Keenan and Riches’BUSINESS LAW

Chapter 7Introduction to the law of contract

3 Contracts tending to promote corruption in public
life,e.g. a contract to bribe an official or to procure a title.

4 Contracts of trading with an enemy in wartime.

5 Contracts directed against the welfare of a friendly
foreign state,e.g. a partnership intending to import
whisky into America during Prohibition (Fosterv
Driscoll(1929)).

6 Contracts prejudicial to the administration of
justice,e.g. a contract not to prosecute a person for an
offence concerning the public.

Consequences of illegality

A contract which is illegal from the start will be void and
unenforceable. Money or property transferred under the
contract is not usually recoverable. This general rule is
subject to three exceptions:

1 a party can recover money or property if he can estab-
lish his case without relying on the illegal contract,
e.g. by suing in tort;
2 if the parties are not equally at fault, the less guilty
party may be allowed to recover;
3 a party may recover if he repents before the contract
has been substantially performed.

Some contracts are quite innocent at the outset, but
become illegal because of the intention of one of the
parties, e.g. a landlord lets out a flat, unaware of the
tenant’s intention to install his mistress in it. In this
situation, one of the parties is innocent. The guilty party
cannot sue on the contract or succeed in any way against
the innocent party. The innocent party will protect his
rights if he repudiates the contract as soon as he is aware
of the illegality.

Contracts void at common law

There are three types of contract in this category:

1 Contracts to oust the jurisdiction of the courts.A
clause which seeks to prevent the courts trying an issue
is void. This rule does not affect ‘binding in honour only’
clauses, by which the parties agree not to create a contract.

2 Contracts prejudicial to the status of marriage. This
includes a contract to restrain a person from marrying
at all or except for one person. Contracts not to marry a
person of a particular religious faith or nationality may
be upheld if they are reasonable.

A contract which provides for a possible future

separation of husband and wife will be void, but, if the

marriage is breaking up, they may make a contract to

provide for their immediate separation. Contracts to

introduce men and women with a view to their subse-

quent marriage are void. These are known as marriage-

brokage contracts.

3 Contracts in restraint of trade.These are contracts

which restrict the future liberty of a person to carry on his

business, trade or profession in any way he chooses. A

contract in restraint of trade is contrary to public policy

and void unless it is shown to be reasonable as between the

parties and from the point of view of the community. A

restraint will be reasonable if it is designed to protect

legitimate interests, such as trade secrets or business con-

nections. A restraint which is excessive as regards its area,

time of operation or the trades it forbids will be void.

There are four main types of restraint which we will

consider.

(a)A term in a contract of employment which restricts

an employee’s freedom of conduct either during the

period of employment or after the employment has

terminated. Such a restraint will only be reasonable if it

protects the employer’s interests and is not excessive.

The only matters in which an employer has a legitim-

ate interest is the protection of trade secrets and his

customer connections. The following case involves an

employer seeking to protect his trade secrets.

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Forster & Sons Ltdv Suggett(1918)

The claimants were manufacturers of glass and glass

bottles. They had trained their works manager in the use

of certain secret processes, including the correct mixture

of gas and air in the furnaces. The works manager had

agreed that for a period of five years after his employ-

ment with the claimants ended he would not carry on in

the UK, or be interested in, glass bottle manufacture or

any other business connected with glass-making as car-

ried on by the claimants. It was held that the restraint was

enforceable. Secret processes are a legitimate object of

protection and in this case the restraint was reasonable.

A distinction must be drawn between protecting trade

secrets, which is a protectable interest, and preventing

an employee from making use of knowledge and skills

which he has acquired in the course of his employment,

which is not protectable.