Court Opinion

ID: 875615
Source: CourtListenerOpinion
Date Created: 2013-06-04 20:07:32.46169+00
Date Added: 2024-06-11T15:09:49.279244
License: Public Domain

No. 12444

       I N THE SUPREME COURT O THE STATE OF M N A A
                              F              OTN

                                       1973

                                            -

HAVRE DAILY NEWS, I N C . ,

                            P l a i n t i f f and Respondent,

       -vs   -
CLYDE D. FLOREN,

                            Defendant and A p p e l l a n t .

Appeal from:        D i s t r i c t Court of t h e T w e l f t h J u d i c i a l D i s t r i c t ,
                    Honorable Truman G . B r a d f o r d , Judge p r e s i d i n g .

Counsel o f Record:

    For Appellant :

             T i p p , Hoven and B r a u l t , M i s s o u l a , Montana
             Vernon Hoven a r g u e d , Missoula , Montana

    F o r Respondent :

             Burns and Solem, Chinook, Montana
             W i l l i a m Solem a r g u e d , and S t u a r t C . MacKenzie a p p e a r e d ,
              Chinook, Montana

                                                 Submitted:          September 25, 1973

                                                    Decided :)JOY       7 . 1973
~ i l ~ NOV 7
         d :       1973
Mr. 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 judgment made by plaintiff, Havre Daily News, Inc.
           On September 24, 1963, plaintiff and defendant entered
into a contract whereby 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 compete with defendant in job printing or the
sale of office supplies and equipment for a ten year period.
This restriction from competition extended to all of Hill County,
Montana.
           The contract called for a down payment 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 15th day of each month
thereafter, for a period of ten years.    Defendant defaulted under
the contract by failing to make payments when due.     Plaintiff
commenced this action on April 9, 1971, to recover the unpaid
balance due under the contract of $11,328.87, together with in-
terest at the rate of 6% per annum from April 15, 1970.     Defend-
ant 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, the matter was set for
trial before the Hon. Truman Bradford who was called in by vir-
tue of the disqualification of the Hon. B. W. Thomas, judge of
the twelfth judicial district, Hill County, Montana.
           Prior to trial, a pretrial order was entered, which included
these certain agreed facts:
         1.   That the respective agreements entered into on
September 24, 1963, by plaintiff and defendant are correct
and binding on both plaintiff and defendant.
         2.   That the unpaid balance on the original contract
was the sum of $11,328.87, together with interest at the rate
of 6% per annum from April 15, 1970.
              That the plaintiff did certain printing aside from
the Havre Daily News in varied amounts, but in excess of the
sum of $15,000.
        Plaintiff moved for summary judgment on the record and
the answers to interrogatories previously made 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 restric-
tive covenant computed at the rate of $500 per 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
agreement between 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 findings of fact set forth the agreed
facts as set out in the pretrial order, and in addition found:
        "The damages claimed by the defendant must have
        been proximately caused by the Plaintiff's breach.
        The acts of the Plaintiff which are alleged to
        have been acts in breach of the covenant not 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 com-
        puted 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 not made in conjunction with, or in consider-
        ation of the number of acts in breach, or the
        time, amount and length of each breach by the
        Plaintiff. Damages claimed by the Defendant
        cannot be substantiated by any book or records
        kept by 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's breach. No part
        of the purchase price under the original con-
        tract was allocated to the value of good will,
        or the restrictive covenant."
                                        court
        From such findings, the district/concluded:
        "No damages can be recovered for a breach of a
        contract which 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's breach 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 restric-
tive covenant.
        In Leiman-Scott, Inc., v. Holmes, 142 Mont. 58, 381
P.2d 489, a case with an almost identical factual situation as
the instant case, the plaintiff, entered into an agreement with
Holmes, the defendant, wherein the defendant was given exclusive
territorial rights for establishing sales outlets and distribu-
tion of certain items in exchange for a $10,000 note made pay-
able to the plaintiff.     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 represent-
ative who sold approximately $1,500 of merchandise.      The district
court granted defendant's motion for nonsuit at the close of
the plaintiff's testimony.    This Court reversed and remanded
the cause to the district court, agreeing with plaintiff's
contention 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 restric-
        tive covenant, the purchaser may 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 interferes with the good will
        transferred, or commits a breach of a restric-
        tive covenant, are the loss which the purchaser
        sustains by reason of the wrongful conduct of
        the seller."
        In the instant case, the district court properly con-
cluded 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 sum-
mary judgment is "answers to interrogatories". Plaintiff served
upon defendant several interrogatories. To certain interroga-
tories defendant 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 loss you are claiming.
        "ANSWER:     $39,500.00.
        "b) The facts on which 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)."
       [At the rate of $500 per month for the life of the
        restrictive covenant.]
        "INTERROGATORY 10: Can your answers to questions 9a,
        9b and 9c relative to the loss thereof, be substan-
        tiated 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
$500 per month.     Defendant's method is irreconcilable with 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
        contract which are not clearly ascertainable
        in both their nature and origin."
        In Vancil v. Anderson, 71 Idaho 95, 227 P.2d 74, 78, a
case which 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:
        "The broad 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 t h e e v i d e n c e of t h e p a r t y

c l a i m i n g damages t o d e t e r m i n e " t h e p r e s e n c e o r a b s e n c e of any

f a c t s upon which h i s o p i n i o n e v i d e n c e may be p r e d i c a t e d . "             The

e v i d e n c e c o n c e r n i n g such damages i n c l u d e d t e s t i m o n y of t h e de-

c l i n e o f d a i l y r e c e i p t s , r e d u c t i o n of g r o s s s a l e s , i n c r e a s e i n

overhead e x p e n s e s , and b u s i n e s s r e c o r d s .

              F u r t h e r m o r e , h e r e d e f e n d a n t a d m i t t e d t h a t no p a r t of t h e

p u r c h a s e p r i c e had been a l l o c a t e d t o good w i l l o r t h e r e s t r i c t i v e
covenant.          Defendant i n h i s answer t o i n t e r r o g a t o r i e s answered:

             "INTERROGATORY 1 8 : Was a p o r t i o n of t h e p u r c h a s e
             p r i c e i n t h e o r i q i n a l aqreement between t h e P l a i n -
             t i f f and ~ e f e n d a n ta l l o c a t e d t o t h e v a l u e o f ' t h e
             r e s t r i c t i v e c o v e n a n t o r good w i l l ?

              "ANSWER:         No.

             "INTERROGATORY 1 9 : I f your answer t o Q u e s t i o n
             No. 1 8 i s y e s , s c a t e t h e s p e c i f i c amount a l l o -
             c a t e d f o r t h e v a l u e of t h e - r e s t r i c t i v e c o v e n a n t
             o r good w i l l .

              "ANSWER:         Not a p p l i c a b l e .

             "INTERROGATORY 2 0 :              Was it s t a t e d i n t h e o r i g i n a l
             c o n t r a c t i n E x h i b i t "A" t h a t no p a r t of t h e pur-
             c h a s e p r i c e was a l l o c a t e d f o r good w i l l , f r a n c h i s e s
             o r other intangible assets?
              "ANSWER:         Yes.

             "INTERROGATORY 2 1 : A r e you c l a i m i n g t h a t t h e
             c o v e n a n t n o t t o compete i s n o t a n i n t a n g i b l e a s s e t ?

              "ANSWER:         No."

             Defendant, however, c o n t e n d s t h e d i s t r i c t c o u r t s h o u l d
have found t h a t t h e p a r t i e s a g r e e d t h e r e was a v a l u e t o be

a t t a c h e d t o t h e r e s t r i c t i v e c o v e n a n t , b u t t h a t t h e v a l u e was
n o t s p e c i f i e d and t h a t t e s t i m o n y s h o u l d be adduced a s t o t h e
v a l u e of t h e r e s t r i c t i v e c o v e n a n t .
             C l e a r l y , t h e d i s t r i c t c o u r t r u l e d p r o p e r l y t h a t no p a r t
of t h e p u r c h a s e p r i c e had been a l l o c a t e d t o good w i l l o r t h e

r e s t r i c t i v e c o v e n a n t , s i n c e i t s f i n d i n g s were t a k e n d i r e c t l y

from t h e answers of d e f e n d a n t .              I n a d d i t i o n , t h e t e r m s of t h e
original contract stated:
            "It has been agreed between the parties that no
            part of the purchase 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 contract was allocated to good will or the res-
trictive covenant; that the defendant's claim of damages is
speculative and conjectural in nature and unsupported by bus-
iness books or records or claim of loss of business profits;
and, that the correct measure of damages for breach of a res-
trictive 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
  ----- -
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             /*

Hon. M. &mes Sorte, District
J u d m i n g in       of Mr.

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