I sold a business a few months ago, and as part of the contract there was a non-compete clause for one year. The business has gone out of business before the year was up. Is the non compete clause still enforceable?
First, consider whether the non-compete was ever enforceable. Non-competes are often written too broadly and become unenforceable. Next, consider the other sides' ability to afford litigation. If they are out of business, how are they going to litigate this? Next, consider damages. If the other side is no longer in business, how is it that you, entering the business after their operations have ceased, damages theirs? Finally, you can be sued for anything on any contract,. The questions is always, is it worth the risk?
This is an public comment. It is largely a public, non-confidential opinion meant to generally inform the questioner of legal principals and options. Due to lack of specifics, information and direct counsel, it in no way is to be construed as competent legal advice specific to the individuals case,.nor does it imply or create an attorney client relationship. For competent legal advice, consult directly with an attorney.
Technically, the answer is likely yes. When a company "closes," they don't cease to exist. And there are different meanings of the word "closes." For example, the company could cease operating, and it could file with the state a dissolution. Each of those can be interpreted as closing, but in each case, the company still has rights and responsibilities. One of the responsibilities is to liquidate the company and one of the rights is to enforce contracts. So theoretically, the company, even if it is closed, could attempt to enforce the non-compete and it may have a responsibility to do so for the benefit of the owners of the company.
The challenge a company would have in this situation is to show that enforcing the non-compete is necessary to protect their economic interests. The seller could make the argument that the buyer has abandoned the business and there is now no benefit in the non-compete. But the buyer could argue that the seller never complied and the fact that the seller started back up may be evidence that the seller interfered with the buyers business prior to closing. The best course to take in a situation like this is to ask for a waiver or release from the obligation.
This response is not legal advice and is for informational purposes only. No attorney-client relationship is established between questioner and answerer by means of this response.
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