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A manufacturer agrees to sell its entire output for two years to one buyer, who agrees to take all of it. Is the agreement void under Section 27 of the Indian Contract Act, 1872?

Question and options

A manufacturer agrees to sell its entire output for two years to one buyer, who agrees to take all of it. Is the agreement void under Section 27 of the Indian Contract Act, 1872?

  1. No, but it is saved because both parties carry on business as traders

  2. No, as exclusive dealing while the deal lasts does not restrain trade

  3. Yes, as the manufacturer is barred from selling to anyone else for two years

  4. Yes, as Section 27 saves no restraint apart from one on a sale of goodwill

Answer and explanation

Correct answer: B - No, as exclusive dealing while the deal lasts does not restrain trade

An agreement to sell one's whole output to one buyer for a period regulates the course of the business during the contract; it is not a restraint of trade under Section 27 of the Indian Contract Act, 1872 unless it is unconscionable or excessively harsh (Gujarat Bottling Co. v. Coca Cola Co., 1995). Barring sales to others during the agreement is the very purpose of such a contract, not a ground for voiding it.

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