Noncompete Agreement Survives Death
Posted: April 30, 2021
It would be a tall order for a party who dies to thereafter violate a noncompetition agreement the party entered into while alive.
But that does not mean that the death of a bound party always extinguishes the obligations of all parties to the agreement.
In an unusual case from Alabama, that state's highest court ruled that surviving parties to a noncompetition agreement were obligated to continue making payments agreed to under the agreement even after the death of the other party.
He Sells It All
In 2006, Thomas Batey was the sole owner of Batey & Sanders, Inc., which provided construction and highway-industry products.
That year, Batey sold his entire interest in the company to Batey & Sanders and its president.
In connection with the sale, the parties entered into a noncompete agreement. Pursuant to the agreement, Batey agreed that he would not encourage company employees to leave; not divert customers from the company; and not participate in any competing business.
A Big Payoff
Batey was compensated well for making those promises: the buyers agreed to pay him about $2.1 million in 120 equal monthly payments of approximately $17,800.
Unfortunately, Batey did not live to realize the full benefit of his bargain. He died in April of 2013, which was about six years after the first payment to him was made.
According to the court's decision, the buyers allegedly stopped making payments in December of 2013.
At the time that the payments stopped, Batey was still owed almost $641,000 under the agreement.
Estate Wants the Money
Emily Hawk Mills, the personal representative of Batey's estate, sued the buyers in an Alabama state court, seeking payment of the amount allegedly due.
A trial court ruled in her favor. It reasoned that Batey's interest in the goodwill of the company "was consideration given in the initial sale of the business." It said the agreement was not a personal services contract that became voidable by the buyers when Batey died.
The buyers appealed, and the case (Boyd v. Mills) reached Alabama's highest court.
Here is the Question
The court explained that the question presented was whether the buyers' obligations under the noncompete agreement survived the death of Batey.
The agreement did not say what would happen with respect to the payments if Batey died, the court pointed out. Instead, it just said the buyers "shall" make monthly payments for 120 months, after which the full amount would be paid.
The agreement did not require Batey to take any affirmative action, the court further noted.
The buyers argued that because the agreement did not give them an express right to terminate, the agreement was a personal services contract that did not survive the death of Batey.
The state's high court described such contracts as those that rest on the "skill, taste, or science of a party" and require personal performance by the promisor. Those contracts do not survive the promisor's death, it said.
The court said it was noteworthy that Batey signed the noncompete separate from an employment agreement and with separate consideration. And it stressed that the noncompete included only negative covenants and did not require Batey to take any affirmative steps.
Buyers Got What They Wanted
The essential benefit of the noncompete was a purchase of the business' goodwill, the court said.
Batey's death did not deprive the buyers of that benefit, it noted.
Thus, the state's highest court concluded that the noncompete was not a personal services contract. The noncompete thus surived the death of Batey, it ruled.
As a result, Mills had the right to enforce the noncompete, it decided.
The noncompete did not have to specifically say that payments would pass to Batey's heirs in the event of his death, the court further ruled.
The Supreme Court of Alabama affirmed the lower court's ruling.
Posted In: Non-Compete Clause (Restrictive Covenant); Quit, Resigned, Termination of Employment, etc.
Want to know more? Read the full article by Tom D'Agostino at HR Morning