Principle: An agreement in restraint of trade is void under Section 27 of the Indian Contract Act, except when relating to the sale of goodwill.
Facts: A doctor sells his clinic along with its goodwill to B and agrees not to practice within a 3 km radius for 3 years. Is the restraint valid?
Answer and explanation
Correct answer: A. Yes, reasonable geographical and temporal restraint on sale of goodwill is valid under Section 27
- Step 1: Examine Section 27 of the Indian Contract Act 1872.
- Step 2: While agreements in restraint of trade are generally void, the statutory exception provides that one who sells the goodwill of a business may agree to refrain from carrying on a similar business within specified local limits.
- Step 3: Since 3 km for 3 years is reasonable, the agreement is valid and enforceable.
Answer
Yes, reasonable geographical and temporal restraint on sale of goodwill is valid under Section 27.
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