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I signed a non-compete at the time of sale of my liquor store

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I signed a non-compete at...
I signed a non-compete at the time of sale of my liquor store in CT for five years which was valued at 25K. Now, 3 1/2 years later I find I must reenter the liquor business and break the covenant. In your opinion, is it enforceable and would my maximum liability be the 25K?
Submitted: 8 years ago.Category: Business Law
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4/3/2009
Business Lawyer: TJ, Esq., Attorney replied 8 years ago
TJ, Esq.
TJ, Esq., Attorney
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Hi. Can you give me more details about what the non-compete prevents (e.g. where does it prevent you from entering the liquor business), and more details about what exactly you plan to do in the liquor business?

Thanks.
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Customer reply replied 8 years ago
The non-compete was for 5 yrs and 20 miles from the retail liquor store I sold. Prohibeting
me from buying another store. Its now 3Yrs later and I findly found another good store to buy but its only 6 miles from the one I sold. There was no seperate non-compete it
was just included in the sales aggrement and 25k was its allocated value.
Business Lawyer: TJ, Esq., Attorney replied 8 years ago

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.

Have I satisfactorily addressed your concerns? If not, then please feel free to ask for clarification.

If the information that I provided was helpful, then please remember to click the green accept button so that I will receive credit and compensation for my time. Positive feedback is always appreciated as well. Thank you and good luck!

.

DISCLAIMER: Please understand that the complexities of most legal problems cannot be adequately addressed in this setting, and that I am only licensed to practice law in the state of Maryland. Accordingly, you acknowledge (1) that we have not formed an attorney-client relationship, and (2) that my post is general information only and not specific legal advice.

 

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Customer reply replied 8 years ago
By the non-compete being valued at 25k , would that be my maxium penalty ,plus court costs
Business Lawyer: TJ, Esq., Attorney replied 8 years ago
Yes, the maximum penalty would be 25k. The other party can't demand more, and you can't argue to pay less. The $25k is what you two agreed the damages would be, and it will stand even if actual damages are more or less (so long as it's not completely out of proportion with reality, as in my example above).
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