Rights of Seller and Buyer of the Goodwill After Dissolution—Regarding the rights of seller and buyer of Goodwill, S. 55 of the Act provides as under –In settling the accounts of a firm after dissolution, the goodwill shall, subject to contract between the partners, be included in the assets, and it may be sold either separately or along with other property of the firm. It may be noted that where the goodwill of a firm is sold after dissolution, a partner may carry on a business competing with that of the buyer and he may advertise such business, but subject to the agreement between him and the buyer, he may not —
(a) Use the firm name,
(b) Represent himself as carrying on the business of the firm, or
(c) Solicit the custom of persons who were dealing with the firm before its dissolution.
Thus, from this provision it is clear that what are the rights of the seller are the duties of the buyer and what are the rights of the buyer are the duties of seller in case of sale of the goodwill after dissolution of the firm. Thus, the rights and duties of seller and buyer may be explained as fol lows —
Rights of Seller of Goodwill or Duties of buyer of the Goodwill —A seller of the goodwill is entitled to carry on a business competing with that of the buyer and he may advertise such business and the buyer is under a duty not to stop the seller from carrying on a business competing with that of the buyer and from advertising such business by the seller.
Rights of Seller of Goodwill or Duties of the Seller of Goodwill – The seller of goodwill is under an obligation not to use the firm name, not to represent himself as carrying on the business of the firm and not to solicit the custom of persons who were dealing with the firm before its dissolution; and the buyer has a right to check the seller if the breach is made by him.S. S5 (3), further clarities that any partner, alter dissolution, may make an agreement with the buyer of the goodwill that such partner shall not carry on the business similar to that of the firm in some specified locality or for some specified’period and such an agreement is fully valid inspite of the provisions of S. 27 of the Contract Act that an agreement in the nature of restraint in trade is void. But the requirement is that such restrictions must be the reasonableness of the restriction., must be judged by the character or nature of the business and its customers. Thus, where a partner of a firm manufacturing and selling bakelite goods, sold the business to other partner and agreed not to carry on a similar business for 3 years within the city of Bombay, the restriction was held to.be reasonable. On the contrary, whereby an agreement dissolving a firm of insurance agents, an outgoing partner was restrained from carrying on insurance business any where except In Karachi, the restriction was regarded as unreasonable.