Case Title: Igoe v. Atlas Ready-Mix, Inc.

Citation: 134 N.W.2d 511

Docket Number: 

State: north-dakota

Court: North Dakota Supreme Court

Date: 1965-04-14T00:00:00Z

Document:
134 N.W.2d 511 (1965) James J. IGOE, Plaintiff and Respondent, v. ATLAS READY-MIX, INC., and Atlas, Inc., Defendants, and Atlas, Inc., Defendant and Appellant. No. 8192. Supreme Court of North Dakota. April 14, 1965. *512 Wattam, Vogel, Vogel, Bright & Peterson, Fargo, for defendant and appellant. Zuger, Zuger & Bucklin, Bismarck, for plaintiff and respondent. ERICKSTAD, Judge. This is an appeal by defendant Atlas, Inc., from a judgment of the District Court of Burleigh County in favor of the plaintiff, James J. Igoe. In seeking relief by way of a declaratory judgment, the plaintiff sought to have declared null and void and unenforceable the provision in a contract between Atlas Ready-Mix, Inc., as seller, and Atlas, Inc., as buyer, which Igoe signed as chairman of the board of the seller and agreed not to "engage in the ready-mix or concrete basement construction business within the City of Bismarck or the City of Mandan." In his complaint Igoe alleged that this contractual provision was void as a restraint of business in violation of § 9-08-06, North Dakota Century Code. Atlas, Inc., in answer acknowledged the existence of the provision in the contract but denied that it was contrary to law or void. It further alleged that the complaint did not state a cause of action. On plaintiff's motion the court ordered summary judgment on the pleadings, declaring the provision void. It is from this judgment that Atlas, Inc., appeals. The questioned provision of the contract reads as follows: This court construed a similar contractual provision in Mandan-Bismarck Livestock Auction v. Kist, N.D., 84 N.W.2d 297. The provision read as follows: After quoting the law our court said: In concluding that the covenant not to compete was void as a violation of § 9-0806, North Dakota Revised Code of 1943 (which is identical to § 9-08-06, North Dakota Century Code), the Court refused to compel specific performance of the contract. The appellant buyer herein argues that Mandan-Bismarck may be distinguished from the instant case because in the instant case the seller seeks to have the promise not to compete contained in a fully performed contract for the sale of a business declared illegal, whereas in Mandan-Bismarck the assignees of the buyers sought to have a contract specifically performed; and because in the instant case the word "or" was used, whereas in Mandan-Bismarck the word "and" was used. In analyzing Mandan-Bismarck we note that F. C. Kist, Laura Kist, and Joseph P. *514 Schaaf, doing business as Mandan Livestock Sales, agreed to sell the assets, name, and good will of their livestock sales business to R. S. John and Gerald Boren. Messrs. John and Boren assigned their interest in the contract to Mandan-Bismarck Livestock Auction, a corporation, which instituted an action to require the sellers, Kists and Schaaf, to specifically perform the contract. The Court found the covenant not to compete void in violation of § 9-0806, N.D.R.C. of 1943, and the entire contract unenforceable, after quoting § 9-0403, N.D.R.C. of 1943, and pointing out that the contract was in other respects vague and indefinite. In the instant case a much different situation is presented. Although the pleadings do not specifically indicate that all the provisions of the contract have been performed, it was so argued in this court by the appellant, without objection from the respondent. This being so, we must assume from the terms of the contract that the buyer, among other things, paid the seller $75,000.00 on April 18, 1960, the date of the execution of the contract, and the balance of the purchase price, $35,525.39 plus interest at five per cent per annum on or before April 18, 1961; that the buyer assumed a prior mortgage in excess of $20,000.00; that on April 23, 1960, the buyer took over the ready-mix and concrete basement construction business of the seller; and that the seller conveyed to the buyer vehicles, equipment, and all of its inventory in connection with its ready-mix and concrete basement construction business, 0.98 acres of land in Auditor's Lot 6 of Section 3, Township 138 North of Range 80 West, and Lots 5 and 6 in Block 1 of Casey's Industries, Inc., First Addition to the City of Bismarck, Burleigh County, North Dakota. Although good will was not specifically mentioned, in the absence of any expression to the contrary in the contract for sale of the business the good will passed. See Syllabus 5 of Engstrom v. Larson, 77 N.D. 541, 44 N.W.2d 97, at 98. The very fact that there was a covenant not to compete in connection with this sales agreement requires a determination that good will, although not specifically mentioned, was a subject of the sale and passed as an incident of the transfer of real and personal property involved. In the instant case the covenant not to compete restrained Igoe, whom the contract described as "chairman of the board" of the seller, from competing in business in Bismarck or Mandan. We assume from the fact that he was chairman of the board that he also was a stockholder who benefited from the inclusion in the sale of the good will in the increased sales price. It is clear that stockholders may obligate themselves not to become competitors of the purchaser. 36 Am.Jur. Monopolies, Combinations, Etc. § 70 (1941). South Dakota, with a statute identical to ours, said: In a North Dakota case decided in 1927, our court said: Although the territorial issue was not raised in Bessel, it is interesting to note that the promise by the minority stockholder therein was that he would "not engage in the undertaking, embalming, funeral directing, hardware, or furniture business either as owner or as agent, servant, manager, or clerk for himself or for any one else, in the city of Harvey, nor at any other place within a radius of 15 miles from the city of Harvey, N.D." The fifteen-mile radius of Harvey involved a territory extending beyond the boundary line of a portion of Wells County, in which Harvey is situated, and thus was an area larger than one county or one city or one village. This court nevertheless affirmed the district court's order which restrained the former minority stockholder from engaging in the said business in Harvey. In a case involving a restraint against competition contained in an employment contract rather than in a contract for the sale of good will ancillary to the sale of a business, the employment contract "expressly set forth that, should the plaintiff leave the employment and service of the defendant at any time during the life of the contract, the plaintiff would not, for a period of two years after leaving such employment, engage either directly or indirectly in the practice of dentistry in any form within the city of Grand Forks, N.D., or the city of East Grand Forks, Minn." The Court therein said: The inference is that had the promise not to compete been contained in a contract for the sale of good will ancillary to the sale of a business, or had it been contained in an agreement among partners upon or in anticipation of the dissolution of a partnership, it would have been enforceable in the city where the parties had previously done *516 business together or where partners had practiced dentistry together, even though the promise covered an area greater than one village or one city or one county, or even though the promise covered an area larger than the city or town where the partnership business had been transacted; and thus that it was unenforceable only in the area in excess of the permissible area of restraint. In the appellant's second basis for distinguishing Mandan-Bismarck, namely, the use of the word "or" instead of the word "and" we find little merit. The only reasonable interpretation of the promise not to engage in a competing business within the city of Bismarck or the city of Mandan is that the promisor would not compete in either city. We do believe, however, that, under the circumstances of this case, where the contract has been fully performed so that the seller has reaped the benefit of the restraining promise in culminating the sale or in securing an increased price for the business, he should not be allowed to entirely escape the consequences of his promise, to the promisee's detriment, merely because he promised to refrain from doing business in two cities when the statute permitted him to disable himself from competing in only one city. The following excerpt from Williston on Contracts is in line with our views: Professor Corbin is in accord with Professor Williston: The following are a few of the recent decisions termed by Professor Corbin as the best considered modern cases wherein the court decreed enforcement against a defendant whose breach occurred within an area in which restriction would clearly be reasonable, even though the terms of the agreement imposed a larger and unreasonable restraint. Ceresia v. Mitchell, Ky., 242 S.W.2d 359 (involved business restraint); Fullerton Lumber Co. v. Torborg, 270 Wis. 133, 70 N.W.2d 585 (involved post employment restraint); Redd Pest Control Co. v. Heatherly, 248 Miss. 34, 157 So. 2d 133 (involved post employment restraint); Martinez v. Martinez, 41 Cal. 2d 704, 263 P.2d 617 (involved business restraint and statute quite similar to North Dakota statute). In the instant case the contract discloses that the real estate which was sold as part of the business consisted of approximately one acre of land lying near a railroad right of way in Burleigh County and lots within the city of Bismarck in Burleigh County. The covenant not to compete in business is therefore valid and enforceable in Bismarck, but illegal and unenforceable in Mandan, as our statute makes such a restraint legal in only one village or one city or one county. Before we may definitely so conclude, we must consider the appellant's further argument that the seller's complaint should have been dismissed by the trial court on the ground that it failed to state a cause of action. Involved is the argument that no actual controversy existed between the parties and that therefore an action seeking a declaratory judgment as to the legality of the covenant not to compete in business was not proper. In a 1948 decision the Connecticut Supreme Court of Errors, in discussing this question, has this to say: The sections of our code pertinent to this discussion are as follows: In accord with the quoted views expressed by the majority of the court in Beit, and in light of our statute which requires that our declaratory judgment statutes be construed and administered liberally, we find that a justiciable controversy exists as to whether the promise or covenant not to compete in business in Bismarck or Mandan is enforceable, justifying a determination thereof by a declaratory judgment action. For the reasons expressed herein the judgment of the district court is affirmed in part and reversed in part. The case is remanded with instructions to the district court to modify the judgment to provide that the covenant restraining business is valid and enforceable in the City of Bismarck but is void and unenforceable in the City of Mandan. BURKE, C. J., and TEIGEN, J., concur. KNUDSON, J., not having been a member of the Court at the time of the submission of this case, did not participate.