Hebb v. Stump, Harvey & Cook, Inc.

Thompson, J., delivered the opinion of the Court. This appeal concerns the applicability and scope of covenants not to compete in an employment contract entered into between Stump, Harvey and Cook, Inc., (Stump) an insurance agency, and James Hebb, (Hebb) a former employee. The contract was executed on May 21, 1971 several months after Hebb began work for Stump. After terminating Hebb’s employment for cause in December 1973, Stump filed a Bill of Complaint asking the Circuit Court of Baltimore City to enjoin Hebb from violating covenants not to compete in the employment contract.

The trial judge, William J. O’Donnell, enjoined appellant from engaging either directly or indirectly in writing or in soliciting the writing of contracts of insurance of those customers of Stump who became customers of Stump subsequent to May 21, 1971, but not including those customers of Stump who were customers of Hebb prior to his employment with Stump. Appellant raises three contentions on appeal: “1. The agreement does not bind Hebb not to compete in the event of a unilateral discharge for cause before the end of a term. “2. The restrictive covenant is unnecessarily broad ⁴⁸⁰ in scope, and, therefore, its terms are not enforceable. “3.

The restraints imposed by the injunction issued by the court below are without justification in law or in fact, and they are not founded on a proper construction of the agreement between the parties.” The agreement provides as follows: “In consideration of the compensation to be paid by us and received by you, as set forth below, you agreed to devote your full time and best efforts to the business of Stump, Harvey & Co., Inc. “Stump, Harvey & Co., Inc. agrees to employ you for the current year, ending December 31,1971, and provided performance of your duties is deemed satisfactory by Stump, Harvey & Co., Inc., your employment will automatically be renewed for another calendar year, upon the same terms (except as to the subsequent provision hereof with respect to non-competition). Thereafter, this agreement will automatically be renewed from year to year unless terminated by either party as hereinafter set forth. “1. Commissions shall be credited to you in accordance with our formula for our solicitors as it may be in effect from time to time. “2. You will be authorized a drawing account of $200.00 per week which will be applied against your commissions. “3.

In addition, we will pay you a weekly salary of $100.00 per week against which, however, will be charged any gross commissions earned by you in excess of $20,800.00 per year according to the following formula: “a. 50% of commissions earned by you in any one year in excess of $20,800 shall be charged against your salary each year, but in no event shall such total charges in any ⁴⁸¹ one year exceed $3,000.00. To the extent that said 50% of such excess annual commissions earned by you exceeds $3,000.00, then the excess of said 50% over $3,000.00 will be paid to you. “b. The remaining 50% of annual commissions earned by you in excess of $20,800.00 shall be paid to Stump, Harvey & Co., Inc. “4. It is further agreed that if, after this year (1971) you cease to be employed by Stump, Harvey & Co., Inc. you will refrain, for a period of one year (or for a period of two years in the event of a renewal for an additional year or more) beginning with the date of such termination from engaging either directly or indirectly in writing or soliciting the writing of contracts of insurance of our customers, and prospective customers who were being actively solicited by us at or before the effective date of such termination. “5.

This agreement may be terminated for cause by Stump, Harvey & Co., Inc. at any time upon ten days notice but it may only be terminated otherwise upon sixty (60) days notice prior to the end of a calendar year. In the event you terminate this agreement prior to the end of any year the applicable non-competition provisions shall be fully binding upon you, on a one-year basis depending upon the year of such termination. “If this letter correctly reflects the understanding which we have reached, will you please sign the form of approval which appears below. “Upon approval by you, this letter will constitute the full and complete understanding between us. This agreement may be modified or amended, but only in writing, and only with the assent of both parties.” ⁴⁸² I The Applicability of the Agreement Appellant first argues that the agreement’s covenants not to compete are not binding because his employment was terminated for cause by the appellee. We see no merit in the argument and we adopt the relevant portion of the trial court’s opinion as follows: “In summary, the Respondent argues that Paragraph 4 cannot apply to a ‘discharge for cause’ since by its terms it came into play only after the year 1971, and that its language suggests that it was intended only to deal with the termination by the normal expiration of the calendar year-by-year employment term or a renewal thereof; that a termination under Paragraph 5 (‘for cause’) could not therefor be covered by the provisions of Paragraph 4, but would be dependent solely on the language of Paragraph 5. [Counsel argues that such interpretation is reinforced when it is considered that the duration (of two years) as set forth in Paragraph 4, could not apply to a unilateral termination on the part of the employee — in connection with which Paragraph 5 fixes a one (1) year restriction on him as to competition.] “Counsel, in summary, as to Paragraph 5, urges that it is the only clause relating to unilateral termination ‘for cause’ by the employer and must be read in interrelationship to the other clauses in Paragraph 5. “It is well established that language in a contract prepared and included by one party is to be construed against that party if there is an ambiguity.

Lakrest Development Co. v. Eisele, 258 Md. 45, 50 (1970), Kelley Construction Co. v. Washington Suburban Sanitary Commission, 247 Md. 241, 250 (1967), Cadem v. Nanna, 243 Md. 536, 544 (1966) and Hughes and Co. v. Pioneer Fire-Proof Door Corp., 230 Md. 36, 38 (1962). ⁴⁸³ “In Sagner v. Glenangus Farms, 234 Md. 156 (1964), the Court stated (Pg. 167): ‘A recognized rule of construction in ascertaining the true meaning of a contract is that the contract must be construed in its entirety and, if reasonably possible, effect must be given to each clause so that a court will not find an interpretation which casts out or disregards a meaningful part of the language of the writing unless no other course can be sensibly and reasonably followed. We can find no sound reason to read the completion clause out of the contract. Kimmel, Tr. v. W. T. Grant Co., 233 Md. 466, 469 ; Lumber Co. v. Bldg. & Savings Assn., 176 Md. 403 ; Hart v. Hart, 165 Md. 77, 80 ; Waters v. Griffith, 2 Md. 326, 333 ; 17A C.J.S. Contracts Sec. 309, pp. 163-164. We think a reasonable person in the position of the parties would have thought the completion provision and the contract as a whole meant what Sagner says it meant and, therefore, that construction is the true meaning of the agreement.

Ray v. Eurice, 201 Md. 115, 127 .’ “In Mattingly Lumber Co., et al. v. Equitable Building & Savings Assoc., 176 Md. 403 (1939), in connection with the construction of a hypothecation agreement, the Court stated (pp. 407-8): “ * * * There are well established rules to aid the courts in construing contracts, where there is doubt as to the intention of the parties. The language employed, the subject matter of the agreement, the circumstances surrounding its execution, and its purpose and design, have always been accepted as guides of first importance in arriving at the intention of the parties. Lambdin v. Dantzebecker, 169 Md. 240 , ⁴⁸⁴ 245, 246, 247, 181 A. 353 ; Danzer & Co. v. Western Maryland Railway Co., 164 Md. 448, 462 , 165 A. 463 ; Myers v. Myers, 153 Md. 44, 48 , 137 A. 501 ; Ess-Arr Knitting Mills v. Fischer, 132 Md. 1, 8 , 103 A. 91 ; Phoenix Pad Mfg. Co. v. Roth, 127 Md. 540, 544 , 96 A. 762 . * * * ’ “Equally well settled is the rule that where two clauses or parts of a written agreement are apparently in conflict, and one is general in character and the other is specific, the specific stipulation will take precedence over the general, and control it. * * * ’ “In Slice v. Carozza Properties, Inc., 215 Md. 357 (1958), Chief Judge Brune, writing for the Court, stated (pg. 368): ‘As we turn to the authorities, we may note first that the theory of “objective law” of contracts has been almost universally adopted by this time.

The written language embodying the terms of an agreement will govern the rights and liabilities of the parties, irrespective of the intent of the parties at the time they entered into the contract, unless the written language is not susceptible, of a clear and definite understanding, or unless there is fraud, duress or mutual mistake. Ray v. Eunice, 201 Md. 115 , 93 A. 2d 272 .’ “See also U.S.I.F. Triangle Towers Corp. v. Rockwood Development Co., 261 Md. 379, 384 (1971) and Monticello v. Monticello, 271 Md. 168, 173 (1974), where (in connection with the interpretation to be given a decree) the Court stated that the question was ‘What a reasonable person in the position of the parties (or of the Court) would have thought it meant’. ( 271 Md. 168, 173 ). “Paragraph 4 must thus be construed as having been intended between the parties to be a ⁴⁸⁵ non-competition covenant, applicable generally to a cessation of the employer-employee relationship — by whatever means such cessation or termination came about. “Although the Respondent entered into the employ of the Complainant on about March 1, 1971, it was not until May 14, 1971 (Complainant Exhibit 1) that the employment agreement was submitted to him in writing, and it was not accepted by him until May 21, 1971 — thus (until December 31, 1971), it had only seven (7) months duration, and it is not illogical to assume that had the employment agreement been terminated — for any reasons — in the remainder of that calendar year there would have been no need for the employer to undertake to protect itself. “Paragraph 5 undertakes to set up ‘time periods’ for ‘termination for cause’ and for ‘termination by non-renewal’ by providing in the one case that the employer (where ‘for cause’) give the employee ten (10) days notice and in the other (non-renewal) sixty (60) days notice. “Although the last sentence in Paragraph 5 could have been more aptly stated, it provides that if the employee undertakes by his action voluntarily to terminate the agreement prior to the end of any calendar year the applicable non-competition provisions (set forth in Paragraph 4) shall be fully binding upon him, ‘on a one-year basis depending upon the year of such termination’, i.e., for a period of one year if terminated by him during 1972, or for a period of two (2) years in the event of a renewal for the year 1973 (by incorporation of the provisions thereinabove set forth in Paragraph 4 concerning the duration of any period of non-competition). Although it might be considered redundant, it is not in conflict with the provisions of Paragraph 4, but at best could be classified as a re-statement of ⁴⁸⁶ the applicability of the non-competition provision set forth in Paragraph 4.

It cannot here be construed as having been within the intention .of the parties that if it became necessary for the employer to terminate the employee ‘for cause’ he was not then subjected to any agreement not to compete. “The Respondent, prior to his association with the Complainants, had been engaged as a solicitor or producer of insurance with Donald E. Grempler, Inc., where he had executed a ‘non-competition clause’, and also had been in the employ of Gilbert A. Dailey and Company, where he was not under such a ‘non-competition clause.’ [Complainant’s Exhibit 10, under which he had agreed that he would not ‘during the life of this contract nor within two years of its termination, for any cause whatsoever, whether with or without his fault, engage or become interested, directly or indirectly, in the business of writing insurance, either as. principal, partner, agent, employee, or as a director or officer of any corporation or association, or in any other manner or capacity whatever in those sections of Baltimore County known as Towson, Timonium, Lutherville, Dulaney Valley, Cockeysville, Ruxton, Riderwood or