No. 14238
IN THE SUPREME COURT OF THE STATE OF MONTANA
1978
PATRICK O'NEILL,
Plaintiff and Appellant,
RALPH FERRARO, NIGEL JONES,
JOHN R. LAVAN and BLAIR CULTER,
Defendants and Respondents.
Appeal from: District Court of the Eighteenth Judicial
District,
Honorable W. W. Lessley, Judge presiding.
c o m e 1 of Record:
For Appellant:
Heath, Kirwan and Duckworth, Bozeman, Montana
Peter Kirwan argued, Bozeman, Montana
For Respondents:
Drysdale, McLean & Screnar, Bozeman, Montana
James McLean argued, Bozeman, Montana
For Amicus Curiae:
Hon. Mike Greely, Attorney General, Helena, Montana
Charles Erdmann appeared, Assistant Attorney General,
Helena, Montana
Submitted: December 18, 1978
Decided: FEE 2 797%
Filed: L'E6 2 7 -$,z-
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
Appellant O'Neill appeals from a declaratory judgment
dated February 7, 1978, entered by the District Court of
the Eighteenth Judicial District, Gallatin County. Appellant
brought the action to determine the meaning and validity of
a restrictive covenant in the respondents' lease. The
District Court sitting without a jury found the covenant
prevented appellant from operating a Mexican food restaurant
on the same premises where respondents operated their
restaurant. The court also found the covenant to be valid.
Respondents have been operating a restaurant, the
Overland Express since 1973 in a portion of the first floor
of the Bozeman Hotel, Bozeman, Montana. This operation was
pursuant to a lease between respondents as tenants and the
owner of the hotel as landlord dated February 13, 1973. The
Bozeman Hotel no longer functions as a hotel, rather it now
contains a collection of stores and shops.
Paragraph 2 4 of the lease between respondent and the
landlord-owner provides:
"The Landlord will not permit a competing
full restaurant service to be maintained at
the Bozeman Hotel, without the express consent
of Tenant, but it is agreed Landlord may
maintain a breakfast-lunch type of food service
at the hotel, which service may be supplied up
to 2 4 hours per day, and it is agreed that
Landlord may provide limited or irregular food
service, either by itself or catered, to the
downstairs facility, now known as 'The
Underground'."
Appellant sublet from Dark Horse, Inc., a portion of
the basement of the Bozeman Hotel for use as a Mexican food
restaurant known as Rose's Cantina. Dark Horse, Inc., leases
the basement of the Bozeman Hotel known as The Underground
from the landlord.
The lease between Dark Horse, Inc. and the landlord
noted that Dark Horse, Inc. intended to operate a Mexican
food restaurant on the premises, and noted that respondents
had indicated such an operation would violate its lease with
the landlord. The lease between Dark Horse, Inc. and the
landlord provided that no food service may be conducted by
the tenant without the written consent of respondents.
The sublease between appellant and Dark Horse recited
the above provisions of the lease between Dark Horse and
landlord and the pertinent provisions of the lease between
respondents and landlord. The lease then indicated Rose's
Cantina could operate a Mexican food service between the hours
of 11:OO a.m. and 3:00 p.m. so long as respondents' restaurant
was not open to the public during the same hours. In the
event appellant wished to operate at other times, it had to
obtain written consent from respondents or seek a declaratory
judgment pursuant to the landlord-Dark Horse, Inc. lease.
Appellant filed his complaint for a declaratory judgment
and a trial without a jury was held. Testimony at the trial
produced the following relevant facts. Both establishments
have or would have a nice, casual decor and patrons of each
are or would be served at tables by waitresses or waiters. The
food in each establishment is or would be prepared out of
sight of the customers. The two establishments would share
the same parking facilities at the Bozeman Hotel. Appellant's
business would be open from 11:OO a.m. to 11:OO p.m. Monday
through Saturday. Respondents' restaurant is open from either
5:00 or 5:30 p.m. until 10:OO or 11:30 p.m. every day of the
week. The menus and price range of the menu items are different
for each establishment. Appellant would serve only Mexican
food items and the most expensive item would cost about $4.00.
Respondents serve steak and seafood, none of which appears
on appellant's proposed menu, and which range in price from
$5.00 to $13.95; respondents testified the average diner
would spend $6.50 in the Overland Express excluding bar
items. The landlord testified his impression of the drafting
of paragraph 24 was to prevent another restaurant similar to
the Overland Express from opening in the Bozeman Hotel.
Respondent testified upon cross-examination his intent in
negotiating the lease and the particular paragraph in question
was to prevent competition with him in the Bozeman Hotel.
The District Court upon conclusion of the trial found:
"That the object of paragraph 24 between the
[respondents] and [the landlord] was to prevent
[the landlord] from permitting a restaurant
service at the Bozeman Hotel of the same type
as provided by [respondents] at the Overland
Express, and to limit competition in such a
restaurant service, but [the landlord] was to
be allowed to operate a breakfast-lunch food
service and the limited or irregular food service
which it was providing in the downstairs
facility, that is, Sunday buffets and irregular
banquets."
The validity of the covenant itself was raised by
the appellant in his trial brief and appellate brief. The
District Court memorandum supporting its findings and
conclusions upheld the validity of the covenant.
Two issues are presented to this Court on appeal. First,
whether the restrictive covenant contained in paragraph 24
of respondents' lease is valid. Second, if the covenant is
valid, whether it is applicable to the restaurant appellant
seeks to open in the Bozeman Hotel. We conclude, for the
reasons set forth below, the District Court was correct in
holding the covenant valid and in holding appellant's
restaurant was barred by that covenant.
Appellant has argued the covenant contained in paragraph
24 of the lease is a violation of section 13-807, R.C.M. 1947,
now section 28-2-703 MCA which declares void those contracts
restraining anyone from "exercising a lawful profession,
trade, or business of any kind," subject to certain exceptions
not relevant here. However, the general rule appears otherwise.
The Supreme Court of Oklahoma when faced with a lease agreement
limiting competition as to one particular tenant and with
the argument the agreement violated a statute identical to
section 28-2-703, held the lease valid and stated:
"'The modern trend of authorities .
. . is
to construe such statutes . . . and contracts
between individuals intended to promote
rather than restrict a particular business,
"In the light of reason and common sense,"
so as to uphold reasonable limited restrictions.
[It is a] general rule that courts will not
hold to be a restraint of trade a contract
between individuals, the main purpose and
effect of which are to promote and increase
business in the line affected merely because
its operations might possibly in some theoretical
way incidentally and indirectly restrict trade
in such line. ' " Utica Square, Inc. v. Renberg's
Inc. (Okla. 1964), 390 P.2d 876, 881 (quoting
from Keating v. Preston (1940), 42 Cal.App.2d
110, 108 P.2d 479, 486.)
Ruling a similar lease to be valid, Texas has said "[clourts
are generally agreed that [the] lessor of land may, by a
reasonably limited restrictive covenant, agree not to use,
or allow his property to be used by others, in a way which
would result in competition with his . . . lessee . . ."
Karam v. H. E. Butt Grocery Company (Tex. 1975), 527 S.W.2d
481, 484. For other jurisdictions supporting this rule see
The above authorities indicate a reasonable and limited
covenant restraining trade will be considered valid. Three
things are essential to such a covenant:
" (1) it must be partial or restricted in its
operation in respect either to time or place;
(2) it must be on some good consideration;
and (3) it must be reasonable, that is it
should only afford a fair protection to the
interests of the party in whose favor it
is made, and must not be so large in its
operation as to interfere with the interests
of the public." Eldridge v. Johnston (19521,
195 Or. 379, 245 P.2d 239, 250.
The covenant in the present case satisfies these requirements.
It is limited to the Bozeman Hotel; the consideration is
apparently good as no question to it has been raised; and the
covenant is not so large in operation as to affect the
interests of the public in any way other than to limit the
type of restaurant facility in the Bozeman Hotel. Because
such covenants are as a general rule valid, and because this
covenant is limited and reasonable, we affirm the decision
of the District Court upholding its validity.
The second issue we are asked to consider is whether
this covenant, if valid, is applicable to the restaurant
appellant seeks to open in the Bozeman Hotel. Appellant has
argued his proposed restaurant does not fit the definition
provided in paragraph 24 prohibiting a "competing full
restaurant service". Courts have generally recognized the
term "restaurant" is frequently used indiscriminately for all
places where food and refreshments can be had. ~ichardsv.
Washington Fire and Marine Ins. Co. (1886), 60 ~ i c h .420, 27
N.W. 286; Wheelmakers, Inc. v. City of Flint (1973), 47 ~ i c h .
App. 434, 209 N.W.2d 444; Annot. 122 A.L.R. 1399. The phrase,
"competing full restaurant service", - ambiguous and we are
is
mindful of the deference given to the trial court's findings
and conclusions because it listened to and viewed witness
testimony as to what was intended by a particular statement.
Rule 52 (a), M0nt.R.Civ.P.
Upon conflicting testimony concerning the scope of the
phrase, the District Court found and concluded the intent of
paragraph 24 of the lease was to prevent the landlord from
permitting a food service which would compete with respondents
- 6-
on a full-time basis. The District Court found and concluded
appellant's contemplated restaurant service would be contrary
to and in violation of paragraph 24 of the lease. A review
of the record does not warrant disturbing these findings and
conclusions and we therefore affirm the District Court on
this issue.
Arguments have been made in this appeal by the State
of Montana as amicus curiae that the covenant in paragraph
24 is illegal for anti-trust reasons. Our affirmance of the
District Court in this decision should not be construed as
a rejection of those arguments in any context but the one
presented by this appeal. In a factual situation more similar
to the situations of the case authorities discussed by amicus
the arguments relating to anti-trust would be more persuasive.
9"- +-
Judgment affirmed.
Q. J
--- ....................
Justice
We Concur:
/fhief Justice
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