Ramesh is purchasing a firm and goodwill of this firm run by two partners, Raj and Ram. This firm has been doing the business of clothing for past nine years and holds a good reputation in the market with stable orders f

Section 27 of the Indian Contract Act, 1872 states that every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is, to that extent, void. This Section is not happily worded and has been criticised by many authors. It appears from the wording that every kind of restraint, whether total or partial falls within the prohibition of this Section. The words "to the extent" in Section 27 make it clear that if in an agreement there are some convenants which are prohibited whereas the others are not and if the two parts can be separated then only those convenants which operate as restraint of trade would be void and not whole of the agreement itself. Prima facie every restraint of trade is void, but there are certain exceptions, in which case the contract is enforceable. This includes sale of goodwill. Where a seller of the goodwill of a business undertakes not to compete with the purchaser, the contract is enforceable provided the restraint appears to be reasonable as to territorial limits and the length of time. So, the contention of Raj is not correct.