Court Opinion

ID: 6698353
Source: CourtListenerOpinion
Date Created: 2022-07-20 22:01:26.608513+00
Date Added: 2024-06-11T16:01:19.569807
License: Public Domain

Appeal oe DEFENDANTS, Katzis and White.
Winboene, J.
The questions raised by the appealing defendants pertain to the refusal of the court to grant their respective motions for judgment as in case of nonsuit and to set aside the verdict on the second, third and fourth issues. The rulings below in regard thereto are consonant with our views.
These appellants base their challenge upon two grounds:
1. That as the good will sold by the Goldsboro Dry Cleaners and Hatters, Inc., to plaintiffs Sineath and Hearon was not the property of defendant Katzis, the sale of it constituted no sufficient valuable consideration to support the execution by him of the noncompetitive agreement sued on in this action.
The principle prevails that where in a noncompetitive covenant the restraint is limited as to both time and space the agreement is ordinarily valid. Beam v. Rutledge, 217 N. C., 670, 9 S. E. (2d), 476; Spring Corp. v. Burroughs, 217 N. C., 658, 9 S. E. (2d), 473. Also, as a general proposition a covenant by which the restraint is imposed must be incidental to or in support of another lawful contract by which the covenantee acquires some interest needing protection, that is, the covenant must be ancillary to the main transaction, necessary to the reasonable protection of the business sold and reasonable in its scope under all the circumstances of the case. See Annotations 94 A. L. R., 341. There, at p. 342, it is said: “The main problem in reference to the peculiar question as to the validity of a covenant not to compete entered into by one having no interest in the business, or property sold, are two, namely: (1) Whether it is necessary that the covenantor should have had an interest as vendor in the business or property sold; and (2) assuming such an interest is not necessary, upon what persons may the restraint be validly imposed? With reference to the first problem, the cases which may be regarded as distinct authorities upon the point have followed the view that it is not necessary to the validity of the covenant as against a particular covenantor, that he should have had an interest *755in the property or business sold . . . (Arctic Dairy Co. v. Winans, 267 Mich., 80, 255 N. W., 290, 94 A. L. R., 334.) With reference to the second problem ... it has . . . been regarded as sufficient to the validity of a covenant, against a particular covenantor, that he was prominent in the business at the place in question.”
Applying these principles to the factual situation in the case in hand, defendant Katzis bore such relation of prominence to the business of the Goldsboro Dry Cleaners and Hatters, Inc., as to make his covenant ancillary. The agreement shows, on its face, that he was the majority stockholder, and the evidence shows that he owned 98 per cent of the stock. His promise not to compete is recited by the parties to be a part of the consideration for the sale. They must have deemed that the interest acquired by the purchasers needed protection. Certainly at the time the parties considered his promise to be incidental to the main transaction.
2. That the record fails to disclose evidence of any act or conduct on the part of either Nick J. Katzis or Letha White which, as a matter of law, is sufficient to rise to the dignity of a breach of the noncompetitive covenant in the agreement upon which the action is based.
In this State, while it is held that a covenant not to engage in a competing business is not violated by lending money or giving credit to a person engaged in or about to engage in such business, Reeves v. Sprague, 114 N. C., 647, 19 S. E., 707; Finch v. Michael, 167 N. C., 322, 83 S. E., 458, it is generally held that the seller of a business who has covenanted not to engage in a competing business cannot lawfully take stock in, help to organize or manage a corporation formed to compete with the purchaser. Kramer v. Old, 119 N. C., 1, 25 S. E., 813; 34 L. R. A., 389, 56 Am. St. Rep., 650.
Too, it is a breach of a covenant not to engage in a competing business for the covenantor to engage in such business in the name of another who has in fact no interest therein. King v. Fountain, 126 N. C., 196, 35 S. E., 427.
The majority, and the better considered cases, support the proposition that one who is in no sense a party to a covenant not to engage in a competing business cannot properly be enjoined from engaging in such business. However, a stranger to the covenant may properly be enjoined from aiding the covenantor in violating his covenant or receiving any benefit therefrom. Hence, a stranger to the covenant may well be enjoined from, in conjunction with the covenantor, or with his assistance, conducting a business in competition with the covenantee. Annotations 94 A. L. B., 341.
Applying these principles to the present case, the evidence shows a factual situation from which the jury may fairly infer that defendant *756Katzis was connected with the White’s Laundry and Cleaners, Inc., in some respect prohibited by Ms agreement not to compete. The evidence shows that defendant Letha White knew of the noncompetitive agreement which Katzis had made. Knowledge of the contract, of course, is a condition of liability. Haskins v. Royster, 70 N. C., 601; Morgan v. Smith, 77 N. C., 37. The evidence is such also as to afford reasonable inference that she participated with Katzis in the breach of his contract as alleged. Elvington v. Shingle Co., 191 N. C., 515, 132 S. E., 274.
When plaintiff proves breach of contract he is entitled at least to nominal damages. Bowen v. Bank, 209 N. C., 140, 183 S. E., 266.
Appeal of PlaiNtiffs.
In the light of the factual situation presented in the record on this appeal, the determinative questions raised by plaintiffs are these:
Did the court err: (1) In granting motion for judgment as of non-suit as to White’s Laundry and Cleaners, Inc.? (2) In holding that plaintiffs are entitled only to nominal damages? (3) In refusing to set aside verdict on fifth issue ?
1. The better view of the authorities seems to be that, so far as concerns a corporation organized and supported by the covenantor, or with his assistance, except when it appears that the corporation is substantially the alter ego of the covenantor, it ought not to be enjoined from competing with the covenantee. Annotations 94 A. L. R., 341; Kramer v. Old, supra.
While holding in the Kramer case, supra, that the sellers’ noncompetitive agreement is violated by their assisting in the organization of, or taking stock in a corporation projected into a business competing with that sold, and that they might be restrained, it is held also that the corporation itself, or others interested in its business, should not be restrained from engaging therein.
In the present case there is no evidence with respect to White’s Laundry and Cleaners as to who the stockholders are, or what interest any particular person had in it, or that defendant Katzis was an officer of it. Under these circumstances, plaintiffs have failed to bring the case within the exception to the better view expressed by the authorities.
2. The competency of the testimony of the accountant, given as an expert, and based upon a personal examination of the books and records of the corporation, may be conceded. LaVecchia v. Land Bank, ante, 35, 9 S. E. (2d), 489, where the authorities in this State are assembled. Even so, sufficient definite evidence is lacking to show a causal relation between the condition reflected by the books and the breach of the noncompetitive agreement of the defendant Katzis.
*757While, as stated with regard to defendants’ appeal, proof of breach of contract entitles plaintiffs to nominal damages at least, in order to be entitled to recover more, plaintiffs must not only allege but offer evidence sufficient to satisfy the jury by the greater weight thereof that they have sustained substantial damage, naturally and proximately caused by the breach. Bowen v. Bank, supra. As applied to breaches of noncompetitive agreements, see Annotations, 127 A. L. R., 1152. As stated in Campbell v. Everhart, 139 N. C., 503, 52 S. E., 201, Wallcer, J., “The sufficiency of evidence in law to go to the jury does not depend upon the doctrine of chances. However confidently one, in his own affairs, may base his judgment on mere probability as to a past event, when he assumes the burden of establishing such event as a proposition of fact and as a basis for the judgment of a court, he must adduce evidence other than a majority of chances that the fact to be proved does exist. It must be more than sufficient for a mere guess, and must be such as tends to actual proof.” Finch v. Michael, supra. Again, as stated in the Finch case, supra, “We cannot jump to a conclusion, but the proof must be of such character as to show with at least some degree of certainty that the alleged wrongs produced an injury. . . . Both wrong and damage must be shown and it must appear that the latter was the effect and the former the cause.”
In the present case the court below was of opinion that the evidence offered by plaintiffs is too vague, too speculative and too conjectural to support a verdict for substantial damages. We are of like opinion, and so hold. While the witness Sineath testified “that in loss of business and added expense we lost about $15,000,” he frankly states he does not know how much business plaintiffs lost. He says the auditor will show exactly how much was lost. However, all thatp the testimony of the auditor shows is the condition of the business as reflected by the books, and that condition is connected with the breach of the noncompetitive agreement only in point of time. Whether the depreciated condition in the financial statement, as shown by the books, was caused by reduction in price of dry cleaning, or by credits to some other plant for washing done at the Goldsboro Dry Cleaners and Hatters, or by friends of Miss White following her when she was let out by the Goldsboro plant, or by business conditions, is left in the realm of possibility, and even probability. If so, to what extent? The evidence fails to show.
Further, the evidence as to purchase of new equipment is not of probative value as an element of damages. If there were other expenses, such are not shown.
3. Having held that there is no error with respect to the issue of damages, we deem it unnecessary to enter into a discussion of failure of *758consideration proffered by plaintiffs. It is sufficient to say that, on the facts presented, plaintiffs’ remedy is properly based on claim for damage.
In the judgment below
On defendants’ appeal — No error.
On plaintiffs’ appeal — No error.