent terminated his employment in March 1964 and immediately set up his own horseshoeing business in Tacoma, 5 miles distance from Spanaway, he secured a substantial number of appellant’s customers in Pierce County and on Yashon Island. Appellant began this action to enjoin respondent from engaging in horseshoeing in violation of the agreement.

The bulk of appellant’s horseshoeing business was located in Pierce County and on Vashon Island, although he regularly shod a few horses as far north as Lynden, nearly 100 miles from Spanaway.

The trial court dismissed the case at the close of appellant’s evidence, finding that although the rest of the contract was reasonable, it was unreasonable to restrict respondent from engaging in horseshoeing within a radius of 100 miles from Spanaway, an area which includes all or part of 22 counties in Washington, and parts of Oregon and Canada. The trial court determined the contract to be indivisible and for that reason refused to modify the restrictive covenants as to time and area.

There are four issues on appeal: (1) are restrictive covenants not to compete after termination of employment void for reasons of public policy? (2) if such covenants are not void, were the covenants in this contract supported by adequate consideration? (3) if supported by adequate consideration, were the restrictions reasonable as to time and areas as to both the parties and the public? (4) if the restrictions were unreasonable, can a court exercising its equity jurisdiction modify such restrictive covenants and enforce them against respondent in a more reasonable manner.

I.

In Racine v. Bender, 141 Wash. 606, 611, 252 Pac. 115 (1927), we recognized the following principles in relation to restrictive covenants in employment contracts:

The general rule applied in construing such contracts, is that restrictions therein are upheld, if they meet the test of showing that they are not greater than are reasonably necessary to protect the business or good will of the employer, even though they restrain the employee of his liberty to engage in a certain occupation or business, and deprive the public of the services, or restrain trade. [Omitting citation.]

9 A.L.R. 1467, 1468, states the rule as follows:

“The validity of covenants by employees not to engage in a similar or competing business for a definite period of time, following the termination of the contract of employment in which the covenant is incorporated, may be sustained, although the contract is recognized to be in restraint of trade. The test generally applied in determining the validity of such a covenant is whether or not the restraint is necessary for the protection of the business or good will of the employer, and, if so, whether it imposes on the employee any greater restraint than is reasonably necessary to secure to the business of the employer, or the good will thereof, such protection, regard being had to the injury which may result to the public, by restraining the breach of the covenant, in the loss of the service and skill of the employee, and the danger of his becoming a charge upon the public.

“It is clear that if the nature of the employment is such as will bring the employee in personal contact with the patrons or customers of the employer, or enable him to acquire valuable information as to the nature and character of the business and the names and requirements of the patrons or customers, enabling him, by engaging in a competing business in his own behalf, or for another, to take advantage of such knowledge of or acquaintance with the patrons or customers of his former employer, and thereby gain an unfair advantage, equity will interfere in behalf of the employer and restrain the breach of a negative covenant not to engage in such competing business . . . .”

The restrictive covenants in the instant matter are not void for reasons of public policy. The evidence indicated that there are some 3000 horses in the Pierce County area, and some 8 competent horseshoers residing in the immediate area. Although customers may prefer respondent to other horseshoers in the area, his services are not indispensible. The law presumes that the services can be performed by someone else. Racine v. Bender, supra, at 613. And, it was not shown that respondent will not be able to find work as a horseshoer without competing with appellant.

II.

The contract, although somewhat vague and poorly drawn, was supported by adequate consideration. Respondent promised not to compete with appellant upon termination of his employment in return for appellant’s promise to teach respondent the skill of horseshoeing. Over the period of 2 years during which the parties operated under the contract, appellant did indeed teach respondent the trade or art of horseshoeing. The evidence showed that there are two methods of becoming a skilled horseshoer. One may either attend a college course in horseshoeing, followed by experience under a master horseshoer, or he may learn by the apprenticeship method as respondent did in this case. During the 2 years respondent worked for appellant he earned approximately $3800 the first year, and approximately $6500 the second year. After he left appellant’s service respondent grossed from $500 to $1800 per month, horseshoeing being somewhat seasonal in nature. Appellant obviously fulfilled his part of the bargain. He taught respondent to be a proficient horseshoer, a trade at which he has been able to earn a good living. This is adequate consideration for a promise not to compete in a trade which involves a unique personal relationship between tradesman and customer.

III.

The trial court correctly found the area restriction in the contract to be unreasonable. It was correct to refuse to enforce this restriction as written, since it is both unduly harsh to respondent in curtailing his legitimate efforts to earn a livelihood and unnecessary for the protection of the legitimate interests of appellant. See 41 A.L.R.2d 314, 43 A.L.R.2d 141. The trial judge found the time restriction to be more acceptable, stating that he felt the time involved was “particularly lengthy,” but that “[t]he Court could accept the restriction in terms of five years.”

However, on the basis of the evidence presented, we are constrained to believe that the restrictions were probably unreasonable both as to area and time. The trial judge felt he was obligated to either accept or reject the restrictions in toto rather than to modify them on the basis of his factual findings. We do not believe he could properly decide the issues before him while operating under this assumption. We are granting a new trial in this matter so that reasonable restrictions upon respondent’s competitive activities, both as to time and area, can be determined and imposed. We note in passing that counsel for appellant admitted in oral argument that an area of 25-miles radius from Spanaway would be reasonable. This court approved a restrictive period of 3 years in the Racine ease, supra. But we offer no suggestion without more evidence than the record reveals whether a period of 1 year, 3 years or some other period of time is reasonable under the facts in this case. Neither do we suggest that it would be improper to restrict respondent only as to those customers with whom he came in contact while in the service of appellant. See Columbia College of Music & School of Dramatic Art v. Tunberg, 64 Wash. 19, 116 Pac. 280 (1911), in which such a restriction was found adequate to protect the employer. We do not limit the court upon new trial to any given formula for determining reasonable restrictions, nor do we read any of the cases cited in this opinion as so limiting a trial court. While guidelines set down in similar cases are helpful, the facts of a given case must determine the reasonableness of the restrictions imposed.

IV.

It is well settled that a court of equity will use its power to enforce a restriction against a former employee’s competition only to the extent that such restriction is reasonable and necessary to protect a legitimate business interest of the employer. Racine v. Bender, supra, Schneller v. Hayes, 176 Wash. 115, 28 P.2d 273 (1934). See also 6A Corbin, Contracts § 1394 (1962). But it does not follow that an entire contract must fail because of an unreasonable restriction as to time and area. One line of authority holds that unless the contract is divisible the court will not write a new contract and will refuse to grant any equitable relief against competition. See, e.g., Wisconsin Ice & Coal Co. v. Lueth, 213 Wis. 42, 250 N.W. 819 (1933); Welcome Wagon, Inc. v. Morris, 224 F.2d 693 (4th Cir. 1955); Restatement, Contracts § 518 (1932). However, a substantial number of American courts in later cases have adopted a new and different rule that a contract in restraint of trade will be enforced to the extent it is reasonable and lawful. See, e.g., John Roane, Inc. v. Tweed, 33 Del. Ch. 4, 89 A.2d 548, 41 A.L.R.2d 1 (1952); Redd Pest Control Co. v. Heatherly, 248 Miss. 34, 157 So. 2d 133 (1963); Igoe v. Atlas Ready-Mix, Inc., 134 N.W.2d 511 (N.D. 1965).

We adopt the reasoning in the second line of cases. The enforcement of such a contract does not depend upon mechanical divisibility, meaning that offending portions of the covenant can be lined out and still leave the remainder grammatically meaningful and thus enforceable. This is the so-called “blue pencil test.” The better test is whether partial enforcement is possible without injury to the public and without injustice to the parties. Ceresia v. Mitchell, 242 S.W.2d 359 (Ky. 1951); Fullerton Lumber Co. v. Torborg, 270 Wis. 133, 70 N.W.2d 585 (1955); 17 C.J.S. Contracts § 289, at 1224.

Professor Corbin, in approving the latter test, says:

An agreement restricting competition may be perfectly reasonable as to a part of the territory included within the restriction but unreasonable as to the rest. Will the courts enforce such an agreement in part while holding the remainder invalid? It renders no service to say that the answer depends upon whether or not the contract is “divisible.” “Divisibility” is a term that has no general and invariable definition; instead the term varies so much with the subject-matter involved and the purposes in view that its use either as an aid to decision or in the statement of results tends to befog the real issue.

With respect to partial illegality, the real issue is whether partial enforcement is possible without injury to the public and without injustice to the parties themselves. It is believed that such enforcement is quite possible in the great majority of cases. If a seller whose business and good will do not extend beyond the city limits of Trenton promises not to open a competing business anywhere within the state of New Jersey, the restriction is much greater than is reasonable. This is a good reason for refusing to enjoin the seller from doing business in Newark; but it is not a good reason for permitting him to open up a competing store within the same block in Trenton. 6A Corbin, Contracts § 1390, at 66 (1962).

And, at 104:

As in the case of contracts restraining the seller of a business with its good will, the fact that the restriction on an employee goes too far to be valid as a whole does not prevent a court from enforcing it in part insofar as it is reasonable and not oppressive. The injunction may be made operative only as to reasonable space and time; . . . . 6A Corbin, Contracts § 1394 (1962).

Professor Williston’s comments on the subject are as follows:

If a sharply defined line separated a restraint which is excessive territorially from such restraint as is permissible, there seems no reason why effect should not be given to a restrictive promise indivisible in terms, to the extent that it is lawful. If it be said that the attempt to impose an excessive restraint invalidates the whole promise, a similar attempt should invalidate a whole contract, though the promises are in terms divisible. Questions involving legality of contracts should not depend on form. Public policy surely is not concerned to distinguish differences of wording in agreements of identical meaning. 5 Williston, Contracts § 1660 (rev. ed. 1937).

We are in accord with the views expressed by Corbin and Williston. Under the circumstances of this case we find it just and equitable to protect appellant by injunction to the extent necessary to accomplish the basic purpose of the contract insofar as such contract is reasonable. The trial court erred in granting dismissal at the close of appellant’s case. A new trial must be afforded to determine what is reasonable regarding time and space in limiting respondent’s competitive horseshoeing activities, wherein both parties may offer evidence bearing thereon. Since we do not have the benefit of respondent’s evidence, we cannot decide whether the restriction should be as to area, i.e., a certain number of miles from appellant’s business, or as to those customers which respondent came to know during his employment with appellant. Neither can we decide a precise limitation as to time.

The judgment should be reversed and remanded for new trial consistent with the views expressed herein. It is so ordered.

Hill, Weaver, Hunter, Hamilton, and Neill, JJ., concur.