- 22 -
n.5 (5th Cir. 1980); Throndson v. Commissioner, 457 F.2d 1022,
1024-1025 (9th Cir. 1972), affg. Schmitz v. Commissioner, 51 T.C.
306 (1968); Annabelle Candy Co. v. Commissioner, 314 F.2d 1, 8
(9th Cir. 1962), affg. T.C. Memo. 1961-170; Beaver Bolt, Inc. v.
Commissioner, T.C. Memo. 1995-549. The instant case raises three
questions under the applicable law: (1) Did the buyout agreement
between petitioner and Wagner include Wagner’s covenant not to
compete; (2) did the covenant reflect economic reality; and (3)
did the parties to the buyout agreement allocate $300,000 to the
covenant?
Did the Buyout Agreement Include Wagner’s Covenant Not To
Compete?
We find, for much the same reasons that support the
consideration of extrinsic evidence, that such evidence
convincingly demonstrates that petitioner and Wagner intended
Wagner’s covenant not to compete to be a part of their buyout
agreement when they executed the Purchase Agreement and that the
execution of the Noncompete Agreement 12 days later served to
correct a mutual mistake. Wagner and Forest both testified that
a covenant was always contemplated in their negotiations for the
buyout, and their banker’s testimony corroborates that it was an
essential part of the buyout agreement. As discussed in greater
detail in connection with the parol evidence concerns, the
surrounding circumstances strongly support the testimony, because
Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NextLast modified: May 25, 2011