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A sells the goodwill of his business to B and agrees with him to refrain from carrying on a similar business within specified local limits. This contract is
- a)Valid.
- b)Void.
- c)Voidable.
- d)Illegal.
Correct answer is option 'A'. Can you explain this answer?
Verified Answer
A sells the goodwill of his business to B and agrees with him to refra...
The contract is valid.
The contract between A and B for the sale of goodwill and the agreement to refrain from carrying on a similar business within specified local limits is considered valid. Here's why:
1. Goodwill:
- Goodwill refers to the reputation and customer loyalty associated with a business.
- Goodwill can be bought and sold as an intangible asset.
2. Contractual agreement:
- A and B have entered into a contract where A sells the goodwill of his business to B.
- The terms of the contract include A's agreement to refrain from carrying on a similar business within specified local limits.
3. Legality:
- The contract does not violate any specific laws or regulations.
- There is no information provided to suggest that the agreement is against public policy or involves any illegal activities.
4. Enforceability:
- The contract is enforceable as it involves a lawful object (sale of goodwill) and has been entered into by the free consent of both parties.
- The agreement to refrain from carrying on a similar business within specified local limits is a valid restriction that is reasonably necessary to protect the goodwill acquired by B.
5. Consideration:
- In a contract, consideration refers to something of value exchanged between the parties.
- In this case, A sells the goodwill of his business to B, and B agrees to pay a consideration for the acquisition of the goodwill.
6. No grounds for voidability:
- There is no information provided that suggests any grounds for the contract to be voidable, such as fraud, misrepresentation, coercion, or undue influence.
In conclusion, the contract between A and B for the sale of goodwill and the agreement to refrain from carrying on a similar business within specified local limits is valid. Both parties have willingly entered into the contract, and there are no legal or ethical issues associated with it.
Most Upvoted Answer
A sells the goodwill of his business to B and agrees with him to refra...
Understanding the Validity of the Contract
When assessing the validity of the contract between A and B regarding the sale of goodwill and the agreement to refrain from competing, several legal principles come into play.
Key Elements of the Contract
- Goodwill Sale: A sells the goodwill of his business to B. Goodwill is a valuable intangible asset representing the reputation and customer relationships of a business.
- Restrictive Covenant: A agrees not to engage in a similar business within specified local limits. This is known as a non-compete clause, intended to protect B's interests in the acquired goodwill.
Legality of the Agreement
- Consideration: The contract involves consideration (the payment for goodwill), which is essential for a valid contract.
- Reasonableness: The restrictions on A’s future business activities are limited in scope (local limits) and duration, which are generally seen as reasonable in protecting the buyer's investment.
- Public Policy: Non-compete agreements are valid as long as they do not overly restrain trade or violate public policy. Since the terms are reasonable, they do not fall into the category of being illegal.
Conclusion
Given these points, the contract is valid. It has clear terms, includes consideration, and adheres to the principles of public policy. Therefore, the correct answer is option 'A' - Valid.
This agreement effectively balances the interests of both parties involved and ensures that B can benefit from the goodwill without direct competition from A.
When assessing the validity of the contract between A and B regarding the sale of goodwill and the agreement to refrain from competing, several legal principles come into play.
Key Elements of the Contract
- Goodwill Sale: A sells the goodwill of his business to B. Goodwill is a valuable intangible asset representing the reputation and customer relationships of a business.
- Restrictive Covenant: A agrees not to engage in a similar business within specified local limits. This is known as a non-compete clause, intended to protect B's interests in the acquired goodwill.
Legality of the Agreement
- Consideration: The contract involves consideration (the payment for goodwill), which is essential for a valid contract.
- Reasonableness: The restrictions on A’s future business activities are limited in scope (local limits) and duration, which are generally seen as reasonable in protecting the buyer's investment.
- Public Policy: Non-compete agreements are valid as long as they do not overly restrain trade or violate public policy. Since the terms are reasonable, they do not fall into the category of being illegal.
Conclusion
Given these points, the contract is valid. It has clear terms, includes consideration, and adheres to the principles of public policy. Therefore, the correct answer is option 'A' - Valid.
This agreement effectively balances the interests of both parties involved and ensures that B can benefit from the goodwill without direct competition from A.
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A sells the goodwill of his business to B and agrees with him to refrain from carrying on a similar business within specified local limits. This contract isa)Valid.b)Void.c)Voidable.d)Illegal.Correct answer is option 'A'. Can you explain this answer?
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