Hawkins Chemical, Inc. v. McNea

• Decision Date: 09 July 1982
• Docket Number: No. 10164,10164
• Citation: 321 N.W.2d 918
• Parties: HAWKINS CHEMICAL, INC., Plaintiff and Appellant, v. Lloyd McNEA, R. F. Saunders, Dakco Distributors, Inc., and Mon-Dak Chemical and Supply Co., Defendants and Appellees. Civ.
• Court: North Dakota Supreme Court

Page 918

321 N.W.2d 918

HAWKINS CHEMICAL, INC., Plaintiff and Appellant, v. Lloyd McNEA, R. F. Saunders, Dakco Distributors, Inc., and Mon-Dak Chemical and Supply Co., Defendants and Appellees.

Civ. No. 10164.

Supreme Court of North Dakota.

July 9, 1982.

Pringle & Herigstad, Minot, for plaintiff and appellant; argued by Jan Sebby, Minot.

Eaton, Van de Streek & Ward, Minot, for defendants and appellees, R. F. Saunders, Dakco Distributors, and Mon-Dak Chemical and Supply Co.; argued by Jonathan C. Eaton, Jr., Minot.

McGee, Hankla, Backes & Wheeler, Minot, for defendant and appellee Lloyd McNea; argued by Robert A. Wheeler, Minot.

PEDERSON, Justice.

The issues presented upon this appeal are:

(1) Whether an over-broad, non-competition agreement is void or valid, but should be enforced only in a one-county area as permitted by statute.

(2) Whether or not there is an obligation to pay for an over-broad, non-competition agreement if it is held to be void. We conclude that the non-competition agreement in this case is not void but is, instead, enforceable in Ward County. We further conclude that Hawkins is obligated to pay the remaining sum due under the contract. The judgment is reversed in part, affirmed in part, and remanded for appropriate action.

This action has been before us previously on a procedural matter. See Hawkins Chemical, Inc. v. McNea, 319 N.W.2d 152 (N.D.1982).

Hawkins purchased Mon-Dak Corp., a wholly owned subsidiary of Dakco, in 1979. As consideration for Hawkins to purchase Mon-Dak, the owners thereof, McNea and Saunders, entered into a non-competition agreement. They agreed that for the period commencing March 1, 1979 and terminating on February 28, 1987, they would not, together or individually, engage, directly or indirectly, in any business competitive with Mon-Dak in the states of Montana, North Dakota, South Dakota, Minnesota, Iowa and Wisconsin. This non-competition agreement was a separate agreement from the contract for the sale of Mon-Dak's assets, and a separate price was assigned to each contract. The price for the non-competition agreement was $218,000, of which $50,000 was paid as a down payment with remaining annual installment payments of $56,000 for three years. The non-competition agreement states in part: "in the event the agreement not to compete is breached, other than a breach by Lloyd McNea, that Hawkins shall have no further obligation to pay any part of the then unpaid balance owing by Hawkins under this non-compete agreement ..." Thus, the agreement provided that Hawkins would still be liable for the remaining balance due under the agreement notwithstanding any possible breach by McNea.

In December 1979 McNea commenced a chemical sales and distribution business which he is carrying on in several cities and counties within the State of North Dakota. He maintains his principal office and merchandise warehouse in Ward County, North Dakota.

This action was commenced by Hawkins to enjoin McNea from engaging in any business competitive to Hawkins pursuant to the non-competition agreement. In the alternative, Hawkins sought a declaratory judgment to adjudge that he was not obligated to pay the stated consideration for the non-competition agreement. He also sought a return of his down payment. McNea, in a separate answer, alleged that the non-competition agreement was void and unenforceable. Saunders, in a separate answer, alleged that no liability could accrue to him on account of any conduct by McNea in breach of the non-competition agreement. Saunders also counterclaimed for the remaining balance due for the non-competition agreement. The district court held that the non-competition agreement was invalid under North Dakota law and was, therefore, unenforceable. The district court also concluded that McNea's violation of the non-competition agreement did not suspend Hawkins' obligation to pay for the agreement. This appeal followed.

Section 9-08-06, NDCC, states:

"Every contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is to that extent void, except:

"1. One who sells the good will of a business may agree with the buyer to refrain from carrying on a similar business within a specified county, city, or a part of either, so long as the buyer or any person deriving title to the good will from him carries on a like business therein." [Emphasis added.]

Section 9-04-03, NDCC, provides:

"When a contract has but a single object, and such object is unlawful in whole or in part, or wholly impossible of performance, or so vaguely expressed as to be wholly unascertainable, the entire contract is void."

Hawkins concedes that the non-competition agreement is too broad to be enforced in North Dakota but, nevertheless, insists that it can be judicially reformed to restrict McNea from competing in Ward County.

In Mandan-Bismarck Livestock Auction v. Kist, 84 N.W.2d 297 (N.D.1957), this court held that an entire contract which contained a non-competition clause covering a two-county area was void. That case, however, was distinguished in Igoe v. Atlas Ready-Mix, Inc., 134 N.W.2d 511 (N.D.1965), where this court held that a contract containing a non-competition agreement covering both Mandan and Bismarck can be enforced in Bismarck. Justice Erickstad, who authored that opinion, wrote:

"We do believe, however, that, under the circumstances of this case, where the contract has been fully performed so that the seller has reaped the...