A provision in a contract for the sale and purchase of a business read as follows: "The vendor (Jones) shall not, directly or indirectly, in any capacity whatsoever, carry on a similar business in any location for one year." Six months later, Kates found that Jones was competing directly by opening up a similar business, contrary to the contract drafted by Kates. Kates sued Jones for breach of contract, namely, breach of the restrictive covenant. Which of the following best describes the legal position of the parties?
A) This provision is in restraint of trade and causes the whole contract to be void.
B) Although this type of provision is illegal, this particular one would be enforceable because it is reasonable between the parties and not contrary to public policy.
C) Such provisions are always void, being an illegal restraint of trade.
D) Although this provision would be void, the remainder of the contract for the sale of the business would be enforceable.
E) Agreements such as these are always binding, being the result of a free bargain between the parties.

Question

Quizplus · Accepted Answer

Such provisions are not illegal per se, but they will be void if they are unreasonable. In this case, the provision is reasonable because it is limited in time (one year) and geographic scope (any location).

A Provision in a Contract for the Sale and Purchase