Contract Law Essay

1 Contract law

This problem question is concerning contract law. Contract law is originally developed by common law courts and comprises mainly case law.

2 Contractual issues

2.1 Formation of contract

A valid contract must have intention, agreement, consideration, capacity, genuine consent and legality.

2.1.1 Legality

The courts can hold a contract illegal or void either at common law or by statute. If a contract is illegal, it is struck down as a whole, whereas a void contract can still exist after the void portion is severed, if possible.

2.1.1.1 Restraint of trade

Covenants in restraint of trade can be classified into three types, post-employment restraint, restraint for the sale of a business, trading agreement between manufacturers and retailers.

At common law, contracts in restraint of trade are prima facie void unless it can be proved reasonable by balancing the interests of both covenantor (the party being restricted) and covenantee (Brightman v. Lamson Paragon Ltd.), that is, an enforceable covenant in restraint of trade neither goes beyond protecting the legitimate interest of covenantee nor goes against public interest by unreasonably depriving covenantor of liberty in trade (Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co. Ltd).

In principle, the courts will decide the validity of covenant in restraint of trade on the balance of probabilities, that is, the onus firstly is on the covenantee to prove that it is reasonable, after that the responsibility passes to the covenantor to prove that it is against public policy. But in practice, determining what is a reasonable restraint is notoriously difficult and technical. Of particular importance is the duration of restraint, its geographical spread and scope of business.

The standard for reasonable geographical restriction is related ‘to the employer's customers of whom the employee is likely to acquire special knowledge’ (Lindner v Murdock's Garage).

As per Middleton v Brown...