Case Title: Courington v. BIRMINGHAM TR. NAT. BANK

Citation: 347 So. 2d 377

Docket Number: 

State: alabama

Court: Alabama Supreme Court

Date: 1977-06-03T00:00:00Z

Document:
347 So. 2d 377 (1977)
Gerald COURINGTON
v.
BIRMINGHAM TRUST NATIONAL BANK, a corporation, et al.
SC 2185.

Supreme Court of Alabama.
June 3, 1977.
John F. Kizer, Jr., Birmingham, for appellant.
Warren B. Lightfoot and Robert G. Johnson, Birmingham, for appellee.
BEATTY, Justice.
This is an appeal from an order of the Circuit Court of Jefferson County granting summary judgment for the defendant. We affirm.
*378 After voluntarily terminating his employment with his former employer, Birmingham Trust National Bank, plaintiff applied to that bank for sums of money to which he was entitled from an Employee's Profit Sharing Plan of which plaintiff was a participant. Although his own contributions were returned to him, the bank refused to pay plaintiff that amount of money which the bank itself had contributed to plaintiff's account. He brought this action to recover the employer's matching contribution. By amendment two additional plaintiffs were later added, individually and as a class action (these other defendants did not file notice of appeal and hence are not parties to this appeal).
Following the overruling of its motion to dismiss, the defendant bank filed an answer setting up as its defense a provision in the Employee's Profit Sharing Plan under which, it contended, plaintiff forfeited the bank's matching contribution by engaging in direct competition with his former employer. Motion for summary judgment was then made by defendant, based upon the pleadings, depositions of the three plaintiffs, and the affidavit of Steven D. Schepker; in due course this motion was granted on October 7, 1976.
It appears from the record and from the briefs that there was in existence during the plaintiffs' terms of employment with defendant and at the time of termination a profit-sharing plan containing forfeiture provisions. Before January 1, 1974, the applicable provision provided in part:
An amended provision became effective on January 1, 1974:
The appellant invokes Title 9, § 22, Alabama Code, for the invalidity of the forfeiture provision of this Plan:
In brief he argues that the record does not show that plaintiff-employees were employed by a written contract; that the record is likewise silent on whether they ever read the pension plan agreements "before this Court;" and that the record does not show that the plaintiffs acquiesced or mutually agreed with their bank-employer to the "binding effect of the forfeiture clause.. . ." That reasoning appears inconsistent, for on the one hand appellant relies upon a contractual obligation of the bank to pay funds it contributed (nowhere is it suggested that the bank made a gift of its contributing share); otherwise there would be no need to invoke Title 9, § 22 which applies to contracts. On the other hand, appellant appears to maintain that there was no contract because the employees did not agree to the Plan, or at least with its forfeiture provision. If the employees did not agree to the Plan there would be no contract whatsoever, and their recovery would proceed upon a different theory, if any. If they did agree to the Plan, still the question of the bank's obligation to pay its matching share would depend upon the application of Title 9, § 22 and its exceptions delineated in Title 9, § 23:
The record shows that the Plan provided that an eligible employee:
We are convinced that any argument to the effect that the appellant did not contract, or did not acquiesce, in the Plan is untenable. The record discloses an acknowledgement of receipt of "Request for Participation and Authorization for Employee Contributions," "Designation of Beneficiary" and "Elective Cash Payment" forms signed "G M Courington," and dated November 8, 1966. The "Request . . ." form contained three blank spaces for dates, one for a specification of the percentage of basic compensation to be deducted, and one for the employee's signature:
As the form shows, the blanks were executed, the signature being "G M Courington." One who has executed a written contract in ignorance of its contents cannot set up his ignorance to avoid the obligation in the absence of fraud or misrepresentation. Grady v. Williams, 260 Ala. 285, 70 So. 2d 267 (1953). An Election of Cash Payments under the Plan, dated November 8, 1966, was signed "G M Courington." A change of beneficiary under the Plan was executed on October 10, 1967 by "G M Courington." An option to change the percentage of contributions was executed on October 31,1969 by "G M Courington," and another executed on November 3, 1970 by "G M Courington." Although the appellant stated in his deposition that he had not read the agreement and thus did not have personal knowledge of the "competition" clause, he did state that there were discussions among employees about "who is a competitor and who is not a competitor," because "some people would get paid their profit sharings and some wouldn't." We believe that this evidence, taken as a whole, establishes acquiescence in the Plan, if not outright agreement, on the part of appellant.
In Williston on Contracts, § 98 (Rev. ed.), it is stated:
Acquiescence is a form of estoppel, Bankers' Trust Co. v. Rood, 211 Iowa 289, 233 N.W. 794 (1930), and is applicable when there is some element of neglect. City of Lafayette v. Keen, 113 Ind.App. 552, 48 N.E.2d 63 (1943). Even if appellant had not actually read the Plan (and his executed "Request for Participation" expressly states: "I acknowledge receipt of a copy of the Birmingham Trust Employees' Profit Sharing Plan and Trust Agreement"), his acquiescence was manifested by the availability to him of all the material facts concerning it. Colburn v. Mid-State Homes, Inc., 289 Ala. 255, 266 So. 2d 865 (1972).
Nothing in the record suggests that the bank would have been obliged to make contributions to the Plan without the participation of the appellant, and his conduct was certainly calculated to induce the belief that he understood the Plan and agreed to participate in it.
In 17 C.J.S. Contracts § 41 at p. 672, it is stated:
Cf. Denson v. Kirkpatrick Drilling Co., 225 Ala. 473, 144 So. 86 (1932).
The next question is whether the forfeiture provision of the Plan is rendered invalid under Title 9, §§ 22 and 23. The appellant testified by deposition that he left *381 the employ of Birmingham Trust National Bank on October 14, 1972 to accept a job with Central Bank, and that his new and old employers solicit the same customers and do business in the same business community.
Forfeiture-by-competition clauses appear to be widely used in the business community, and in those cases in which their validity has been challenged, the Courts have, with few exceptions, upheld them. Such a case was Golden v. Kentile Floors, Inc., 512 F.2d 838 (5th Cir. 1975). There, following a voluntary resignation and employment with a competitor of his former employer, the employee demanded benefits from the latter which had been denied by the profit-sharing committee. At issue was that part of the Sherman Act which invalidates "every contract . . . in restraint of trade.. . ." The Court noted that not every restraint on trade was prohibited:
The Court cited as authority Brown Stove Works, Inc. v. Kimsey, 119 Ga.App. 453, 167 S.E.2d 693 (1969), a similar case which involved a non-contributing profit-sharing plan. That case also drew a distinction between a contract which placed a restraint upon the right to enter into a competitive activity as a means of earning a livelihood, and an agreement which made refraining from competitive activity a condition precedent to participation in a profit-sharing plan. The Georgia court saw no restraint of trade in the presence of a contract restriction which did not "preclude the employee from engaging in competitive activity, but simply provides for the loss of rights or privileges if he does so. . . ."
Whether such provisions are reasonable restrictions was explored in the Golden opinion, supra, at 846:
Similar reasoning was employed in Miller v. Associated Pension Trusts, 396 F. Supp. 907 (E.D.Mo.1975), in which the denial of profitsharing benefits to a former employee who competed was upheld:
The second federal circuit recently ruled that a forfeiture-for-competition clause constituted a valid liquidated damages provision *382 for the breach of the employees' covenant not to compete. USAchem, Inc. v. Goldstein, 512 F.2d 163 (2 Cir. 1975), citing Bradford v. New York Times Co., 501 F.2d 51 (2 Cir. 1974). In Bradford, an "Incentive Compensation Plan" provided that the participant, in consideration of payments made to him (based upon units accrued during employment), would not compete. The participant entered into a non-competition agreement under the plan and when he later joined a competitive enterprise, his former employer invoked a provision allowing a discontinuance of benefits. The Court did not find this provision unreasonable, viewing it as a provision for liquidated damages, and made these additional observations:
The cases which concern covenants not to compete are, of course, distinguishable from cases, like the instant case, which involve only provisions for forfeiture in the event of competition. Their similarities lie in the refusal to find any restraint of trade in either type.
In Barr v. Sun Life Assurance Company of Canada, 146 Fla. 55, 200 So. 240 (1941), a forfeiture-for-competition provision applied to renewal premiums on life insurance policies the former employee had sold during his employment, and was invoked when he obtained employment with a competing company. Distinguishing such an agreement from one in restraint of trade the court stated:
In Flammer v. Patton, Fla., 245 So. 2d 854 (1971), the Florida court construed a similar forfeiture provision in the non-contributory pension plan of a retired finance company employee who later accepted employment as a bank loan officer. Although that court held the restriction in the forfeiture provision unreasonable because of its unlimited duration, the court did not void the entire forfeiture provision.
The distinction in the type of contracts is meaningful when we apply it to our own Title 9, §§ 22, 23 and 24, for by those enactments a contract "by which any one is restrained from exercising a lawful . . . business . . . is void," except that (1) the seller and buyer of the good will of a business may agree "to refrain from carrying on . . . a similar business so long as the buyer . . . carries on a like business . . ."; (2) "one who is employed as an agent, servant, or employee. . . may agree with his employer to refrain . . . from soliciting old customers of such employer within a specified county, city, or part thereof, so long as . . . such employer carries on a like business therein . . ." and (3) partners may *383 "agree that none of them will carry on a similar business. . . ."
In interpreting these sections our Court, like many others, has applied a test of reasonableness to the restrictions thus allowed, and has looked to the facts of the particular case to determine whether the restriction against entry into a competing business is reasonably necessary for the other's protection. Mason Corporation v. Kennedy, 286 Ala. 639, 244 So. 2d 585 (1971); White Dairy Company, Inc. v. Davidson, 283 Ala. 63, 214 So. 2d 416 (1968); Hill v. Rice, 259 Ala. 587, 67 So. 2d 789 (1953). Much of the judicial scrutiny of such an employment restraint is based upon a recognition that it
We do not, however, apprehend the existence of any such risk in the situation before us as it clearly does not involve a restriction upon the employee's entry into a competitive endeavor. Here, the former employer is not prevented from earning a living. His accrued profit-sharing benefits contributed by the employer are continued should he leave the employer for a different and noncompeting undertaking. It is only when he competes that those contributions of the employer are forfeited. In the words of Kentile, supra, the defendant
If the participating employee wishes to leave his employment, he is free to do so, and if he leaves for another position, he loses none of his accrued benefits, unless by electing to enter a competitive enterprise he makes the choice to lose that portion contributed by his former employer who must continue to offset the effect of his competition with it in order to continue the Plan for the benefit of those who remain.
Thus, we find that the agreement before us does not fall within the type proscribed by the "restraint of trade" provisions of our Title 9. We pretermit any discussion of the effect upon this contract of fraud or duress since no such issue is raised. We note also that the parties have made no issue of the fact of competition between the former and present bank employees.
Plaintiff-appellant has cited us to California authority which has held invalid forfeiture-by-competition clauses in retirement benefits as contravening that state's statutory prohibition against contracts in restraint of trade. Aside from the fact that the California statutes, unlike our own, contain no exceptions such as those found in §§ 22-24 of Title 9, Alabama Code, we do not agree with the reasoning of that distinguished court that the employee's being less free to engage in a lawful business causes the agreement to fall within the classification of those in restraint of trade.
Finally, in Mason, supra, cited by the plaintiff, our Court held that evidence supported the trial court's findings that the agreement not to enter competitive employment was unreasonable. In reviewing that evidence we observed that the record did not "appear to indicate that Kennedy [the employee] received any additional compensation or benefits for signing the [non-competition] agreement," and we suggested that a second non-competition agreement made after termination likewise might not have been supported by consideration. We have earlier expressed ourselves on the contractual aspect of the instant case. Mason did not involve the type of agreement before us here.
The action of the trial court in granting summary judgment having been proper, the *384 judgment is due to be affirmed, and it is so ordered.
AFFIRMED.
TORBERT, C. J., and MADDOX, FAULKNER and SHORES, JJ., concur.