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:

National Convention

A meeting held every four years by political parties in the U.S. to nominate presidential and vice-presidential candidates.

Congress

The legislative branch of the United States federal government, consisting of two houses: the Senate and the House of Representatives.

Articles of Confederation

The original constitution of the United States, ratified in 1781, which was replaced by the U.S. Constitution in 1789 to form a stronger federal government.

Shays's Rebellion

A 1786-1787 uprising led by Daniel Shays and other Revolutionary War veterans in western Massachusetts, protesting against high taxes and economic injustices, which highlighted the need for a stronger national government.