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involvement in the child care business had often resulted in
repeat patronage, as parents returned to enroll younger siblings.
With regard to present ability, petitioners were only 50 and
37 years of age and in good health at the time of the sale.
Furthermore, although petitioners mentioned that they planned to
travel following the sale, they did not indicate a permanent
departure from the geographic area.
Given these circumstances, a prudent business person might
reasonably perceive competition from petitioners as a threat to
the continued success of Little Rascals, and negotiations related
to the sale reveal that the Shahs did in fact have such a
concern. Beginning with the conscious addition of the “and
officers” language to the purchase agreement and continuing
through the requests for a separately executed covenant and the
discussion of its importance at the closing, the record bears
repeated evidence of the independent significance placed by the
Shahs on this covenant. Mr. Shah even testified that he would
not have gone through with the sale absent such an agreement.
Hence, petitioners’ covenant was in fact a critical and
separately bargained-for component of the transaction. When
faced with the unusual scenario of a bank trustee selling a child
care center, the Shahs prudently sought some form of assurance
from the founder, operators, and true threat of competition.
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