Question

Alex is a 60 year-old barber who owns Suburban Barbershop, a sole proprietorship, and wants to retire very soon. Alex has an apprentice barber, Phil, who knows exactly how to cut hair like Alex does. Phil wants to buy Alex’s business when Alex retires. The barbershop has $10,000 worth of physical assets; yet the business is valued at $60,000. That difference between these two amounts reflects “business goodwill” or the expected patronage of customers. Phil is willing to buy the business for $60,000 but worries that Alex could sabotage the business goodwill by changing his mind about retirement and opening up a competing venture nearby. Phil wants to insert a clause in the contract selling the business that would take care of this problem. As his lawyer, how would you write the clause? And explain exactly why it is that you need to pay special attention to the terms of this particular clause.

Answer 1

Phil worries that Alex could sabotage the business by changing his mind and opening up a competing venture nearby.

This worry needs to be addressed in the contract.

Clause:

"After the sale of your business to Phil, you agree to not engage in any business, employment, consulting, or other activity in any business that would be competitive with the business you owned and sold to Phil in the vicinity of 5 km from the location fo the shop sold."

We need to pay special attention to this, as Alex has a credible good will in the inductry and he opening up competitve business would hamper Phil's business.

Hence, we should put a clause stating that we cannot open up competitive business, he couldn't go as an employee or consult any one in the same business which is competitive.

Since, barber shop attracts crowd from the nearby places, a deterrent of business in vicinity of 5 km must serve the purpose.