Sixth Judicial District

Procedural Posture

Defendant buyers appealed from the judgment of the District Court, Sixth Judicial District, Sacramento County (California), which awarded plaintiff seller monetary damages for breach of the contract for sale of a business and future employment.

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Overview

The parties entered into an agreement for the sale of all of the stock of goods and fixtures in a store, as well as the good-will of the business. The agreement included provision for the buyers to employ the seller for five years at the store. Later, after the seller was discharged from employment, he brought suit under the contract. The buyers had filed a demurrer claiming no breach of promise was shown. The district court denied the demurrer and entered judgment for the seller. The district court found that the buyers attempted to present an impermissible cross claim for unliquidated damages. On appeal, the court reversed and remanded. The district court committed legal error in excluding evidence offered by the buyers to show that the seller, once in the status of employee, maintained an expense account that was larger than it should have been. Under the rules of practice, the buyers should have been permitted to oppose the seller's claim for damages and also present cross-claims arising under the disputed contract.

Outcome

The court reversed the judgment for the seller and remanded the case.

Overview

The businessman had agreed to a covenant not to compete when his former box manufacturing partnership was dissolved. He violated the agreement. In his defense and cross-complaint he asserted fraud in that the businessman's former partner and the other copartners had negotiated to effect a trust, combine, and monopoly of the box manufacturing business. Once perfected, this monopoly increased the value of the businessman's share of the partnership but because of fraud, he did not receive the benefit of the increased value when the prior partnership dissolved. The court affirmed the judgment on the demurrer to the cross-complaint but reversed the demurrer on the businessman's defenses. The copartners had formed an illegal combine to fix prices and the fraud consisted of the concealment of this activity from the businessman to his detriment. That was not an actionable fraud. But, the businessman's defenses, in addition to the fraud, averred that the copartners had not succeeded to the interest in the goodwill of the original partnership. And while the covenant not to compete was valid, if that defense was proven it would destroy the copartners claim against the businessman.

Outcome

The court affirmed the judgment entered on the demurrer to the cross-complaint. The court reversed the judgment on the demurrer to the answer and its defenses and remanded the cause with directions that the trial court overrule the demurrer and proceed to trial on the issue of the succession of goodwill.

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