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All agreement in restraint of trade are void does not apply to :
- a)The admission of a new partner
- b)Sale of goodwill
- c)Both (a) and (b)
- d)None of these
Correct answer is option 'B'. Can you explain this answer?
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All agreement in restraint of trade are void does not apply to :a)The ...
The article basically deals with the exceptions to the agreement in restraint of trade provided in Sec. 27 of the Indian Contract Act, 1872.
Exceptions of agreement in restraints of trade with reference to Indian and English case laws
“And while the law of competition may be sometimes hard for the individual, it is best for the race, because it ensures the survival of the fittest in every department.”
A non-compete clause or a covenant not to compete is a term used in contracts under which the employee agrees to not pursue a similar profession, trade or business in competition against the employer. Apart from the regular employment agreements, such covenants are also at times included in the agreements relating to sale of goodwill of business or professional practice, employment exit and other exclusive dealings and service arrangements.
The Indian Contract Act, 1872, which provides a framework of rules and regulations, governing the formation and performance of a contract in India deals with the legality of such non-compete covenants. It stipulates that an agreement, which restrains anyone from carrying on a lawful profession, trade or business, is void to that extent. Under section 27 of the Indian Contract Act, 1872 agreements in restraint of trade are void.
Agreement in restraint of trade is defined as the one in which a party agrees with any other party to restrict his liberty in the present or the future to carry on a specified trade or profession with other persons not parties to the contract without the express permission of the latter party in such a manner as he chooses. Providing for restraint on employment in the employment contracts of the employees in the form of confidentiality requirement or in the form of restraint on employment with competitors has become a part of the corporate culture.
However, the researcher in his paper will be dealing with the exceptions for the same, which has also been provided in the later part of the same section i.e. 27 of the Indian Contract Act, 1872.
SECTION 27;
Every agreement by which anyone is restrained from exercising a lawful profession or trade or business of any kind, is to that extent void.
EXCEPTION: One who sells goodwill of a business with a buyer to refrain from carrying on a similar business, within specified local limits so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein provided that such limits appear to the Court reasonable, regard being had to the nature of business.
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All agreement in restraint of trade are void does not apply to :a)The ...
Explanation:
Introduction:
The statement "All agreements in restraint of trade are void" is a general principle of contract law. It means that any agreement that restricts or hinders trade or competition is considered void and unenforceable by the courts. However, there are certain exceptions to this rule, and one such exception is the sale of goodwill.
Explanation of options:
a) The admission of a new partner:
When a new partner is admitted to a partnership, it is not considered a restraint of trade. This is because the admission of a new partner does not restrict or hinder trade or competition. Therefore, this option is not applicable in this case.
b) Sale of goodwill:
The sale of goodwill is an exception to the general rule that agreements in restraint of trade are void. Goodwill refers to the reputation and customer base of a business. When a business is sold, the buyer pays for the goodwill in addition to the tangible assets of the business. The buyer pays for the goodwill because it is expected to bring in future profits.
The sale of goodwill may involve a non-compete clause, which restricts the seller from engaging in a similar business within a certain geographical area and for a certain period of time. This non-compete clause is considered valid and enforceable because it is directly related to the sale of goodwill. If the seller were allowed to compete with the buyer immediately after the sale, it would diminish the value of the goodwill that the buyer paid for.
Therefore, the sale of goodwill is an exception to the general rule that agreements in restraint of trade are void. This is why option 'B' is the correct answer.
c) Both (a) and (b):
Option 'c' is incorrect because the admission of a new partner does not fall under the exception to the general rule that agreements in restraint of trade are void. Only the sale of goodwill falls under this exception.
d) None of these:
Option 'd' is incorrect because the sale of goodwill is an exception to the general rule that agreements in restraint of trade are void. Therefore, this option is not applicable in this case.
Introduction:
The statement "All agreements in restraint of trade are void" is a general principle of contract law. It means that any agreement that restricts or hinders trade or competition is considered void and unenforceable by the courts. However, there are certain exceptions to this rule, and one such exception is the sale of goodwill.
Explanation of options:
a) The admission of a new partner:
When a new partner is admitted to a partnership, it is not considered a restraint of trade. This is because the admission of a new partner does not restrict or hinder trade or competition. Therefore, this option is not applicable in this case.
b) Sale of goodwill:
The sale of goodwill is an exception to the general rule that agreements in restraint of trade are void. Goodwill refers to the reputation and customer base of a business. When a business is sold, the buyer pays for the goodwill in addition to the tangible assets of the business. The buyer pays for the goodwill because it is expected to bring in future profits.
The sale of goodwill may involve a non-compete clause, which restricts the seller from engaging in a similar business within a certain geographical area and for a certain period of time. This non-compete clause is considered valid and enforceable because it is directly related to the sale of goodwill. If the seller were allowed to compete with the buyer immediately after the sale, it would diminish the value of the goodwill that the buyer paid for.
Therefore, the sale of goodwill is an exception to the general rule that agreements in restraint of trade are void. This is why option 'B' is the correct answer.
c) Both (a) and (b):
Option 'c' is incorrect because the admission of a new partner does not fall under the exception to the general rule that agreements in restraint of trade are void. Only the sale of goodwill falls under this exception.
d) None of these:
Option 'd' is incorrect because the sale of goodwill is an exception to the general rule that agreements in restraint of trade are void. Therefore, this option is not applicable in this case.
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All agreement in restraint of trade are void does not apply to :a)The admission of a new partnerb)Sale of goodwillc)Both(a) and (b)d)None of theseCorrect answer is option 'B'. Can you explain this answer?
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