McCallum v. Asbury
1964 Ore. LEXIS 428, 393 p.2d 774, 238 Or. 257 (1964)
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Rule of Law:
A restrictive covenant in a professional partnership agreement is enforceable if it is reasonable in time and geographic scope. A partnership's delegation of management authority to an executive committee by a majority vote, as permitted by the partnership agreement, does not constitute a material breach that would release a departing partner from their obligations under such a covenant.
Facts:
- A surgeon, the plaintiff, became a partner in the Corvallis Clinic in 1953 after being an employee for two years.
- The partnership agreement he signed contained a restrictive covenant prohibiting a departing partner from practicing medicine within 30 miles of Corvallis for ten years.
- The plaintiff consulted with counsel and deliberated for five months about the restrictive covenant before signing the agreement.
- Over time, significant disagreements arose between the plaintiff and the other partners regarding the business management of the clinic.
- A majority of the partners voted to create an executive committee to manage the general affairs of the partnership.
- The plaintiff contended that the creation of this committee violated the partnership agreement, which stated that all partners shall have an equal share in management.
Procedural Posture:
- The plaintiff sued the defendant partners in a state trial court to dissolve their medical partnership.
- The defendants filed a counterclaim seeking an injunction to enforce the restrictive covenant against the plaintiff.
- The trial court entered a decree denying the plaintiff's suit for dissolution and also denying the defendants' counterclaim for an injunction.
- The trial court found that the defendants had breached the partnership agreement by creating an executive committee, which released the plaintiff from the restrictive covenant.
- All parties appealed the trial court's decree to the present appellate court.
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Issue:
Is a restrictive covenant in a professional partnership agreement enforceable against a departing partner who claims the other partners breached the agreement first by delegating management powers to an executive committee?
Opinions:
Majority - Goodwin, J.
Yes, the restrictive covenant is enforceable. The creation of the executive committee was not a breach of the partnership agreement because the agreement allowed for a majority vote to decide business matters. The delegation of authority was not a fundamental change to the partnership structure, as the majority of partners retained ultimate control, including the power to override committee decisions and reconstitute the committee. Therefore, the plaintiff was not released from his contractual obligations. The restrictive covenant itself is reasonable in its ten-year duration and 30-mile geographic scope, as it protects the legitimate investment of the remaining partners and there is no evidence of undue hardship to the public.
Analysis:
This decision reinforces the principle that courts will generally uphold restrictive covenants between sophisticated professionals if the terms are reasonable. It clarifies that internal management restructuring, when done in accordance with the partnership agreement's governance provisions (like majority rule), does not constitute a material breach sufficient to void other contractual obligations. The case underscores judicial deference to the freedom of contract, particularly when a party has had ample opportunity to review, understand, and negotiate the terms before accepting the benefits of the agreement.
