A Provision in a Contract for the Sale and Purchase

question 92

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) Such provisions are always void, being an illegal restraint of trade.
• 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) Although this provision would be void, the remainder of the contract for the sale of the business would be enforceable.
• E) This provision is in restraint of trade and causes the whole contract to be void.

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Definitions:

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The half of Earth that lies north of the equator, characterized by specific climatic patterns and day-length variations.