Central Adjustment Bureau, Inc. v. Ingram
Supreme Court of Tennessee, 1984
Author: Jim

Facts:-  Each defendant was asked to sing a non-competition covenant few weeks after they started working in order for them to keep their jobs.  The defendants signed the covenants and continued to work for the plaintiffs for years and enjoyed promotions and raises.  Then the defendants resigned in order to start their own company that would directly compete with the plaintiffs company.  The plaintiffs brought action against the defendants.

Procedure:- In the Chancery Court, the Chancellor rewarded the plaintiffs $80,000 in damages.  The Court of Appeals reversed because it ruled that the covenant was unenforceable due to lack of consideration.

Issue:- Did the covenant have consideration that is required for it to be enforceable?

Holding:- Yes

Defendants’ Argument:  If the covenant is not presented to the employee at the time the employment negotiations are conducted, that covenant is not enforceable because there is no bargaining that is needed for consideration.

Reasoning:  The covenants were reasonable under the given circumstances.  The defendants signed the covenants and in return, the plaintiffs offered them prosperous work.  “…covenant is enforceable provided the employer continues to employ the employee for an appreciable length of time after he signs the covenant, and the employee serves his relationship with his employer by voluntarily resigning.”  The defendants’ argument that the plaintiff had no obligation to employ the defendants and the company could have fired the defendants right after they signed the covenant is not accepted by the court.  “The authorities are uniform in holding that where there has been full or substantial performance by one party to a bilateral contract, originally invalid for want of mutuality of obligation, the other party cannot refuse performance after receiving the promised benefits.”  Reversed.

Dissent (Brock):  In order for an act to constitute consideration for a promise it must have been bargained for and given in exchange for that very promise.  In the current case, the defendants were asked to sign the covenant after they had started their employment with the plaintiffs.  At this point they had almost no option but to sign the covenants. The promotions and raises that the defendants received cannot be considered an exchange for them signing the covenants.  Therefore the covenant was not enforceable due to lack of consideration.