Quadro Stations, Inc. v. Gilley, 7021SC5

• Decision Date: 25 February 1970
• Docket Number: No. 7021SC5,7021SC5
• Citation: 172 S.E.2d 237,7 N.C.App. 227
• Court: North Carolina Court of Appeals
• Parties: , 1970 Trade Cases P 73,144 QUADRO STATIONS, INC. and Atlantic Richfield Company v. James R. GILLEY and wife, Sylvania M. Gilley, Wesley Bailey, Trustee, and theNorthwestern Bank.

Page 237

172 S.E.2d 237

7 N.C.App. 227, 1970 Trade Cases P 73,144

QUADRO STATIONS, INC. and Atlantic Richfield Company v. James R. GILLEY and wife, Sylvania M. Gilley, Wesley Bailey Trustee, and theNorthwestern Bank.

No. 7021SC5.

Court of Appeals of North Carolina.

Feb. 25, 1970.

Hatfield, Allman & Hall, by C. Edwin Allman and William C. Myers, Winston-Salem, for plaintiff appellees.

Wesley, Bailey & White, Crumpler & Pfefferkorn, by William G. Pfefferkorn, Winston-Salem, for defendant appellants.

GRAHAM, Judge.

Defendants admit the sale and advertising of petroleum products on the lot in question but contend: (1) the restrictive covenant agreement is illegal and unenforceable as an agreement in restraint of trade such as prohibited by the statutes on monopolies and trusts, codified as Chapter 75 of the General Statutes and in particular G.S. § 75--5(b)(6); (2) the agreement cannot be enforced against defendants because they were not parties to it; (3) the description of the property covered by the agreement is so vague and indefinite as to render the agreement unenforceable and it was error for the court to admit parole evidence with respect to the description.

We consider the contentions of the defendants in the order set forth above.

(1) G.S. § 75--5(b)(6) provides as follows:

'(b) In addition to the other acts declared unlawful by this chapter, it is unlawful for any person directly or indirectly to do, or to have any contract express or knowingly implied to do, any of the following acts:

(6) While engaged in buying or selling any goods in this State, to have any agreement or understanding, express or implied, with any other person not to buy or sell such goods within certain territorial limits within the State, with the intention of preventing competition in selling or to fix the price or prevent competition in buying such goods within these limits.'

Covenants restricting the use of property for purposes competitive with those of the covenantee have generally been held to be enforceable where they involve only partial restraints of trade, are founded on sufficient consideration and are reasonably limited as to duration and area covered. Savon Gas Stations Number Six, Inc. v. Shell Oil Company, 309 F.2d 306 (4th Cir.1962) cert. denied, 372 U.S. 911, 83 S.Ct. 725, 9 L.Ed.2d 719; Goldberg v. Tri-States Theatre Corporation, 126 F.2d 26 (8th Cir.1942); Parker v. Lewis Grocer Company, 246 Miss. 873, 153 So.2d 261; Vaughan v. General Outdoor Advertising Co., 352 S.W.2d 562 (1961 Ky.); Ladd v. Pittsburgh Consolidation Coal Co., 309 Ky. 405, 217 S.W.2d 807; Gonzales v. Reynolds, 34 N.M. 35, 275 P. 922; Vanover v. Justice, 180 Ky. 632, 203 S.W. 321, L.R.A.1918E, 662; Wheatley v. Kollear, 63 Tex.Civ.App. 459, 133 S.W. 903; Herpolsheimer v. Funke, 1 Neb.Unof. 304, 95 N.W. 687.

Such restrictions are usually subjected to the same tests whether attacked as being against public policy generally or as in violation of a specific anti-trust statute. See for instance the following cases where restrictions were sustained though challenged as violating specific statutes: Sun Oil Company v. Trent Auto Wash, Inc., 2 Mich.App. 389, 140 N.W.2d 551; Goldberg v. Tri-States Theatre Corporation, Supra; Jackson v. Price, 140 Miss. 249, 105 So. 538; Wheatley v. Kollear, Supra.

The rule concerning such agreements is set forth in Corbin on Contracts, 6A, § 1389 as follows:

'(T)he owner of a business, who also owns land nearby, may sell or lease such land to a buyer or tenant who promises not to use it for business purposes in competition with that of the seller or lessor. Here, the restriction is limited to the use of the land transferred. Or, the owner of a tract of land or business block may sell or lease a portion thereof to one intending to use it for a particular purpose, making to him an ancillary promise not to permit the remaining part of the tract or building to be used for a competitive business purpose. * * * These agreements are usually sustained as being reasonable, even though the purpose is to prevent competition and no business good will is being transferred.'

In Annot., 46 A.L.R.2d 119 (1956), we find the following at pages 198, 199:

'It appears to be well settled that the seller or lessor of property (as distinguished from business or good will) may by a reasonably limited restrictive promise agree to refrain from (1) himself engaging in, or (2) from disposing of his property in such a way that others can engage in, a business which would impair the value of the property to the buyer for the purpose for which he intended to use it.'

In a later annotation entitled 'Lease-Covenant Against Competition' in 97 A.L.R.2d 4 (1964) the following statements appear at page 11 Et seq.

'Although the courts will not tolerate unreasonable restraints upon trade, and frown upon restrictions upon the free use of land, there is no doubt of the validity, under ordinary circumstances, of a restriction imposed by a lessor, ancillary to a leasing of part of his property, upon the remainder of the property owned or controlled, * * *.

The right of the covenantee to enforce the covenant against one other than the covenantor is subject to little, if any, doubt, in its main areas.

(T)he covenant is enforceable, by way of injunctive relief, as against any subsequent taker of the restricted premises, whether a purchaser or a lessee, where such party takes with notice, either actual or constructive, of the restriction imposed upon the premises under the lessor's covenant.'

The case of Sun Oil Company v. Trent Auto Wash, Inc., Supra, is particularly in point. There the grantor conveyed lots 4 and 5 of a subdivision to plaintiff. In the deed grantor agreed that property owned by her and 'lying north of and adjacent to the within described premises' would not be used for a gasoline station or for automotive services generally. She later sold lots 6--9 in the subdivision to defendant. Defendant was restrained from installing gasoline storage and dispensing equipment on the lots. In rejecting defendant's contention on appeal that the agreement violated the Michigan anti-trust statute the court summarily noted that the case law of that state interpreted the statute as prohibiting only unreasonable restraints of trade and that the restrictions imposed were not unreasonable.

We find no cases in this State wherein a covenant restricting the use of land (other than in connection with the sale of a business) has been challenged as violating any of the provisions of our anti-trust statutes. However, closely related cases establish that contracts tending only to partially restrain trade are enforceable where: (1) they are founded on a valuable consideration; (2) the restrictions imposed are reasonably necessary to protect the legitimate interest of the covenantee; and (3) the limitations or restrictions are reasonable as to time and area. Jewel Box Stores Corp. v. Morrow, 272 N.C. 659, 158 S.E.2d 840; Waldron Buick Co. v. General Motors Corp., 254 N.C. 117, 118 S.E.2d 559; Henley Paper Co. v. McAllister, 253 N.C. 529, 117 S.E.2d 431; Sonotone Corp. v. Baldwin, 227 N.C. 387, 42 S.E.2d 352; Kadis v. Britt, 224 N.C. 154, 29 S.E.2d 543, 152 A.L.R. 405; Moskin Bros. v. Swartzberg, 199 N.C. 539, 155 S.E. 154. We quote from the opinion of Bobbitt, J. (now C.J.), in Waldron Buick Co. v. General Motors Corp., Supra, 254 N.C. at p. 125, 118 S.E.2d at p. 566 as follows:

'Under G.S. 75--1 Et seq., as interpreted in Mar-Hof Co. v. Rosenbacker, 176 N.C. 330, 97 S.E. 169, and later cases, 'agreements in partial restraint of trade will be upheld when they are 'founded on valuable considerations, are reasonably necessary to protect the interests of the parties in whose favor they are imposed, and do not unduly prejudice the public interest. '"'"' As stated by Allen, J., in Morehead Sea Food Co. v. Way, 169 N.C. 679, 682, 86 S.E. 603, 605; '* * * the true test now generally applied is whether the restraint is such as to afford a fair protection to the interests of the party in whose favor it is given, and not so large as to interfere with the interests of the public."

The parties stipulated at the trial that the restrictive covenant agreement was a part and parcel of the consideration running to Sibarco from Satterfield in connection with the purchase of the property described in the deed referred to in the agreement. This stipulation is sufficient to establish that the agreement in question was founded on a valuable consideration.

On the question of whether the restriction imposed was reasonably necessary to protect the legitimate interest of the covenantee, we note that uncontradicted evidence in the record indicates that Sibarco sought out the lot purchased from Satterfield as a specific site for a gasoline service station. While Sibarco had no right to insist on an agreement that would generally protect it and its successors and assigns from competition, it is our opinion that Sibarco was protecting a legitimate interest in taking steps through the agreement to assure that its investment would not be...