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

The goodwill exception permits the seller to agree to a restraint within specified local limits that the court considers reasonable, having regard to the nature of the…

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The seller of a business’s goodwill agrees to refrain from carrying on a similar business within stated local limits. The court considers those limits reasonable and the buyer continues a like business there. How does section 27 of the Indian Contract Act, 1872 treat this restraint?

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Answer and explanation

Correct answer C

The goodwill exception permits the seller to agree to a restraint within specified local limits that the court considers reasonable, having regard to the nature of the business. It applies while the buyer, or someone deriving title to the goodwill from the buyer, carries on a like business there.

Option feedback

Option A

Section 27 contains an express exception for qualifying restraints linked to the sale of goodwill.

Option B

The qualifying restraint is not voidable merely because the seller agreed to it.

Option C

The facts meet the goodwill exception’s conditions for a reasonable local restraint.

Option D

The exception concerns a restraint within specified reasonable local limits, not a restraint outside them.

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