Lar-Con Corp. v. Murman Properties

No. 14957 IN THE SUPREME COURT OF THE STATE OF MONTANA 1980

LAR-CON CORPORATION, a Montana Corporation, Plaintiff and Respondent,

MURMAN PROPERTIES, LIMITED, a Canadian Corporation, JILL MURDOCH and DON MURDOCH, Defendants and Appellants.

Appeal from: District Court of the Eighteenth Judicial, County of Gallatin, Honorable W. W. Lessley, Judge presiding. Counsel of Record: For Appellants: J. David Penwell argued, Bozeman, Montana For Respondent : Larry Moran argued, Bozeman, Montana

submitted: February 25, 1980

Decided: JUN1 6 1980 Filed: , $gBB

Mr. Justice Daniel J. Shea delivered the Opinion of the Court.

Defendant Murman Properties appeals from a judgment of the Gallatin County District Court in favor of plaintiff Lar-Con Corporation which enforced a contract of sale of a business which provided in part for a percentage of gross sales of the business for a certain number of years. In seeking to avoid payments, Murman Properties, Jill Murdoch and Don Murdoch (the buyers) contend that the Lar-Con Corporation (the seller), violated an agreement not to compete with the buyers in the grocery business. Although such term was not part of the sales agreement, the buyers allege that it was part of the sales agreement and that they would not have entered into this contract in the absence of such a provision. The trial court found, however, that the parties had discussed noncompetition before entering into the written agreement, and that plaintiff had refused to make any such commitment. Assuming moreover, that the parties had orally agreed to enter into a noncompetition agreement and that par01 evidence was admissible to prove this point, the resulting agreement would nonetheless be unenforceable because it violated a statute which prohibits noncompetition agreements to extend beyond a county boundary. For this reason, we affirm the judgment without reaching the sub- sidiary issues raised by the buyers. The buyers' claim in support of the alleged oral agreement that the seller induced the buyers to enter into the contract based on an oral representation that it would not compete and on the further representation that there was no need to integrate the noncompetition agreement into the sales contract. The buyers claim in this regard, -2-

b u t d i d n o t a l l e g e t h e r e q u i r e d e l e m e n t s of f r a u d a s r e q u i r e d by Rule 9 ( b ) , M.R.Civ.P. R a t h e r , it a p p e a r s t h a t t h e main t h r u s t o f i t s d e f e n s e was t h e c l a i m t h a t t h e sales c o n t r a c t s h o u l d be reformed s o a s t o r e f l e c t t h e a c t u a l agreement n o t t o compete.

The s a l e s agreement a r o s e when t h e s e l l e r d e c i d e d t o s e l l one of i t s two r e t a i l b u s i n e s s e s a t Big Sky, Montana. The s e l l e r owned " E r n i e ' s D e l i " i n t h e Mountain M a l l , which i s l o c a t e d i n Madison County. The s e l l e r a l s o owned t h e Country S t o r e i n t h e Meadow V i l l a g e a r e a , which i s l o c a t e d i n G a l l a t i n County. These two b u s i n e s s e s a r e , however, o n l y 7.3 m i l e s a p a r t , a l t h o u g h l o c a t e d i n s e p a r a t e c o u n t i e s . I n 1976 t h e s e l l e r e n t e r e d i n t o a n agreement w i t h t h e b u y e r s t o s e l l t h e Country S t o r e o p e r a t i o n , located i n G a l l a t i n County. The Country S t o r e s o l d g i f t s , a p p a r e l i t e m s , and g e n e r a l g r o c e r y p r o d u c t s . The s a l e i n c l u d e d f i x t u r e s , f u r n i t u r e , g o o d w i l l and i n v e n t o r y . The s e l l e r , however, c o n t i n u e d t o own and o p e r a t e E r n i e ' s D e l i , located i n Madison County. E r n i e ' s D e l i s o l d and s e r v e d food f o r on and o f f p r e m i s e s consumption.

By t h e terms o f t h e s a l e s c o n t r a c t , t h e b u y e r s made a c a s h payment a t t h e t i m e of t h e s a l e and were r e q u i r e d t o make a d d i t i o n a l payments t o t h e s e l l e r i n t h e sum o f 1.75% of t h e g r o s s sales f o r t h e y e a r s 1977, 1978, 1979, 1980 and 1981. The d i s p u t e a r o s e when t h e b u y e r s f a i l e d t o make t h e 1978 c o n t r a c t payment and t h e s e l l e r t h e n f i l e d a l a w s u i t s e e k i n g t o e n f o r c e t h e p r o v i s i o n s of t h e

s a l e s agreement. The b u y e r s t h e n r a i s e d t h e a l l e g e d non- competition provision a s an a f f i r m a t i v e defense, contending

t h a t t h e s e l l e r had v i o l a t e d t h i s p r o v i s i o n , a l t h o u g h it w a s n o t c o n t a i n e d w i t h i n t h e f o u r c o r n e r s of t h e s a l e s agreement.

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The u n d e r l y i n g e v i d e n c e r e l i e d on by t h e b u y e r s t o s u p p o r t a c l a i m t h a t an agreement n o t t o compete had been v i o l a t e d , r e l a t e s t o t h e d e c i s i o n o f t h e s e l l e r t o c o n t i n u e o p e r a t i o n o f E r n i e ' s D e l i ( l o c a t e d i n Madison County) a t two l o c a t i o n s i n t h e Mountain Mall--one for t h e d e l i c a t e s s e n b u s i n e s s , and t h e o t h e r f o r t h e g r o c e r y business. The e f f e c t o f t h i s s p l i t was t o p e r m i t t h e seller t o enlarge t h e s e a t i n g capacity of t h e d e l i c a t e s s e n and t o p r o v i d e more room f o r d i s p l a y of t h e g r o c e r y p r o d u c t s a t the other location. The b u y e r s a s s e r t t h a t t h e expansion of t h e grocery business v i o l a t e d t h e a l l e g e d o r a l agreement n o t t o compete.

The t r i a l c o u r t found i n f a v o r o f t h e s e l l e r and o r d e r e d t h a t t h e b u y e r s a c c o u n t f o r and pay t h e s e l l e r 1.75% o f t h e y e a r ' s p r o f i t s from December 1, 1977 t h r o u g h November 30, 1978 and a l s o t h a t t h e b u y e r s pay t o t h e

s e l l e r t h e s a m e p e r c e n t a g e f o r t h e y e a r s 1979 t h r o u g h 1981 p u r s u a n t t o t h e p r o v i s i o n s of t h e s a l e s agreement.

I n meeting t h e b u y e r s ' c o n t e n t i o n s , t h e t r i a l c o u r t s p e c i f i c a l l y found t h a t t h e w r i t t e n c o n t r a c t e n t e r e d i n t o between t h e p a r t i e s e x c l u d i n g any r e f e r e n c e t o a nonc o m p e t i t i o n agreement, was n a t i n d u c e d by t h e s e l l e r ' s fraud. I n d e e d , t h e t r i a l c o u r t found t h a t t h e p a r t i e s had d i s c u s s e d a n o n c o m p e t i t i o n agreement b e f o r e e n t e r i n g i n t o t h e w r i t t e n c o n t r a c t b u t t h a t t h e s e l l e r would n o t agree t o such a provision.

A s previously s t a t e d , t h e a l l e g e d noncompetition agreement c o u l d n o t be e n f o r c e d i n any e v e n t , b e c a u s e t o do s o would v i o l a t e s e c t i o n 28-2-703, MCA, which p r o v i d e s t h a t a n o n c o m p e t i t i o n agreement c a n be e n f o r c e d o n l y as an e x c e p t i o n t o t h e g e n e r a l p o l i c y p r o v i s i o n s c o n t a i n e d i n s e c t i o n 28-2-703, which p r o v i d e s t h a t c o n t r a c t s made i n

-4-r e s t r a i n t of competition a r e void. The e x c e p t i o n s c o n t a i n e d i n s e c t i o n 28-3-704, MCA, p e r m i t an agreement n o t t o compete t o e x i s t o n l y where i t i s c o n f i n e d t o a p a r t i c u l a r c i t y o r c o u n t y , o r a p a r t o f a c i t y of c o u n t y . Here, although t h e businesses a r e only 7.3 m i l e s a p a r t , t h e y are i n d i f f e r e n t c o u n t i e s , and t h u s t h e a l l e g e d n o n c o m p e t i t i o n agreement c o u l d n o t b e e n f o r c e d i n any event. See T r e a s u r e Chem. v. Team Lab. Chemical Corp.

( 1 9 8 0 ) , - Mont . -, 609 P.2d 285, 37 St.Rep. 573. Assuming t h e d e s i r a b i l i t y o f e x c e p t i o n s t o t h e r u l e

t h a t agreements n o t t o compete a r e v o i d , i t c a n n o t be doubted t h a t a s t a t u t e which p r o v i d e s t h a t such agreement c a n n o t b e e n f o r c e d i n more t h a n one c o u n t y , t o t a l l y i g n o r e s modern day r e a l i t y . But t h a t i s a l e g i s l a t i v e problem.

Judgment i s a f f i r m e d .

............................. Justice

W e Concur:

~ j d & fJ u s t i c e