A Provision in a Contract for the Sale and Purchase

question 129

Multiple Choice

A provision in a contract for the sale and purchase of a business reads 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 (the buyer) 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)Agreements such as these are always binding,being the result of a free bargain between the parties.
• C)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.
• D)Such provisions are always void,being an illegal restraint of trade.
• E)Although this provision would be void,the remainder of the contract for the sale of the business would be enforceable.

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Definitions:

Unused Capacity

The portion of a company's production capability that is not currently being utilized for production.

Job-Order Costing

An accounting methodology that tracks costs individually for each job, rather than on a department or factory-wide basis.

Automated Shaper

Machinery equipped with computer numerical control (CNC) to shape materials into specific designs with minimal human intervention.

Unused Capacity

Refers to the available production or service facility resources that are not currently being used.