Question

Cathy agrees to sell her Daily Donut shop to Ernie. In the agreement, there is a covenant not to compete that prohibits Cathy from operating a donut shop within a certain distance. If the restriction is unreasonable, a court will most likely _____
(A) prohibit both parties from operating donut shops.
(B) award Cathy damages.
(C) reform the covenant.
(D) order Ernie to stop doing business.

Answer 1

Answer:

Option C. Reform the convenant.

Explanation:

Convenant not to compete also known as anti-competitve agreement in a business sale contract is an agreement that a seller of a business will not open a business or work for a competitor for a specific time or within a specific geographic area. This is done in order to protect their business and prevent the secrets of the business from getting out to rivals.

In terms of employment, convenant not to compete means that an employee will not compete against an employer following termination of employment. If such contract is violated, the court may step in.

For a "convenant not to compete" to be enforced, it must be reasonable, which means it must meet certain requirements which includes that it is:

* In writing

* Part of a contract of business sale or employment.

* Based on valuable consideration,

* Reasonable to time and territory,

* Fair to the parties, and,

* Not against public policy.

If a convenant not to compete is found to be unreasonable in time or geographic area, the court may convert the terms into reasonable ones and then enforce the reformed contract. (Reformation is when a court orders correction of a written contract so that it reflects the true intentions of the parties.)

Therefore, the court will most likely REFORM THE CONVENANT if the restriction in the agreement between Cathy and Ernie is found to be unreasonable.