No. 91-059
IN THE SUPREME COURT OF THE STATE OF MONTANA
1991
TERRY DUMONT',
plaintiff and Respondent,
v.
DARRELL D. TUCKER,
Defendant and Appellant.
APPEAL FROM: District Court of the Tenth Judicial District,
In and for the County of Fergus,
The Honorable Peter L. Rapkoch, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Robert L. Johnson, Lewistown, Montana
For Respondent:
Torger S. Oaas, Lewistown, Montana
submitted on Briefs: August 1, 1991
Decided: November 14, 1991
Filed:
Justice Terry N. Trieweiler delivered the opinion of the Court.
Terry Dumont sued Darrell D. Tucker in the Tenth Judicial
~istrictCourt in Fergus County to enforce an installment sales
contract. Tucker counterclaimed for breach of a non-competition
covenant contained in the contract. The District Court granted
Dumont's motion for summary judgment, dismissing Tucker's
counterclaim. After a bench trial, the court entered judgment in
favor af Dumont, awarding damages, costs, and attorney's fees in
the amount of $31,550.34. Tucker appeals. We affirm.
The issue on appeal is whether the District Court's ruling
that the non-competition covenant was overly broad entitled Tucker
to a total or partial refund of the price he originally paid for
it.
In a contract dated June 23, 1986, Dumont agreed to sell and
Tucker agreed to buy a public acccunting practice in Lewistown.
The parties agreed upon a total purchase price of $60,000. Tucker
agreed to pay this amount by assuming two Small Business
Association loans totalling $38,500 and then executing a promissory
note for the remaining balance. Und.er the terms of the promissory
note, Tucker agreed to make monthly payments beginning in February
1987.
The sale contract also contained the following non-competition
covenant:
COVENANT NOT TO COMPETE
The Seller hereby covenants and agrees that for a period
of five (5) years from the date of this agreement, he
will not engage in the profession of accountancy either
on his own behalf or as a partner or employee of any
business entity at any place within one hundred (100)
miles of Lewistown in any direction.
The attorney who drafted the contract worked from a written
purchase offer submitted by Tucker. This written offer
specifically included a 100-mile non-competition covenant. The
contract allocated $35,000 of the $60,000 purchase price to this
non-competition covenant.
By late 1987 or early 1988, Tucker began to hear rumors that
Dumont was not strictly complying with the non-competition
covenant. After selling the business, Dumont went to work for a
public accounting firm in Palm Springs, California. Tucker learned
that Dumont had been in Lewistown from time to time, that he had
been in contact with some of his former clients who still lived in
Lewistown, and that he had actually prepared tax returns for them
through the mail. Then Tucker discovered that Dumont had moved to
Billings and taken a job as a seasonal tax preparer with a public
accounting firm there.
Tucker ceased making monthly payments on March 10, 1988. By
then the remaining balance was $ 1 7 , 6 6 2 . 1 2 . On May 5, 1988, Tucker
wrote Dumont a letter explaining that he considered the
non-competition covenant fltotallyworthless1I as a result of the
Lewistown tax returns Dumont prepared in California. Dumant
responded on August 2, 1988, by accelerating the remaining balance
due on Tucker's promissory note. This lawsuit followed.
Early in the litigation, Tucker counterclaimed for damages
allegedly arising from Dumont's breach of the non-competition
covenant. Dumont moved for summary judgment on the countercZaim on
the basis that 5 28-3-704, MCA, limits non-competition covenants to
the county of sale and the contiguous counties. Yellowstone
County, the county in which Tucker alleged the competition
occurred, i not contiguous to F e r q u s County. On May
s 17, l99Q, the
District Court granted Dumont's summary judgment motion, holding
that the non-competition covenant was void as to Yellowstone
County.
Tucker then moved for summary judgment on the basis that the
invalidity of the covenant in Yellowstone County relieved him of
any obligation to pay for it. The District Court denied Tucker's
motion.
By addendum to the pretrial order, Tucker advised Dumont and
the District Court that he was now seeking an adjustment of the
purchase price based on the invalidity of the covenant in
Yellowstone County. Evidence submitted at trial, however, showed
that the parties had not agreed upon what would happen if the
non-competition covenant was partially invalidated. The court
found that Tucker had breached the sale contract, and refused to
refund any of the purchase price based on the partial invalidity of
the non-competition covenant.
Did the District Court err in refusing to refund any part of
the $60,000 purchase price to Tucker based on the partial
invalidity of the non-competition covenant in Yellowstone County?
Tucker argues t h a t he is entitled to an adjustment of the
contract purchase price because part of the consideration for that
purchase price failed when the District Court found the
non-competition covenant to be void in Yellowstone County. In
support of this contention, Tucker cites 5 28-2-604, MCA, which
provides :
Where a contract has several distinct objects of which
one at least is lawful and one at least is unlawful, in
whole or in part, the contract is void as to the latter
and valid as to the rest.
Essentially, Tucker argues that this statute precludes partial
invalidity rulings like the one at issue in this case, and that
therefore, the non-competition covenant must be entirely void if it
is void in Yellowstone County. Thus, he seeks a refund of the
entire $35,000 he paid for the covenant.
we disagree . In Treasure Chemical, Istc. v. Teum Lcrbolatojy ChemicbnlCorp .
(1980), 187 Mont. 200, 609 P.2d 285, we affirmed a decision of the
District Court that limited the reach of a non-competition covenant
without voiding it entirely. Under this " b l u e pencil approach" the
District Court in the instant case acted correctly in limiting the
non-competition covenant to the contiguous counties as required by
§ 28-2-704, MCA. The court's action did not void the covenant
entirely and we reject Tucker's attempted misapplication of
§ 28-2-604, MCA, to arrive at that result. Thus, his claim for a
refund of the entire $35,000 price of the covenant is unfounded.
We find no additional merit in his claim for a partial refund.
O n appeal, h e a r g u e s t h a t t h e whole point of t h e covenant was t o
prevent Dumont from competing with him in Billings, Great Falls,
and Havre. We note that the covenant itself does not so provide.
The covenant merely forbids competition within 100 miles of
Lewistown in any direction.
We find that even if 5 28-2-704, MCA, did not confine the
operation of the covenant to the contiguous counties, it still
would not apply to Dumontfs accounting activity in ~illings. In
this regard, the District Court said:
Initially, the Court finds an ambiguity in the
original covenant not to compete because it is unclear
whether the area of protection afforded by the covenant
is to be measured by air miles or highway miles.
Helping resolve this ambiguity is the following
passage from 54 Am. J u r . 2nd ~onopoliesEtc. S e c . 521,
which reads:
Ifcontractsnot to compete are by their nature
in restraint of trade and are not favorably
regarded by the courts. In interpreting or
construing contracts which impose restrictions
on the right of a party to engage in a
business or occupation, the court is governed
by a strict rule of construction. The
agreement will not be extended by implication,
and it will be construed in favor of rather
than against the interest of the c~venantor.~
This policy is statutory law in Montana, Sec. 28-2-703,
MCA .
The Court f i n d s t h a t t h e distance s t a t e d in the
original covenant not to compete is the distance by the
most common mode of travel by automobile over the public
highways by the shortest practicable route.
Though air travel is not uncommon, it is not the
most usual mode of travel by the accountancy client. The
use by the drafter of the original covenant of the phrase
"100 miles in any direction" in light of all the
evidence, without any limitation on this phrase as it
pertains to the most common method of travel to Billings,
is more indicative of an intent of the parties to
exclude, rather than include, Billings in the area
protected by the covenant.
Defendant's ~xhibitD, the map of Montana, shows
that the closest distance by highway for Lewistown to
Billings to be 129 miles. This is the relevant distance
between Lewistown and Billings. [Emphasis in original.]
We agree with the reasoning and conclusions of the District Court,
and find that Billings was beyond the reach of the covenant as
drafted. Thus, Tucker cannot now claim that the court's refusal to
enforce the covenant in Yellowstone County somehow deprived him of
something he bargained and paid for. We hold that the District
Court did not err in refusing to refund any part of the purchase
price to Tucker based on the partial invalidity of the
non-competition covenant.
Affirmed.
November 14, 1991
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the
following named:
Robert L. Johnson
Attorney at Law
Ste. 507, Montana Bldg.
Lewistown, MT 59457
Torger S. Oaas
Attorney at Law
P.O. Box 76
Lewistown, MT 59457
ED SMITH
CLEW OF THE SUPREME COURT
STAT- MONTANA
Deputy