Wonder Widgets Case Study

Wonder Widgets

The first issue Wonder Widgets faces is their liability to CelTel for the problem widgets. Depending on the cause of the problems, Wonder Widgets may be liable for damages. However, the sales contract contained a merger clause which limited wonder Widget’s liability.

A merger clause, when included in a contract, cause the contract to become the complete agreement of the parties (Mallor 471). This means that any terms that were discussed prior to the contract, that are not included in writing, do not apply. The sales contract signed by CelTel that contains the merger clause limited damages to the lesser of the replacement costs or repair of the widgets and let the seller choose the option. Assuming CelTel was not responsible

The first section of the clause would not be enforceable. As seen in a similar case, Clark’s Sales and Service, Inc. v. Smith, the geographic area restricted and the scope of activities are unreasonable. Limiting the employee from doing similar activities in any state Wonder Widgets conducted business is too broad and could severely restrict the employee from finding a job (Mallor 441). The two year time frame, used in both the first and second sections of the Wonder Widget non-compete clause, was found to be reasonable in the case against Smith. However, that does not mean two years is always reasonable and the Virginia courts may determine that two years in this case is also unreasonable. The enforceability of the second section can also be determined by examining the Clark v. Smith case. The courts found that prohibiting contact with past customers, regardless of the time since they are a customer, was too broad and limited competition (Mallor 441). Because the second section of Wonder Widgets non-compete agreement uses the words “was a customer”, this part of the agreement is unenforceable, independent of what the court determines is a reasonable time