Monday, October 31, 2011

In Alabama, No Implied Covenant Not to Compete In Business Sale (Pinzone v. Papa's Wings, Inc.)

A few months ago I discussed New York's common law rule that in a sale of business, when goodwill is part of transferred assets, the law implies a covenant on the part of the seller not to solicit the patronage of his or her former clients. Under New York law, this is inextricably bound up with goodwill itself, such that even in the absence of an express non-compete in the business sale documents, courts will grant the purchaser one to protect the integrity of the deal.

In Alabama, the opposite is true. The Court of Civil Appeals held that the existence of a covenant not to compete cannot be implied even when the sale agreement includes the transfer of intangible goodwill.

As I have previously noted, even in more protectionist states like New York, it is far preferable to draft clear covenants and include them in the transaction documents. What these cases discuss are gap-filler rules at common law, which should be invoked sparingly. Parties always are free to contract for a wide array of covenants in connection with an arms' length transaction, and courts generally enforce them as long as they are not patently unreasonable.


Court: Court of Civil Appeals of Alabama
Opinion Date: 7/9/10
Cite: Pinzone v. Papa's Wings, Inc., 2010 Ala. Civ. App. LEXIS 189 (Ala. Ct. Civ. App. July 9, 2010)
Favors: N/A
Law: Alabama

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