Alderwoods Group, Inc. v. Parr ( 2004 )

Present: Hassell, C.J., Lacy, Keenan, Koontz, Lemons, and
Agee, JJ., and Russell, S.J.
CHARLES D. PARR, SR., ET AL.
v. Record No. 032674 OPINION BY JUSTICE ELIZABETH B. LACY
November 5, 2004
ALDERWOODS GROUP, INC., ET AL.
ALDERWOODS GROUP, INC., ET AL.
v. Record No. 032726
CHARLES D. PARR, SR., ET AL.
FROM THE CIRCUIT COURT OF THE CITY OF SUFFOLK
Rodham T. Delk, Jr., Judge
The dispositive issue in these consolidated appeals is
whether certain contemporaneously executed contracts were
integrated for purposes of determining the enforceability of
provisions in some of the contracts after a party's default
under one of the contracts.
I. FACTS
For a number of years Charles D. Parr, Sr. and C.D. Parr,
Inc. d/b/a Hill Funeral Home (Parr, Inc.) operated a funeral
home business, the Hill Funeral Home, at 447 West Washington
Street in Suffolk. The property was owned by Hill Underwood
Funeral Home, Inc. (Hill Underwood). In 1995, Loewen Group
International, Inc. (Loewen) negotiated with Parr and Parr,
Inc. for the purchase of the Hill Funeral Home business. The
negotiations culminated in the execution of four agreements on
November 27, 1995 between Loewen's designated buyer Mullins
Holding Company (Mullins)1, Parr, Parr, Inc., and Hill
Underwood: the More Formal Asset Purchase Agreement (Asset
Purchase Agreement), the Non Competition Agreement (Non-
Compete Agreement), the Lease, and the Management Agreement.
Pursuant to these agreements, Parr and Parr, Inc. sold the
Hill Funeral Home business to Mullins. Hill Underwood leased
the Hill Funeral Home property to Mullins and filed in the
deed records of the City of Suffolk a memorandum of lease
containing a covenant restricting the use of the property as a
funeral home by persons other than Mullins without Mullins'
consent. Parr began managing both the Hill Funeral Home and
another funeral home in Suffolk, the Sidney F. Harrell Funeral
Home, for Mullins.
The relevant portions of the agreements follow. The
Asset Purchase Agreement provided that Mullins would purchase
certain assets for a total price of $1,125,000. The
identified assets included "a leasehold interest . . . and a
restrictive covenant (with the terms and conditions contained
in the Lease described in Paragraph 10 hereof which is to be
entered into contemporaneously herewith)" and "covenants of
[Parr, Inc.] and [Parr] not to compete with the business of
Buyer." The purchase price included $100,000 payable under
1
Mullins was a wholly-owned subsidiary of Loewen.
2
identical provisions in both the Asset Purchase Agreement and
the Non-Compete Agreement.
Under Paragraph 8 of the Asset Purchase Agreement, Parr
agreed to execute a management agreement with Mullins. The
provision contained the employment terms and annual salary
under the Management Agreement and agreements by Parr and
Parr, Inc. to execute a covenant not to compete with Mullins.
The consideration and the duration of such covenant were also
recited. Paragraph 10 of the Asset Purchase Agreement set out
the duration and conditions of the Lease, including a
restrictive covenant that the leased property would not be
used as a funeral home or service business except by Mullins
or "its successors and assigns" without Mullins' written
consent to the modification or termination of the restrictive
covenant.
The Non-Compete Agreement expressly provided that it was
a condition of the Asset Purchase Agreement and that for ten
years from the closing date of the Asset Purchase Agreement or
three years following the date of termination of "any
employment, management, or consulting relationship" with
Mullins, neither Parr nor Parr, Inc. would engage in the
funeral business within a 35-mile radius of the Hill Funeral
Home. As consideration, Mullins was to pay Parr and Parr,
Inc. a total of $10,000 per year for ten years under terms
3
identical to those recited in and identified as an asset
purchased in the Asset Purchase Agreement. Paragraph 16 of
the Non-Compete Agreement stated that a continuing default by
Mullins under the Asset Purchase Agreement or note executed
pursuant to that agreement, if not cured, was "deemed" to be a
default of the Non-Compete Agreement.
The Management Agreement provided that Parr would manage
for Mullins both the Hill Funeral Home and the Sidney F.
Harrell Funeral Home. The Management Agreement allowed
Mullins to terminate Parr for cause if he materially breached
any warranty or covenant contained in the Asset Purchase
Agreement. The Management Agreement also contained the terms
of a noncompetition agreement, the terms of which were
identical to those contained in the Non-Compete Agreement and
described in the Asset Purchase Agreement.
The Lease, in addition to the various provisions defining
the rights and responsibilities of the lessor and lessee,
provided for an initial one-year term and five optional one-
year renewal periods, and specifying the rental payments,
recited the restrictive covenant in language essentially
identical to that contained in the Asset Purchase Agreement.2
In Paragraph 15 of the Lease, Parr and Parr, Inc. guaranteed
2
The restrictive covenant is only applicable to the first
floor of the 447 West Washington Street property.
4
the landlord's obligations, including its obligations under
the restrictive covenant.
In June 1999, Loewen filed for bankruptcy and, in
November of that year, Mullins stopped making payments under
the Asset Purchase and Non-Compete agreements. Parr submitted
his resignation to Mullins on September 21, 2001. After the
Lease ended by its terms in November 2001, Parr began to
operate the Parr Funeral Home on the Hill Underwood property.
II. PROCEEDINGS
On January 14, 2002, Mullins and Alderwoods Group, Inc.3
(collectively "Alderwoods") filed a bill of complaint seeking
a temporary and permanent injunction against Parr and Parr,
Inc. (collectively "Parr") to prohibit them from competing
with Alderwoods and operating a funeral home on the Hill
Underwood property.4 Parr filed its answer asserting that
Alderwoods materially breached the November 1995 agreements
and, therefore, the noncompetition agreement was no longer in
effect and the restrictive covenant should be declared null
and void.
3
Loewen changed its name to Alderwoods Group, Inc.
effective in January 2002.
4
It appears from the record that Hill Underwood Funeral
Home, Inc. no longer exists, but Parr and Parr, Inc. were
guarantors of the landlord’s obligations pursuant to Paragraph
15 of the Lease.
5
The trial court entered an order in January 2002
temporarily enjoining Parr from competing with Alderwoods
pursuant to the terms of the covenants not to compete in the
Asset Purchase, Management, and Non-Compete agreements, and,
subsequently, on Alderwoods' motion, held Parr in contempt for
violating that temporary injunction. Following a hearing on
Parr's motion to set aside the temporary injunction, the trial
court held that the four agreements, "although separate,
should be regarded as and constructed as parts of one
transaction and as if parts of one and the same instrument."
The trial court found that Alderwoods defaulted its payment
obligation under the Asset Purchase Agreement and that the
default constituted "a default in the non-competition
provisions of all of the sub-agreements as well." Based on
these findings, the trial court concluded that the likelihood
that Alderwoods would succeed on the merits was "substantially
diminished" and, accordingly, set aside the temporary
injunction.
A hearing on the permanent injunction was held on June
27, 2003. At this hearing Alderwoods sought to enforce the
noncompetition provision contained in the Management Agreement
and the restrictive covenant contained in the Lease.
Alderwoods argued that these two contracts were separate
contracts and, because Alderwoods had fulfilled its
6
obligations under these non-integrated contracts, Parr should
be required to comply with the noncompetition and restrictive
covenants in those contracts. Parr replied that because
Alderwoods breached a provision of one of the contracts, it
could not enforce any other provisions of the integrated
contracts.
As relevant here, the trial court reaffirmed its earlier
holding that the Management Agreement and Asset Purchase
Agreement were integrated and that Alderwoods' default
precluded enforcement of the noncompetition provisions of the
Management Agreement. The trial court also found, however,
that the restrictive covenant in the Lease was valid and
enforceable against "the specific defendants" in this case and
entered an order enjoining Parr from using the Hill Underwood
property for a funeral business. We granted the petitions for
appeal filed by both Parr and Alderwoods.5
In considering these consolidated appeals, we first note
that Alderwoods did not assign error to the trial court's
determination that it breached the Asset Purchase Agreement.
Furthermore, there is no challenge to the trial court's
determination that the breach of the Asset Purchase Agreement
was also a breach of the Non-Compete Agreement. Therefore, we
5
We granted an appeal to only two of Parr's three
assignments of error.
7
consider only whether the Management Agreement and the Lease
are integrated or separate and independent contracts.
III. DISCUSSION
In Countryside Orthopaedics, P.C. v. Peyton, 261 Va. 142,
541 S.E.2d 279 (2001), we recited the principles to be applied
when considering whether separate documents should be treated
as an integrated instrument. "Where a business transaction is
based on more than one document executed by the parties, the
documents will be construed together to determine the intent
of the parties," id. at 152, 541 S.E.2d at 284 (quoting
Daugherty v. Diment, 238 Va. 520, 524, 385 S.E.2d 572, 574
(1989)), and "[w]here two papers are executed at the same time
or contemporaneously between the same parties in reference to
the same subject matter, they must be regarded as parts of one
transaction, and receive the same construction as if their
several provisions were in one and the same instrument."
Countryside, 261 Va. at 151, 541 S.E.2d at 284 (quoting Oliver
Refining Co. v. Portsmouth Cotton Oil Refining Corp., 109 Va.
513, 520, 64 S.E. 56, 59 (1909)); see Richmond Postal Credit
Union, Inc. v. Booker, 170 Va. 129, 134, 195 S.E. 663, 665
(1938). When such contracts are construed as if the
provisions were in a single instrument, the first party to
materially breach the contract cannot enforce the provisions
of the integrated contract. A breach is material if it is "a
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failure to do something that is so fundamental to the contract
that the failure to perform that obligation defeats an
essential purpose of the contract." Countryside, 261 Va. at
154, 541 S.E.2d at 285 (quoting Horton v. Horton, 254 Va. 111,
115, 487 S.E.2d 200, 204 (1997)). We now apply these
principles to the contracts at issue.
A. The Management Agreement
Alderwoods asserts that the Management Agreement is a
contract separate and apart from the Asset Purchase Agreement
because it is not ambiguous, it is separate and distinct in
its subject matter and consideration, the obligations are not
interrelated, and the cross-references in the contracts do not
require integration of the agreements.6 Alderwoods suggests
that unless the four agreements are part of a single
transaction "courts should not read the writings together as
one contract because the parties may have had more than one
transaction in one day of the same general nature." Hitachi
Credit Am. Corp. v. Signet Bank, 166 F.3d 614, 626 (4th Cir.
1999).
6
At oral argument before this Court, Alderwoods also
argued that because the Non-Compete agreement contained a
cross-default provision, the absence of such a provision in
the other agreements evidenced an intent that no cross-default
existed among the other agreements. Because Alderwoods raises
this argument for the first time on appeal, we will not
consider it. Rule 5:25; see Faulknier v. Shafer, 264 Va. 210,
218 n.6, 563 S.E.2d 755, 760 n.6 (2002).
9
Whether contemporaneously executed separate agreements
should be construed as a single integrated contract depends on
the facts of each case. Here, the Management Agreement and
Asset Purchase Agreement cross-referenced each other and
certain provisions were recited in both agreements using
identical language. These references reflect the parties'
knowledge and understanding of the interrelationship between
the contracts and provide strong support for the proposition
that the parties intended that the documents constitute a
single transaction.
Furthermore, while the four contracts identified discrete
acts required of the parties, when considered as a whole, they
show that the result and, therefore, presumably the purpose of
the transaction was the elimination of competition between the
funeral home interests held by Alderwoods and by Parr. The
transaction required Alderwoods' ownership of Parr's funeral
business interests and Parr's management of Alderwoods'
funeral business interests − the Hill Funeral Home and the
Sidney F. Harrell Funeral Home.7 The provisions of the
Management Agreement could not be performed without
Alderwoods' acquisition of the Hill Funeral Home assets and a
lease of the Hill Underwood property. The purchase of the
7
The precise nature of Alderwoods' interest in the Sidney
F. Harrell Funeral Home is not clear from this record.
10
Hill Funeral Home assets alone would not eliminate the
competition by Parr without the noncompetition and restrictive
covenant agreements. The absence of any one of the agreements
would frustrate the purpose of the transaction. On this
record, we conclude that the parties intended to effectuate a
single transaction which required execution of all the
agreements.
Accordingly, the trial court did not err in concluding
that the Management Agreement and the Asset Purchase Agreement
were part of an integrated contract. We will affirm the trial
court's judgment holding the noncompetition provision of the
Management Agreement was unenforceable because Alderwoods
breached the Asset Purchase Agreement when it defaulted its
payment obligations under that Agreement.
B. The Lease
Parr asserts that the trial court erred in enforcing the
restrictive covenant contained in the Lease because, like the
Management Agreement, the Lease was part of an integrated
contract. Parr argues he was relieved of any obligation to
comply with the restrictive covenant because of Alderwoods'
default of the Asset Purchase Agreement. Alderwoods replies
that the Lease was a separate contract and not integrated with
the other contemporaneously executed contracts, raising the
same arguments put forth regarding the Management Agreement:
11
the Lease was not ambiguous; it was separate and distinct in
its subject matter and consideration; the obligations were not
interrelated; and the cross-references in the contracts did
not require integration of the agreements. Alderwoods,
relying on Bayside Corp. v. Virginia Super Food Fair Stores,
Inc., 203 Va. 908, 128 S.E.2d 263 (1962), also argues that
because it had fully performed its obligations under the
Lease, it was entitled to enforce the restrictive covenant in
the Lease even though by its terms the Lease had expired.
We reject Alderwoods' arguments that the Lease was a
separate contract. First, like the Management Agreement,
there were significant cross-references between the Asset
Purchase Agreement and the Lease. The Asset Purchase
Agreement listed the Lease as "an asset" purchased. The
material terms of the restrictive covenant in the Lease were
also recited in the Asset Purchase Agreement. And, as we have
already discussed, the transaction's purpose of eliminating
competition between Parr and Alderwoods' interests in the
funeral home business could not be accomplished without
execution of all four agreements. Therefore, we hold that the
Lease was not a separate contract but, like the Management
Agreement, was integrated with the Asset Purchase Agreement.
Assuming without deciding that the restrictive covenant in
this case would be enforceable absent a breach of the
12
integrated contracts here, the restrictive covenant is not
enforceable against Parr, because Alderwoods breached a
material provision of the integrated contract.
Neither the expiration of the lease nor our conclusion in
Bayside require a different result. The lease in Bayside
included a provision prohibiting the landlord from leasing any
space in a shopping center to a competitor of the lessee for
three years after the lessee terminated the lease. Bayside,
203 Va. at 910, 128 S.E.2d at 265. This Court enforced that
provision even though the lease had been terminated, finding
that the covenant was a reasonable personal covenant. Id. at
911, 128 S.E.2d at 266.
In Bayside, unlike this case, neither the landlord nor
the lessee defaulted under the lease. The Bayside lease
provided that the lessee could terminate the lease if the
landlord failed to meet certain conditions. Id. at 910, 128
S.E.2d at 265. The landlord failed to meet the conditions and
the lessee terminated the lease. Id. The landlord's
inability to meet the conditions was not a breach of the
lease, but a circumstance which the parties anticipated and
addressed by allowing the lessee to terminate the lease. In
the absence of a default or breach, a reasonable personal
covenant contained in the lease was enforceable.
13
Like Bayside, the instant case involves an agreement
restricting the use of the land as a term of the lease
agreement. Unlike Bayside, however, the instant case involves
a breach or default by one of the parties which precluded the
defaulting party from enforcing the remaining provisions of
the integrated contract. Consequently, Bayside is not the
controlling precedent here.
IV. CONCLUSION
Because we hold that Alderwoods' breach of the integrated
contract relieved Parr of any obligation under the restrictive
covenant, we need not address Parr's assignment of error
challenging the trial court's holding that the restrictive
covenant was a valid covenant.
Accordingly, for the reasons stated, we will affirm that
portion of the trial court's judgment holding that the
covenants not to compete are unenforceable and we will reverse
that portion of the trial court's judgment enforcing the
restrictive covenant of the lease.
Affirmed in part,
reversed in part,
and final judgment.
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