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The seller of a business’s goodwill agrees to refrain from carrying on a similar business within local…

A seller of goodwill may agree to a restraint within court-approved reasonable local limits while the buyer or a successor in title carries on a like business there. Section…

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The seller of a business’s goodwill agrees to refrain from carrying on a similar business within local limits that the court considers reasonable. The buyer continues a like business there. What is the effect of the restraint under section 27 of the Indian Contract Act, 1872?

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Answer and explanation

Correct answer C

A seller of goodwill may agree to a restraint within court-approved reasonable local limits while the buyer or a successor in title carries on a like business there. Section 27, exception 1, saves the restraint on the stated facts.

Option feedback

Option A

Exception 1 saves this restraint because the sale, local limits and continuing business meet its requirements.

Option B

Section 27 does not make a restraint meeting exception 1 voidable at the buyer’s option.

Option C

The restraint falls within exception 1 on the facts given.

Option D

The exception lasts only while the buyer or a person deriving title to the goodwill carries on a like business within those limits.

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