Business Law: Case Analysis
Business Law: Case Analysis
Bank of New York Mellon Trust v. Morgan Stanley Mortgage 14-2619 (2016)
The facts of this case in brief are that the plaintiff Bank alleged that the defendant had breached its contract with it involving a mortgage loan agreement. The defendant on the other hand alleged that they were not obliged contractually to repurchase the mortgage due to the fact that the contract was vitiated by misrepresentation. The background of the case is that the parties entered into an agreement a mortgage loan agreement and the defendant then defaulted on the loan and the bank sued to recover the amount. There were also allegations of breach of notice. The defendant had sent the plaintiff a notice of breach and a request of cure which was not complied with, hence the present appeal.
This case identifies how representation may affect the performance of a business contract. The question before the court was whether the notice to cure was a condition precedent to any obligation pertaining to buyback provisions. The court proceeded to hold that a request for cure is not a condition precedent to purchase or cure. It also raises issues of performance of a contract and whether a court can compel a party in breach of contract to perform the contract. There was no such obligation on the part of the defendant to comply with the condition precedent.
Relevance to Business Environment
This case may be applicable to the current business climate since it shows how a breach of contract by one party to the contract does not necessarily need a notice to cure. I would recommend therefore that those who purchase mortgages should read the terms and conditions of the mortgage before signing.
A non-compete clause, also called a restrictive covenant, is a provision in a contract between two parties to a contract, usually of employment, in which one party enters into a mutual binding agreement with another promising not to enter into a trade or profession in direct competition with the other party who already has an established business. Such clauses are mainly inserted by employers into employment contracts in order to protect the employer’s legitimate business interests and secrets such as trademarks and trade secrets or any other confidential information that would harm their business if made available to competitors. Covenants may also apply in the case of sale of a business in which the seller wishes to protect certain information regarding the business that they would not wish to exchange, say copyrights. In such cases, such a non-compete clause intends to restrict or limit the buyer’s activities in relation to the business and its name
One of the arguments usually labelled against non-compete clauses in business sale agreements is that the seller in most cases has the upper hand and is likely to arm twist the buyer into agreeing to terms that may turn out to be unfavorable in future. However, the main argument for such covenants is that they help in protecting business owners from unfair competition. They also help in preventing the seller from soliciting suppliers or customers of the new business establishment. According to Rugo and Davis (2013), following cases such as Whelan Security v Kennebrew, customer goodwill, trade secrets, and confidential information taken into account.
As was held in Payette v Guay Inc (2004), in order to be enforceable, a noncompeting clause in a business sale agreement, just as is the case with employment cases, must be reasonable. In the context of business law or commerce, any unreasonable covenant that does not take into account the public interest and interest of the parties to the sale agreement will be struck down by courts as being void.
In this case, the court recognized the disadvantaged position in which the buyer is and stated that in such contracts, the enforceability test must be strictly applied. Moreover, it was stated that such clauses will only be reasonable and enforceable if it is proved that they are necessary to protect the purchaser’s legitimate interests. The reasonableness is determined by considering the nature of the business activities, the expertise or experience of parties and the sale price. The courts also consider the geographical scope, drafting, scope of business and time (Drake, 2013). Hence, the covenant between Maurice and Todd may not enforceable since the five year period and the 25 miles of Tasty Burger are likely to be held unreasonable in protecting Maurice’s commercial interests. To this extent therefore, some of the options that may be available to Todd include not selling the business.
References
Drake, M.H. (2013, Fall). Non-competition covenants: Seller considerations and approaches. Retrieved June 3, 2016, from http://www.srr.com/article/non-competition-covenants-seller-c onsiderations-and-approaches
Rugo, J.M., & Davis, C.Q. (2013). Is it time to reconsider geographic restriction? Journal of the Missouri Bar, 273-283.
