Alderwoods Group, Inc. v. Parr

• Court: Supreme Court of Virginia
• Decided: November 5, 2004
• Docket: 032726
• Status: Published

Opinion

Present: Hassell, C.J., Lacy, Keenan, Koontz, Lemons, and Agee, JJ., and Russell, S.J.

CHARLES D. PARR, SR., ET AL.

v. Record No. 032674 OPINION BY JUSTICE ELIZABETH B. LACY November 5, 2004 ALDERWOODS GROUP, INC., ET AL.

ALDERWOODS GROUP, INC., ET AL.

v. Record No. 032726

FROM THE CIRCUIT COURT OF THE CITY OF SUFFOLK Rodham T. Delk, Jr., Judge

The dispositive issue in these consolidated appeals is

whether certain contemporaneously executed contracts were

integrated for purposes of determining the enforceability of

provisions in some of the contracts after a party's default

under one of the contracts.

I. FACTS

For a number of years Charles D. Parr, Sr. and C.D. Parr,

Inc. d/b/a Hill Funeral Home (Parr, Inc.) operated a funeral

home business, the Hill Funeral Home, at 447 West Washington

Street in Suffolk. The property was owned by Hill Underwood

Funeral Home, Inc. (Hill Underwood). In 1995, Loewen Group

International, Inc. (Loewen) negotiated with Parr and Parr,

Inc. for the purchase of the Hill Funeral Home business. The

negotiations culminated in the execution of four agreements on November 27, 1995 between Loewen's designated buyer Mullins

Holding Company (Mullins)1, Parr, Parr, Inc., and Hill

Underwood: the More Formal Asset Purchase Agreement (Asset

Purchase Agreement), the Non Competition Agreement (Non-

Compete Agreement), the Lease, and the Management Agreement.

Pursuant to these agreements, Parr and Parr, Inc. sold the

Hill Funeral Home business to Mullins. Hill Underwood leased

the Hill Funeral Home property to Mullins and filed in the

deed records of the City of Suffolk a memorandum of lease

containing a covenant restricting the use of the property as a

funeral home by persons other than Mullins without Mullins'

consent. Parr began managing both the Hill Funeral Home and

another funeral home in Suffolk, the Sidney F. Harrell Funeral

Home, for Mullins.

The relevant portions of the agreements follow. The

Asset Purchase Agreement provided that Mullins would purchase

certain assets for a total price of $1,125,000. The

identified assets included "a leasehold interest . . . and a

restrictive covenant (with the terms and conditions contained

in the Lease described in Paragraph 10 hereof which is to be

entered into contemporaneously herewith)" and "covenants of

[Parr, Inc.] and [Parr] not to compete with the business of

Buyer." The purchase price included $100,000 payable under

1 Mullins was a wholly-owned subsidiary of Loewen.

2 identical provisions in both the Asset Purchase Agreement and

the Non-Compete Agreement.

Under Paragraph 8 of the Asset Purchase Agreement, Parr

agreed to execute a management agreement with Mullins. The

provision contained the employment terms and annual salary

under the Management Agreement and agreements by Parr and

Parr, Inc. to execute a covenant not to compete with Mullins.

The consideration and the duration of such covenant were also

recited. Paragraph 10 of the Asset Purchase Agreement set out

the duration and conditions of the Lease, including a

restrictive covenant that the leased property would not be

used as a funeral home or service business except by Mullins

or "its successors and assigns" without Mullins' written

consent to the modification or termination of the restrictive

covenant.

The Non-Compete Agreement expressly provided that it was

a condition of the Asset Purchase Agreement and that for ten

years from the closing date of the Asset Purchase Agreement or

three years following the date of termination of "any

employment, management, or consulting relationship" with

Mullins, neither Parr nor Parr, Inc. would engage in the

funeral business within a 35-mile radius of the Hill Funeral

Home. As consideration, Mullins was to pay Parr and Parr,

Inc. a total of $10,000 per year for ten years under terms

3 identical to those recited in and identified as an asset

purchased in the Asset Purchase Agreement. Paragraph 16 of

the Non-Compete Agreement stated that a continuing default by

Mullins under the Asset Purchase Agreement or note executed

pursuant to that agreement, if not cured, was "deemed" to be a

default of the Non-Compete Agreement.

The Management Agreement provided that Parr would manage

for Mullins both the Hill Funeral Home and the Sidney F.

Harrell Funeral Home. The Management Agreement allowed

Mullins to terminate Parr for cause if he materially breached

any warranty or covenant contained in the Asset Purchase

Agreement. The Management Agreement also contained the terms

of a noncompetition agreement, the terms of which were

identical to those contained in the Non-Compete Agreement and

described in the Asset Purchase Agreement.

The Lease, in addition to the various provisions defining

the rights and responsibilities of the lessor and lessee,

provided for an initial one-year term and five optional one-

year renewal periods, and specifying the rental payments,

recited the restrictive covenant in language essentially

identical to that contained in the Asset Purchase Agreement.2

In Paragraph 15 of the Lease, Parr and Parr, Inc. guaranteed

2 The restrictive covenant is only applicable to the first floor of the 447 West Washington Street property.

4 the landlord's obligations, including its obligations under

the restrictive covenant.

In June 1999, Loewen filed for bankruptcy and, in

November of that year, Mullins stopped making payments under

the Asset Purchase and Non-Compete agreements. Parr submitted

his resignation to Mullins on September 21, 2001. After the

Lease ended by its terms in November 2001, Parr began to

operate the Parr Funeral Home on the Hill Underwood property.

II. PROCEEDINGS

On January 14, 2002, Mullins and Alderwoods Group, Inc.3

(collectively "Alderwoods") filed a bill of complaint seeking

a temporary and permanent injunction against Parr and Parr,

Inc. (collectively "Parr") to prohibit them from competing

with Alderwoods and operating a funeral home on the Hill

Underwood property.4 Parr filed its answer asserting that

Alderwoods materially breached the November 1995 agreements

and, therefore, the noncompetition agreement was no longer in

effect and the restrictive covenant should be declared null

and void.

3 Loewen changed its name to Alderwoods Group, Inc. effective in January 2002. 4 It appears from the record that Hill Underwood Funeral Home, Inc. no longer exists, but Parr and Parr, Inc. were guarantors of the landlord’s obligations pursuant to Paragraph 15 of the Lease.

5 The trial court entered an order in January 2002

temporarily enjoining Parr from competing with Alderwoods

pursuant to the terms of the covenants not to compete in the

Asset Purchase, Management, and Non-Compete agreements, and,

subsequently, on Alderwoods' motion, held Parr in contempt for

violating that temporary injunction. Following a hearing on

Parr's motion to set aside the temporary injunction, the trial

court held that the four agreements, "although separate,

should be regarded as and constructed as parts of one

transaction and as if parts of one and the same instrument."

The trial court found that Alderwoods defaulted its payment

obligation under the Asset Purchase Agreement and that the

default constituted "a default in the non-competition

provisions of all of the sub-agreements as well." Based on

these findings, the trial court concluded that the likelihood

that Alderwoods would succeed on the merits was "substantially

diminished" and, accordingly, set aside the temporary

injunction.

A hearing on the permanent injunction was held on June

27, 2003. At this hearing Alderwoods sought to enforce the

noncompetition provision contained in the Management Agreement

and the restrictive covenant contained in the Lease.

Alderwoods argued that these two contracts were separate

contracts and, because Alderwoods had fulfilled its

6 obligations under these non-integrated contracts, Parr should

be required to comply with the noncompetition and restrictive

covenants in those contracts. Parr replied that because

Alderwoods breached a provision of one of the contracts, it

could not enforce any other provisions of the integrated

contracts.

As relevant here, the trial court reaffirmed its earlier

holding that the Management Agreement and Asset Purchase

Agreement were integrated and that Alderwoods' default

precluded enforcement of the noncompetition provisions of the

Management Agreement. The trial court also found, however,

that the restrictive covenant in the Lease was valid and

enforceable against "the specific defendants" in this case and

entered an order enjoining Parr from using the Hill Underwood

property for a funeral business. We granted the petitions for

appeal filed by both Parr and Alderwoods.5

In considering these consolidated appeals, we first note

that Alderwoods did not assign error to the trial court's

determination that it breached the Asset Purchase Agreement.

Furthermore, there is no challenge to the trial court's

determination that the breach of the Asset Purchase Agreement

was also a breach of the Non-Compete Agreement. Therefore, we

5 We granted an appeal to only two of Parr's three assignments of error.

7 consider only whether the Management Agreement and the Lease

are integrated or separate and independent contracts.

III. DISCUSSION

In Countryside Orthopaedics, P.C. v. Peyton, 261 Va. 142,

541 S.E.2d 279 (2001), we recited the principles to be applied

when considering whether separate documents should be treated

as an integrated instrument. "Where a business transaction is

based on more than one document executed by the parties, the

documents will be construed together to determine the intent

of the parties," id. at 152, 541 S.E.2d at 284 (quoting

Daugherty v. Diment, 238 Va. 520, 524, 385 S.E.2d 572, 574

(1989)), and "[w]here two papers are executed at the same time

or contemporaneously between the same parties in reference to

the same subject matter, they must be regarded as parts of one

transaction, and receive the same construction as if their

several provisions were in one and the same instrument."

Countryside, 261 Va. at 151, 541 S.E.2d at 284 (quoting Oliver

Refining Co. v. Portsmouth Cotton Oil Refining Corp., 109 Va.

513, 520, 64 S.E. 56, 59 (1909)); see Richmond Postal Credit

Union, Inc. v. Booker, 170 Va. 129, 134, 195 S.E. 663, 665

(1938). When such contracts are construed as if the

provisions were in a single instrument, the first party to

materially breach the contract cannot enforce the provisions

of the integrated contract. A breach is material if it is "a

8 failure to do something that is so fundamental to the contract

that the failure to perform that obligation defeats an

essential purpose of the contract." Countryside, 261 Va. at

154, 541 S.E.2d at 285 (quoting Horton v. Horton, 254 Va. 111,

115, 487 S.E.2d 200, 204 (1997)). We now apply these

principles to the contracts at issue.

A. The Management Agreement

Alderwoods asserts that the Management Agreement is a

contract separate and apart from the Asset Purchase Agreement

because it is not ambiguous, it is separate and distinct in

its subject matter and consideration, the obligations are not

interrelated, and the cross-references in the contracts do not

require integration of the agreements.6 Alderwoods suggests

that unless the four agreements are part of a single

transaction "courts should not read the writings together as

one contract because the parties may have had more than one

transaction in one day of the same general nature." Hitachi

Credit Am. Corp. v. Signet Bank, 166 F.3d 614, 626 (4th Cir.

1999).

6 At oral argument before this Court, Alderwoods also argued that because the Non-Compete agreement contained a cross-default provision, the absence of such a provision in the other agreements evidenced an intent that no cross-default existed among the other agreements. Because Alderwoods raises this argument for the first time on appeal, we will not consider it. Rule 5:25; see Faulknier v. Shafer, 264 Va. 210, 218 n.6, 563 S.E.2d 755, 760 n.6 (2002).

9 Whether contemporaneously executed separate agreements

should be construed as a single integrated contract depends on

the facts of each case. Here, the Management Agreement and

Asset Purchase Agreement cross-referenced each other and

certain provisions were recited in both agreements using

identical language. These references reflect the parties'

knowledge and understanding of the interrelationship between

the contracts and provide strong support for the proposition

that the parties intended that the documents constitute a

single transaction.

Furthermore, while the four contracts identified discrete

acts required of the parties, when considered as a whole, they

show that the result and, therefore, presumably the purpose of

the transaction was the elimination of competition between the

funeral home interests held by Alderwoods and by Parr. The

transaction required Alderwoods' ownership of Parr's funeral

business interests and Parr's management of Alderwoods'

funeral business interests − the Hill Funeral Home and the

Sidney F. Harrell Funeral Home.7 The provisions of the

Management Agreement could not be performed without

Alderwoods' acquisition of the Hill Funeral Home assets and a

lease of the Hill Underwood property. The purchase of the

7 The precise nature of Alderwoods' interest in the Sidney F. Harrell Funeral Home is not clear from this record.

10 Hill Funeral Home assets alone would not eliminate the

competition by Parr without the noncompetition and restrictive

covenant agreements. The absence of any one of the agreements

would frustrate the purpose of the transaction. On this

record, we conclude that the parties intended to effectuate a

single transaction which required execution of all the

agreements.

Accordingly, the trial court did not err in concluding

that the Management Agreement and the Asset Purchase Agreement

were part of an integrated contract. We will affirm the trial

court's judgment holding the noncompetition provision of the

Management Agreement was unenforceable because Alderwoods

breached the Asset Purchase Agreement when it defaulted its

payment obligations under that Agreement.

B. The Lease

Parr asserts that the trial court erred in enforcing the

restrictive covenant contained in the Lease because, like the

Management Agreement, the Lease was part of an integrated

contract. Parr argues he was relieved of any obligation to

comply with the restrictive covenant because of Alderwoods'

default of the Asset Purchase Agreement. Alderwoods replies

that the Lease was a separate contract and not integrated with

the other contemporaneously executed contracts, raising the

same arguments put forth regarding the Management Agreement:

11 the Lease was not ambiguous; it was separate and distinct in

its subject matter and consideration; the obligations were not

interrelated; and the cross-references in the contracts did

not require integration of the agreements. Alderwoods,

relying on Bayside Corp. v. Virginia Super Food Fair Stores,

Inc., 203 Va. 908, 128 S.E.2d 263 (1962), also argues that

because it had fully performed its obligations under the

Lease, it was entitled to enforce the restrictive covenant in

the Lease even though by its terms the Lease had expired.

We reject Alderwoods' arguments that the Lease was a

separate contract. First, like the Management Agreement,

there were significant cross-references between the Asset

Purchase Agreement and the Lease. The Asset Purchase

Agreement listed the Lease as "an asset" purchased. The

material terms of the restrictive covenant in the Lease were

also recited in the Asset Purchase Agreement. And, as we have

already discussed, the transaction's purpose of eliminating

competition between Parr and Alderwoods' interests in the

funeral home business could not be accomplished without

execution of all four agreements. Therefore, we hold that the

Lease was not a separate contract but, like the Management

Agreement, was integrated with the Asset Purchase Agreement.

Assuming without deciding that the restrictive covenant in

this case would be enforceable absent a breach of the

12 integrated contracts here, the restrictive covenant is not

enforceable against Parr, because Alderwoods breached a

material provision of the integrated contract.

Neither the expiration of the lease nor our conclusion in

Bayside require a different result. The lease in Bayside

included a provision prohibiting the landlord from leasing any

space in a shopping center to a competitor of the lessee for

three years after the lessee terminated the lease. Bayside,

203 Va. at 910, 128 S.E.2d at 265. This Court enforced that

provision even though the lease had been terminated, finding

that the covenant was a reasonable personal covenant. Id. at

911, 128 S.E.2d at 266.

In Bayside, unlike this case, neither the landlord nor

the lessee defaulted under the lease. The Bayside lease

provided that the lessee could terminate the lease if the

landlord failed to meet certain conditions. Id. at 910, 128

S.E.2d at 265. The landlord failed to meet the conditions and

the lessee terminated the lease. Id. The landlord's

inability to meet the conditions was not a breach of the

lease, but a circumstance which the parties anticipated and

addressed by allowing the lessee to terminate the lease. In

the absence of a default or breach, a reasonable personal

covenant contained in the lease was enforceable.

13 Like Bayside, the instant case involves an agreement

restricting the use of the land as a term of the lease

agreement. Unlike Bayside, however, the instant case involves

a breach or default by one of the parties which precluded the

defaulting party from enforcing the remaining provisions of

the integrated contract. Consequently, Bayside is not the

controlling precedent here.

IV. CONCLUSION

Because we hold that Alderwoods' breach of the integrated

contract relieved Parr of any obligation under the restrictive

covenant, we need not address Parr's assignment of error

challenging the trial court's holding that the restrictive

covenant was a valid covenant.

Accordingly, for the reasons stated, we will affirm that

portion of the trial court's judgment holding that the

covenants not to compete are unenforceable and we will reverse

that portion of the trial court's judgment enforcing the

restrictive covenant of the lease.

Affirmed in part, reversed in part, and final judgment.