Diamond Post

 Business & Commercial Newsletter

A frequent question in business disputes is whether South Carolina courts will "blue-pencil" an unenforceable provision of a contract to make it enforceable.  Basically, "blue penciling" a contract means striking or modifying any unenforceable parts of a contract while enforcing the rest of it.  This issue often comes up in the context of non-compete agreements, which prevent departing employees or businesses from competing for a specified period of time or in a designated region.  Our courts generally require these agreements to be limited in time, territory and scope and to protect a legitimate business interest.  The question is whether a court can "blue pencil" or modify unenforceable portions of a non-competition agreement, such as unnecessarily broad restrictions on time or territory.  This question has been answered in other jurisdictions but until recently it remained unclear in South Carolina.
    
In Poynter Investments, Inc. v. Century Builders of Piedmont, Inc., the South Carolina Supreme Court provided an answer.  In Poynter, Clyde Rector sold his business to Poynter.  As part of the sale, Rector entered into a non-competition agreement which provided, in part, that Rector could not compete with Poynter in "[a]n area encompassing seventy-five (75) miles in any direction from the [business]."  Poynter sued Rector and Rector's new business, Century Builders, alleging that they breached the terms of the non-compete agreement.  The trial judge entered an order restraining Rector from competing with Poynter but modified the area in which Rector could not compete to within Greenville County and within an area encompassing fifteen miles in any direction from the business.  The defendant appealed, arguing that South Carolina law did not permit the judge to "blue-pencil" the territorial restrictions.  The Supreme Court agreed. Noting that previous decisions of the Supreme Court disallowed trial courts from adding to, or artificially limiting, the language of a contract, the Supreme Court stated that rewriting contracts is "a service the courts of South Carolina do not perform."  

This decision highlights the need to have well-drafted and properly tailored business agreements in place, especially when dealing with agreements not to compete.  Once the agreement is put before a court, it might stand or fall on its own terms and the parties cannot look to the court to make an otherwise unenforceable provision of an agreement enforceable.  We have previously discussed what we believe is an uptick in litigation concerning non-competition agreements [Click here for article] and this recent decision is a good example of how our courts are addressing these issues.