Title: LAR-CON CORP v MURMAN PROPERTIES
Citation: N/A
Docket Number: 14957
State: Montana
Issuer: Montana Supreme Court
Date: June 16, 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: JUN 1 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, -2- but d i d not a l l e g e t h e required elements of fraud a s required by Rule 9 ( b ) , M.R.Civ.P. Rather, it appears t h a t t h e main t h r u s t of i t s defense was t h e claim t h a t t h e sales c o n t r a c t should 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 not t o compete. The s a l e s agreement arose when t h e seller decided t o sell one of its two r e t a i l businesses a t Big Sky, Montana. The seller owned " E r n i e ' s Deli" i n t h e Mountain Mall, which is located i n Madison County. The seller a l s o owned t h e Country Store i n t h e Meadow Village a r e a , which is located i n G a l l a t i n County. These two businesses a r e , however, only 7.3 m i l e s a p a r t , although located i n s e p a r a t e counties. I n 1976 t h e seller entered i n t o an agreement with t h e buyers t o sell t h e Country Store o p e r a t i o n , located i n G a l l a t i n County. The Country Store s o l d g i f t s , apparel i t e m s , and general grocery products. The s a l e included f i x t u r e s , f u r n i t u r e , goodwill and inventory. The seller, however, continued 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 Deli s o l d and served food f o r on and o f f premises consumption. By t h e terms of t h e s a l e s c o n t r a c t , t h e buyers made a cash payment a t t h e t i m e of t h e s a l e and were required 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 of 1.75% of t h e gross sales f o r t h e years 1977, 1978, 1979, 1980 and 1981. The d i s p u t e arose when t h e buyers 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 seller then f i l e d a lawsuit seeking t o enforce t h e provisions of t h e s a l e s agreement. The buyers then 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 seller had v i o l a t e d t h i s provision, although it w a s n o t contained within t h e four corners of t h e s a l e s agreement. -3- The underlying evidence r e l i e d on by t h e buyers t o support 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 of t h e s e l l e r t o continue operation of 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 f o r t h e d e l i c a t e s s e n business, and t h e o t h e r f o r t h e grocery business. The e f f e c t of t h i s s p l i t was t o permit 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 provide more room f o r d i s p l a y of t h e grocery products a t t h e o t h e r location. The buyers 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 favor of t h e seller and ordered t h a t t h e buyers account f o r and pay t h e seller 1.75% of t h e y e a r ' s p r o f i t s from December 1, 1977 through November 30, 1978 and a l s o t h a t t h e buyers pay t o t h e seller t h e s a m e percentage f o r t h e years 1979 through 1981 pursuant t o t h e provisions of t h e s a l e s agreement. I n meeting t h e buyers' contentions, 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 entered i n t o between t h e p a r t i e s excluding any reference t o a non- competition agreement, was natinduced by t h e s e l l e r ' s fraud. Indeed, the 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 discussed a noncompetition agreement before 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 but t h a t t h e seller would not 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 could not be enforced i n any event, because 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 provides t h a t a noncompetition agreement can be enforced only as an exception t o t h e general policy provisions contained i n s e c t i o n 28-2-703, which provides t h a t c o n t r a c t s made i n -4- r e s t r a i n t of competition a r e void. The exceptions contained i n s e c t i o n 28-3-704, MCA, permit an agreement n o t t o compete t o e x i s t only where it is confined t o a p a r t i c u l a r c i t y o r county, o r a p a r t of a c i t y of county. H e r e , although t h e businesses a r e only 7.3 m i l e s a p a r t , they are i n d i f f e r e n t counties, and thus t h e a l l e g e d noncompetition agreement could not be enforced i n any event. See Treasure Chem. v. Team Lab. Chemical Corp. (1980), - 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 of exceptions t o t h e r u l e t h a t agreements n o t t o compete a r e void, it cannot be doubted t h a t a s t a t u t e which provides t h a t such agreement cannot be enforced i n more than one county, t o t a l l y ignores 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 affirmed. ............................. J u s t i c e W e Concur: ~jd&f J u s t i c e