Tull v. Turek

• Decision Date: 29 December 1958
• Citation: 38 Del.Ch. 182,147 A.2d 658
• Parties: Margaret V. TULL, Defendant Below, Appellant, v. Paul J. TUREK and Doris B. Turek, his wife, Plaintiffs Below, Appellees.
• Court: Supreme Court of Delaware

Page 658

147 A.2d 658

38 Del.Ch. 182

Margaret V. TULL, Defendant Below, Appellant, v. Paul J. TUREK and Doris B. Turek, his wife, Plaintiffs Below, Appellees.

Supreme Court of Delaware.

Dec. 29, 1958.

Bruce M. Stargatt, Wilmington, for appellant.

Edmund D. Lyons, Wilmington, for appellees.

SOUTHERLAND, C. J., and WOLCOTT and BRAMHALL, JJ., sitting.

WOLCOTT, Justice.

On October 7, 1948, the plaintiffs, husband and wife, entered into a written contract for the purchase from the defendant, Margaret V. Tull, of 1506 Broom Street, Wilmington, together with the business operated by her at that location known as 'Tull Sanitarium'. The plaintiffs agreed to pay the sum of $70,000. The assets purchased specifically included the tangible assets and the good will of the business known as 'Tull Sanitarium'. The plaintiffs were granted the exclusive right to use the name 'Tull Sanitarium'.

The contract of sale, in paragraph 6, provided as follows:

'6. The seller [defendant] agrees that she will not directly or indirectly, along or with others, in her name or in any other name engage in the business of operating and conducting a sanitarium or hospital in New Castle County and State of Delaware, for a period of ten years from the date hereof.'

For a period of three years prior to the sale the defendant had operated a nursing or rest home on the premises under the name 'Tull Sanitarium', and had established a favorable position in the community for her nursing home.

After the purchase the plaintiffs continued to operate the business of a nursing or rest home on the premises but, shortly thereafter, changed the name of the establishment to 'Rest Haven'. Since 1948 the plaintiffs have continued the furnishing of nursing care and treatment to ill and aged persons on these premises.

In the early part of 1956 plaintiffs learned that the defendant was carrying on a business at 5109 Governor Printz Boulevard under the name of 'The Delawarean'. Their suspicions were aroused that the defendant was operating a nursing or rest home in competition with their business. Upon the defendant's refusal to abandon her business enterprise, the plaintiffs instituted this action in the Court of Chancery of New Castle County for an injunction against continued competition by the defendant and for damages.

After final hearing, the Vice-Chancellor entered a judgment denying injunctive relief, but directing the framing of an issue to be tried before a jury of the Superior Court to determine the amount of damages to which the plaintiffs were entitled.

From this judgment the defendant appeals urging that she has not competed with the plaintiffs, has not breached the restrictive covenant in the contract of sale and, accordingly, is not liable to the plaintiffs for damages.

The action is fundamentally a suit in the nature of specific performance to enforce a restrictive covenant prohibiting the operation of a competitive business by the defendant. The contract, and specifically paragraph 6 thereof, as a contract not to compete with the plaintiffs in business is one in partial restraint of trade. Such contracts, however, are enforceable in equity provided the imposed restraint is reasonable both as to its geographical extent and as to the burden it places upon the person who covenants not to compete by engaging in a particular form of business activity. 3 Pomeroy's Equity Jurisprudence (5th Ed.), § 934(b). The parties do not dispute this fundamental proposition.

The basic contention of the defendant is that she has not competed with the plaintiffs' business and thus has not violated the restrictive covenant. No point is made by her of the geographic extent of the covenant's scope. The plaintiffs, of course, maintain that defendant did compete in violation of the covenant.

The first point at issue is the meaning of the prohibition found in paragraph 6. In terms the defendant agreed not to 'engage in the business of operating and conducting a sanitarium or hospital'. Thus, argues defendant, since her business is admittedly neither a hospital nor a sanitarium, she has not breached her covenant. She refers to a number of definitions of the words 'hospital' and 'sanitarium' in order to demonstrate that the rest home or nursing home she is presently conducting does not fit either category. We will not labor the point except to say that we think it is the fact as demonstrated by the evidence that the defendant is not operating the business of either a hospital or a sanitarium.

But, this does not dispose of the question. The covenant must be construed if possible, to determine what was intended by the parties when it was included in the contract. This intent is to be determined in the light of the surrounding facts and circumstances. Such we conceive to be the rule laid down and followed by this Court in Wright v. Scotton, 13 Del.Ch. 402, 121 A. 69, 31 A.L.R. 1162.

This rule is an answer to a further argument made by defendant that an attempt to show the applicability of the restrictive covenant to a business other than one technically complying with the definition of 'hospital' or 'sanitarium' must be rejected as a violation of the parol evidence rule. Admittedly, the language of paragraph 6 is apparently unambiguous on its face, but such an apparent unambiguity may nevertheless require explanation in the light of the circumstances surrounding the agreement and the intention of the parties. This, in fact, is the manner in which the intended meaning of the restrictive covenant sued upon in Wright v. Scotten, supra, was determined.

We thus turn, as did the Vice-Chancellor, to an examination of the surrounding circumstances in the light of which the parties, in 1948, entered into the contract of sale. It is, of course, obvious that the inclusion in a contract of sale of a business of a covenant not to compete is included for the protection of the purchaser in his enjoyment of the business and its built-up good will. Scotton v. Wright, 13 Del.Ch. 214, 117 A. 131, affirmed 13 Del.Ch. 402, 121 A. 69. No other purpose could have been intended. That this, in fact, was intended in the contract before us is made abundantly clear from the contract's other terms.

The total purchase price agreed upon was $70,000, which was paid for the lands, buildings and equipment relating to the operation of the business of a nursing home, and for the business itself. Furthermore, specifically included in the sale was 'the good will of 'Tull Sanitarium".

There was at the hearing before the Vice-Chancellor some dispute between the parties as to the value of the tangible physical assets transferred to the plaintiffs. Accepting the defendant's valuation, however, the value of those tangibles was somewhere in the neighborhood of $35,000, thus leaving out of the total purchase price the sum of $35,000 which can only be a value placed upon the good will of the business transferred along with the physical assets. Since the plaintiffs thus were paying a substantial sum for the established good will, it admits of no doubt but that the covenant not to compete was intended to protect this good will from diminution by reason of competition from the defendant.

It lies outside the field of plausibility, therefore, to argue that plaintiffs and defendant intended the restrictive covenant to be enforceable only in the event the defendant entered into the business of conducting a hospital or sanitarium in view of the fact that the plaintiffs had not purchased any such business from the defendant. The business purchased was a nursing home operated by the defendant at the time of sale, and it is this business which paragraph 6 of the agreement was designed to protect.

The use of the words 'sanitarium or hospital', therefore, must be explained, if an explanation is required, as an instance of careless draftsmanship in the preparation of the agreement of sale for which it would be unjust to make the plaintiffs suffer. Certainly, it should not operate to defeat the plain right of the plaintiffs not to be competed with by the defendant, which obviously was the intention of all the parties to the contract of sale. Were it otherwise, the inclusion of paragraph 6 in the contract would have been a nullity for there is no demonstrated contemplation at the time of sale on the part of either the plaintiffs or defendant to enter the hospital or sanitarium business.

Much argument is made by the parties over the issue of whether the defendant has been in competition with the plaintiffs since 1955. We will not review in this opinion the evidence offered upon the issue. The Vice-Chancellor found as a fact that the defendant did compete. We have examined the evidence and are satisfied that the record supports the conclusion that the defendant has operated since 1955 a nursing home in New Castle County. It follows, therefore, that the defendant has been in competition with the plaintiffs since 1955 in violation of her covenant.

When the fact of competition is established, the rule of law is clear that, on the application of the injured purchaser of the business, equity will enjoin the continued breach of the restrictive covenant. Equity, almost as a matter of course, gives relief in such actions on the ground that the remedy at law is inadequate. 4 Pomeroy's Equity Jurisprudence (5th Ed.), § 1344.

An exception to this principle, however, is that if an injured plaintiff, by his own tactics or by delay, has misled the one breaching the covenant into the breach, a Court of Equity may in its discretion refuse to give full relief to the injured party, but may leave him to such remedy as he has at law in a suit for breach of contract. Richard Paul, Inc. v. Union Improvement Co., 33 Del.Ch. 113, 91 A.2d 49. This is not the situation in the case at bar, however, for the Vice-Chancellor specifically absolved the plaintiffs of any non-excusable delay in the enforcement of their rights, and...