Monogram Industries, Inc. v. Sar Industries, Inc

In Monogram Industries, Inc. v. Sar Industries, Inc. (1976) 64 Cal. App. 3d 692, two shareholders sold their business, which had developed an innovative new toilet using oil rather than water. In connection with the purchase and sale, the parties entered into a noncompetition covenant, specifically made applicable to all of North America. Essentially, the selling shareholders agreed that for five years they would not become involved in any "competitive business" activity, which was defined so as to "'mean any business in the fields of Modular building structures, sanitation or sanitation products.'" ( Id. at p. 696.) In flagrant violation of this covenant, the two shareholders founded another company to market and sell an oil-based toilet system in the United States. The Monogram court affirmed the issuance of a preliminary injunction against this violative activity. The court also found that the covenant could be enforced against all competing activity, nationwide, according to its specific terms, and should not be limited to the Los Angeles area where the oil-based toilets were being manufactured. ( Monogram, supra, 64 Cal. App. 3d at pp. 697-702.) The court in Monogram was not required to interpret ambiguous language in a covenant according to extrinsic evidence, as the trial court was faced with here. Further, contrary to the interpretation placed on this case by appellant, Monogram did not discuss what conduct would constitute the carrying on of business activities by the party bound by the noncompetition covenant. Instead, this decision addressed the question of whether an injunction to enforce a covenant should extend throughout the United States, or should be limited to the area where the company protected by the covenant was carrying on its activities. The answer was yes, in that the appellate court found the company protected by the covenant was carrying on its business activities throughout the country by the marketing of products, so the covenant could be enforced throughout the country. ( Monogram, supra, 64 Cal. App. 3d at pp. 697-703.)