ROBERT J MCBAIN & CO V ROBERT A BOYCE
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STATE OF MICHIGAN
COURT OF APPEALS
ROBERT J. McBAIN & COMPANY, P.C.,
UNPUBLISHED
March 10, 1998
Plaintiff-Appellant,
v
No. 197782
Mecosta Circuit Court
LC No. 94-010611-CK
ROBERT A. BOYCE, C.P.A.,
Defendant-Appellee.
Before: Neff, P.J., and Jansen and Markey, JJ.
PER CURIAM.
Plaintiff Robert J. McBain & Co [McBain] appeals by right from the judgments for defendant
Robert A. Boyce [Boyce] following a one-day bench trial. We reverse and remand for further
proceedings.
I
McBain purchased Boyce’s accounting business located in Big Rapids for $205,000 pursuant
to a letter agreement dated January 15, 1991. The agreement included a renewable three-year
employment contract under which Boyce agreed to work for McBain for a base salary plus bonuses.
The agreement provided that after January 1, 1994, McBain was to make monthly payments through
1994 and 1995 to Boyce “in consideration of your covenant not to compete with our firm . . . in
addition to any compensation you might receive as an employee of our firm in those years.”
Boyce resigned his position with McBain effective January 3, 1994, and one month later
opened an office approximately forty-three miles away in Mount Pleasant. However, Boyce was
servicing the same customers that constituted the client base he sold to McBain. In August 1994,
McBain ceased making payments to Boyce and filed suit, alleging that Boyce breached the letter
agreement’s covenant not to compete. Boyce brought a countersuit, arguing that he had not breached
the letter agreement and was entitled to the balance of payments due from McBain. In addition, Boyce
asserted that McBain breached the agreement by failing to pay Boyce a bonus in 1993 pursuant to the
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employment contract portion of the letter agreement. Boyce later amended his countercomplaint to
allege, in the alternative, that the parties had never agreed to a covenant not to compete because the
payments were denominated in that manner for tax purposes only and asking that the court declare the
covenant void and unenforceable.
The trial court determined that there was no covenant not to compete because the parties’ did
not have a meeting of the minds regarding the terms of the covenant and accepted Boyce’s contention
that the provision had been included solely as a tax ploy. The court further found that there was a failure
of consideration because McBain “in part paid for something which did not exist” and ordered that
McBain be credited for all monies paid to Boyce pursuant to the covenant provision, or $6,300. The
opinion also stated that the bonus was not discretionary, but did not address the amount of the bonus.
On April 5, 1996, the court issued another opinion holding that Boyce was entitled to a bonus equal to
five percent of his gross wages for 1993 based on the parties’ course of performance during 1991 and
1992. McBain appeals both orders.
II
McBain first contends on appeal that the trial court clearly erred when it concluded that no
covenant not to compete existed due to the failure of the parties to have a meeting of the minds.1 We
agree.
A
The trial court’s conclusion ignores the plain language of the agreement and the clearly
established case law of this state holding that courts will substitute reasonable limits where the terms of a
covenant not to compete are unreasonable or unlimited. MCL 445.774a(1); MSA 28.70(4a)(1);
Hopkins v Crantz, 334 Mich 300, 303; 54 NW2d 671 (1952); Buck v Coward, 122 Mich 530, 532;
81 NW2d 328 (1899); Compton v J Lepak, DDS, PC, 154 Mich App 360, 368; 397 NW2d 311
(1986). Although the covenant as written is unlimited as to duration and scope, there is no authority
holding that it must be for that reason declared invalid.
Moreover, while it may have been advantageous for the parties from a tax standpoint to include
a covenant not to compete in the purchase agreement, there is no evidence from which it may be
concluded that the parties did not intend at the time of contracting for the covenant to be enforceable.
The court placed great emphasis on McBain’s written suggestion on January 7, 1991 that the parties
structure the balance of the purchase price as “regardless of employment (perhaps a covenant not to
compete/consulting arrangement),” stating that “it is more probable than not that the phrase ‘covenant
not to compete’ represented an arbitrary decision, or perhaps it had to do with a greater tax advantage
to Boyce.” However, there was no testimony to support the trial court’s conclusion that the decision to
include the covenant was arbitrary; in fact, Boyce admitted that the purchase of his practice could have
been accomplished with the same tax advantages without the inclusion of a covenant not to compete.
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McBain stated that the covenant was an integral part of the transaction. Thus, we find the trial court’s
interpretation of the covenant as meaningless outside the context of tax considerations was clear error.
Furthermore, the evidence introduced at trial showed that the parties had a mutual
understanding of the terms of the covenant, even if those terms were not discussed. Both parties
testified that inclusion of a covenant not to compete is standard practice in contracts for the sale of a
professional clientele. Boyce stated that he was familiar with covenants not to compete and admitted at
his deposition that he was bound by the covenant in the agreement. He agreed that the duration of the
covenant, as evidenced by the payments, was two years. He also affirmed that the geographical scope
of the covenant would encompass at least the Big Rapids area. McBain testified consistently as to his
understanding of the terms of the covenant. Consequently, we find that the trial court clearly erred in
concluding that there had been no meeting of the minds with regard to the existence of the covenant not
to compete.
B
McBain next contends that the trial court erred in failing to find that Boyce breached the
covenant. The trial court found it unnecessary to reach this issue. Because we find that the parties
entered into a covenant not to compete, we remand this case to allow the trial court to determine the
reasonable scope of the covenant, to determine whether Boyce breached its terms, and, if so, to
determine the extent of McBain’s damages.
III
McBain next asserts that the trial court erred in determining that pursuant to the letter agreement
Boyce was entitled to a bonus in 1993 or, in the alternative, that if Boyce was entitled to a bonus, that
the court’s calculation of the bonus was erroneous. Where, as here, the contractual language is clear, its
construction is a question of law that this Court reviews de novo. Dyllon v DeNooyer Chevrolet
GEO, 217 Mich App 163, 166; 550 NW2d 846 (1996).
The letter agreement provided for a “guaranteed minimum base salary of $70,000 per year plus
an additional $3,300 in year-end ‘perks’ (bonus/medical reimbursement/profit-sharing contribution).”
In addition, the agreement provided that “[i]n our normal system,” Boyce would receive five percent of
his pay for additional hours expended in excess of 2,350 “in the year-end ‘perks’ combination
described above.” Despite these provisions, the testimony at trial established that in 1991 and 1992,
McBain paid Boyce a single bonus of five percent of his gross wages. The trial court found that
although the language of the agreement clearly provided for a different bonus arrangement, the course of
performance of the parties required that a bonus consistent with that given in previous years be paid.
This was error.
A prior course of performance cannot alter the clear and unambiguous language of the contract.
Ditzik v Schaffer Lumber Co, 139 Mich App 81, 89; 360 NW2d 876 (1984). Here, the agreement
clearly provides that only a bonus of $3,300 is guaranteed; the fact that the additional five percent bonus
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is discretionary is evidenced by the words, “[i]n our normal system.” We therefore vacate the trial
court’s order and remand for entry of a judgment consistent with the terms of the agreement.
Reversed and remanded for proceedings consistent with this opinion. We do not retain
jurisdiction.
/s/ Janet T. Neff
/s/ Jane E. Markey
1
Because the letter agreement states that it is not a complete integration of the contract, parol evidence
is admissible to establish the parties’ understanding of the agreement. Schmude Oil Co v Omar
Operating Co, 184 Mich App 574, 581; 458 NW2d 659 (1990).
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