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Central Adjustment Bureau, Inc. v.
Ingram
Supr crt of Tennessee, 1984
Author: Meg
Facts
D's (ex CAB employees) signed a covenant, after their day of
hire, not to compete. D's, formed a competitor company. CAB
brought suit and sought compensatory and injunctive relief. The
court found covenants to be broad w/ respect to time and
location, the court modified the restrictions enforcing then as
modified by injunctive relief and awarded P damages for the
breach and torts. The court of appeals reversed, holding the
covenants unenforceable for lack of consideration; and affirmed
the D's liability in tort and remanded for damages. Now on
appeal.
Issue
(1) Whether the covenants are supported by sufficient
consideration?
(2)Whether a covenant not to compete, the geographic and time
limitations of which are broad, can be judiciously modified so as
to make the covenant reasonable?
Rule
(1)Yes, the covenants are supportedā€¦
(2)Yes, a covenant to compete can be judiciously modifiedā€¦
Analysis
Rule of reasonableness applies to consideration as well as to
other maters such as location and time. Employment is
sufficient consideration for a covenant, but must be informed
prior to employment (or the day of). Some states found that
continued employment was sufficient for consideration, others
regard covenant as binding if there is actual performance of the
promise of continued employment (?). This court held that
although there was no consideration to bind the employer when an
employee signed a non-competition covenant, performance under the
contract supplied the necessary consideration and mutuality
necessary to make the contract binding. Facts and
circumstances of each case are dependant to decide if a
performance is sufficient to support a covenant. Factors such as
length of employment, circumstances under which employee leaves,
etc have a bearing on whether consideration exists. D's
length of employment and terns of resignation are sufficient to
constitute substantial performance, and thus the covenant is
binding. D's received benefits which they would not have
received if they had not signed the covenant. For these
reasons this court held the covenants to be supported
by sufficient consideration,
Conclusion
Judgment of the crt of Aps as to all Ds is reversed; Lower court
ruling affirmed
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