A Provision in a Contract for the Sale and Purchase

question 43

Multiple Choice

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.

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Definitions:

Direct Labor-Hours

The aggregate amount of time spent by staff members directly participating in the creation process.

Variable Overhead Rate

The rate at which variable overhead costs are allocated to each unit of production, based on an activity driver.

Fixed Manufacturing Overhead

Costs in the manufacturing process that remain constant regardless of the production volume, including equipment depreciation and building lease expenses.

Direct Labor-Hours

The total hours worked by employees who are directly involved in the production of goods or services.