Law of ContractLaw of Contract

Illegality Illegality

IllegalityIllegalityContracts may held illegal because,Contracts may held illegal because,

1.1. It was illegal when entered into i.e at It was illegal when entered into i.e at time of formation of contract ; ortime of formation of contract ; or

2.2. Becomes illegal because of the way it Becomes illegal because of the way it is performed.is performed.

Illegal at time of formationIllegal at time of formationContracts may be illegal from theContracts may be illegal from thebeginning, ; at time of formation of beginning, ; at time of formation of contract e.g.contract e.g.1.1. Breach of statute or common lawBreach of statute or common law2.2. Breach of criminal law or tortBreach of criminal law or tort3.3. Contrary to public policy – restraint of trade Contrary to public policy – restraint of trade

etc.etc.4.4. Breach of specific legislationBreach of specific legislation5.5. Contracts promoting immoral conductContracts promoting immoral conduct6.6. Contracts prejudicial to status of marriageContracts prejudicial to status of marriage7.7. Contracts prejudicial to public safetyContracts prejudicial to public safety

Illegal at time of formationIllegal at time of formation

If a contract is found to be “illegal” at the If a contract is found to be “illegal” at the

time of formation, the contract would be time of formation, the contract would be

held void and unenforceable by either held void and unenforceable by either

party.party.

Neither party can sue upon it.Neither party can sue upon it.

Breach of statuteBreach of statuteContracts may be illegal when entered into because they Contracts may be illegal when entered into because they cannot be performed in accordance to the terms without the cannot be performed in accordance to the terms without the performance of an illegal act.performance of an illegal act.

Levy v Yates (1838)Levy v Yates (1838)

Facts : There was a statutory rule that a royal licence was Facts : There was a statutory rule that a royal licence was required to perform a play within 20 miles of London.required to perform a play within 20 miles of London.There was a contract for a performance of a play, where no There was a contract for a performance of a play, where no royal licence had been obtained.royal licence had been obtained.

Held : Contract was illegal and cannot be performed.Held : Contract was illegal and cannot be performed.

Breach of common lawBreach of common law

Everet v Williams (1725)Everet v Williams (1725)

Facts : Two highway men had agreed to share the Facts : Two highway men had agreed to share the spoils of their crime, and when one agreed to evade spoils of their crime, and when one agreed to evade the agreement, the other sued for his share.the agreement, the other sued for his share.

Held : Needless to say he was unsuccessful.Held : Needless to say he was unsuccessful.

Breach of common lawBreach of common law

Alexander v Rayson (1936)Alexander v Rayson (1936)

Facts : The parties entered into a contract to Facts : The parties entered into a contract to defraud the rating authority, (which decides the defraud the rating authority, (which decides the value of properties), by showing the value of the value of properties), by showing the value of the property at less than its actual value.property at less than its actual value.

Held : Contract was illegal and unenforceableHeld : Contract was illegal and unenforceable

Breach of common lawBreach of common law

But if one of the parties contracting is unaware that But if one of the parties contracting is unaware that he has entered into an illegal contract, the court he has entered into an illegal contract, the court may allow the party to benefit from it.may allow the party to benefit from it.

Begbie v Phosphate Sewage (1875)Begbie v Phosphate Sewage (1875)

* Policy -Restraint of trade* Policy -Restraint of tradeRestraint of trade concerns contracts that limits an individual’s Restraint of trade concerns contracts that limits an individual’s right to use his or her skills for payment, or to trade freely.right to use his or her skills for payment, or to trade freely.

1) Contracts for sale of business1) Contracts for sale of business

2) Contracts by which prices or output are limited2) Contracts by which prices or output are limited

3) Contracts by which employees agree to not set up or be 3) Contracts by which employees agree to not set up or be employed in such a way as to compete with his previous employed in such a way as to compete with his previous employer.employer.

4) Contracts where a person agrees to restrict their mode of 4) Contracts where a person agrees to restrict their mode of trade with specific persons or with the other party. trade with specific persons or with the other party.

(solus agreements)(solus agreements)

* Policy -Restraint of trade* Policy -Restraint of trade

A general or partial restraint are both against public A general or partial restraint are both against public policy, prima facie void, policy, prima facie void, unless, it can be shown that unless, it can be shown that it is it is

1) reasonable as regards the parties, ie. Should 1) reasonable as regards the parties, ie. Should serve to protect the serve to protect the legitimatelegitimate interest of the party interest of the party enforcing the restraintenforcing the restraint

2) not unreasonable with regard to public policy.2) not unreasonable with regard to public policy.

* Policy -Restraint of trade* Policy -Restraint of tradeNordenfelt v Maxim Nordenfelt Guns and Nordenfelt v Maxim Nordenfelt Guns and Ammunitions Co (1894)Ammunitions Co (1894)

Held : Court must be satisfied that the party making Held : Court must be satisfied that the party making the restriction actually needs to protect their the restriction actually needs to protect their interests.interests.➢ to protect relationships with customers and their to protect relationships with customers and their trade secretstrade secrets

Restrictions to prevent competition will be held Restrictions to prevent competition will be held “illegal”.“illegal”.

* Policy -Restraint of trade* Policy -Restraint of tradeNordenfelt v Maxim Nordenfelt Guns and Nordenfelt v Maxim Nordenfelt Guns and Ammunitions Co (1894)Ammunitions Co (1894)

Held : The court would also consider the following Held : The court would also consider the following circumstances, when deciding if the restraint is circumstances, when deciding if the restraint is reasonable :reasonable :

1) Should not be wider then necessary to protect 1) Should not be wider then necessary to protect interests.interests.

2) Scope of the restraint2) Scope of the restraint

3) area (geographical) and period (time) of restraint3) area (geographical) and period (time) of restraint

* Policy -Restraint of trade* Policy -Restraint of tradeMason v Provident Clothing Co (1913) HLMason v Provident Clothing Co (1913) HL

Facts : a restriction was placed in a contract which Facts : a restriction was placed in a contract which prevented an employee from working in the same prevented an employee from working in the same trade within 25 miles of London, wider than was trade within 25 miles of London, wider than was necessary to protect his former employer's necessary to protect his former employer's business.business.

Held : Terms in contract of employment held void, Held : Terms in contract of employment held void, as scope in relation to area was held unreasonable.as scope in relation to area was held unreasonable.

* Policy -Restraint of trade* Policy -Restraint of trade

Leng & Co v Andrews (1909)Leng & Co v Andrews (1909)

Facts : A reporter agreed never to work for any other Facts : A reporter agreed never to work for any other paper for the rest of his life, within twenty miles.paper for the rest of his life, within twenty miles.

CA : Held unreasonable as time period, is unacceptable CA : Held unreasonable as time period, is unacceptable to protect the interest of the employer.to protect the interest of the employer.

* Policy -Restraint of trade* Policy -Restraint of tradeOffice Angels v Rainer – Thomas (1991)Office Angels v Rainer – Thomas (1991)Facts : D worked for an employement agency with 34 Facts : D worked for an employement agency with 34 branches. Contract said that D cannot within 6 months after branches. Contract said that D cannot within 6 months after leaving the previous employer, solicit from any person who leaving the previous employer, solicit from any person who had been a had been a client of the companyclient of the company. D was also stopped from . D was also stopped from running an employment agency within 1 km of her former running an employment agency within 1 km of her former branch.branch.

Held : (although it appears reasonable from the facts), the CA Held : (although it appears reasonable from the facts), the CA decided that excludingdecided that excluding all the companys customers all the companys customers was was unreasonable although 6 mnths was. Physical location of an unreasonable although 6 mnths was. Physical location of an agency has little relevance on the effect on the business thus agency has little relevance on the effect on the business thus 1k requirement was also held unreasonable.1k requirement was also held unreasonable.

* Policy -Restraint of trade* Policy -Restraint of tradeEsso Petroleum Co Ltd v Harper's Garage Esso Petroleum Co Ltd v Harper's Garage (1968)(1968)

Facts : The owner of two garages entered into a contract Facts : The owner of two garages entered into a contract in which he agreed to sell only Esso petrol in return for a in which he agreed to sell only Esso petrol in return for a discount on the price per gallon.discount on the price per gallon.

It was to last for about 4 years for one garage but for 21 It was to last for about 4 years for one garage but for 21 years on the other.years on the other.

Held : The time period of 21 years was unreasonable Held : The time period of 21 years was unreasonable just to protect the interest of Esso petroleum.just to protect the interest of Esso petroleum.

Public policyPublic policyPublic policy changes with time, as views and beliefs Public policy changes with time, as views and beliefs change.change.

Cowan v Milbourn (1867)Cowan v Milbourn (1867)

Facts : A contract for leasing a hall for a meeting of Facts : A contract for leasing a hall for a meeting of atheists was held to be illegal.atheists was held to be illegal.

Bowman v Secular Society (1917)Bowman v Secular Society (1917)

On similar facts a contract to hold such a meeting was On similar facts a contract to hold such a meeting was held not illegal.held not illegal.

Contracts promoting immoralityContracts promoting immoralityPearce v Brookes (1866)Pearce v Brookes (1866)

Facts : The P had hired a carriage to a prostitute so that Facts : The P had hired a carriage to a prostitute so that she could use it to see her clients. He was unable to she could use it to see her clients. He was unable to enforce the contract when she failed to pay the hire enforce the contract when she failed to pay the hire charge.charge.

Held : Contract held void as it promoted an immoral actHeld : Contract held void as it promoted an immoral act

Contracts promoting immoralityContracts promoting immoralityArmhouse Lee Ltd v Chappell (1996)Armhouse Lee Ltd v Chappell (1996)Facts : D paid the plaintiffs to place adverts for Facts : D paid the plaintiffs to place adverts for telephone lines in magazines. When regulation of such telephone lines in magazines. When regulation of such publicity increased the defendants terminated the publicity increased the defendants terminated the contracts. The plaintiffs brought an action, for monies contracts. The plaintiffs brought an action, for monies and succeded.and succeded.

Held : contracts should be found immoral only if it was Held : contracts should be found immoral only if it was found harmful to society, ...sex lines were generally found harmful to society, ...sex lines were generally accepted by society (although distasteful), so the accepted by society (although distasteful), so the contract was enforceable.contract was enforceable.

Contracts prejudicial to public safetyContracts prejudicial to public safety

Foster v Driscoll (1929)Foster v Driscoll (1929)Facts : Where a contract has its object the doing of an Facts : Where a contract has its object the doing of an act which is illegal because its prejudicial to public act which is illegal because its prejudicial to public safety,..for e.g. Trading with the enemy.safety,..for e.g. Trading with the enemy.

Held : Trading with the Enemy Act 1939, holds trading or Held : Trading with the Enemy Act 1939, holds trading or attempt to trade with enemy an offence, thus contracts attempt to trade with enemy an offence, thus contracts leading to it would be unenforceable.leading to it would be unenforceable.

Contracts prejudicial to justiceContracts prejudicial to justice

R v Andrews (1973)R v Andrews (1973)

Held : A contract to stifle the prosecution by giving false Held : A contract to stifle the prosecution by giving false evidence is clearly unacceptable and any contract to evidence is clearly unacceptable and any contract to perform this will not be enforceable.perform this will not be enforceable.

Contracts prejudicial to status of Contracts prejudicial to status of marriagemarriage

Lowe v Peers (1768)Lowe v Peers (1768)

Held : a contract that attempts to restrain or prevent a Held : a contract that attempts to restrain or prevent a party from marrying is void and against public policy.party from marrying is void and against public policy.