SW Legal studies in Business

Reformation of Contracts Should Only Concern Insignificant Matters
Description Appeals court held that a covenant not to compete was unreasonable and could not be reformed by the trial court. Since it was unreasonable, it would not be enforced.
Topic Contracts
Key Words Covenant Not to Compete; Reformation; Breach
C A S E   S U M M A R Y
Facts Varsity's sales agents sign agreements to work in certain territories on a commission basis, month-by-month, until terminated by either party. The agreement prohibits agents, for three years after termination, from competing with Varsity within the state of Pennsylvania or bordering states or from soliciting Varsity customers during that time. The agreement states that a court might reform the geographic and time restrictions if found to be unreasonable. Varsity fired Porzio, who then went into competition with Varsity in Pennsylvania. Varsity sued. The trial court found the covenant not to compete unenforceable because it was too long and covered too large an area. The court reformed it to be one year in south Pittsburgh and enjoined Porzio from competing in that area. Varsity appealed.
Decision

Reversed in part. In general, courts are not to reform contracts, regardless if the contract instructs the court that it may do so. The only authority of the courts is to reform insignificant matters. The covenant here was unreasonable as to coverage and so cannot be enforced and cannot be reformed. The restriction is unreasonable.

Citation Varsity Gold, Inc. v. Porzio, 45 P.3d 352 (Ct. App., Ariz., 2002)

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