O'Neill v. Ferraro

• Decision Date: 21 March 1979
• Docket Number: No. 14238,14238
• Citation: O'Neill v. Ferraro, 596 P.2d 197, 182 Mont. 214 (Mont. 1979)
• Parties: Patrick O'NEILL, Plaintiff and Appellant, v. Ralph FERRARO, Nigel Jones, John R. Lavan and Blair Culter, Defendants and Respondents.
• Court: Montana Supreme Court

Page 197

596 P.2d 197

182 Mont. 214

Patrick O'NEILL, Plaintiff and Appellant, v.Ralph FERRARO, Nigel Jones, John R. Lavan and Blair CulterDefendants and Respondents.

No. 14238.

Supreme Court of Montana.

Submitted Dec. 18, 1978.

Decided Feb. 28, 1979.

Rehearing Denied March 21, 1979.

Heath, Kirwan & Duckworth, Bozeman, Peter Kirwan argued, Bozeman, for plaintiff and appellant.

Drysdale, McLean & Screnar, Bozeman, James A. McLean argued, Bozeman, for defendants and respondents.

Mike Greely, Atty. Gen., Helena, Charles Erdmann appeared, Asst. Atty. Gen., Helena, for amicus curiae.

SHEEHY, Justice.

Appellant O'Neill appeals from a declaratory judgment dated February 7, 1978, entered by the District Court of the Eighteenth Judicial District, Gallatin County.Appellant brought the action to determine the meaning and validity of a restrictive covenant in the respondents' lease.The District Court sitting without a jury found the covenant prevented appellant from operating a Mexican food restaurant on the same premises where respondents operated their restaurant.The court also found the covenant to be valid.

Respondents have been operating a restaurant, the Overland Express since 1973 in a portion of the first floor of the Bozeman Hotel, Bozeman, Montana.This operation was pursuant to a lease between respondents as tenants and the owner of the hotel as landlord dated February 13, 1973.The Bozeman Hotel no longer functions as a hotel, rather it now contains a collection of stores and shops.

Paragraph 24 of the lease between respondent and the landlord-owner provides:

"The Landlord will not permit a competing full restaurant service to be maintained at the Bozeman Hotel, without the express consent of Tenant, but it is agreed Landlord may maintain a breakfast-lunch type of food service at the hotel, which service may be supplied up to 24 hours per day, and it is agreed that Landlord may provide limited or irregular food service, either by itself or catered, to the downstairs facility, now known as 'The Underground'."

Appellant sublet from Dark Horse, Inc., a portion of the basement of the Bozeman Hotel for use as a Mexican food restaurant known as Rose's Cantina.Dark Horse, Inc., leases the basement of the Bozeman Hotel known as The Underground from the landlord.

The lease between Dark Horse, Inc. and the landlord noted that Dark Horse, Inc. intended to operate a Mexican food restaurant on the premises, and noted that respondents had indicated such an operation would violate its lease with the landlord.The lease between Dark Horse, Inc. and the landlord provided that no food service may be conducted by the tenant without the written consent of respondents.

The sublease between appellant and Dark Horse recited the above provisions of the lease between Dark Horse and landlord and the pertinent provisions of the lease between respondents and landlord.The lease then indicated Rose's Cantina could operate a Mexican food service between the hours of 11:00 a. m. and 3:00 p. m. so long as respondents' restaurant was not open to the public during the same hours.In the event appellant wished to operate at other times, it had to obtain written consent from respondents or seek a declaratory judgment pursuant to the landlord-Dark Horse, Inc. lease.

Appellant filed his complaint for a declaratory judgment and a trial without a jury was held.Testimony at the trial produced the following relevant facts.Both establishments have or would have a nice, casual decor and patrons of each are or would be served at tables by waitresses or waiters.The food in each establishment is or would be prepared out of sight of the customers.The two establishments would share the same parking facilities at the Bozeman Hotel.Appellant's business would be open from 11:00 a. m. to 11:00 p. m. Monday through Saturday.Respondents' restaurant is open from either 5:00 or 5:30 p. m. until 10:00 or 11:30 p. m. every day of the week.The menus and price range of the menu items are different for each establishment.Appellant would serve only Mexican food items and the most expensive item would cost about $4.00.Respondents serve steak and seafood, none of which appears on appellant's proposed menu, and which range in price from $5.00 to $13.95; respondents testified the average diner would spend $6.50 in the Overland Express excluding bar items.The landlord testified his impression of the drafting of paragraph 24 was to prevent another restaurant similar to the Overland Express from opening in the Bozeman Hotel.Respondent testified upon cross-examination his intent in negotiating the lease and the particular paragraph in question was to prevent competition with him in the Bozeman Hotel.

The District Court upon conclusion of the trial found:

"That the object of paragraph 24 between the (respondents) and (the landlord) was to prevent (the landlord) from permitting a restaurant service at the Bozeman Hotel of the same type as provided by (respondents) at the Overland Express, and to limit competition in such a restaurant service, but (the landlord) was to be allowed to operate a breakfast- lunch food service and the limited or irregular food service which it was providing in the downstairs facility, that is, Sunday buffets and irregular banquets."

The validity of the covenant itself was raised by the appellant in his trial brief and appellate brief.The District Court in a memorandum supporting its findings and conclusions upheld the validity of the covenant.

Two issues are presented to this Court on appeal.First, whether the restrictive covenant contained in paragraph 24 of respondents' lease is valid.Second, if the covenant is valid, whether it is applicable to the restaurant appellant seeks to open in the Bozeman Hotel.We conclude, for the reasons set forth below, the District Court was correct in holding the covenant valid and in holding appellant's restaurant was barred by that covenant.

Appellant has argued the covenant contained in paragraph 24 of the lease is a violation of section 13-807, R.C.M. 1947, now section 28-2-703 MCA which declares void those contracts restraining anyone from ...