Case Name: WELCOME WAGON INTERNATIONAL, INC. v. EVELYN L. PENDER
Court: Supreme Court of North Carolina
Jurisdiction: North Carolina
Decision Date: 1961-07-07
Citations: 255 N.C. 244
Docket Number: 
Parties: WELCOME WAGON INTERNATIONAL, INC. v. EVELYN L. PENDER.
Judges: PARKER and RodmaN, JJ., join in dissenting opinion.
Reporter: North Carolina Reports
Volume: 255
Pages: 244–257

Head Matter:
WELCOME WAGON INTERNATIONAL, INC. v. EVELYN L. PENDER.
(Filed 7 July, 1961.)
1. Pleadings § 12—
In passing upon a demurrer, the allegations of fact must be accepted as true.
2. Contracts § 7—
Provisions in a contract of employment that after the termination of the employment the employee should not engage in business in competition with the employer are valid and enforceable provided the restrictions are reasonable both as to territory and time.
3. Same—
While a contract of an employee not to engage in competition with the employer after the termination of the employment may not be reformed or modified by the courts in regard to the territory or time stipulated in the agreement in order to reduce them to that which is reasonable and enforceable, where the contract itself stipulates disjunctively territories of varying sizes, the court will take notice of the division the parties themselves have made, and will enforce the contract within a stipulated territory which is patently reasonable, in this case a single city.
4. Same—
Where the employment entails personal contacts by the employee with the patrons or customers of the employer and the acquisition by the employee of information as to plans, methods, and procedures for the conduct of tbe business, a provision in tbe contract of employment that tbe employee should not engage in business in competition with tbe employer within a prescribed territory for a period of five years after the termination of the employment cannot be held void on the ground that the period of time stipulated is unreasonable or excessive.
Bobbitt, J. dissenting.
Pabkeb and Rodman, JJ., join in dissent.
Appeal by plaintiff from Bickett, J., December, 1960 Civil Term, Cumberland Superior Court.
The plaintiff, a Delaware corporation, instituted this civil action (1) to restrain the defendant from further violating her covenant not to engage in the plaintiff’s particular line of business for five years from the termination of her employment, and (2) to recover $3,500 liquidated damages resulting from breach of the restrictive covenant. The covenant was a part of the written contract of employment which, among other provisions, contained the following:
“The Company employs the Hostess and the Hostess accepts the employment, to act for it in the capacity of Hostess in Fay-etteville, North Carolina, and the surrounding trade territory;
“The Company, through its duly authorized and trained members, will impart the required instructions and training to enable the Hostess to successfully operate the service according to the proven successful methods of operation and will supply the Hostess with printed, typewritten and mimeographed manuals, instruction books, and other literature for her guidance. The Company will also furnish sales presentations, sales letters and other material to assist in securing and retaining the patronage of prospective subscribers and will, through its paid Field Representatives, give personal sales and supervision assistance and through its trained correspondence staff will give every possible courteous and efficient cooperation and aid. . . .
“The Hostess agrees to devote her entire time and attention to the business of the Company, and at all times work under its rules, regulations and instructions, and perform and discharge all the duties incident to said position as contemplated by the service which the Company is rendering to subscribers, and in accordance with the special training which she receives, among which duties will be to secure from all available sources and names of mothers and new-born babies; Girls who have reached their 16th birthday; Those whose engagements have recently been announced; Local Families moving from one home to an other; Newcomers moving into the city; and to call upon them and present gifts and literature from said subscribers to cooperate with said subscribers whom the Company is serving in every reasonable way so as to make the service rendered by the Company effective and efficient. She will lend her assistance in every reasonable way to building up the business and maintaining the service of the Company, and she will exert her efforts toward procuring prospective subscribers’ contracts for the Company. . . .
“Now, therefore, for and in consideration of this employment, and the compensation to be earned and paid to the Hostess hereunder, said Hostess covenants and agrees that she will not during the term of this employment, and for a period of five whole years thereafter, engage directly or indirectly for herself or as agent, representative or employee of others, in the same kind or similar business as that engaged in by the Company (1) in Fay-etteville, North Carolina, or (2) in any other city, town, borough, township, village or other place in the State of North Carolina, in which the Company is then engaged in rendering its said service, (3) in any city, town, borough, township, village or other place in the United States in which the Company is then engaged in rendering its said service, or (4) in any city, town, borough, township or village in the United States in which the Company has been or has signified its intentions to be, engaged in rendering its said service.
“Said Hostess also agrees that she will not, during the term of her employment by the Company, and for five whole years thereafter, divulge to any person, not an employee of the Company, any trade secret, plan or method of operation, or special information employed in or conducive to the Company’s business, and which may come to her knowledge in the course of, or by reason of, her said employment.
“A breach of the foregoing good-will clause of this contract by the Hostess would result in substantial damages to the Company, but same might be incapable of exact proof. Therefore, if the Hostess should breach said clause, she will pay the Company, as liquidating damages, the sum of $3,500 for each and every city, town, borough, township, village, province or other place in which she commits said breach, it being agreed that the above sum is reasonable and fair. It is agreed and understood, however, that this provision for liquidated damages is cumulative and does not exclude the remedy by injunction or other remedy the Company may be entitled to.”
The plaintiff alleged the defendant performed the contract until September 22, 1958, at which time she resigned. “That said business was successful and remunerative to the plaintiff,” and for the years 1950 through 1958 the plaintiff received more than $55,000 from-the business in Fayetteville.
The plaintiff further alleged:
“That shortly after termination of her employment with the plaintiff, the defendant commenced a flagrant and systematic violation of the covenant and condition set forth in her said contract with the plaintiff and hereinabove set forth in that she entered into the same or similar kind of business to that of the plaintiff in Fayetteville, North Carolina, where she had been over a period of ten (10) years employed by the plaintiff and has continued to engage in the flagrant and systematic violation of said contract, employing the methods, plans and systems invented and used by the plaintiff and its predecessors in its business and imparted to the plaintiff in the course of her employment, and has used, and is using the knowledge she gained as to all of plaintiff’s plans, methods, procedures and trade secrets for the purpose of establishing and operating an identical business of her own in the City of Fayetteville, North Carolina, in violation of the express terms and provisions of her contract with the plaintiff, under the style of ‘Fayetteville Hospitality Service.’
“That the defendant has also in an unfair manner approached all the subscribers or sponsors of the plaintiff in Fayetteville, North Carolina, who had contracts with the plaintiff and has solicited said sponsors to abandon their contracts with the plaintiff and to transfer their business to the defendant and has persuaded all of the customers, sponsors and subscribers of the plaintiff’s business to leave the plaintiff and sign contracts with her.”
The defendant filed a demurrer to the complaint upon two grounds: (1) The contract was without consideration. (2) It was void as against public policy for that the restrictions were unreasonable as to length of time and extent of territory. The court sustained the demurrer, entered judgment dismissing the action, from which the plaintiff appealed.
Egbert L. Haywood, Emery B. Denny, Jr., of Haywood & Denny, for plaintiff, appellant, Walter P. Armstrong, of counsel.
Tally, Tally, Taylor & Strickland, By: Nelson W. Taylor and Jesse M. Henley, Jr., for defendant, appellee.

Opinion:
Higgins, J.
In passing on the demurrer this Court must accept as true the facts alleged. Hence, for the purposes of the present hearing these facts are deemed established: (1) The parties entered into a written contract. (2) The mutual covenants furnished valuable consideration for it. (3) The defendant observed the terms of the contract for more than eight years during which the plaintiff received more than $55,000. (Whether this amount is the total, or the share of each party, is not clear.) (4) The defendant resigned effective September 22, 1958. (5) Immediately thereafter, all of plaintiff's customers cancelled their contracts. (6) The defendant immediately continued her operation as before except for herself rather for the plaintiff. (7) The defendant is now using the same methods and continuing the same operation in violation of the restrictive covenant in her contract.
The defendant admits the violation. She says, by way of her only defense, the contract is void because it is unreasonable as to time and territory. Our general rule is that the Court will enforce such a contract only if it is reasonable both as to the territory and the time limitations. In determining these questions the Court must take the contract as the parties made it. Paper Co. v. McAllister, 253 N.C. 529, 117 S.E. 2d 431; Noe v. McDevitt, 228 N.C. 242, 45 S.E. 2d 121.
The court is without power to vary or reform the contract by reducing either the territory or the time covered by the restrictions. However, where, as here, the parties have made divisions of the territory, a court of equity will take notice of the divisions the parties themselves have made, and enforce the restrictions in the territorial divisions deemed reasonable and refuse to enforce them in the divisions deemed unreasonable. It is patent that division (1) — Fayette-ville — is not unreasonable. Likewise it appears that divisions (3) and (4) — any city or town in the United States in which the plaintiff is doing, or intends to do business — are unreasonable and will not be enforced. Whether (2) is reasonable is for the chancellor. "Where the territory embraced in restrictive covenants is unreasonable, but is expressed in divisible terms, i.e., in terms of local geographical or governmental units, the majority of the courts enforce the covenant in as many of the units as are reasonable and disregard the remainder." 26 N.C.L.R. (1947-48) p. 403, citing 5 Williston on Contracts, 1659 (Revised Ed. 1937-47 Cumulative Supplement); Roane v. Tweed (Del) 89 A. 2d 548; 41 A.L.R. 2d 1; Welcome Wagon v. Haschert (Ind.) 127 N.E. 2d 103; 17 C.J.S., Contracts, § 289 (a); Hauser v. Harding, 126 N.C. 295, 36 S.E. 586.
The defendant stressfully contends the time period (five years) after separation from the plaintiff's employment is unreasonable and renders the contract void. She relies heavily on Welcome Wagon v. Moms, decided by the U. S. Court of Appeals for the Fourth Circuit and reported in 224 Fed. 2d 693. While there are minor factual differences between this and the Moms case, nevertheless we confine comment to the simple statement that, in our opinion, that decision does not follow the general rule and is not based on the sounder reasoning. The general rule is stated in 9 A.L.R., p. 1468: "It is clear that if the nature of the employment is such as will bring the employee in personal contact with 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 and customers of his former employer, and thereby gain an unfair advantage, equity will interpose in behalf of the employer and restrain the breach . . . providing the covenant does not offend against the rule that as to time . or as to the territory it embraces it shall be no greater than is reasonably necessary to secure the protection of the business or good will of the employer." Baumgarten v. Broadway, 77 N.C. 8; Baker v. Cordon, 86 N.C. 116; Cowan v. Fairbrother, 118 N.C. 406, 24 S.E. 212; Kramer v. Old, 119 N.C. 1, 25 S.E. 813; King v. Fountain, 126 N.C. 196, 35 S.E. 427; Hauser v. Harding, supra; Jolly v. Brady, 127 N.C. 142, 37 S.E. 153; Anders v. Gardner, 151 N.C. 604, 66 S.E. 665; Wooten v. Harris, 153 N.C. 43, 68 S.E. 898; Faust v. Rohr, 166 N.C. 187, 81 S.E. 1096; Sea Food Co. v. Way, 169 N.C. 679, 86 S.E. 603; Bradshaw v. Millikin, 173 N.C. 432, 92 S.E. 161; Mar-Hof Co. v. Rosenbacker, 176 N.C. 330, 97 S.E. 169.
The foregoing cases in the main refer to covenants ancillary to contracts of sale, etc. See 36 Am. Jur., § 58, p. 537, et seq. The courts likewise recognize as valid contracts not to engage in competition with employer after termination of service. 36 Am. Jur., § 79, p. 555, et seq. In Scott v. Gillis, 197 N.C. 223, 148 S.E. 315, this Court held: "At least where the character of the business and the nature of the employment are such that the employer requires such protection, an agreement by an employee not to engage in business in competition with the employer after the termination of the employment, is valid if it is reasonable under the circumstances." The same rule is approved in Moskin Bros. v. Swartzberg, 199 N.C. 539, 155 S.E. 154. In Comfort Spring Corp. v. Burroughs, 217 N.C. 658, 9 S.E. 2d 473, the Court recognized, as valid, the rule in the Scott and Moskin cases but refused to restrain the defendant because of plaintiff's failure to allege sufficient material facts Beam v. Rutledge, 217 N.C. 670, 9 S.E. 2d 476; Delmar Studios v. Goldston, 249 N.C. 117, 105 S.E. 2d 277.
In the cases cited and others, restrictive covenants have been approved for periods ranging from one to 20 years, and in one instance for the life of the covenanter. For list of cases, see N.C.L.R., Yol. 38, p. 396 (1959-60). Research has not disclosed, and the defendant has not cited, any decision of this Court in which five years duration has been declared sufficient to avoid a restrictive covenant. According to the allegations, the plaintiff was established in business at the time the defendant executed the written contract and entered plaintiff's employment. She resigned after receiving the benefits for several years, began a competitive business immediately, and took with her all of plaintiff's customers. In short, she took over plaintiff's business. The actual result appears to furnish a valid reason for the covenant. "There is no ambiguity in the restrictive covenant. It was inserted for the protection of the plaintiff, and to inhibit the defendant, for a limited time, from doing exactly what he now proposes to do. Exterminating Co. v. Wilson, ante, 96. The parties regarded it as reasonable and desirable when incorporated into the contract. Subsequent events, as disclosed by the record, tend to confirm, rather than refute, this belief." Sonotone Corp. v. Baldwin, 227 N.C. 387, 42 S.E. 2d 352.
Upon the allegations of the complaint, which the proof may or may not sustain, the court should have overruled the demurrer, permitted the defendant to answer, and continued the restraining order to the hearing. The judgment of the court below is
Reversed.