Keenan and Riches’BUSINESS LAW

Chapter 7Introduction to the law of contract

Although the length of the restraint was the deciding
factor in the Harper’scase, a long restraint may be rea-
sonable in certain situations.

parts of the contract. The lawful main part can then be

enforced by the court. Any money paid or property

transferred is recoverable.

Contracts illegal by statute

Some statutes expressly prohibit a certain type of con-

tract. For example, under Chapter 1 of the Competition

Act 1998 agreements by two or more persons to fix the

price at which goods may be resold are unlawful. The

provision outlaws the practice of ‘blacklisting’ retailers

who sell goods below a minimum resale price fixed by

suppliers. Not all statutes are quite so specific. Some

contracts may incidentally infringe the provisions of

an Act of Parliament because, for example, one of the

parties is trading without a licence, or statutory require-

ments have not been observed. It seems that the contract

will be illegal if it was Parliament’s intention in the

passing of the Act to preserve public order or protect

the public.

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£7,000 repayable over 21 years and not earlier. The

House of Lords held that the agreements were in restraint

of trade and, therefore, void, unless they could be justi-

fied as reasonable. The agreement which lasted for four-

and-a-half years was reasonable, but the other, which

lasted 21 years, was not.

Alec Lobb (Garages) Ltdv Total Oil (GB)

Ltd(1985)

The Court of Appeal upheld a 21-year restraint tied to

a loan agreement as reasonable in the circumstances.

The loan was part of a rescue package which greatly

benefited the garage. There were also opportunities for

the garage to break the arrangement after seven and

14 years. Taking these facts into account, the restraint

was not unreasonable.

(c)A contract for the sale of a business by which the
seller agrees not to compete with the buyer. This kind of
restraint is more likely to be upheld by the courts than a
restraint on an employee because there is a greater like-
lihood of the parties bargaining as equals. Nevertheless,
the parties must be careful to ensure that the restraint is
no wider than is necessary to provide protection for the
purchaser.

British Reinforced Concrete Engineering

Co Ltdv Schelff(1921)

The claimants carried on a large business manufacturing

and selling ‘BRC’ road reinforcements. The defendant

had a small business selling ‘Loop’ road reinforcements.

The defendant sold his business to the claimants and

agreed not to compete with them in the manufacture or

sale of road reinforcements. It was held that the restraint

was void as it covered a wider area of business than the

defendant had transferred to the claimants.

(d)Contracts between traders and businessmen to
regulate prices or output. This branch of the law is now
largely covered by legislation and will be considered later.

Consequences

A clause which is in restraint of trade is void and unen-
forceable. It may be possible, however, to sever the void

Copev Rowlands(1836)

A court refused to enforce a contract on behalf of an

unlicensed broker because the purpose of the licensing

requirements was to protect the public.

The contract will be valid if it appears that the statutory

provision was imposed for an administrative purpose.

Smithv Mawhood(1894)

A tobacconist was able to sue on a contract for the sale

of tobacco even though he did not have a licence as

required by statute. The sole aim of the statute was to

raise revenue, not to prohibit contracts made by unlic-

ensed tobacconists.

Consequences

The effects of the illegality on the contract are the same

as for contracts which are illegal at common law.

Contracts void by statute

1 Gambling contracts.It used to be the case that

gaming and wagering contracts were rendered null and

void by legislation (the Gaming Act 1845). However, the