Mann v. Cherry, Bekaert and Holland

• Decision Date: 16 April 1982
• Citation: 414 So.2d 921
• Parties: 1982-2 Trade Cases P 64,826 William C. MANN v. CHERRY, BEKAERT AND HOLLAND, et al. 80-666.
• Court: Alabama Supreme Court

Page 921

414 So.2d 921

1982-2 Trade Cases P 64,826

William C. MANN v.CHERRY, BEKAERT AND HOLLAND, et al.

80-666.

Supreme Court of Alabama.

April 16, 1982.

Rehearing Denied May 28, 1982.

Arthur Green, Jr. of Paden, Green & Paden and Ralph L. Armstrong, Bessemer, for appellant.

Walter J. Sears, III of Bradley, Arant, Rose & White, Birmingham, for appellees.

ADAMS, Justice.

This appeal comes to us from the Circuit Court for Jefferson County.The dispute between the parties involves the validity of a contract for the purchase and sale of an accounting practice.The contract contained a mutual non-competition covenant.Although the trial court held that the non-competition covenant was void under Code 1975, § 8-1-1, it, nevertheless, upheld the remainder of the contract, thereby requiring William C. Mann(defendant) to pay Cherry, Bekaert & Holland (plaintiff) the agreed purchase price.From that judgment, the defendant appealed.

The dispositive issue on this appeal is whether a contract for the sale of an accounting practice that contains an invalid covenant not to compete, is, nevertheless, valid as to the sale of the practice.We hold that it is, and thereby affirm the judgment of the trial court.

The facts pertinent to this appeal are as follows.Defendant, a certified public accountant, was admitted as a partner into the plaintiff firm, and joined its Birmingham, Alabama, office in 1970.In 1974the parties agreed to end their partnership.A contract was negotiated and executed that allowed defendant to purchase the physical assets of his former Bessemer, Alabama, office and also the practice of that office.After some negotiation, the parties agreed on the price of $74,527.00, for which the defendant could purchase his former practice.The parties agreed to separate prices for the defendant's purchase of the office furniture, fixtures, leasehold improvements, accounts receivable, and work in progress.Both parties agreed that $74,527.00, was a reasonable price for the Bessemer practice.The purchase price was offset by the value of defendant's interest in the partnership.The result, after offsetting, was an agreed upon purchase price of $39,231.72.The parties agreed upon installment payments over a ten-year period beginning on January 20, 1975.

The contract included covenants by which the parties promised not to compete with each other.The parties stipulated that neither has violated those provisions.Defendant signed a note in the amount of $39,231.72, in accordance with the contract.He made payments on the note until September 15, 1978.At that time the defendant concluded that the non-competition covenants rendered the contract void.He stopped making payments.The plaintiff brought suit and received a judgment for $43,495.63, which represents the remaining balance due on the note and attorney's fees as provided for under its terms.

Although several analyses would yield the same result, the following analysis is sufficient to reach the correct decision.The parties submitted stipulations of fact in lieu of testimony.Because oral evidence was not taken, the usual presumptions favoring the trial court's findings do not apply.Instead, this court"sits in judgment on the evidence."Hacker v. Carlisle, 388 So.2d 947 at 950(Ala.1980);McCulloch v. Roberts, 292 Ala. 451, 296 So.2d 163(1974);Redwine v. Jackson, 254 Ala. 564, 49 So.2d 115(1950).Our review of the stipulations of fact and documents reflecting pre-contract negotiations does not reveal anything to lead us to conclude that the final terms of the contract do not reflect the true intentions of the parties.¹Therefore, our review turns to the pertinent provisions of the contract.

Paragraph four states the following:

4.The Firm hereby sells, transfers, assigns and conveys unto Mann the clients of the Bessemer, Alabama office of the Firm as shown on the list attached hereto as Exhibit A (hereinafter referred to as the "Bessemer practice") for the sum of SEVENTY-FOUR THOUSAND FIVE HUNDRED TWENTY-SEVEN AND NO/100 DOLLARS ($74,527.00).[Exhibit omitted from opinion.]

Paragraphs five, seven, and eight also note that the purchase price is for the sale of the Bessemer office.Paragraph 18 contains plaintiff's covenant not to compete with the Bessemer office:

18.The Firm covenants and agrees that it will not provide accounting or tax services for any clients on the attached list without Mann's approval for a period of 120 months after the effective date of this Agreement.The payment by Mann to the Firm of the SEVENTY-FOUR THOUSAND FIVE HUNDRED TWENTY-SEVEN AND NO/100 DOLLARS ($74,527.00) for the Bessemer practice is taxable income to the Firm and is paid to the Firm in exchange for the Firm's covenant not to compete with Mann as to the clients listed in Exhibit A.

Paragraph 19 contains a similar non-competition covenant by the defendant:

19.Mann covenants and agrees that he will not provide accounting or tax services to any clients of the Firm's offices in Alabama for a period of 120 months after the effective date of this Agreement.The payment by the Firm to Mann of the THIRTY-FIVE THOUSAND TWO HUNDRED NINETY-FIVE AND 28/100 DOLLARS ($35,295.28) is taxable income to Mann and is paid to Mann in exchange for his covenant not to compete as to any clients of the Firm's Alabama office as well as in full settlement of his partnership interest in the Firm.

The above-quoted paragraphs show that initially the consideration for the contract is stated in paragraph four as being the sale of the client list for the Bessemer office.However, paragraphs 18 and 19 recite that the non-competition covenants also are part of the consideration.Defendant argues that no contradiction or ambiguity exists between these paragraphs, and that the sale of the client list and the non-competition agreements are but one single consideration.He theorizes, therefore, that because Code 1975, § 8-1-1(a), prevents one from being restrained by contract from exercising a lawful profession, the contract is void.Code 1975, § 8-1-1(a), provides:

Every contract by which anyone is restrained from exercising a lawful profession, trade or business of any kind otherwise than is provided by this section is to that extent void.

A certified public accountant is a professional within the meaning of that section.Thompson v. Wiik, Reimer & Sweet, 391 So.2d 1016(Ala.1980);Gant v. Warr, 286 Ala. 387, 240 So.2d 353(1970)(construingCode 1940 (Recompiled 1958), Tit. 9, § 22 et seq., the predecessor of Code 1975, § 8-1-1).

We agree with defendant that the above-quoted paragraphs of the contract are neither ambiguous nor contradictory.However, our agreement with the defendant ends there.We cannot accept the proposition that the agreement to buy the client list and the non-competition covenants are one and the same.It certainly is possible that the list could be sold without the agreements not to compete.We are of the opinion that a fair reading of the contract indicates that both are separate elements that entered into the total consideration.Because these are separate elements of consideration, the contract is not totally void under § 8-1-1(a).Only the non-competition covenants are void under that section.Defendant's apparent arguments to the contrary are not persuasive.The mere inclusion of a non-competition covenant in a contract in violation of § 8-1-1(a) does not necessarily render the entire contract void.The very wording of the statute says that such a contract "is to that extent void."That language is clear and unambiguous and, therefore, leaves no room for judicial construction.Town of Loxley v. Rosinton Water, Sewer and Fire Protection Authority, Inc., 376 So.2d 705(Ala.1979).Defendant cites Thompson v. Wiik, Reimer & Sweet, 391 So.2d 1016(Ala.1980), andBurkett v. Adams, 361 So.2d 1(Ala.1978), in support of his argument that the entire contract is void due to the inclusion of the non-competition covenants.Those cases do not support defendant's argument.Thompson v. Wiik, Reimer & Sweet, presented the following fact situation:

After an initial down payment to the sellers of $10,000.00 on October 1, 1971, the Appellees agreed to make monthly payments of twenty per cent of all accounting fees paid to the Appellees by ex-clients of the McCrary and Thompson partnership.These monthly payments were to commence in January of 1972 and were to continue until December 10, 1977.The contract specifically provided that "... no portion of the total consideration ... is to be treated as a payment for 'goodwill' ... and that ... with the exception of the allocation of $8,200.00 [for the physical assets] the remaining portion of all considerations ... shall be regarded as payment for the covenant not to compete ...."

Thompson v. Wiik, Reimer & Sweetat 1017(footnote omitted).That situation is materially different from the instant case.There, the sole consideration (except for the sale of the physical assets) was the covenant not to compete.Under § 8-1-1, that part of the agreement would fail in its entirety because there was no other lawful basis to the contract.Burkett v. Adams specifically recognizes that an agreement with a covenant not to compete, in violation of § 8-1-1(a), otherwise may be valid.Burkett v. Adams, 361 So.2d 1 n. 1.Defendant's argument is, therefore, without merit.

Next, defendant contends that his purchase of the client list is useless unless he can prevent plaintiff from competing for these clients.This argument also assumes that there is but one element of consideration for the contract, and, therefore, the contract is void under § 8-1-1(a).In effect, ...