Chapter 5

Question 1

What is the most basic requirement of a contract?

Answer 1

The presence of an agreement.

Question 2

How should the contract be entered into?

Answer 2

Voluntarily, involving a ‘genuine meeting of minds’.

Question 3

What does voluntarily mean?

Answer 3

The parties should not have been forced or tricked.

Question 4

A parties’ consent may be ___ by a number of factors.

Answer 4

Vitiated

Question 5

What does vitiated mean? (2)

Answer 5

Negatively affected or made ineffective

Question 6

What happens to a contract due to vitiating factors?

Answer 6

It becomes void or voidable.

Question 7

What are the types of vitiating factors? (Im in dirty underwear)

Answer 7

Illegality, Misrepresentation, Incapacity, Duress, Undue influence

Question 8

Which vitiating factors make a contract void and voidable?

Answer 8

Void- Illegality

Voidable- Misrepresentation, Incapacity, Duress, Undue influence

Question 9

What happens when a contract is void?

Answer 9

It will automatically be treated as a nullity.

Question 10

What does nullity mean?

Answer 10

The contract will be treated as if it never existed between the parties.

Question 11

What happens when a contract is treated as a nullity? (2)

Answer 11

(1) All goods and money obtained under the contract cannot be recovered (2) The contract cannot be enforced.

Question 12

What is a voidable contract?

Answer 12

It is a contract which is valid until it is terminated.

Question 13

What can an injured party do with a voidable contract?

Answer 13

He can choose to terminate the contract or continue with it.

Question 14

What happens if the injured party decides to continue with the contract?

Answer 14

If the injured party decides to continue with the contract and affirms the contract, the contract remains valid between the parties.

Question 15

What happens if the injured party decides to terminate the contract?

Answer 15

The contract will be considered void from the very beginning.

Question 16

All illegal contracts are ___ contracts.

Answer 16

Void

Question 17

What makes a contract illegal? (2)

Answer 17

(1) Forbidden by statute (2) Unlawful according to common law

Question 18

What are contracts in restraint of trade?

Answer 18

These contracts restraint a person from carrying on a lawful profession, trade or business.

Question 19

What is the impact of contracts in restraint of trade?

Answer 19

They have an impact on economic interests of society.

Question 20

So what if contracts in restraint of trade have an impact on economic interests?

Answer 20

They are contrary to public policy. Thus, they are prima facie illegal and void.

Question 21

When can contracts in restraint of trade be enforced?

Answer 21

If it can be proven to be reasonable between the parties and in the public interest

Question 22

What if the illegal/offending clause is only one of the many?

Answer 22

The court may cancel the illegal/offending clause and enforce the other valid clauses.

Question 23

What is the first type of contract in restraint of trade?

Answer 23

Contracts of employment- require employee, after leaving present employment, to not compete against his present employer either by setting up a similar business on his own or working for a rival firm.

Question 24

What is the constraint in such contracts of employment?

Answer 24

Constraint on future employment.

Question 25

What is the second type of contract in restraint of trade?

Answer 25

Contracts on the sale of business. Buyers will often require the seller to promise that, in the future, he will not carry on a similar business in competition with the buyer.

Question 26

Why would the buyer require the seller to promise such a thing?

Answer 26

To prevent the seller from setting up a business nearby and attracting all his old customers away from the buyer.

Question 27

What is the third type of contract in restraint of trade? (4)

Answer 27

Suppliers of goods and services may sometimes agree among themselves to fix prices, restrict output, regulate methods of supply or otherwise, influence the market for their own products.

Question 28

What is the fourth/last type of contract in restraint of trade?

Answer 28

Retailers make similar agreements with suppliers where they promise to sell only the suppliers' products

Question 29

Why would the supplier make such an agreement with the retailer?

Answer 29

To prevent the retailer from selling the suppliers' competitors' products.

Question 30

What is the first factor to show whether a restraint is reasonable?

Answer 30

Whether the person who would benefit from imposing the restriction had any legitimate interest in imposing it.

Question 31

What does legitimate interest mean?

Answer 31

Whether they had anything valuable which deserves protection.

Question 32

What are examples of legitimate interest? (2)

Answer 32

(1) trade secrets (2) confidential customer database

Question 33

What is the second factor to show whether a restraint is reasonable? Explain.

Answer 33

The nature of the restraint. How wide is the restraint, what the restraint stops someone else from doing.

Question 34

What is the third factor to show whether a restraint is reasonable?

Answer 34

Geographical area of operation of the restraint.

Question 35

What is the fourth/last factor to show whether a restraint is reasonable?

Answer 35

The duration that the restraint applies.

Question 36

What is a reasonable duration for a restraint?

Answer 36

A shorter restraint is easier to prove than a longer restraint.

Question 37

Considering all factors, what is a reasonable restraint?

Answer 37

The restraint, as a whole, should be no more than what is reasonably necessary to protect that particular interest.

Question 38

How should these factors be considered?

Answer 38

In the wider context of what is in the public interest.

Question 39

How does the Government treat employment contracts in restraint of trade? (what and why, 2)

Answer 39

Generally the government is NOT sympathetic as (1) it restricts a person's right to earn his living, where, when and with whom he likes (2) the employee may have been persuaded to agree to the restraint because the employer is in a stronger bargaining position.

Question 40

How do these factors which show whether a restraint is reasonable weigh alongside each other?

Answer 40

Legitimate interest = Nature + Geography + Duration