No. 14238 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1978 

PATRICK O'NEILL, 

Plaintiff and Appellant, 

RALPH FERRARO, NIGEL JONES, 

JOHN R. LAVAN and BLAIR CULTER, 

Defendants and Respondents. 

Appeal from: District Court of the Eighteenth Judicial 

District, 

Honorable W. W. Lessley, Judge presiding. 

come1 of Record: 

For Appellant: 

Heath, Kirwan and Duckworth, Bozeman, Montana 

Peter Kirwan argued, Bozeman, Montana 

For Respondents: 

Drysdale, McLean & Screnar, Bozeman, Montana 

James McLean argued, Bozeman, Montana 

For Amicus Curiae: 

Hon. Mike Greely, Attorney General, Helena, Montana 

Charles Erdmann appeared, Assistant Attorney General, 

Helena, Montana 

Filed: L'E6 2 7 -$,zSubmitted: December 18, 1978 

Decided: FEE 2 797% 
Mr. Justice John C. Sheehy delivered the Opinion of the 

Court. 

Appellant O'Neill appeals from a declaratory judgment 

dated February 7, 1978, entered by the District Court of 

the Eighteenth Judicial District, Gallatin County. Appellant 

brought the action to determine the meaning and validity of 

a restrictive covenant in the respondents' lease. The 

District Court sitting without a jury found the covenant 

prevented appellant from operating a Mexican food restaurant 

on the same premises where respondents operated their 

restaurant. The court also found the covenant to be valid. 

Respondents have been operating a restaurant, the 

Overland Express since 1973 in a portion of the first floor 

of the Bozeman Hotel, Bozeman, Montana. This operation was 

pursuant to a lease between respondents as tenants and the 

owner of the hotel as landlord dated February 13, 1973. The 

Bozeman Hotel no longer functions as a hotel, rather it now 

contains a collection of stores and shops. 

Paragraph 24 of the lease between respondent and the 

landlord-owner provides: 

"The Landlord will not permit a competing 

full restaurant service to be maintained at 

the Bozeman Hotel, without the express consent 

of Tenant, but it is agreed Landlord may 

maintain a breakfast-lunch type of food service 

at the hotel, which service may be supplied up 

to 24 hours per day, and it is agreed that 

Landlord may provide limited or irregular food 

service, either by itself or catered, to the 

downstairs facility, now known as 'The 

Underground'." 

Appellant sublet from Dark Horse, Inc., a portion of 

the basement of the Bozeman Hotel for use as a Mexican food 

restaurant known as Rose's Cantina. Dark Horse, Inc., leases 

the basement of the Bozeman Hotel known as The Underground 

from the landlord. 
The lease between Dark Horse, Inc. and the landlord 

noted that Dark Horse, Inc. intended to operate a Mexican 

food restaurant on the premises, and noted that respondents 

had indicated such an operation would violate its lease with 

the landlord. The lease between Dark Horse, Inc. and the 

landlord provided that no food service may be conducted by 

the tenant without the written consent of respondents. 

The sublease between appellant and Dark Horse recited 

the above provisions of the lease between Dark Horse and 

landlord and the pertinent provisions of the lease between 

respondents and landlord. The lease then indicated Rose's 

Cantina could operate a Mexican food service between the hours 

of 11:OO a.m. and 3:00 p.m. so long as respondents' restaurant 

was not open to the public during the same hours. In the 

event appellant wished to operate at other times, it had to 

obtain written consent from respondents or seek a declaratory 

judgment pursuant to the landlord-Dark Horse, Inc. lease. 

Appellant filed his complaint for a declaratory judgment 

and a trial without a jury was held. Testimony at the trial 

produced the following relevant facts. Both establishments 

have or would have a nice, casual decor and patrons of each 

are or would be served at tables by waitresses or waiters. The 

food in each establishment is or would be prepared out of 

sight of the customers. The two establishments would share 

the same parking facilities at the Bozeman Hotel. Appellant's 

business would be open from 11:OO a.m. to 11:OO p.m. Monday 

through Saturday. Respondents' restaurant is open from either 

5:00 or 5:30 p.m. until 10:OO or 11:30 p.m. every day of the 

week. The menus and price range of the menu items are different 

for each establishment. Appellant would serve only Mexican 

food items and the most expensive item would cost about $4.00. 
Respondents serve steak and seafood, none of which appears 

on appellant's proposed menu, and which range in price from 

$5.00 to $13.95; respondents testified the average diner 

would spend $6.50 in the Overland Express excluding bar 

items. The landlord testified his impression of the drafting 

of paragraph 24 was to prevent another restaurant similar to 

the Overland Express from opening in the Bozeman Hotel. 

Respondent testified upon cross-examination his intent in 

negotiating the lease and the particular paragraph in question 

was to prevent competition with him in the Bozeman Hotel. 

The District Court upon conclusion of the trial found: 

"That the object of paragraph 24 between the 

[respondents] and [the landlord] was to prevent 

[the landlord] from permitting a restaurant 

service at the Bozeman Hotel of the same type 

as provided by [respondents] at the Overland 

Express, and to limit competition in such a 

restaurant service, but [the landlord] was to 

be allowed to operate a breakfast-lunch food 

service and the limited or irregular food service 

which it was providing in the downstairs 

facility, that is, Sunday buffets and irregular 

banquets." 

The validity of the covenant itself was raised by 

the appellant in his trial brief and appellate brief. The 

District Court memorandum supporting its findings and 

conclusions upheld the validity of the covenant. 

Two issues are presented to this Court on appeal. First, 

whether the restrictive covenant contained in paragraph 24 

of respondents' lease is valid. Second, if the covenant is 

valid, whether it is applicable to the restaurant appellant 

seeks to open in the Bozeman Hotel. We conclude, for the 

reasons set forth below, the District Court was correct in 

holding the covenant valid and in holding appellant's 

restaurant was barred by that covenant. 

Appellant has argued the covenant contained in paragraph 

24 of the lease is a violation of section 13-807, R.C.M. 1947, 
now section 28-2-703 MCA which declares void those contracts 

restraining anyone from "exercising a lawful profession, 

trade, or business of any kind," subject to certain exceptions 

not relevant here. However, the general rule appears otherwise. 

The Supreme Court of Oklahoma when faced with a lease agreement 

limiting competition as to one particular tenant and with 

the argument the agreement violated a statute identical to 

section 28-2-703, held the lease valid and stated: 

"'The modern trend of authorities . . . is 

to construe such statutes . . . and contracts 

between individuals intended to promote 

rather than restrict a particular business, 

"In the light of reason and common sense," 

so as to uphold reasonable limited restrictions. 

[It is a] general rule that courts will not 

hold to be a restraint of trade a contract 

between individuals, the main purpose and 

effect of which are to promote and increase 

business in the line affected merely because 

its operations might possibly in some theoretical 

way incidentally and indirectly restrict trade 

in such line. ' " Utica Square, Inc. v. Renberg's 

Inc. (Okla. 1964), 390 P.2d 876, 881 (quoting 

from Keating v. Preston (1940), 42 Cal.App.2d 

110, 108 P.2d 479, 486.) 

Ruling a similar lease to be valid, Texas has said "[clourts 

are generally agreed that [the] lessor of land may, by a 

reasonably limited restrictive covenant, agree not to use, 

or allow his property to be used by others, in a way which 

would result in competition with his . . . lessee . . ." 

Karam v. H. E. Butt Grocery Company (Tex. 1975), 527 S.W.2d 

481, 484. For other jurisdictions supporting this rule see 

The above authorities indicate a reasonable and limited 

covenant restraining trade will be considered valid. Three 

things are essential to such a covenant: 

" (1) it must be partial or restricted in its 

operation in respect either to time or place; 

(2) it must be on some good consideration; 

and (3) it must be reasonable, that is it 

should only afford a fair protection to the 
interests of the party in whose favor it 

is made, and must not be so large in its 

operation as to interfere with the interests 

of the public." Eldridge v. Johnston (19521, 

195 Or. 379, 245 P.2d 239, 250. 

The covenant in the present case satisfies these requirements. 

It is limited to the Bozeman Hotel; the consideration is 

apparently good as no question to it has been raised; and the 

covenant is not so large in operation as to affect the 

interests of the public in any way other than to limit the 

type of restaurant facility in the Bozeman Hotel. Because 

such covenants are as a general rule valid, and because this 

covenant is limited and reasonable, we affirm the decision 

of the District Court upholding its validity. 

The second issue we are asked to consider is whether 

this covenant, if valid, is applicable to the restaurant 

appellant seeks to open in the Bozeman Hotel. Appellant has 

argued his proposed restaurant does not fit the definition 

provided in paragraph 24 prohibiting a "competing full 

restaurant service". Courts have generally recognized the 

term "restaurant" is frequently used indiscriminately for all 

places where food and refreshments can be had. ~ichards v. 

Washington Fire and Marine Ins. Co. (1886), 60 ~ich. 420, 27 

N.W. 286; Wheelmakers, Inc. v. City of Flint (1973), 47 ~ich. 

App. 434, 209 N.W.2d 444; Annot. 122 A.L.R. 1399. The phrase, 

"competing full restaurant service", - is ambiguous and we are 

mindful of the deference given to the trial court's findings 

and conclusions because it listened to and viewed witness 

testimony as to what was intended by a particular statement. 

Rule 52 (a), M0nt.R.Civ.P. 

Upon conflicting testimony concerning the scope of the 

phrase, the District Court found and concluded the intent of 

paragraph 24 of the lease was to prevent the landlord from 

permitting a food service which would compete with respondents 

- 6- 
on a full-time basis. The District Court found and concluded 

appellant's contemplated restaurant service would be contrary 

to and in violation of paragraph 24 of the lease. A review 

of the record does not warrant disturbing these findings and 

conclusions and we therefore affirm the District Court on 

this issue. 

Arguments have been made in this appeal by the State 

of Montana as amicus curiae that the covenant in paragraph 

24 is illegal for anti-trust reasons. Our affirmance of the 

District Court in this decision should not be construed as 

a rejection of those arguments in any context but the one 

presented by this appeal. In a factual situation more similar 

to the situations of the case authorities discussed by amicus 

the arguments relating to anti-trust would be more persuasive. 

Judgment affirmed. 

9"- --- .................... Q. J Justice +- 

We Concur: 

/fhief Justice 

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ces