Negative Covenant Law and Legal Definition
Negative covenant is a covenant which calls for refraining from certain acts or certain uses of property. For instance, a provision in a debt agreement that imposes one or more constraints on the borrower, such as a ceiling on the executives' salaries, prohibition on acquiring more debt, and tight control on level of dividend. A provision in the lender's documents that prohibits the borrower from doing something in the future is also a negative covenant.
The enforcement of negative covenants in contracts of personal service is based squarely upon the theory that the defendant's services are unique and extraordinary and therefore cannot be compensated for in money damages. [Madison Square Garden Corp. v. Braddock, 90 F.2d 924 (3d Cir. N.J. 1937)].
