Bicycle Transit Authority, Inc. v. Bell, 324 S.E.2d 863

Bicycle Transit Authority, Inc. v. Bell

324 S.E.2d 863

N.C. Ct. App.

1985

Check Treatment

Lead Opinion

WELLS, Judge.

Summary judgment is appropriate when there is no genuine issue of material fact. N.C. Gen. Stat. § 1A-1, Rule 56(c) of the Rules of Civil Procedure (1983). When a contract is in writing and free from ambiguity, such that no disputed facts exist, the intention of the parties becomes a question, of law for the court. Lane v. Scarborough, 284 N.C. 407, 200 S.E. 2d 622 (1973). If the writing leaves it uncertain as to the true agreement, however, what was meant by the parties may be made certain by parol evidence and the question is for the findеr of fact. Cleland v. Children’s Home, 64 N.C. App. 153, 306 S.E. 2d 587 (1983). The fact that both parties have moved for summary judgment does not necessarily mean that summary judgment should be granted. See Id.; Steinberg v. Adams, 90 F. Supp. 604 (S.D.N.Y. 1950) (under similar federal rule). “Whether or not a genuine issue of material fact exists is a determination for the court, not the parties, and the fact that the parties may have thought there was no material fact in issue is in no way controlling.” Cram v. Sun Insurance Office, Ltd., 375 F. 2d 670 (4th Cir. 1967); see also Soley v. Star & Herald Co., 390 F. 2d 364 (5th Cir. 1968) (error to overlook factual issue). We believe there was a factual issue as to whether Bell’s entering into the lease with Snook constituted direct or indirect contract with, or association with, competition in violation of the contract. Summary judgment was therefore improperly granted.

Thе prerequisites for validity and enforceability of covenants not to compete have been discussed at length elsewhere and need not be repeated here. See A.E.P. Industries v. McClure, 308 N.C. 393, 302 S.E. 2d 754 (1983); Jewel Box Stores v. Morrow, 272 N.C. 659, 158 S.E. 2d 840 (1968). Under North Carolina law, the reasonablеness of such covenants is a matter of law for the court to decide. Id. The court here did not rule that the covenant was unreasonable (nor do defendants so contend), only that Bell did not ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍violate it in leasing to Snoоk. Since the reasonableness of the covenant depends on the circumstances of the case, Id., which *581have not been fully developed, we will confine our examination to the question decided, whether Bell’s сonduct constituted a breach of that covenant. This requires interpretation of the contractual language “be associated with” or “be under contract with.”

Defendants argue that covenants not to comрete are not favored and that the contractual language should therefore be strictly construed against plaintiff. Our review of the modern cases indicates that North Carolina has shown increasing willingness, in light of modern business conditions, to recognize and enforce such covenants. A.E.P. Industries v. McClure, supra; Enterprises, Inc. v. Heim, 276 N.C. 475, 173 S.E. 2d 316 (1970). Rather than apply rules of strict construction, our supreme court has given such covenants “reasonable аnd fair” construction. Jewel Box Stores v. Morrow, supra. We are aware of one recent North Carolina case using a rule of strict construction, but that resulted from application of Georgia law as lex loci contractus. Wallace Butts Ins. Agency v. Runge, 68 N.C. App. 196, 314 S.E. 2d 293 (1984). Giving the cited contractual language a reasonable and fair construction, we conclude there was at least a jury question whether Bell’s conduct fell within the contractual anti-competitive provisions.

First of all, it is well established that a lease is a сontract, or at least an “association.” Bell’s lease agreement with Snook specifically recognized that Snook would operate a bicycle business in the other half of the building. Bell gave Snook a substantial business concession by allowing him to postpone payment of rent. The record does not reflect what constitutes typical commercial rents in Carrboro; the evidence at trial may well show that Snook received preferential treatment here as well. Moreover, the lease contained an option provision, exercisable during plaintiffs occupancy, allowing Snook to purchase the entire building. Taking this evidence in the light most favorable to plaintiff, we conclude that summary judgment for Bell on this issue was incorrectly granted. Since the claims of the other defendants ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍arise under the same contract and are identical with Bell’s, and since it is well established that breach by Bell оf his promise would justify non-performance by plaintiff, summary judgment in their favor was also incorrjfcV'C.

Kramer v. Old, 119 N.C. 1, 25 S.E. 813 (1896), does not require a different result. There the plaintiff purchased a milling *582business and the three defendant sellers contracted not to “continue business of milling.” The supreme court held that this language forbade defendants from taking stock in, organizing or managing a rival mill. The court continued:

While the courts will not restrain a party bound by such a contract from selling or lеasing his premises to others to engage in the business which he has agreed to abstain from carrying on, or from selling to them the machinery or supplies needed in embarking in it (Reeves v. Sprague, 114 N.C. 647), a different rule must prevail when it appears that the prohibited party attempts, not to sell outright to others, but to furnish the machinery or capital, or a portion of either, in lieu of stock, in a corporation organized with a view to competition with the person prоtected by his contract against such injury. The three contracting defendants have presumably received the full value of the business sold, and which is protected by their own agreement against their own competition, and equity will not allow them, with the price in their pockets, to evade their contract under the thin guise of becoming the chief stockholders in a company organized to do what they can not lawfully do as individuals.

Id. The contract in Kramer, as in the Reeves case cited, precluded engaging in the same business', the contract here is not “such a contract,” Kramer v. Old, supra, but precludes а broader range of activities. As suggested above in Kramer, a court of equity will in any event look behind the mere form of subsequent dealings by the seller to enforce the spirit of the agreement. See also Reeves v. Sprague, supra (court considered enjoining non-рarty, but insufficient proof). The record here contains a sufficient forecast of evidence to show genuine issues of material fact.

For the foregoing reasons, summary judgment was improperly granted. The order is reversed ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍and the cause remanded for further proceedings consistent with this opinion.

Reversed and remanded.

Judge BECTON concurs. Judge Arnold dissents.

Dissenting Opinion

Judge Arnold

dissenting.

I respectfully dissent from the majority’s decision for the following reasons. The majority states that Bell’s conduct raises, at least, a jury question regarding whether his conduct violated the agreement’s anti-competition provision. However, as the majority points out in their statement of the facts, the parties stipulated, at the hearing on the motions for summary judgment, that the only issue to be decided was whether Bell’s leasing of property to plaintiffs competitor violated the terms of the agreement. This is a question of law, not a question of fact, and, therefore, I believe that thе majority improperly concluded that a genuine issue of material fact existed for a jury to decide.

Furthermore, I believe the trial judge properly concluded that Bell’s conduct did not violate the anti-comрetition agreement. Covenants in restraint of trade are in direct derogation of our common law, and as such are generally disfavored, even so, our courts have recognized that they are necessary to preserve the value of the intangible assets of good will within a business. See, Kramer v. Old, 119 N.C. 1, 25 S.E. 813 (1896). In order for such a covenant to be valid it must be reasonably necessary to protect the legitimate interest of the purchaser, must be reasonable with respect to time and territory, and must not interfere with the interest of the public. Jewel Box Stores v. Morrow, 272 N.C. 659, 158 S.E. 2d 840 (1968). Such covenants should be strictly construed, and they should receive a construction that will effectuate the intention of the parties, and the parties’ intentions are to be determined by considering the whole of the covenants, rather than selected parts. Faust v. Rohr, 166 N.C. 187, 81 S.E. 1096 (1914).

Viewing the agreement as a whole, it is clear that it was the intention of the parties to prevent the sellers from engaging either directly or indirectly in a business which was in competition with the plaintiff. Research has revealed no North Carolina case which has decided whether the leasing of property tо a competitor is a violation of a promise not to compete indirectly with a covenantee, however, the following cases may be helpful in making such a determination. In Kramer v. Old, 119 N.C. 1, 25 S.E. 813 (1896), the defendants sold their milling business to thе plaintiff and entered into a covenant that they would “not continue in *584the milling business.” Defendants later secured stock in another milling company. Our Supreme Court found that such an acquisition was in violation of the covenant, but in diсta the court stated that “the courts will not restrain a party bound by such a contract from selling or leasing his premises to others to engage in the business which he has agreed to abstain from carrying on, or from selling to them the mаchinery or supplies needed in embarking in it. . . .” Id. at 12, 25 S.E. at 815.

Our Supreme Court has also found that it was not a violation of a covenant not ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍to compete for a covenantor to sell part of his inventory to a third party, see, Jefferson Reeves & Co. v. Sprague, 114 N.C. 647, 19 S.E. 707 (1894), and, that it wаs not a violation of such a covenant for a covenantor to loan money to start a new firm to engage in competition with the covenantee. See, Finch Brothers v. Michael, 167 N.C. 322, 83 S.E. 458 (1914).

Plaintiff argues that these cases are not dispositive of this issue, because the covenants involved in those cases were not as broad or as specific as the covenant in the case sub judice. Instead, it urges acceptance of the reasoning of the California Court of Appeals found in Dowd v. Bryce, 95 Cal. App. 2d 644, 213 P. 2d 500 (1950). In Dowd the court found that the defendant’s leasing of land to one of plaintiffs competitors was a violation of an agreement not to indirectly compete with the plaintiff since it was “one link in thе chain which creates the very competition which it was the object of the clause ... to prevent.” Id. at 647, 213 P. 2d 502.

The reasoning of Dowd is inapposite here because the covenant which the parties signed was much broader than in the case at bar in that the parties specifically had agreed that the seller would not sell any real property to a competitor of or one contemplating becoming a competitor of the cоvenantee. The agreement evidences an intention by the parties to prevent any actions which might subject the covenantee to any form of competition. Such is not the case in the agreement entered into between plaintiff and the defendants.

Based upon the reasoning of our Supreme Court in the cases cited herein and the parties’ intent as evidenced by the agreement, I conclude that the agreement entered into between the plaintiff and the defendants does not prohibit Bell from leasing *585property to a competitor of the plaintiff. Therefore, I find no error in the trial court’s denial of plaintiffs Motion for Summary Judgmеnt.

Plaintiff also' argues that the judgment is improper because it awards the defendants Triplette and Lewis a judgment for the accrued interest even though they had not counterclaimed for such a judgment. The record reveals that plaintiff is correct in its ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍assertion that Triplette and Lewis have not counterclaimed for the interest due. The judgment, therefore, should be modified to award only defendant Bell a judgment for the principal sum of $4,500 and interest thereon as set forth in the judgment.