Contract Between Buyer and Seller of Business

A valid contract between a buyer and seller is assignable.  In Coker v. Richey, 104 Ore. 14, 27 (Or. 1922), the court held that a covenant and goodwill are assignable by the original vendee through a subsequent sale of the business, passing on to the new purchaser as part of the sale.  Further in Knowles v. Jones, 182 Ala. 187, 189 (Ala. 1913), the court held that the covenant and goodwill pass on to the subsequent purchaser automatically with the sale even if not expressly assigned.  This is because the goodwill is incident to and inseparable from the business itself.[i]

The fact that a covenant not to compete was not expressly assigned to the covenantee is immaterial in determining if an assignee can enforce the covenant.  In Sickles v. Lauman, 185 Iowa 37, 45 (Iowa 1918), it was held that “a seller is presumed to receive sufficient consideration for refraining from competition; and it is but equitable that the seller be required to perform the agreement in good faith.”

In Flower Haven, Inc. v. Palmer, 502 P.2d 424, 426-427 (Colo. Ct. App. 1972), the court held that if there is no express provision in the contract prohibiting assignment, then the vendee has the right to assign to the purchaser the covenant not to compete.  However, the vendee can frame a covenant in such a way that it is applicable only to the covenantees and in that case it will be applicable only to the covenantees and will not be assignable.[ii]

[i] Public Opinion Publishing Co. v. Ransom, 34 S.D. 381, 393 (S.D. 1914)

[ii] See, Barron v. Collenbaugh, 114 Iowa 71 (Iowa 1901)


Inside Contract Between Buyer and Seller of Business