Mercantile law

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Ankit Hinduja (Querist)
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28 August 2011 S,a seller of imitation jewelery,sells his business to B and promises,not to carry on business in imitation jewelery and real jewelery . The agreement is :

a. fully valid.
b.valid with regard to imitation jewelery and void as regards real jewelery.
c.Wholly void.

according to my understanding the ans. should be c.

but ans. is b. please explain...

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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28 August 2011 The answer is very correctly B. If S sales Business to B and Agrees not to carry a business with regards to the imitation jewelery the agreement is not void.

The case relates to the case of Goldsoll v Goldman (1915) 1 Ch 292.

It is a case of Restraint to trade. It is enforceable if the following conditions are satisfied:

vendor/purchaser covenants three conditions must be satisfied:

(a) there must be an interest to protect

(b) the restraint must be reasonable, and

(c) it must not be contrary to the public interest.

In the given case all the three conditions are satisfied....

1) It is to protect the interest of B
2) It is reasonable as far as Imitation jewelery business restriction is concerned.
3) It is not contrary to the public restriction.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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28 August 2011 There is a logic behind the restriction.

Since S is a well know and have a great reputation in jewelery business and he sells it to B. Now if S start the same business or continue doing same business the business of B will be hampered. For this reason restraint covenants are inserted. This concept is more popularly known as non compete agreement. It also involves payment of non compete fees.

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