Contract in Restraint of Trade Law and Legal Definition

Contract in restraint of trade is a contract that states that a person selling a business agrees not to open a similar business within a particular distance of the business being sold and for a particular period.

A contract in restraint of trade, to be upheld, must be restricted as to territory, and it must appear to the Court, in considering the nature of the business in connection with the territorial limits assigned, that the limits designated are not unreasonable in extent. [Callahan v. Donnolly, 45 Cal. 152 (Cal. 1872)].