Opinion ID: 2110929
Heading Depth: 1
Heading Rank: 6

Heading: Did the Trial Court Err in Dismissing the Plaintiffs' Breach-of-Contract Claim?

Text: The trial court dismissed the plaintiffs' breach-of-contract claim, finding that Nuckoll's discontinuance of its monthly payments was justified because the plaintiffs had materially breached the non-compete agreement. This ruling was based on Nuckoll's affirmative defense that Randall's competition in violation of his covenant not to compete also constituted a material violation of Nuckoll's contract with the plaintiffs, thereby entitling Nuckoll's to suspend its monthly payments. [2] The plaintiffs contend that even if they breached the noncompete agreement, the breach was only partial and did not excuse Nuckoll's total failure to make the required payments. Nuckoll's affirmative defense rests on the theory that its performance was conditioned on the reciprocal performance of the plaintiffs to refrain from any competition with Nuckoll's. We start our discussion, therefore, with a review of the legal principle underlying Nuckoll's affirmative defense, as stated in the Restatement (Second) of Contracts: [Subject to an exception not applicable here], it is a condition of each party's remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time. Restatement (Second) of Contracts § 237, at 215 (1981). We have already decided that the trial court did not err in finding that Randall violated his covenant not to compete. The plaintiffs agreed to incorporate Randall's covenant into their obligation to Nuckoll's under the Nuckoll's noncompete agreement. Therefore, the only remaining dispute with respect to the applicability of the quoted rule is whether Randall's breach, and hence the plaintiffs' breach, was material. To determine the materiality of a breach, the Restatement (Second) of Contracts looks to the injured party and asks to what extent that party will be deprived of the benefit it reasonably expected, account being taken of the possibility of adequate compensation for that part. It also looks to the other party-to the possibility that it will suffer forfeiture, to the likelihood that it will cure its failure, and to the degree that its behavior comported with standards of good faith and fair dealing. Most significant is the extent to which the breach will deprive the injured party of the benefit that it justifiably expected. II E. Allan Farnsworth, Farnsworth on Contracts § 8.16, at 496-97 (2d ed.1998) (citing Restatement (Second) of Contracts § 241 (1981)) [hereinafter  Farnsworth on Contracts ]. [3] We will discuss each factor separately. Here, the sole purpose of the noncompete agreement requested by Nuckoll's was to prevent competition by VOCC and members of the Van Oort family, including Randall. This purpose was accomplished by the incorporation of Randall's covenant not to compete into the Nuckoll's noncompete agreement and by the plaintiffs' promises to enforce Randall's covenant and to refrain from competing themselves. Thus, the benefit reasonably expected by Nuckoll's was that it would not have any competition from VOCC or from any of the Van Oort siblings. It was deprived of this benefit by Randall's reentry into the ready-mix business. Cf. West v. Jayne, 484 N.W.2d 186, 189 (Iowa 1992) (holding that breach was not total so as to excuse other party's performance, where breach comprised a minor portion of promised performance). See generally Uptown Food Store, Inc. v. Ginsberg, 255 Iowa 462, 471, 123 N.W.2d 59, 65 (1963) (holding, where two partners signed a covenant not to compete, that acts of one partner may constitute a breach). The second relevant circumstance-the difficulty the injured party may have in proving the amount of loss with sufficient certainty-also supports a finding that Randall's breach was material. Proof of damages caused by the breach of a covenant not to compete is difficult. See Orkin Exterminating Co. v. Burnett, 160 N.W.2d 427, 430 (Iowa 1968) (noting that `the measure of damages in an action for the breach of an agreement by the seller not to reenter business in competition with the buyer is usually difficult of exact computation'  (quoting Gallagher v. Vogel, 157 Neb. 670, 61 N.W.2d 245, 250 (1953)). The next factor is whether the plaintiffs will suffer a forfeiture because they have prepared or performed based on their expectation of performance by Nuckoll's. See Restatement (Second) of Contracts § 241 cmt. d, at 239. We think this factor is not implicated because the plaintiffs have not contended that they expended moneys or effort in expectation of payment by Nuckoll's. To the contrary, all the plaintiffs needed to do to receive Nuckoll's installment payments was to refrain from competing, in other words, do nothing. Turning to the next circumstance, to the extent that it is reasonably certain that the nonperforming party will cure his breach despite his current nonperformance, we consider the breach less material. See id. § 241 cmt. e, at 241. That is because one justification for allowing a party to suspend performance is that withholding further performance may be a means of securing future performance by the breaching party. See id. Here there was no indication that Randall would cease his competition with Nuckoll's in the future. In fact, Randall went so far as to create a sham corporation to avoid his obligation not to compete. Because it was unlikely that Randall would voluntarily comply with his contractual obligation, this factor supports a finding that Randall's actions were a material breach. Finally, the court looks to the good faith and fair dealing of the breaching party. The plaintiffs offer no justification for Randall's employment, as an individual, by M. Peterson and do not even claim that it was permissible under his covenant not to compete. We conclude that Randall's violation of his covenant was not consistent with standards of good faith and fair dealing. In summary, the circumstances pertinent to determining whether a breach is material support the conclusion that Randall's reentry into the ready-mix business was a material breach of the Nuckoll's noncompete agreement. Therefore, Nuckoll's was justified in suspending its performance under the contract until such time as the plaintiffs enforced Randall's covenant not to compete. Accordingly, Nuckoll's did not breach the agreement when it stopped making the monthly payments and, therefore, the trial court did not err in dismissing the plaintiffs' breach-of-contract action against Nuckoll's. DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED.