Contract – Vitiating Factors – Illegality – Flashcards

Contracts illegal by statute: Contract made it illegal for stockbrokers to conduct certain business in London without obtaining a licence. Exch Held: Lack of a licence made the contract illegal and unenforceable. The provision was to protect the public from the harm that could be caused by unregulated brokers.

Contracts void at common law - restraint clauses: Restraint clause in an employee's contract - 7 years after leaving HL Held: the restraint covered the whole range of the employer's business and the employee's potential expertise and was too wide to succeed despite the key position he had held and the experience he had gained from the employment. It would have deprived him of any employment opportunities.

Contracts void at common law - restraint clauses: Three directors left and formed their own brokerage and were accused of soliciting clients contrary to a restraint clause in their contracts CA Held: since the purpose of the restraint was to prevent soliciting of insurance clients, and only HIB engaged in this activity, the clause could be upheld against them.

Contracts void at common law - restraint clauses: Employer sought to enforce restraint in solicitor's clerk's contract preventing him from taking similar employment within a seven mile radius HL Held: the restraint was reasonable. Was a small rural community. The clerk knew the client contract and could have been in a position to damage his employer's business

Contracts void at common law - restraint clauses: Milkman's contract 2 restraint clauses 1. prevented him from taking any employment connected with the dairy business. 2. that he should not work as a milkman or serve any existing customer one year after leaving the employment CA 1 - too wide to be reasonable 2 - was enforced as it only protected legitimate interests for a short period

Contracts void at common law - restraint clauses: Well-known footballer challenged the legitimacy of the Football Association transfer system as could be used to prevent him playing again and also could be placed on transfer list against their will Ch Held: the rules were an unlawful restraint of trade and were unenforceable

The ---- Ruling Art -- EC Treaty now control Football Association transfer of players and restraint of trade

Contracts void at common law - restraint clauses: Vendor sold arms business subject to a restraint preventing the buyer from engaging in the armaments business anywhere in the world for a period of 25 years HL Held: the court enforced the clause as the world being an appropriate market, it was not too wide

Contracts (not) void at common law: Restraint of Trade George Michael wanted improved control of his recording contract. Tried to get Wham's recording contract declared void for restraint of trade. Compromised agreement, moved to CBS 1984. Solo artist changed contract in 1988. CBS taken over by Sony. Became dissatisfied, wanted to change image sought to have agreement declared void for restraint of trade. QBD Held: As the 1988 contract was based on and was an improvement on the 1984 agreement accepted by the court as a genuine compromise it refused his claim as contrary to public policy.

Contracts (not) void at common law: solus agreement Esso lent money to Harper. Harper could sell only Esso petrol from two garages. First agreement to last for 21 years, could not pay back sooner so tied to sell only Esso petrol for that period. Second agreement for four years and five months, with no mortgage attached. HL Held first agreement void on basis of excessive duration of the restraint. Second valid as both fair and reasonable. Court restated various rules for determining validity of restraint of trade clauses.

Lord ----, ---- v ---- Contracts void at common law: Restraint of Trade principles 1. Where two experienced traders bargain on equal terms ... court should not say it knows the trader's interests better than he does himself. 2. Where the party restrained has deliberately accepted the main terms ... he has been at a disadvantage as regards other terms ... then the court may hold them unreasonable

Contracts illegal at common law: Employment contract, low salary, received expenses of L6 per week, where actual costs only L1 for sole purpose of avoiding income tax. Sued for several weeks backpay. CA held: the whole contract was tainted with illegality and was unenforceable because of the tax avoidance, the claimant could not recover the money owed to him.

Contracts illegal at common law: Asked to donate funds to a company in return for which the other party falsely represented that Parkinson would gain a knighthood KB Held: against public policy to try to secure recognition in this way and the contract was void and unenforceable

Contracts illegal at common law: Prostitute hired carriages for her trade, with the full knowledge of the carriage owner. She failed to pay the fee owed. Exch Held: The contract was for immoral purposes and known to be so by both parties. It was against public policy and unenforceable.

Consequences of contract being declared void: tailor's cutter was restrained on leaving employment as 'tailor, dressmaker, general draper, milliner etc etc' within a ten mile radius CA Held: Court could not reduce or change the list. It amounted to a comprehensive description of the employer's whole business so severance was not possible; the restraint was too wide and was void and unenforceable

Consequences of contract being declared void: Restraint in a contract for sale of a jewellery business prevented the vendor from selling real or imitation jewellery in the UK, France, USA, Russia etc. CA Held: The court severed the word 'real' because it was unnecessary to the protection of the business, and limited it to the UK. The rest of the clause was upheld.

Consequences of contract being declared illegal: Two parties jointly bought a house in the first party's name so that second party could make fraudulent claimes for state benefits. Second party later tried to claim a share of the property under a resulting trust arising out of her contribution to the purchase of the house. HL Held: the second party was not merely trying to enforce an illegal contract but was asserting a property right arising under a trust so the agreement was enforceable. The potential illegality of the agreement had no bearing on the case in hand. Lord Goff dissented: to enforce a trust required the party seeking this to come to court with clean hands

Consequences of contract being declared illegal: Claimant dismissed when became pregnant alleged sex discrimination contrary to the Employment Rights Act 1996. Employer claimed that the contract of employment was itself illegal and unenforceable because the claimant was aware that the employer was paying and recording her wages in such a way as to defraud the IR of tax. CA Held: The illegality was caused by the employer and was irrelevant to the claim, so compensation for unfair dismissal was possible. While the claimant was aware of the arrangement it was for the employer's benefit and she had no control over it.