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Hi again. Thanks for the additional info.
The general rule is that a non-compete is not binding unless it is reasonable in scope, distance, etc. In other words, a non-compete that states that you can’t own a liquor store for 100 years would not be enforceable. Similarly, a non-compete that states that you can’t own a liquor store within a million miles would not be enforceable. The 5 year limit is probably reasonable, as is the 20 mile restriction.
The other issue is with regard to the $25k in damages. In contract law, penalties are unenforceable because the purpose of contract law is to put the injured party back to his original position rather than in a better position. Therefore, provisions in contracts that assign damages in advance (this is called “liquidated damages”) will not be enforceable if they appear to be penalties in disguise. A court determines whether the such a provision is a proper liquidated damages clause or a penalty in disguise by looking at whether the amount in question is reasonably related to the actual damages that could be suffered by the other party. So, to continue with my exaggerated examples above, a provision in the contract that states you must pay $1 billion in damages would not be enforceable. $25k in damages may be reasonable when taking into account total revenues of both stores, since it could be in the millions if they’re popular liquor stores. If the liquor stores only do $25k of business in a year (clearly that’s not the case), then it would be unreasonably high.
Obviously, all I can do is speculate since I don’t have the details, and even if I did I can’t say for sure how a judge would rule, but based on what you shared, I would say that the non-compete is enforceable and that you’ll stand a very good chance of having to pay the $25k if you buy the other store.
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