No. 12444 INTHE SUPREME COURT OF THE STATE OF MONTANA 1973

- HAVRE DAILY NEWS, INC., Plaintiff and Respondent,

-vs

# - CLYDE D. FLOREN, Defendant and Appellant.

Appeal from: District Court of theTwelfth Judicial District, Honorable Truman G. Bradford, Judge presiding. Counsel of Record: For Appellant: Tipp, Hoven and Brault

## ,Missoula, Montana Vernon Hoven argued, Missoula

## ,Montana For Respondent: Burns and Solem, Chinook, Montana William Solem argued, and Stuart C. MacKenzie appeared,

Chinook, Montana

Submitted: September 

### 25, 1973 Decided

## :)JOY

# 7

# ..1973 ~il~d: 

## NOV

## 7 1973Mr. Chief Justice James T. Harrison delivered the Opinion of the Court.

This is an appeal by defendant, Clyde D. Floren, from judgment rendered in the district court, twelfth judicial district, County of Hill, after the granting of a motion for summary judgmentmade by plaintiff, Havre Daily News, Inc. On September 24, 1963,plaintiff and defendant entered into a contractwhereby defendant agreed to buy from plaintiff certain office supplies and equipment, job printing equipment, and job stock for the sum of $36,000. In a separate agreement, made on the same day as the original contract,plaintiff also agreed not to competewith defendant in job printing or the sale of office supplies and equipment for a tenyear period. This restriction from competition extended to all of Hill County, Montana.The contract called for a downpayment of $9,000 and monthly payments of $299.77 commencing on November 15, 1964,with a like amount to be paid on or before the 15thday of each month thereafter, for a period of tenyears. Defendantdefaulted under the contractby failing to make payments when due. Plaintiff commenced this action onApril 9, 1971, to recover the unpaid balance due under the contract of $11,328.87, together with interest at the rate of 6% per annum from April 15, 1970. Defendant counterclaimed for damages resulting from an alleged breach of the restrictive covenant by plaintiff. The cause was tried to a jury resulting in no verdict because of a divided jury. Subsequently, thematter was set for trialbefore the Hon. Truman Bradford who was called in by virtue of the disqualification of the Hon. B. W. Thomas, judge of the twelfth judicialdistrict, Hill County,Montana. Prior to trial,a pretrial order was entered,which includedthese certain agreed facts: 1. That the respective agreements entered into on September 24, 1963,by plaintiff and defendant are correct and binding onboth plaintiff and defendant. 2. That the unpaid balance on the original contract

was the sum of $11,328.87, togetherwith interest at the rate of 6% per annum fromApril 15, 1970. That theplaintiff did certainprinting aside from the Havre Daily News invaried amounts, but in excess of the sum of $15,000. Plaintiffmoved for summary judgment on the record and the answers to interrogatories previouslymade by defendant, which in substance set forth: 1. That defendant claimed no loss of business profits. 2. That defendant claimed a value loss of a restrictive covenant computed at the rate of $500per month for the life of the restrictive covenant, for a total loss of $39,500. 3. That the $39,500 loss defendant claimed could not be substantiated by any business books or records kept by him. 4. That no part of the purchase price in the original agreementbetween the parties was allocated to the value of good will or the restrictive covenant. The district court from the court record and answers to interrogatories, in its findingsof fact set forth the agreed facts as set out in the pretrial order, and in addition found: "Thedamages claimed by the defendant must have been proximately caused by the Plaintiff'sbreach. The acts of the Plaintiff which are alleged to have been acts in breach of the covenantnot to compete are set out in 11, No. 3 above. These acts vary in time, amount and length of breach. The Defendant is not claiming actual damages for each specific breach. The Defendant is claiming damages in the amount of Thirty Nine Thousand Five Hundred Dollars ($39,500.00) which was computed at the rate of Five Hundred Dollars ($500.00)per month during the life of the restrictive covenant. The Defendant's claim for damages was notmade in conjunctionwith, or in consideration of the number of acts in breach, or the time, amount and length of each breach by the Plaintiff. Damages claimed by the Defendant cannotbe substantiatedby any book or records keptby him. No damages are being claimed for the loss of business profits. The Defendant is not claiming damages for business losses as a result of Plaintiff'sbreach. No part of the purchase price under the original contract was allocated to the value of good will, or the restrictivecovenant." court From such findings, the district/concluded: "No damages can be recovered for a breach of a contractwhich are not clearly ascertainable in both their nature and origin. The correct measure of damages, if any, to the Defendant, is the value of or profits, on the business lost,as a result of the Plaintiff'sbreach of their restrictive covenant." The district court entered summary judgment in favor of plaintiff and against defendant. Defendant appeals. The issue presented to this Court for review is the proper measure of damages resulting from a breach of a restrictive covenant. In Leiman-Scott, Inc., v. Holmes, 142Mont. 58, 381 P.2d 489,a casewith an almost identical factual situation as the instant case, theplaintiff, entered into an agreement with Holmes, the defendant,wherein the defendant was given exclusive territorial rights for establishing sales outlets and distribution of certain items in exchange for a $10,000 note made payable to theplaintiff. Plaintiff sued for $6,000, the remaining balance due on the note. Plaintiff violated the agreement by sending into the restricted sales area its own sales representative who sold approximately $1,500of merchandise. The district court granted defendant'smotion for nonsuit at the close of the plaintiff's testimony. This Court reversed and remanded the cause to the district court,agreeingwith plaintiff'scontention that the judgment of the district court should have been for $6,000, less the profit realized on the business performed by Leiman-Scott, Inc., in breach of the contract. 

### In reaching our decision in Leiman-Scott we cited the general rule found in 38 C.J.S. Good Will S16,p. 961. We again state that general rule: "Where the seller of a business and its good will improperly interferes with the good will transferred, or commits a breach of his restrictive covenant, the purchasermay have an action for damages, or he may counterclaim for damages in an action by the vendor for recovery of the price. General rules of procedure apply in such actions. "The damages accruing to the purchaser if the seller improperly interfereswith the good will transferred,or commits a breach of a restrictive covenant,are the loss which thepurchaser sustains by reason of the wrongful conduct of the seller." In the instant case,the district court properly concluded that the measure of damages to defendant is the value of the profits on the business lost as a result of plaintiff's breach of their restrictive covenant. In other words, the damage to defendant is the loss of the business performed by plaintiff which would have been realized by defendant had he performed the business. The amount of loss suffered by defendant is determined by the extent of the breach by plaintiff. Under Rule 56(c), M.R.Civ.P., one of the items which may be considered by the trial court in ruling on a motion for summary judgment is "answersto interrogatories". Plaintiff served upon defendant several interrogatories. To certain interrogatoriesdefendant answered: "INTERROGATORY 1: Are you claiming any damages for the loss of business profits? "ANSWER: No.

"INTERROGATORY 8: Are you claiming damages for the loss of the value of the restrictive covenant?"ANSWER: Yes. "INTERROGATORY 9: If so, state: "a) The amount of such lossyou are claiming. "ANSWER: $39,500.00. "b) The facts onwhich you will rely to prove such loss. "ANSWER: The testimony of Clyde Floren as to values. "c) How the amount of such loss was computed. "ANSWER: $500.00 per month, (see Interrogatory 7c)." [Atthe rate of $500per month for the life of the restrictive covenant.] "INTERROGATORY 10: Can your answers to questions 9a, 9band 9c relative to the loss thereof,be substantiated by any books or records kept by you in the ordinary course of business? "ANSWER: No. " Defendant claimed no loss of business profits but claimed the loss of the value of the restrictive covenant at the rate of $500per month. Defendant'smethod is irreconcilablewith the theory that the amount of loss is determined 

### by the extent of the breach by the plaintiff,.' Defendant admitted that no part of the loss which he was claiming could be substantiated by business books or records. Section 17-302,R.C.M. 1947,provides: "No damages can be recovered for a breach of contractwhich are not clearly ascertainable in both their nature and origin." InVancil v. Anderson, 71 Idaho 95, 227 P.2d 74, 78, a

casewhich also involved a breach of a restrictive covenant not to compete, the Supreme Court of Idaho in considering whether the owner could testify as to the business lost stated this general rule: "Thebroad general rule is to the effect that a witness cannot state his conclusion as to the amount of monetary damage that has been sustained by himself or another by reason of the invasion of a legal right,without first testifying to the facts upon which his opinion is predicated."The Idaho Court examined the evidence of the party claiming damages todetermine "the presence or absence of any factsupon which his opinion evidencemay be predicated." The evidence concerning such damages included testimony of thedeclineof dailyreceipts, reduction of gross sales, increase in overhead expenses, and business records. Furthermore, here defendant admitted that no part of the purchase pricehad been allocated togood willor the restrictive covenant. Defendant inhis answer tointerrogatoriesanswered: "INTERROGATORY 18: Was a portion of the purchase price inthe oriqinal aqreement between the Plaintiff and ~efendant allocated tothevalue of'the restrictivecovenant or good will? "ANSWER: No. "INTERROGATORY 19: If your answer toQuestion No. 18 isyes, scatethe specific amount allocated forthevalue of the-restrictivecovenant or good will. "ANSWER: Not applicable. "INTERROGATORY 20: Was it stated intheoriginal contract inExhibit "A" that no part of thepurchase pricewas allocated forgood will, franchises or other intangible assets? "ANSWER: Yes. "INTERROGATORY 21: Areyou claiming that the covenant not tocompete isnot an intangible asset? "ANSWER: No." Defendant, however, contends the districtcourt should have found that the parties agreed therewas a value tobe attached totherestrictive covenant, but that thevalue was not specified and that testimony should be adduced astothe value of therestrictive covenant. Clearly, the districtcourt ruled properly thatno part of thepurchase price had been allocated togood willor the restrictive covenant, since its findings were taken directly from the answers of defendant. In addition, thetermsof theoriginal contract stated: "Ithas been agreed between the parties that no part of thepurchase price has been allocated for good will, franchises,or other intangible assets. " It is clear that no part of the purchase price under the original contractwas allocated to good will or the restrictive covenant; that the defendant's claim of damages is speculativeand conjectural in nature and unsupported by business books or records or claim of loss of business profits; and, that the correct measure of damages for breach of a restrictive covenant not to compete is the business or profit lost to the party relying on such covenant. The district court, after its examination of the record and defendant's

answers to interrogatories,properly concluded that plaintiff

was entitled to summary judgment as a matter of law under Rules 56(a) and (c)

## ,M.R.Civ.P. The judgment of the

Chief Justice We concur:



## i Y"*;>,~&- 

## - L.- 

## ----- /* Hon. 

### M. &mes Sorte, District Judming in of Mr.

Hon. Peter G. Judge, sitting John C. Harrison.