Question

Sam decided to sell his interior design business in Town to Betty. While reviewing a purchase agreement drafted by Sam, Betty insisted on a covenant by Sam not to compete with her in the interior design business in Town for a period of ten years. In response to Betty’s request, Sam drafted the following proposed language on the last page of the purchase agreement: "Sam hereby agrees that he will not perform interior design services in Town for a period of ten years." Betty said: "That’s fine. I don’t want to have to compete with your ties to your former clients in Town." Sam told Betty that he would revise the purchase agreement to ad this covenant. The following day, Sam sent Betty the original and one copy of the purchase agreement. Betty signed the original without reading it and returned it to Sam along with payment of the purchase price; she kept the copy. Sam never signed the purchase agreement. Six months later, Betty learned that Sam had recently undertaken four large interior design jobs for clients who lived in Town. When she complained, he explained that, although the clients lived in Town, the jobs were on properties located outside Town. She reviewed her copy of the purchase agreement and discovered that it did not contain the covenant not to compete. Sam had mistakenly sent her an unrevised version of the purchase agreement.

1. Does the purchase agreement contain a covenant by Sam not to compete? Discuss.
2. Is the purchase agreement enforceable? Discuss.
3. Assuming the purchase agreement contains a covenant by Sam not to compete and is enforceable, did Sam violate the covenant? Discuss.

Answer 1

1. According to the short passage, Sam mistakenly sent an unrevised version of the purchase agreement. The unrevised version does not contain the convenant by Sam not to compete.

2. All of the other agreements contained in the purchase agreement except for the convenant not to compete is enforceable. This is because Sam has mistakenly sent a copy that does not contain the convenant as agreed by himself and Betty not to compete for a period of Ten years. Even if Betty files a lawsuit on breach of agreement, her case would lack substance as the accused never assented to her convenant.

3. Yes, Sam violated the convenant If the purchase agreement contained a convenant not to compete and he went ahead to work for his old clients regardless of whether the jobs were in town or not. This would be a breach of agreement and Sam may pay heavily for it if Betty takes it up as a subject for litigation.