Lar-Con Corp. v. Murman Properties ( 1980 )

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,
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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 non-
c 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
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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