Pre Midterm Samples (Random) Answers

Is the restrictive covenant enforceable such

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Is the restrictive covenant enforceable? Such covenants are regarded a illegal and unenforceable unless the party wishing to enforce them can prove that they are reasonable regarding the interests of the parties, and not contrary to the public interest. Presumably there is no public interest at stake here; there is lots of competition in the public relations field. Does the restriction go further than is necessary to protect the interests of the parties? The Court will looks at the reason for the clause, its scope, the time limitations and the geographic area. If Sally has been in business for a length of time there probably is goodwill to be protected, and that is a legitimate reason to have a restriction. Sally is only prevented from performing services for clients with which she dealt while at Mega, and for a 5 year period after severance. Is there a need for a geographic restriction? Tom would argue no, because the clause prevents Sally only from doing business with Mega clients, and he has a legitimate right to prevent that no matter where the clients were. The scope seems reasonable, but the court might decide that the 5 year restriction extends further than it needs to to protect Tom’s business interests. If the court finds 5 years too long, the
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clause will be struck down and Tom will get no protection. The result is debatable. Has Dan been the victim of a misrepresentation on the part of Rick? A misrepresentation is a false assertion of fact which induces a party to enter into a contract. It is pre©contractual, and by the other party to the contract. Rick made a number of statements about Glo©Tech. He said that he intended to have the company listed, that a publicly traded company has a wider market for its shares, and that investors can make large profits by buying shares of private companies, then selling them when the companies become listed. None of these statements could be considered false, and so they do not qualify as misrepresentations. In any event, the exemption clause in the contract between Rick and Dan would prevent Dan from relying on pre©contractual statements unless Dan could show fraud, which does not appear to be the case here. Dan's best avenue of recovery against Rick would be to allege that this was an unconscionable transaction. An unconscionable transaction is one where one of the parties is under an obvious disadvantage because of some gross inequality in bargaining power, and where the transaction itself is an unwise. The disadvantaged party will not be bound by the unconscionable transaction. Dan is a janitor, not businessperson, and so Rick would expect that Dan would have little sophistication in business matters. In addition Dan is a recent immigrant to Canada with little education (and probably limited knowledge of English). Investing one's savings in a company hoping to make a windfall on the VSE is a risky and unwise strategy, and Rick would be sure to know this. Dan would therefore likely have a right to return of his money from Rick. Had Rick referred Dan to a lawyer or other knowledgeable adviser for advice on this matter, Dan would probably not have been able to avoid the transaction.
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  • Spring '10
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