T. E. McCutcheon Enterprises, Inc. v. Snelling & Snelling, Inc.

Per curiam. Snelling & Snelling, Inc., a Pennsylvania corporation and a nationwide employment agency franchisor of long standing entered into an employment franchise agreement with the appellant T. E. McCutcheon Enterprises, Inc. in 1967 for a franchise in the City of Atlanta. The agreement provided that in the event of termination of the franchise the franchisee [610] would not compete "either (i) within ten (10) miles of the perimeter of the licensee’s franchise area for a period of two (2) years; or (ii) within five (5) miles of the perimeter of any other Snelling office 6r franchise area now or hereafter established by Snelling for a period of one (1) year.” In addition to providing for an injunction the contract also provided for damages of fifty percent of the net income derived from any violation of the non-competition agreement. The contract was declared terminated by the franchisor when payments were not made by the franchisee in accordance with the terms of the contract. Thereafter the franchisor filed the present action seeking an injunction, past due payments, and damages as provided for in such contract. The defendants in such action (the franchisee, named officers and employees) filed a motion to dismiss the complaint because no certificate to do business in Georgia had been procured by the plaintiff foreign corporation as provided for by the Georgia Business Corporation Code (Ga. L. 1968, p. 565 et seq.; Code Ann. Ch. 22-14). This same defense was made in the defendant’s answer. Upon the hearing on the motion to dismiss, which also included the question of whether a temporary injunction should be granted, evidence was adduced as to the plaintiffs contacts with Georgia. The motion to dismiss was denied, a temporary injunction granted and thereafter on the trial of the case a judgment was rendered which granted a permanent injunction, judgment for past due amounts under the contract, and damages resulting from the continued,operation of an employment agency by the defendants. Motions for new trial and to arrest a part of the judgment were overruled and the present appeal filed. The initial question for decision in this case is whether or not the trial court should have sustained the defendant’s motion to dismiss (converted into a motion for summary judgment by the introduction of evidence) because the plaintiff, a foreign corporation, had not registered as required by the Code Ann. Ch. 22-14 and as such was prohibited from proceeding in any court in the state by Code Ann. § 22-1421 (b). The applicability of the Code section to foreign [610] corporations doing business in Georgia is not questioned, but only the applicability of such section to the plaintiff, its contention being that it does not do business in Georgia and therefore is not required to be licensed prior to filing suit. In support of such contention it relies upon the provision of certain sub-paragraphs of Code Ann. § 22-1401 (b). This Code section expressly excludes from the provisions of such Act foreign corporations engaged in designated conduct only. 1. The appellee is a franchisor and the appellant corporation is a franchisee. Under a proper construction of the contract the appellant must be deemed to be an independent contractor and the appellee is expressly excluded from the registration requirements by Code Ann. § 22-1401 (b). Accordingly, the trial court did not err in overruling the motion to dismiss. 2. Under the decision of this court in Richard P. Rita Personnel Services v. Kot, 229 Ga. 314 (191 SE2d 79), the restrictive covenant in this case — which prohibited the appellant from engaging in a "similar business to that licensed hereunder either: (i) within ten (10) miles of the perimeter of the licensee’s franchise area for a period of two (2) years; or (ii) within five (5) miles of the perimeter of any other Snelling office or franchise area now or hereafter established by Snelling for a period of one (1) year” is unenforceable. The contention that sub-paragraphs (i) and (ii) are two separate covenants and thus make this case distinguishable from Rita, supra, is without merit for, as was there held, to permit such practice would result in onerous restrictive covenants which could be pared down until not unreasonable. Accordingly, the injunction and damages for violation of the restrictive covenant were not authorized, and the judgment denying the appellant’s motion to arrest that part of the judgment must be reversed. 3. That part of the judgment which permitted recovery for the amount due under the terms of the franchise agreement prior to its termination was authorized and must be affirmed. Judgment affirmed in part and reversed in part. All the Justices concur, except Grice, C. J., Nichols, P. J., and [610] Undercofler, J., who dissent from Division 1, and Grice, C. J., and Jordan, J., who dissent as to Division 2 and Hall, J., who concurs in the judgment only as to Division 2. Argued January 16, 1974 Decided April 23, 1974. Paul C. Myers, for appellant. Alston, Miller & Gaines, Oscar N Persons, for appellee.