No. 14505
I N THE SUPREME C W O THE STATE O M3NTANA
O F F
1979
TERRY BALDWIN,
P l a i n t i f f and Appellant,
-vs-
KJ-AN -1
Defendant and Respondent.
Appeal froan: D i s t r i c t Court of t h e Eighth Judicial ~ i s t r i c t ,
Honorable Joel G. R o t h , Judge presiding.
Counsel of Record:
For Appellant:
Cameron Ferguson, Great Falls, Mntana
For Respondent:
TX P s Baiz, Great F a l l s , bbntana
l SM
Submitted on briefs: February 9, 1979
Decided: jua 2 9 1970
M r . Chief J u s t i c e Frank I . Haswell d e l i v e r e d t h e Opinion of t h e
Court.
T h i s i s an a p p e a l by p l a i n t i f f from a judgment of t h e
D i s t r i c t C o u r t of Cascade County, s i t t i n g w i t h o u t a j u r y , i n an
a c t i o n f o r breach of c o n t r a c t .
P l a i n t i f f was t h e o p e r a t o r o f t h e " N a t u r a l Look B a r b e r
S a l o n " i n p r e m i s e s l e a s e d from t h e European H e a l t h Spa i n G r e a t
F a l l s , Montana. From Ifarch, 1974 t o March, 1976, p l a i n t i f f
r e n t e d t h e p r e m i s e s on a month-to-month t e n a n c y , and from March,
1976 t o F e b r u a r y 28, 1977, h e l d t h e p r e m i s e s under a one y e a r
lease.
Sometime i n 1975, p l a i n t i f f ' s b u s i n e s s had r e a c h e d t h e
p o i n t where he c o u l d n o t h a n d l e it a l o n e . He approached d e f e n -
d a n t a b o u t working w i t h him and d e f e n d a n t t h e r e a f t e r began o p e r -
a t i n g a b o o t h i n t h e shop. Defendant was a n i n d e p e n d e n t c o n t r a c -
t o r p a y i n g p l a i n t i f f a weekly r e n t a l .
I n l a t e 1976 o r e a r l y 1977, p l a i n t i f f w a s c o n s i d e r i n g
o p e n i n g a second b a r b e r shop on t h e o t h e r s i d e of town. His
o r i g i n a l i n t e n t i o n was t h a t he would own b o t h s h o p s , b u t l a t e r
h e c o n c e i v e d t h e i d e a of r u n n i n g o n l y t h e second shop and s e l l -
i n g t h e shop i n t h e Spa t o d e f e n d a n t . The p a r t i e s d i s c u s s e d
t h a t p o s s i b i l i t y and d e f e n d a n t a t l e a s t once c o n t a c t e d a l o c a l
bank t o i n q u i r e a b o u t f i n a n c i n g .
When p l a i n t i f f ' s l e a s e e x p i r e d on F e b r u a r y 28, 1977, he
d i d n o t renew it b u t r a t h e r r e t u r n e d t o p a y i n g r e n t by t h e month.
P l a i n t i f f saw no need t o renew t h e lease i n view of h i s a n t i c i -
p a t e d s a l e of t h e b u s i n e s s .
On March 8 , 1977, as a r e s u l t of t h e d i s c u s s i o n of t h e
proposed s a l e between t h e p a r t i e s , a " S e l l i n g Agreement" p r e p a r e d
by p l a i n t i f f w a s e x e c u t e d by him and d e f e n d a n t . It provides,
verbatim, as follows:
"On t h i s d a t e 3-8-77, I , T e r r y L. Baldwin, h e r e -
t o - f o r e known a s s e l l o r , and Alan D. S t u b e r ,
here-to-fore known as sellee, enter into a sell-
ing agreement, which is here-to-fore known as
The Natural Look Barber Salon, located in the
European Health Spa at 2500 6th Ave. So., Great
Falls, MT.
"The sellor agrees to sell said shop for set
amount agreed to by the sellor and sellee of
$7,000.00. The sellee agrees to make payment in
full at the time of signing of the lease and ac-
quiring money from The Northwestern Bank of Great
Falls, Montana to sellor, or sellors wife, Myra
D. Baldwin, or Dee L. Bullard with the right of
receivership. The sellee understands that a
lease between European Health Spa and sellee
would be null and void without payment to sellor
of said $7,000.00. The sellor agrees to these
selling conditions:
"1. To leave all permanent fixtures and furniture,
(Coke Machine and antiques are excluded.)
"2. The Shop name of The Natural Look is to remain
with sellor. )
"The sellee agrees to these selling conditions:
"1. To operate under his own name whichever he sees
fit other than The Natural Look.
"2. Sellee agrees to pay full monthly payment on
shops Yellow Page ad. (February 77 to February 78.)
This is contingent on maintaining original phone
number. (Sellor will apply for new number.)
"3. Sellee agrees to gainfully employ sellor until
such time as sellor can be gainfully employed in
a new location."
In late June, 1977, plaintiff notified his lessor that he
intended to terminate his rental arrangement as of July 1, 1977,
contingent upon receipt from defendant of the $7,000 payment for
the sale of the business. The notice said that if the sale did
not materialize, "this letter of termination of rental agreement
is void." At the time of mailing the notice, plaintiff was no
longer under a lease, but was merely a month-to-month tenant.
On July 1, 1977, defendant, without plaintiff's knowledge
or consent, entered into a five year lease of the Spa location
with the lessor. On July 5, when plaintiff approached defendant
about consummating the sale, defendant informed him that he had
decided to remodel, did not want to purchase the furniture and
improvements plaintiff had installed in the shop, and had secured
a new lease from the lessor. Plaintiff then went directly to the
shop, removed all of the furniture and fixtures belonging to him,
and disconnected the phone. Plaintiff did his barbering in his
home until September 1977 when he found another location.
On October 11, 1977, plaintiff filed a complaint against
defendant in Cascade County District Court alleging breach of the
"Selling Agreement". The prayer for relief requested judgment in
the sum of $7,000 or, alternatively rescission of the "Selling
Agreement"; a court order requiring defendant to transfer to plain-
tiff his interest under the new lease, and $2,000 in general dam-
ages. Defendant's answer alleged that plaintiff had made false
and fraudulent representations to induce him to enter into the
"Selling Agreement" and that the agreement was therefore null and
void.
Trial was had without a jury on May 15, 1978. Plaintiff's
theory at trial was that even though he had removed his furnish-
ings and fixtures and taken his phone number, defendant still owed
him compensation for goodwill and the value of the leasehold. Plain-
tiff sought to testify that the parties understood that the sale
contemplated those items, but since the "Selling Agreement" did
not refer to them, defendant's objections under the parol evidence
rule were sustained.
Defendant, on the other hand, was asked what plaintiff
told him he was selling to him. When plaintiff's counsel objected
under the parol evidence rule, the court overruled the objection,
stating "I would like to hear this testimony." Defendant testi-
fied that plaintiff indicated he was selling all the equipment,
permanent fixtures and everything that belonged in the shop, ex-
cluding his antiques, but had not told him that approximately a
third of the fixtures and equipment belonged to the Spa rather
than to plaintiff. Defendant further testified that when he entered
into the "Selling Agreement" on March 8, 1977, he thought plain-
tiff still had a lease in effect. On cross-examination, defen-
dant testified he did not recall any mention of goodwill as being
part of the sale. The court asked defendant what he received
under the "Selling Agreement." Defendant stated that he had
received nothing. None of the things mentioned in the "Selling
Agreement", except the items belonging to the Spa, are now or
ever were in defendant's possession.
Findings of fact and conclusions of law were entered by
the District Court on June 19, 1978. The pertinent findings and
conclusions for purposes of this appeal are, in summary:
(a) That plaintiff never informed defendant prior to exe-
cution of the "Selling Agreement" that some of the fixtures and
equipment in the shop were not contemplated in the sale or that
his lease had expired, so that there was no valid contract be-
cause defendant had not been properly apprised of what he was re-
ceiving and there was therefore no meeting of the minds.
(b) That since there was no mention of goodwill in the
"Selling Agreement," plaintiff was barred from any compensation
for it because a contract extends only to those things concerning
which it appears that the parties intended to contract; further,
that in this case, even if goodwill had been mentioned in the
contract, plaintiff was not entitled to recover anything for it
because he had retained the name and phone number of the shop and
had begun operating a competing business in the same city, so
that no goodwill had passed to defendant.
( c ) That defendant had received nothing which belonged to
plaintiff or which plaintiff had agreed to sell in the "Selling
Agreement," and that plaintiff should recover nothing.
On appeal, plaintiff contends that the District Court
erred in finding that defendant received no goodwill. He argues
that a primary element of goodwill is the location of the business,
which defendant received without paying compensation to plain-
tiff. Further, plaintiff contends, goodwill can pass by impli-
cation whether specifically mentioned in a contract or not,
so that it was error to conclude there was no sale of goodwill
here merely because goodwill was not itemized in the "Selling
Agreement." While plaintiff raises several other matters in his
brief, it is clear from his prayer for relief on appeal that
noncompensation for goodwill is the central issue before us.
Plaintiff requests that we "reverse the trial court and direct
entry of judgment in favor of seller for $4,000" (the figure
plaintiff submits as a reasonable allocation to goodwill out of
the $7,000 contract price for the transfer of the business), or,
alternatively, that we "reverse the trial court and remand for
establishment of values for the property that passed to Buyer for
which seller is due."
Plaintiff's contention that location is a primary element
of goodwill is correct. "All definitions of goodwill incorporate
as one of the chief elements thereof the advantage accruing to
a vendee from the old business stand, and it is particularly
important in the case of a trade or business of a commercial
character." 3 8 Am Jur 2d Good Will 8 5 . Defendant argues that
a barber business is not of a commercial character, but is rather
a professional or quasi-professional enterprise depending on public
confidence in a particular person and that no element of goodwill
inheres in such a business. While defendant's position is not
without support, " . . . this view seems traceable to the early,
narrow definition of good will. There is authority that good will
may also exist in a professional practice or in a business founded
on personal skill or reputation." 3 8 Am Jur 2d Good Will § 8 .
Plaintiff's contention that goodwill can pass by impli-
cation on the transfer of a business, even though not mentioned in
a written contract of sale, is also correct. While there are some
decisions that refuse to find an implied sale of goodwill,
the majority rule is that if goodwill is not expressly reserved
or excepted, it passes automatically to the purchaser of a
business, regardless of whether the seller has or has not entered
into an express covenant not to compete. 38 Am Jur 2d Good Will
810; Annot. 65 ALR2d 502.
At trial, defendant testified that thirty to forty per-
cent of his present customers are the same people who used to
frequent the shop when plaintiff operated it. The District Court's
findings, which are otherwise thorough and complete, do not mention
this fact. In our view, this testimony is significant because it
gives rise to the implication that it was the location of the shop
rather than any personal qualities of either plaintiff or defen-
dant that attracted these customers. It appears, therefore,
that plaintiff has in fact lost a valuable asset without being
compensated. We hold that the District Court erred in its ruling
that no goodwill passed to defendant. Having so determined, we
now turn to the problem of plaintiff's remedy.
Plaintiff's complaint was pleaded strictly on the basis
of breach of an express contract. However, plaintiff argued at
trial and on his motion to amend the findings and conclusions an
estoppel-based unjust enrichment, viz. that because defendant had
reaped a benefit from the transaction, he could not deny the valid-
ity or binding effect on him of the "Selling Agreement."
As a general rule, recovery cannot be had in quantum
meruit under a complaint alleging an express contract. "When an
express contract is alleged it must be proved. Failure to do so
is not merely a variance but it is rather a failure of proof, and
recovery cannot be had on proof of an implied contract." Puetz
v. Carlson (1961), 139 Mont. 373, 382, 364 P.2d 742, 747. How-
ever, "[Tlhe fact that an express or special contract was pleaded
does not prevent a recovery on an implied contract or on quantum
meruit where such express or special contract is void, or where
a contract never came into existence." 17A C.J.S. Contracts
S569. Recovery in quasi contract has been granted where the
evidence showed that there was no contract because of misunder-
standing. See 1 Palmer, Law of Restitution 84.1 368 (1978).
Further, the rule barring recovery on proof of an implied con-
tract or quantum meruit in an action brought on an express or
special contract is inapplicable where " . . . the record shows
an unusual and equitable reason for such recovery and the par-
ticular situation seems to justify it." 17A C.J.S. Contracts
S569.
Among the conclusions of law entered by the ~istrictCourt
was that a meeting of the minds is required in order to make a
valid contract and that there was no meeting of the minds in
this case " . . . because defendant had not been properly apprised
of what he was receiving from the plaintiff, and defendant was
not aware that plaintiff's lease had expired." The same C.J.S.
Contracts section twice referred to above also provides that the
setting aside of a contract for fraud in its procurement " ...
does not remove the case from the application of the rule deny-
ing recovery on implied contract or quantum meruit where an ex-
press contract is pleaded." The District Court made no finding
of fraud, so defendant cannot complain that this rule is violated
by granting plaintiff relief. The District Court's conclusion
was merely that the contract was not valid. Therefore, this case
comes within the rule cited above allowing recovery on an implied
contract where the express contract pleaded never came into exis-
tence. In addition, it is clear that defendant's surreptitious
procuring of a new lease and his subsequent repudiation of the
obligations he had freely assumed in the "Selling Agreement" worked
a substantial injustice on plaintiff. Therefore, we find this
to be a proper case to invoke the second exception noted above to
the no-recovery rule. The record here shows an unusual and
equitable reason for such recovery and the particular situation
seems to justify it.
Several peripheral matters are also raised in plaintiff's
brief. None of these matters has any significant effect on the
merits of the appeal. We discuss them only in the interest of
completeness and to demonstrate that none of plaintiff's conten-
tions has been overlooked.
Plaintiff contends that the District Court erred by in-
voking the parol evidence rule to prevent him from testifying
that goodwill was contemplated in the "Selling Agreement" yet
still allowing plaintiff to testify on that issue. The record
shows that defendant testified only as to what his understanding
was of items - included in the agreement, and did not seek to
not
establish that the agreement contemplated more or different items
than appeared on its face. There was, therefore, no conflict
with the parol evidence rule.
Plaintiff further contends that his offered testimony
I
that goodwill was included in the sale should have been admitted I
I
as an exception to the par01 evidence rule under section 87A-2-202 I
R.C.M. 1947, now section 30-2-202 MCA. This section is a provi-
sion of the Uniform Commercial Code which is applicable only to
sales of "goods" and affords plaintiff no relief upon the sale of
a business.
Plaintiff also contends that he was entitled to compen-
sation for the value of his leasehold interest. Unlike goodwill,
no authority has been cited or found that such an interest can
pass by implication although not mentioned in the "Selling Agree-
ment." Further, at the time defendant entered the new lease,
plaintiff's lease had expired and he held the premises only under
an informal month-to-month tenancy; he had no transferable interest
in any lease. ina ally, since the new lease negotiated by defendant
required him to pay $55 per month more rent than plaintiff was
paying, it cannot be argued that defendant succeeded to any
benefits or advantages of plaintiff's leasehold.
The judgment of the District Court that plaintiff recover
nothing on his complaint is vacated and the cause is remanded
for a determination of the reasonable value of the goodwill
associated with the shop location.
Chief Justice
' Justices
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