Legal Question in Business Law in California

Re: contract agreement broken

Noncompete clauses are very tricky to enforce. The must be written very carefully. If the clause was drafted properly, the buyer may have a claim for damages or injunctive relief. However, you should have the contract reviewed by a local business litigation attorney for more information.

Re: contract agreement broken

California's legislative policy is that everyone should have a right to pursue any legal business, trade or occupation, and that contracts attempting to restrict that right are not enforcable. There is a somewhat narrow statutory exception involving sale of a business. Essentially, if the seller sells the goodwill of the business to the buyer, and the buyer pays a valuable consideration for the goodwill, then the buyer may extract a promise from the seller that the seller will not undermine the value of the goodwill thus purchased. This is the so-called "covenant not to compete." Such covenants in sale-of-business contracts are enforcable if the restriction imposed on the seller is reasonable in relation to the consideration paid for the goodwill.

For example, if a retail store is sold for $200,000 and the contract allocates $25,000 of the price to goodwill, a covenant not co compete would probably be enforced if it prevented the seller from re-opening a store of the same kind within 10 miles for the next three years.

On the other hand, if the covenant attempted to prevent the seller from operating any kind of retail business anywhere in California for the next ten years, it would be deemed too broad and wouldn't be enforced at all. Possibly a judge might "blue pencil" the covenant and re-write it to read more reasonably and enforce a watered-down version, but I believe blue-penciling contract covenants is frowned upon and wouldn't often be done.