No. 8 6 - 2 6 3
IN THE SUPREME COURT OF THE STATE OF MONTANA
1986
WESTERN MEDIA, INC., a Montana
corporation,
Plaintiff and Appellant,
WILLIAM A. MERRICK,
Defendant and Respondent.
APPEAL FROM: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Honorable Arnold Olsen, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Larry W. Moran, Aozeman, Montana
For Respondent:
Morrow, Sedivy & Bennett; Edmund P. Sedivy, Jr.,
Bozeman, Montana
Submitted on Briefs: August 28, 1986
Decided: November 7, 1986
$ 1 , :I
Filed:
Clerk
Mr. Justice Frank B. Morrison, Jr. delivered the Opinion of
the Court.
Plaintiff Western Media, Inc., appeals the ~ p r i l 7,
1986, summary judgment awarded in favor of defendant William
Merrick. We reverse and remand.
In 1975, William Merrick, was president and chief
operating officer of KBMN, Inc., which operated radio station
KBMN in Bozeman, Montana. At that time, Merrick entered
negotiations to sell the radio station. The buyers formed
the corporation Western Media, Inc., plaintiff herein, to
effect the purchase. The parties understood that upon
closing the sale, KBMN, Inc., would be dissolved and Merrick
personally bound under the contract.
A sales contract was entered into on May 14, 1975, and
the parties closed the transaction in August of 1975.
Merrick signed the contract as president of KBMN, Inc., and
in his individual capacity. The contract conveyed all
assets, tangible and intangible, used in the operation of the
station, with certain exceptions not relevant to this action.
The purchase price was $500,000 payable to Merrick.
Included in this amount was $50,000 to be received by Merrick
in return for his consultation services for five years, and
$50,000 for his covenant not to compete for ten years. This
covenant read as follows:
For the further consideration of the sum of Fifty
Thousand Dollars ($50,000.00) , payable as
hereinafter set forth, William A. Merrick,
President of KBMN, Inc., agrees that from the
closing date and thereafter for a period of ten
(10) years, he will not directly or indirectly,
alone or with others, individually or by a
corporation or other entity, or through any
representatives, engage in the operation of or as
an employee of any AM or FM radio station or
television station within a radius of fity (sic)
miles from the city of Bozeman, Montana. The said
sum of Fifty Thousand Dollars shall be payable to
William A. Merrick in One Hundred Twenty (120)
successive monthly installments of Four Hundred
Sixteen and 67/100 ($416.67) l3ollars, commencing on
the first day of each and every month following the
closing date and the first day of each and every
month thereafter during said period. No interest
shall accrue on the unpaid balance if the
installments are paid when due.
On September 1, 1984, Merrick took a position as
coordinator for KUSM, a public television station located on
the Montana State University campus in Bozeman. Upon
learning of Merrick's involvement with KUSM, Western Media
filed suit alleging Merrick had breached the covenant against
competition contained in the sales contract. Merrick raised
three affirmative defenses: 1) the covenant against
competition was void as an unlawful restraint of trade; 2)
KUSM was a non-commercial enterprise not in competition with
KBMN; 3) Western Media's failure to make required payments
pursuant to the covenant excused any possible breach by
Merrick.
Following summary judgment motions by both parties, the
District Court ruled in favor of Merrick. The court found!
the covenant against competition to be void and unenforceable
as an unlawful restraint of trade. Western Media appeals and
raises the following issue: Whether the District Court erred
in granting summary judgment to Merrick?
At the time the parties executed the sale contract
SS 13-807 & 808, R.C.M., 1947, were in effect and provided:
Any contract by which anyone is restrained from
exercising a lawful profession, trade, or business
of any kind, otherwise than is provided for by the
next two sections, is to that extent void.
One who sells the goodwill of a business may agree
with the buyer to refrain from carrying on a
similar business within a specified county, city,
or part thereof, so long as the buyer, or any
person deriving title to the goodwill from him,
carries on a like business therein.
Western Media contends Merrick's sale of the radio station
included goodwill though not specifically mentioned. We
agree. The contract transferred "all fixed and other assets,
tangible and intangible" to Western Media. Goodwill is
considered to be an intangible asset of a business. 38
Am.Jw. 2d Goodwill S 3, pp. 913-14.
In Baldwin v. Stuber (1979) 182 Mont. 501, 597 P.2d
1135, we held that goodwill can pass by implication on the
transfer of a business even though not mentioned in a written
contract of sale. Where the seller of a business agrees in
connection with the sale not to engage in the same business
in the same place, the obvious intent of the seller is to
transfer the goodwill of the business. 38 Am. Jr. 2d,
Goodwill 5 10, p. 918.
Merrick cites Wylie v. Wylie Permanent Camping Co.
(1920), 57 Mont. 115, 187 P. 279, for the proposition that a
mere stockholder cannot sell the goodwill of a corporation.
We do not find Wylie to be persuasive authority. In the
present case, KBMN, Inc. was dissolved pursuant to the sale
and Merrick personally bound under the contract. Merrick
was president and chief operation officer of KBMN, Inc., not
a mere stockholder.
Next we address whether the covenant against competition
is void as an unlawful restraint of trade. We find that it
is not. The covenant restricted Merrick from any involvement
with a radio or television station within 50 miles of Bozeman
for a period of 10 years. The covenant is unenforceable to
the extent it exceeded the guidelines of S 13-808, R.C.M.,
1947, which permit covenants against competition "within a
specified county, city, or part thereof." Treasure Chemical
v. Team Laboratory Chemical (1980), 187 Mont. 200, 205, 609
P. 2d 285, 288. This however does not void the covenant and
for the purposes of this case the covenant was valid.
Merrick violated the covenant by taking a position as
coordinator for KUSM television station which is within the
city limits of Bozeman. The covenant prohibited Merrick from
being an employee of or engaging in the operation of any AM
or FM radio station or television station within 50 miles of
Bozeman and made no distinction between covmercial and
non-commercial stations.
Merrick contends Western Media's failure to make monthly
payments pursuant to the covenant upon discovery of Merrick's
position at KUSM excused any possible breach on his part. We
do not agree. Merrick took the position with KUSM September
1, 1984. Western Media stopped monthly payments to Merrick
in January, 1985. The language of the covenant is clear that
Western Media's duty to make monthly payments pursuant to the
covenant was dependent upon Merrick's performance.
The parties dispute determination of damages. Western
Media contends it is entitled to return of all monies paid
under the covenant, approximately $46,666. In Havre Daily
News, Inc. v. Floren (1973), 163 Mont. 131, 135, 515 P . 2 d
673, 675, we stated the following rule:
The damages accruing to the purchaser if the seller
improperly interferes with the good will
transferred, or commits a breach of a restrictive
covenant, are the loss which the purchaser sustains
by reason of the wrongful conduct of the seller.
Western Media did not sustain any damages prior to the
breach by Merrick, but is entitled to return of payments made
subsequent to such breach plus any other losses incurred due
to Merrick's employment at KUSM.
Summary judgment is reversed and entered in favor of
Western Media. We remand to the District Court for a
determination of damages.
17
We concur: