Company Contract and Employee Agreement Legal Situations
Company A enters into 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. Thecontract 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 question 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?
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