Anonymised, illustrative composite. A departing shareholder's spouse signed a standalone non-competition agreement six weeks after closing, once the sale proceeds had already been fully paid under a different document, for a promise nothing new was ever paid for.
At a glance
A buyer purchased all of the shares of an Ontario electrical contracting company for $2,900,000. The founder held 60% of the shares and the founder's spouse held the other 40%, both directly and both as sellers under the purchase agreement. Each received their pro-rata share of the price for their shares: $1,740,000 to the founder and $1,160,000 to the spouse. The spouse had run the business's day-to-day operations and held most of the key customer relationships — commercially, she was at least as important to the goodwill the buyer was paying for as the founder was.
The purchase agreement's non-compete clause was drafted to bind “the Seller” — a defined term that, through a drafting error nobody caught before signing, was defined to mean the founder personally, even though the spouse had also transferred her shares under a joinder to the same agreement. The spouse's shares were properly sold and properly paid for; her non-compete simply was not there.
The buyer's integration team discovered the gap about six weeks after closing, once full payment had already been made under the SPA. Rather than treat it as unfixable, buyer's counsel prepared a short, standalone Non-Competition Agreement and had the spouse sign it separately. That document recited that it was given “in consideration of $1.00 and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged” — standard boilerplate. No new payment was actually made to the spouse for it. The $1,160,000 she had already received was consideration for her shares, under a different, already fully performed document, weeks earlier.
Eighteen months after closing, the spouse opened a competing electrical contracting business within the restricted radius and the restricted period. The buyer sued to enforce the standalone covenant. The spouse's position: the standalone agreement was signed for nothing — the money she had received was already spent, in a legal sense, on a different promise, before this document even existed, and a recital of nominal consideration does not create real consideration where none was actually paid.
The purchase price was $2,900,000. At the time of the original deal, the parties' own valuation work had attributed roughly $650,000 of that price to personal goodwill tied specifically to the spouse's own customer relationships and day-to-day involvement — the exact commercial risk a non-compete against her was meant to protect.
No statute governs this. Whether a covenant is binding turns on ordinary contract-formation doctrine: consideration and, closely related, whether the covenantor is properly a party to a document that actually ties a promise to a benefit. A contract binds only the parties who are actually bound to it by consideration flowing at the time the promise is made. Past consideration — a benefit already given, under a separate, already-performed agreement, before the new promise is even asked for — is not good consideration for that new promise. A recital of “$1.00 and other good and valuable consideration” does not manufacture consideration that was never actually paid; it only records that the parties intended there to be some, which is not the same thing as there being any.
Treadstone Law's own explainer of corporate versus personal non-competes states the underlying principle plainly, in a closely related context: “A contract only binds the parties who sign it. If a non-compete clause appears in the purchase agreement and only the selling corporation is a party to that agreement, then — as a matter of basic contract law — only the selling corporation is bound by it.” That piece addresses who is bound because of who is a party to which document; this file's problem is a step further — the spouse was a party to the standalone document, but nothing new was given in exchange for her promise in it, because everything she was ever paid had already been paid, in full, for something else.
The standalone Non-Competition Agreement was not enforceable against the spouse — it recited consideration that was never actually paid, for a promise made after the transaction it was meant to relate to had already fully closed. That left the buyer with only the original SPA's own non-compete clause, and that clause, because of its own defined-term error, had never captured the spouse in the first place. The buyer had no enforceable non-compete against the one shareholder whose departure created the most real competitive risk.
Had the spouse been made a party to the SPA's own non-compete clause at signing — with the purchase price expressly allocated, even nominally, between the sale of her shares and her covenant not to compete — the same $2,900,000 transaction would have protected the roughly $650,000 of goodwill the parties themselves had already identified as tied to her. Fixing the drafting error after the money had already moved required either a genuine new payment for a genuine new promise, or nothing at all. The buyer chose nothing, and got nothing.
The tell was the recital itself: “$1.00 and other good and valuable consideration” is language that looks like it solves a consideration problem and does not, if no consideration was actually paid and the underlying deal had already closed weeks before. It is boilerplate borrowed from a document signed at the same time as the payment it recites — not one signed after the payment was already spent on something else.
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