City Products Corp. v. Berman, B-8521

CourtSupreme Court of Texas
Writing for the CourtPOPE
Citation610 S.W.2d 446
Parties1980-81 Trade Cases P 63,691 CITY PRODUCTS CORPORATION et al., Petitioners, v. Sydell BERMAN et al., Respondents.
Docket NumberNo. B-8521,B-8521
Decision Date10 December 1980

McMahon, Smart, Wilson, Surovik & Suttle, Stanley P. Wilson and Elizabeth Thompson, Jack Sayles, Abilene, Nunn, Griggs & Steakley, Charles R. Griggs, Sweetwater, for petitioners.

Berman, Fichtner & Mitchell, Harold B. Berman and Toby L. Gerber, Dallas, Mays, Moore, Dickson & Roberts, Johnny M. Moore, Sweetwater, for respondents.

POPE, Justice.

The question presented by this appeal is whether a covenant for noncompetition in a lease of the Ben Franklin Building in Colorado City, Texas, executed by the partners of A & I Levy Estates, a partnership, as lessors, was void because it violated the antitrust provisions of Section 15.02 of the Texas Business and Commerce Code. The trial court rendered judgment on a jury verdict, upholding the validity of the lease covenant. The court of civil appeals, with one justice dissenting, reversed the judgment in part and rendered judgment that the lease contract violated the antitrust laws. 579 S.W.2d 313. That court remanded the cause for the determination of damages on a crossaction. We reverse that part of the judgment of the court of civil appeals that held the covenant was void. We affirm that part of the judgment of the court of civil appeals holding that the plaintiffs cannot recover punitive damages.

In 1958 the Ben Franklin Building in Colorado City, Texas, was owned by the Estate of Abe Levy, the Estate of Ike Levy, and Max Berman. The owners executed a five-year lease on the building for use as a variety store. The lease contained this protective covenant:

(1) That the Landlord will not, during the term hereof, or any renewal or extension hereof, lease or permit to be used, any portion of the building in which demised premises are situated or any portion of any other building or premises controlled by the landlord located within one thousand (1000) feet of the herein demised premises, for any business similar to the business of the Tenant, that is to say, for any variety store or any business conducted under the name of a five and ten cent store, five cents to one dollar store, or similar name.

City Products Corporation was the successor in interest to Butler Brothers, the original lessee. City Products Corporation later subleased the store to Z. S., Inc. who intervened in this case on the side of the plaintiff, City Products Corporation. By supplemental agreements, the term of the original lease was extended three different times, the third agreement being executed on January 4, 1971.

The third supplemental agreement is the one that is brought into question by this suit as a combination in restraint of trade. That agreement contains a recital that the lessors and landlord had succeeded to all the right and title of those who had signed the original lease agreement. That document also recites that the landlord was nine named persons who were doing business as A & I Levy Estates, a Limited Partnership. Those nine named persons are Freda Levy, I. A. Loeb and Fannie Loeb, Max Berman and Sydell Berman, Morris L. Siegel and Helen Siegel, and William Sheridan and Hattie Sheridan. Each of the named persons signed the extension agreement as a general partner. Morris Siegel and William Sheridan signed the agreement as partners of A & I Levy Estates. They did not own any of the realty, but their wives owned an undivided separate estate in the property.

This controversy began when Max Berman, who had signed the supplemental agreement as one of its partners, leased a commercial building that he owned and which was located across the street from and within 1,000 feet of the Ben Franklin Building. In September, 1974, Max Berman leased the Berman Building to Perry Brothers, Inc. for the operation of a competing variety store.

City Products Corporation filed this suit to enjoin Berman and his tenant from violating the noncompetition agreement contained in the partnership's lease of the Ben Franklin Building. City Products Corporation also sued each of the partners who had executed the lease of the Ben Franklin Building. The defense by Berman and his tenant, Perry Brothers, Inc. was that the noncompetition covenant in the lease to City Products Corporation was a combination which violated the Texas antitrust statute. Berman and Perry Brothers, Inc. also asserted a counterclaim against the plaintiffs and a cross-claim against each of those who had joined with him as landlords in A & I Levy Estates' partnership lease.

The trial court rejected the defense by Berman and Perry Brothers, Inc. that the lease was a violation of the antitrust laws, and as to that part of the defense granted a summary judgment. After a jury trial of the remaining issues, the court enjoined Berman and Perry Brothers, Inc. from operating the Perry Brothers variety store within 1,000 feet of the Ben Franklin Building. The trial court also rendered judgment for punitive damages to City Products Corporation for thirty thousand dollars and to Z. S., Inc. for fifteen thousand dollars.

Our first question is whether the court of civil appeals erred in its holding that the third supplemental agreement is void because it violated Section 15.04 of the Texas Business and Commerce Code. Section 15.04 says that a trust, as defined in Section 15.02 of the Code, is illegal, void and unenforceable in law or equity. Section 15.02(b) says:

(b) A "trust is a combination of capital, skill or acts by two or more persons to

(1) restrict, or tend to restrict trade, commerce, aids to commerce, the preparation of tangible personal property for market or transportation, or the free pursuit of a lawful business; ....

(3) prevent or lessen competition in (A) the manufacture, transportation, sale or purchase of tangible personal property;

(7) refrain from engaging in business, or from buying or selling personal property, partially or entirely in this state.

While a covenant which restricts competition on the part of the lessor evidences a combination which might violate Sections (1), (3), and (7) of Article 15.02(b) of the Code, there are exceptions to the broad prohibitions of the antitrust laws. See generally 54 Am.Jur.2d, Monopolies, Restraints of Trade, and Unfair Trade Practices, §§ 511-541 (1971). This court held in Schnitzer v. Southwest Shoe Corporation, 364 S.W.2d 373, 374-75 (Tex.1963), that two merchants who owned adjoining property could not impose restrictions upon the tenant of one of them. The court, however, recognized that restraints in some situations are permissible. The court wrote:

One of the exceptional situations is that in which an owner, lessor or one in control of premises agrees with another person that the other person shall have an exclusive right or privilege on the premises or that the other person will sell on the premises only the products or merchandise of the owner or lessor. (Citations omitted.) Contracts or agreements of this character are upheld when they are collateral or incidental to a lawful lease or grant of premises in which the lessor or grantor has a property interest.

Under the Schnitzer exception, a lessor may impose upon himself a covenant not to compete with the lessee. A lessor also may, by a reasonably limiting covenant, agree that he will not use or permit the use of his other property by others, in competition with his lessee. Karam v. H. E. Butt Grocery Co., 527 S.W.2d 481 (Tex.Civ.App.-San Antonio 1975, writ ref'd n. r. e.); Neiman-Marcus Co. v. Hexter, 412 S.W.2d 915 (Tex.Civ.App.-Dallas 1967, writ ref'd n. r. e.); Edwards v. Old Settlers' Ass'n, 166 S.W. 423 (Tex.Civ.App.-Austin 1914, writ ref'd); Wheatley v. Kollaer, 63 Tex.Civ.App. 459, 133 S.W. 903 (1910, no writ).

The lease in this instance was executed by the partners of A & I Levy Estates as partners, rather than as owners of the realty. This is crucial in deciding the validity of the noncompetition covenant in the lease, because Morris Siegel and William Sheridan, while signing the lease as partners were not owners of the realty. Their wives were owners, but they were not. The partnership was the landlord and lessor of the Ben Franklin Store. The partnership was composed of all of those who signed the 1971 extension of the lease agreement. In this case, the existence of the partnership was found by the trial court, and there is evidence which supports that finding. Moreover, Max Berman, as one of the parties who signed the third supplemental agreement as a general partner, was estopped to deny the fact of partnership or that he, along with the others, signed it as a partner in A & I Levy Estates, a partnership. See, Box v. Lawrence, 14 Tex. 545 (1855); Mathews v. Sun Oil Co., 411 S.W.2d 561, 564 (Tex.Civ.App.-Amarillo 1966), aff'd, 425 S.W.2d 330 (1968); Woldert v. Skelly Oil Co., 202 S.W.2d 706 (Tex.Civ.App.-Texarkana 1947, writ ref'd n. r. e.); 31 C.J.S., Estoppel § 36.

A partnership may exist for the purpose of leasing properties over which it has control even though the partnership does not own the realty. Texas City Dike & Marina, Inc. v. Sikes, 500 S.W.2d 953, 956 ...

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