Company A enters in an employment agreement with Sales Manager. The employment agreement provides that, upon termination of the agreement, Sales Manager is prohibited from working for any competitor of Company A in any capacity for ten years. The agreement also provides that, in the event of a breach of this covenant, Sales Manager will be liable for $5,000,000 in liquidated damages.
- Is the covenant an enforceable agreement in restraint of trade? Why or why not?
- If you believe that the covenant is unenforceable, what changes would you recommend to make it enforceable?
- Sales Manager leaves Company A and goes to work for Company B, a competitor of Company A. Company A sues and demands payment of $5,000,000 in liquidated damages. Assuming the agreement in partial restraint of trade is otherwise enforceable, will Company A be entitled to a judgment in the amount of $5,000,000 against Sales Manager? Why or why not?
Company A enters into an agreement with Company B to purchase widgets from Company B for a two-year period. The contract sets forth quality standards that require at least 95% of the widgets to be suitable for Company A's purposes. From the first month of the arrangement, only 90% of the widgets met the quality standards. At first, Company A does not advise Company B of the problem because Company A needs to keep its production line moving and it hopes that Acme will improve its performance. However, after six months, Company A wants to terminate the contract.
- What contract clause or clauses should Company A review before terminating the agreement?
- Assume the same facts except Company A's Production Manager orally tells Company B that it can live with the 90% quality level but Company B needs to improve its performance. Does this modify the contract? What contract clause or clauses would you review to determine your answer to this problem and why? Would your answer be different if the Production Manager sent a letter? Why or why not?
- What defenses could Company B assert against Company A?
- Assume that Company B sues Company A. Since Company B is a small company with few resources, Company B wants to recover its attorneys' fees. Is this possible? What contract clauses should be reviewed and why?
Company A enters into a contract with Company B that requires Company B to use its best efforts to create a positive public image for Company A in consideration for payment in the amount of $10,000 per month. After three months, Company B has placed only one newspaper article about Company A, and Company A stops making the $10,000 per month payments.
- What contract clause or clauses should Company A review before stopping payments?
- What claims are Company A likely to make against Company B?
- What defenses are Company B likely to assert against Company A?
- Would it make any difference if the contract required "commercially reasonable best efforts"? Why or why not?