Question

Question 23-Zach sold a restaurant to Shane for $295,000. As part of the agreement, Zach promised not to open another restaurant business for three years within a 50-mile radius of the one sold. What is the name of this clause? Is this agreement likely to be enforceable against Zach? Why or why not? If it is unenforceable what changes could be made to make it enforceable?

Answer 1

What is the name of this clause?

Noncompete clause.

It is is a clause under which one party agrees not to enter into or start a similar profession or trade in competition against another party .

Is the agreement likely to be enforceable against Zach ? Why or Why not ?

  Noncompete clauses are often upheld when the clause is ancillary to the sale of a business provided it is reasonable in time, geographic area, and scope of activity. Here the clause is ancillary to the sale of a business. Thus, the issue is whether the clause is reasonable.The clause prevents Zach from opening another restaurant so the scope of activity is reasonable.

If it is unenforceable what changes could be made to make it enforceable?

They should make the terms reasonable. Is three years a reasonable amount of time and is the 50-mile radius too broad? Some factors that may be considered are the strength of Zach's reputation and where his customers were from in terms of distance from the restaurant.