No. 90-437
IN THE SUPREME COURT OF THE STATE OF MONTANA
1991
PORTABLE EMBRYONICS, INC.,
Plaintiff and Respondent,
VS.
J. P. GENETICS, INC. , ALTON JAMES
and GARY A. PORTER,
Defendants and Appellants.
APPEAL FROM: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Honorable Thomas A. Olson, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
John C. Hoyt, argued; Hoyt & Blewett, Great Falls,
Montana
For Respondent:
James H. Goetz, argued; Goetz, Madden & Dunn,
Bozeman, Montana
Submitted: March 7, 1991
Decided: May 3 , 1991
Filed:
Justice John Conway Harrison delivered the Opinion of the Court.
This is an appeal from the District Court of the Eighteenth
Judicial District. Plaintiff brought this action alleging breach
of employment contracts and related tortious conduct by defendants.
Following a bench trial the District Court entered judgment and
awarded damages in favor of the plaintiff. From this judgment and
order, defendants appeal. We reverse.
The following issues are presented by appellants for review:
1. Did the District Court err in denying defendants judgment
as a matter of law based on illegality of the employment contracts?
2. Did the District Court err in denying defendants judgment
as a matter of law based on provisions within the employment
contracts that unlawfully restrain trade?
3. Did the District Court err in concluding that a factual
basis existed for finding against defendants?
4. Did the District Court err by awarding damages contrary
to the facts of this case?
At the time of the alleged breach of contract, plaintiff
Portable Embryonics, Inc. (Portable) was in the business of
performing nonsurgical bovine embryo transfers in Montana and other
states. Dr. Albert C. Mills, 111, (Mills) and his wife are the
sole shareholders of Portable. Defendants Gary Porter (Porter)
and Alton James (James) were employed by Portable from 1977 until
1988. Porter and James terminated their employment with Portable
in February of 1988 and, within a few days, formed defendant J.P.
Genetics, Inc., a Montana corporation. J.P. Genetics, Inc. also
2
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performs nonsurgical bovine embryo transfers.
The first step of the nonsurgical embryo transfer begins with
a superior cow, the donor, which is selected by the rancher. The
cow is given a fertility drug which induces the ovulation of
multiple eggs. These eggs are then fertilized either by artificial
or natural insemination. Approximately one week later the
fertilized eggs are removed from the donor cow by a process called
I1flushing.l1 Next, the technicians identify, with the aid of a
microscope, the fertilized eggs as embryos, and then either implant
the embryos into recipient cows, which serve as surrogate mothers,
or freeze them for later use. The removal, identification, and
implantation or freezing of the embryos are performed by embryo
transfer technicians such as Mills, Porter and James.
In the spring of 1980, Portable prepared an employment
contract which contained provisions for the protection of trade
secrets and restrictions concerning employees who would depart the
company. James signed the contract on April 17, 1980 and Porter
signed on May 6, 1980.
Due to alleged problems with the business, Porter terminated
his employment with Portable on February 20, 1988. The next day,
James informed Dr. Mills that he was also quitting. Shortly
thereafter, Mills discovered that Porter and James had already
formed their new embryo transfer business--J.P. Genetics, Inc. As
a result, Mills travelled to Montana to discuss business with the
Montana ranchers who had been regular clients of Portable. During
his travels, he learned that Porter and James sent out a letter on
February 18, 1988 soliciting business from Portable Embryonics
clients: "It is with enthusiasm that I announce my partnership with
Sonny James in a new company: J.P. Genetics, Inc.I1 He also found
that all the Montana clients intended to stay with Porter.
Portable filed suit in March, 1989, alleging breach of
contract, breach of loyalty, fraud and bad faith. On October 19,
1989, defendants filed a motion for summary judgment, arguing that
the underlying contract was for an illegal purpose and constituted
an unlawful restraint on trade. The District Court denied that
motion by order dated February 28, 1990. Following a bench trial
in March, 1990, the District Court concluded that actual and
constructive fraud, breach of the duty of loyalty and the covenant
of good faith and fair dealing existed in Porter's and James'
actions to steal Portable's business from the Montana clients.
The District Court was particularly interested in evidence
which tended to show that the plans of Porter and James to compete
with Mills were formed and furthered while Porter and James were
still employed by Portable. The District Court, in its findings
of fact, listed various sales slips and invoices, which
demonstrated that Porter and James, while still employed by
Portable, planned for and implemented purchases for their new
business. The District Court found that Porter and James set up
their business in Montana in advance of informing Portable that
they were leaving and that Porter and James harmed Portable by
concealing these plans. Based on findings of fact and conclusions
of law generally favorable to Portable, the District Court entered
judgment against defendants in the amount of $75,000.
I
The first issue presented for review is whether the District
Court erred in denying defendants judgment as a matter of law based
on illegality of the employment contract.
Defendants contend that the purported employment agreements
were contracts for an illegal purpose in Montana and are therefore
unenforceable--the illegal purpose being the practice of veterinary
medicine without a license. Based on our reasoning set out below,
we hold that the contract is void for an illegal purpose.
Section 28-2-601, MCA defines the object of a contract as "the
thing which it is agreed on the part of the party receiving the
consideration to do or not to do.'' Based on this statute and the
evidence in the record, we find that the underlying and primary
object of the subject employment contract was to perform embryo
transfers on livestock in Montana. ~ccordingto 5 28-2-701, MCA,
the object of the subject employment contract is not lawful if it
is "contrary to an express provision of law.'' Prior to 1989,
during the period of time that Portable employed Porter and James
as its embryo transfer technicians, 5 37-18-102 (1)(f), MCA,
characterized ''ova or embryo transfer1'on animals as the practice
of veterinary medicine. Section 37-18-501, MCA, assigns a
misdemeanor violation to any person who practices veterinary
medicine without a license. We find that none of the parties were
trained or licensed veterinarians during the time that Portable
contracted with Porter and James to perform embryo transfers in
Montana. Therefore, we conclude that the object of the contract
was unlawful at the time the contract was entered into and
performed. This conclusion becomes the minor premise of the
episyllogism whose major premise is found in 5 28-2-603, MCA, which
provides: "When contract wholly void. Where a contract has but a
single object and such object is unlawful, whether in whole or in
part, . . . the entire contract is void.I1 We therefore conclude,
as a necessary result based on deductive reasoning, that the entire
employment contract is resultingly void.
It is clear that a party to an illegal contract cannot use the
courts of this state to enforce the agreement.
No principle of law is better settled than that a party
to an illegal contract cannot come into a court of law
and ask to have his illegal objects carried out, nor can
he set up a case in which he must necessarily disclose
an illegal purpose as the groundwork of his claim . . .
. The law, in short, will not aid either party to an
illegal agreement. It leaves the parties where it finds
them. Therefore, neither a court of law nor a court of
equity will aid the one in enforcing it, or give damages
for a breach of it, or set it aside at the suit of the
other, or, when the agreement has been executed in whole
or in part by the payment of money or the transfer of
other property, lend its aid to recover it back.
Glass v. Basin & Bay State Mining Co. (1904), 31 Mont. 21, 33, 77
P. 302, 305 (quoting 9 D. Lawson, Cyclopedia of Law and Procedure
546). Accord McManus v. Fulton (1929), 85 Mont. 170, 182-83, 278
P. 126, 131; McPartlin v. Fransen (1982), 199 Mont. 143, 146-47,
648 P.2d 729, 730-31; MPH Company v. Imagineering, Inc. (1990),
243 Mont. 342, 349, 792 P.2d 1081, 1086.
In the alternative, Portable asserts that even if the
employment contracts are unenforceable based on illegality, the
District Courtls findings and conclusions were proper since they
were based on tort and, therefore, do not depend at all on the
enforceability vel non of the employment contract. Portable argues
that its claim is based upon the implied covenant of good faith and
fair dealing and upon breach of fiduciary duties and is independent
of the illegality issue of the written employment contracts. To
the contrary, whether characterized as arising from the written
contract or from the employment relationship, each and every
allegation Portable has asserted in its claim against defendants
is based upon an agreement, the object of which was illegal under
Montana law. No matter how Portable wishes to portray its case,
it is inarguable that Portable's entire suit is grounded in
defendants1 alleged breach of an employment contract; a contract
which was void based on its illegal purpose.
We hold that the object of the contract in question, according
to the laws of this state as they existed during pertinent times,
was for an illegal purpose and that the contract is therefore void.
Neither party may now come into our courts and seek damages for
breach of that agreement. We need not consider the other issues
presented since our holding on this issue is dispositive of this
appeal.
The judgment of the District Court is reversed.
We concur:
Chief Justice d
Justices
'4'
Justice Terry N. Trieweiler specially concurring.
I concur with the opinion of the majority that the employment
agreements which the plaintiff sought to enforce were for an
illegal purpose and therefore, unenforceable. I also concur in the
majorityls result which denied recovery to the plaintiff, pursuant
to its theories grounded in tort. However, I would deny recovery
in tort because there is an absence of proof of damages f l o w i n g
from the facts which plaintiff alleges were tortious.
Plaintiff alleged that it was damaged when it lost clients due
to the departure of the defendants. However, in its Finding
No. 63, the District Court stated:
Plaintiff relied solely on Mills1 testimony regarding
damages. Plaintiff presented no testimony from any
former client regarding whether they would have continued
to use plaintiff's services if Porter and James
terminated their employment with plaintiff but did not
continue to do embryo transfer work in Montana.
Defendants called two former Portable Embryonics
customers to testify at trial. Both testified that they
did not like the treatment by Mills of their cows, and
would not have continued to use Mills or plaintiff for
their embryo transfer work after Porter and James
terminated employment with plaintiff. . . .
In its Finding No. 64, the District Court also pointed out
that of the ten ranches to whom plaintiff provided embryo transfer
work prior to the departure of the defendants, all have either
discontinued that kind of work, gone out of business, hired in-
house technicians, or substantially reduced their requirements.
Plaintiff also sought recovery for miscellaneous items of
damage, including the training of new people to replace the
defendants. However, in Finding No. 65, the District Court found
that the plaintiff failed to prove the dollar amount associated
with these miscellaneous expenses.
On appeal, plaintiff contended that he was damaged by the
defendantst departure without notice because it left him unprepared
to service clients in the southern part of the country later on in
the spring of 1988. However, defendants testified that they would
have continued to assist the plaintiff, had he not insisted that
they terminate employment immediately, and the District Court
found, in Finding No. 41, that plaintiff did not ask for assistance
from the defendants after they left his employment.
After all of these findings, the District Court concluded, as
a matter of law, that plaintiff was entitled to damages in the
amount of $75,000 without indicating any objective basis for those
damages.
I would agree that in commercial transactions of this type
the finder of fact should be given wide latitude in arriving at an
award of damages. However, there has to be some objective basis
for the damage award, and in this case it was totally unsupported
by any evidence.
For these reasons, I would reverse the judgment of the
District Court and deny recovery, pursuant to the plaintiff's
claims grounded in tort, regardless of the relationship of those
claims to an illegal contract. I
Justice William E. Hunt, Sr.:
I concur in the special concurring opinion of Justice
Trieweiler.
Justice