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KRAUSS v. M. L. CLASTER & SONS (05/28/69)

decided: May 28, 1969.


Appeal from judgment of Court of Common Pleas of Centre County, Oct. T., 1967, No. 43, in case of Samuel Krauss v. M. L. Claster & Sons, Inc.


John R. Miller, with him Miller, Kistler, Lee & Campbell, for appellant.

S. Dale Furst, Jr., with him Furst, McCormick, Lynn, Reeder & Nichols, for appellee.

Bell, C. J., Jones, Cohen, Eagen, O'Brien, Roberts and Pomeroy, JJ. Opinion by Mr. Justice Roberts. Mr. Justice Cohen dissents.

Author: Roberts

[ 434 Pa. Page 405]

Appellant, who for some time had been an employee, stockholder and officer of appellee, a firm which sells building supplies and materials, terminated his active relationship with appellee in 1966. At this point, appellee and appellant entered into an agreement essentially for the sale of appellant's stock to appellee. The part of the agreement pertinent to this case provided: "4. Seller employee shall remain an employee . . . for a period of five (5) years from March 1, 1966, at a rate of Five Thousand Dollars per year on a monthly basis, and during such time shall render services to Buyer-employer in the nature of consultation and advice, and shall hold himself ready to do so when called upon, and shall in no way compete directly or indirectly with Buyer-employer as consultant, advisor, stockholder, manager, officer, director or employee of any competitor of Buyer-employer for said five (5) year period in the State of Pennsylvania except businesses, incorporated or unincorporated, confining their sales and operations to Allegheny County, or Philadelphia, Delaware, Chester, Montgomery, and Bucks Counties. . . ."

[ 434 Pa. Page 406]

In February, 1967, appellant became an employee of L. Grossman and Sons, Inc. [hereinafter Grossman] of Braintree, Massachusetts, a company which also is in the building supply business. Grossman has sales outlets in Reading, Berks County, and Scranton, Lackawanna County. The record indicates that Grossman also intends to expand its operations in Pennsylvania, and has expressed considerable interest in buying out appellee's yards. Appellee considered appellant's employment with Grossman to be a breach of the covenant not to compete in the contract, and refused to pay appellant further compensation under the contract. Appellant then brought this suit, and the court, sitting without a jury, found a verdict for appellee. Appellant's motions for a judgment n.o.v. and a new trial were denied, and this appeal followed.

Appellant's first claim is that he has not violated the covenant not to compete. Appellant argues that he is not employed in Pennsylvania, and that, furthermore, Grossman is not competing with appellee in Pennsylvania.*fn1 As to the first contention, it is clear that the contract does not in any way speak to where appellant works, but simply forbids him to work for anyone who is competing with appellee in Pennsylvania, other than in the excepted counties which the contract enumerates. It is not relevant under the contract that appellant might have acted for Grossman only in a capacity wholly divorced from Grossman's Pennsylvania business, as long as Grossman competed with appellee in a way forbidden by the contract.

[ 434 Pa. Page 407]

Although Grossman's direct competition with appellee was limited, the record does indicate that at least a slight overlap in sales area existed. Furthermore, Grossman was anxious to expand its Pennsylvania operations, and was even thinking of moving into appellee's territory by taking over appellee's operation. As appellee points out, under these circumstances, with appellant holding a position of confidence and trust with Grossman, appellant's value as a consultant to appellee was greatly diminished. We believe that the court below correctly concluded that by working for Grossman, appellant was "directly or indirectly" competing with appellee.

Appellant next argues that even if his actions violated the covenant not to compete, that covenant is so broad as to be unreasonable and is thus incapable of enforcement. Although as a general rule, covenants not to compete are unenforceable if overly broad in time, territory, or protection or if they create an unreasonable hardship, see, e.g., Jacobson & Co. v. Int. Environment Corp., 427 Pa. 439, 235 A.2d 612 (1967); Morgan's Home Equip. Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838 (1957); Restatement, Contracts, ยง 516(f) (1932), those rules are equitable in nature. Their rationale is that overly broad covenants not to compete deprive a man of his opportunity to make a living, and are thus unreasonable and as a result unenforceable in equity. This however is not an equitable action. Appellee has merely raised appellant's breach of the covenant as a legal defense to appellant's action in assumpsit. We need not pass on whether the covenant in the case before us is too harsh to be enforced in ...

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