Herring Gas Co., Inc. v. Whiddon

• Decision Date: 25 March 1993
• Docket Number: No. 90-CA-1140,90-CA-1140
• Citation: 616 So.2d 892
• Parties: HERRING GAS COMPANY, INC. v. C. Gaston WHIDDON d/b/a South Mississippi LP Gas Company.
• Court: Mississippi Supreme Court

Page 892

616 So.2d 892

HERRING GAS COMPANY, INC. v. C. Gaston WHIDDON d/b/a South Mississippi LP Gas Company.

No. 90-CA-1140.

Supreme Court of Mississippi.

March 25, 1993.

John L. Maxey, II, S. Mark Wann, Maxey Pigott Wann & Begley, Jackson, for appellant.

William E. Andrews, III, Purvis, for appellee.

Before HAWKINS, P.J., and McRAE and ROBERTS, JJ.

McRAE, Justice, for the Court:

This appeal challenges the final decision and judgment of the Chancery Court of Lamar County holding that the covenant not to compete executed by C. Gaston Whiddon, seller of a retail LP gas business to Curtis J. Dufour, III, was not enforceable by a subsequent purchaser. Finding error in the chancellor's application of pertinent legal standards, the case is reversed and rendered as to liability and remanded for a trial on damages, if any, due to Herring Gas Company, Inc.

FACTS

On August 31, 1987, Curtis J. Dufour, III, (Dufour) purchased Gaston's LP Gas Company, Inc. (Gaston's LP), a corporation, whose sole shareholder was C. Gaston Whiddon (Mr. Whiddon). The purchase contract executed by Mr. Whiddon, Gaston's LP, Dufour and Betty Whiddon (Mrs. Whiddon), provided, inter alia, the following:

WHEREAS, C. Gaston Whiddon has administered the business since inception and a large part of the success of the business is based on his reputation and it is extremely important to the viability of the business that C. Gaston Whiddon lend his verbal support and experience to the benefit of Gaston's LP Gas Company, Inc. for a stated period of time and that C. Gaston Whiddon covenant not to compete with Gaston's LP Gas Company, Inc. for a reasonable period of time and in a reasonable area;

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Seller shall lend his support to Gaston's LP Gas Company, Inc. and encourage the patronization of Gaston's LP Gas Company, Inc. by old and prospective customers for, at least, the next nine (9) years. Seller further agrees not to compete, directly or indirectly, as owner, employer, officer, director, consultant, representative, or agent of any entity with Gaston's LP Gas Company, Inc. in South Mississippi (defined as Mississippi south of Interstate Highway 20) for nine (9) years after closing. Seller understands that his support and lack of competition is important to the continued viability and progress of the business of Gaston's LP Gas Company, Inc. and agrees that the restriction on competition in South Mississippi and for nine (9) years is reasonable in terms of distance and time and is necessary to assure that Purchaser gets that for which he paid.

As a part of the purchase contract, Dufour agreed to continue the employment of Mrs. Whiddon for a term of nine (9) years at a stated salary of $33,000.00 per annum, and to provide her with certain fringe benefits.

On April 30, 1990, Dufour, Gaston's LP, Mr. Whiddon and Mrs. Whiddon executed an amended contract which released Gaston's LP and Mrs. Whiddon from the employment contract set out in the purchase agreement of August 31, 1987; provided for payment to Mrs. Whiddon the sum of $135,000.00 in cash; and released Mr. Whiddon, Mrs. Whiddon, Gaston's LP and Dufour from "any and all other obligations under their covenants not to compete with Gaston's LP Gas Company, Inc. except that covenant not to engage, directly or indirectly, as sole proprietor, partner, officer, director, employee, or advisor in the retail sales and/or distribution of liquified petroleum gas or otherwise compete with said liquified petroleum retailer in South Mississippi, defined as the entire state of Mississippi, south of U.S. Highway 80, at any time within two (2) years of the date of this instrument."

On May 1, 1990, the retail LP gas business was sold to Herring Gas Company WHEREAS, Herring Gas Co., Inc. wishes to purchase said liquified petroleum gas retail business; and

Inc. (Herring), pursuant to a contract which provided, inter alia:

WHEREAS, Gaston's LP Gas Co., Inc. wishes to sell said liquified petroleum gas retail business; and

WHEREAS, Gaston's LP Gas Co., Inc. and Herring Gas Co., Inc. have agreed upon mutual consideration to be exchanged in the sale and purchase of said liquified petroleum gas retail business;....

When the retail LP business was sold to Herring, Dufour retained the corporate entity and subsequently changed its name.

Shortly after the purchase, Herring learned that Mr. Whiddon was preparing to re-enter the retail LP gas business within the area restricted by the provisions of the amended contract executed by Dufour, Gaston's LP and Mr. Whiddon on April 30, 1990. Dufour and Herring notified Mr. Whiddon that they objected to his re-entry into a competing retail LP gas business within the restricted area. The objections were unheeded by Mr. Whiddon, resulting in the present action by Herring, who sought a declaratory judgment against Mr. Whiddon and requested that the court find Mr. Whiddon's action violated his covenant not to compete. Further, he sought an injunction prohibiting any action by Mr. Whiddon violative of his covenant. The chancellor, upon conclusion of the evidence, denied the relief sought by Herring, dismissed the complaint, awarded Mr. Whiddon $1,250.00 as a contribution toward his attorney's fees, and assessed Herring with all court costs. The court's final judgment recites, inter alia:

By the specific wording of the contractual agreements between Whiddon and Dufour the covenant not to compete was personal to Gaston's LP Gas Company, Inc. The specific wording of the contracts are restrictive and limited the non-competition covenant to and for the benefit of Gaston's LP Gas Company, Inc., only. The law requires a strict construction of covenants not to compete and that coupled with the specific language of the agreement clearly reflects that the Plaintiff may not now seek to enforce the covenant against Whiddon.

Herring appeals, asserting that Mr. Whiddon's covenant not to compete was assignable, was transferred to, and is enforceable by Herring as a result of its purchase of the LP retail gas business from Gaston's LP.

LAW

Our appellate review is limited by familiar rules. This Court will not disturb the findings of a chancellor when supported by substantial evidence unless the chancellor abused his discretion, was manifestly wrong, clearly erroneous or an erroneous legal standard was applied. Bowers Window and Door Co., Inc. v. Dearman, 549 So.2d 1309, 1313 (Miss.1989); Bullard v. Morris, 547 So.2d 789, 791 (Miss.1989); Johnson v. Hinds County, 524 So.2d 947, 956 (Miss.1988); Gibson v. Manuel, 534 So.2d 199, 204 (Miss.1988); Bell v. City of Bay St. Louis, 467 So.2d 657, 661 (Miss.1985).

Herring places its principal reliance for reversal on our ruling in Cooper v. Gidden, 515 So.2d 900 (Miss.1987). In Cooper, Blackwell Sand Company, a sand and gravel business, was sold to Cooper in 1976. In 1981, Cooper sold the business to Larry Stewart. The purchase by Stewart from Cooper was two-fold in nature: (1) a lease of certain property; and (2) a sale of the company including its property, name and goodwill.

The purchase agreement contained a covenant not to compete. This covenant provided that Cooper would not enter the said business within one hundred (100) miles of Meridian, Mississippi, for a period of ten (10) years from and after the date thereof; and during said period of time Cooper would not directly or indirectly be employed by, advise with, consult with or in any manner lend aid, advice or assistance to any other person, firm or corporation engaged in the same business.

In 1982, Stewart assigned his interest in the company and business to Gidden. Later As a general annunciation of the law of assignments, in regards to covenants not to compete in the sale of a business, it has been stated that:

Cooper made preparations to re-enter the sand and gravel business and Gidden sought relief via chancery injunction. The trial court determined that Cooper's covenant inured to the benefit of Gidden as Stewart's assignee and that Cooper breached the covenant. Cooper was enjoined from proceeding in violation of his covenant. We affirmed the chancellor's decision and stated:

Assignability of Rights Against Competition

There are many cases in which the vendor of a business contracts with the vendee not to open a competing business. Such a promise may be implied from the fact that "goodwill" is included in the sale. The right that the vendee thus obtains against the vendor is itself assignable to a new vendee along with the business. It is not necessary that the original transfer should have been expressly made to the vendee "and his assigns"; nor is it necessary that on the sale to a new vendee the right that the original vendor shall not compete shall be specifically mentioned. The intention that it shall be included in the goodwill and shall go along with the business may readily be inferred. When the right exists, it can ordinarily be specifically enforced by injunction. (emphasis added)

4 Corbin on Contracts Sec. 885, p. 555 (1951). Thus, on subsequent re-sale of a business, all contractual rights received by an original purchaser, including the goodwill of the company, could be validly assigned. 38 Am.Jur.2d Goodwill Sec. 11 (1968).

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... A covenant not to compete will be given general application unless, by its own terms, it specifically expresses an intent that it be a personal covenant flowing only to the original obligee. Thomas v. McCrery, 147 So.2d 467, 469 (La.1963). An agreement by a seller of his business and goodwill to refrain from competing with the buyer is not personal unless specifically made so, but inures to the benefit of one to whom it is assigned with the business. Knowles v. Jones, 182 Ala. 187, 62 So. 514 (1913)....

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After reviewing the present case, we are confident that Cooper entered into a valid covenant not to compete, reasonable as to both time and geographic location, as was found by the chancellor....