Chapter 8 Flashcards

Question

A misrepresentation is made to a solicitor in an offer. He had the chance to review the documents, but chose not do. Can he still rely on rescission?

Answer 1

Yes. The case is Redgrave v Hurd (1881). A misrepresentation is considered to be an inducement even if the representee chose to not discover the truth when given the opportunity.

Answer 2

1) The claimant was unaware of the representation If the statement was not actually communicated to the other party. 2) The claimant did not allow the misrepresentation to affect his judgement. If the defendant can show that there was no reliance, no grounds of action will arise for misrepresentation. In Attwood v. Small (1838), the claimant negotiated with the defendant for the sale of certain mines. The defendant made exaggerated claims about their earning capacity. The claimant instead hired an independent engineer who verified these statements. The Claimant could not rescind the contract because he not relied on the defendant's statement but the statement of the engineer.

Answer 3

The maker of the statement does not believe in the truth of the statement himself.

Answer 4

A claimant must prove a fraudulent misrepresentation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false Motive does not play a role. It is immaterial. (Derry v Peek, 1889)

Answer 5

Fraudulent Misrepresentation: Tort law Negligent Misrepresentation: Common law and Misrepresentation Act 1967 Wholly Innocent Misrepresentation: Not covered by any (esp. Misrepresentation Act), no liability

Answer 6

Common law and statutes (Misrepresentation Act 1967).

Answer 7

A negligent misrepresentation is made when a representor, who owes a duty of care to a representee, acts carelessly in making the statement. The duty can arise in commercial relationships in which the person making the statement has some special skill or knowledge and the person knows or can reasonable assume that the person to whom the statement is made will rely on that statement.

Answer 8

The court determined that Heller & Partners did owe a duty of care to Hedley Byrne. This duty arose because the bank had specialized knowledge about Easipower Ltd's financial situation and Hedley Byrne relied on this information in their business decisions. It was foreseeable that the agency would depend on the bank’s assessment. However, despite recognizing the existence of a duty of care, the court held that the disclaimer effectively excluded this duty in this specific case. Therefore, Heller & Partners were not held liable for the losses incurred by Hedley Byrne. However, in obiter dicta the court stated that in the absence of any appropriately worded disclaimer, the bank may have been liable in negligence,

Answer 9

The burden of proof rests on the person to whom the statement was made.

Answer 10

A negligent misrepresentation is made when a representor, who owes a duty of care to a representee, acts carelessly in making the statement. If the representor has substantial skill and expertise, it increases the duty of care it owes to the representee.

Answer 11

No. An innocent misrepresentation occurs where the person making the statement honestly believes it to be true, and it is a statement that is not made fraudulently or negligently. The person making the statement must prove that he or she reasonably believed the statement to be true both at the time the statement was made and when the parties entered into a contract.

Answer 12

Section 2(1) of the Misrepresentation Act 1967: This section extends the liability for misrepresentations beyond those made fraudulently. Under this section: If a misrepresentation (whether fraudulent, negligent, or innocent) leads to a loss, the person who made the misrepresentation is liable for damages as if the misrepresentation had been made fraudulently. However, the person making the misrepresentation can avoid this liability if they can prove they had reasonable grounds to believe the information was true and did believe it to be true at the time of the contract. Essentially, they must show they acted in good faith and took reasonable steps to verify the accuracy of the representation.

Answer 13

1) There no special requirement for a "special relationship" 2) The burden of proof is reversed; the maker of the statement must disprove the misrepresentation. The maker of the statement must prove that he reasonable believed the statement to be true to disprove negligence.

Answer 14

Recession and damages. While not mutually exclusive, where recission by itself provides for a satisfactory remedy, the courts tend to refuse the award damages in order to avoid "double recovery."

Answer 15

All: Fraudulent, negligent, and wholly innocent.

Answer 16

1) Inform the representor. 2) Notifying the authorities (for example the police) 3) Publicising the decision in some other appropriate way when the party has disappeared.

Answer 17

1) The claimant can rescind, even if the misrepresentation has become a term of the contract. 2) The claimant can rescind, even if the contract has already been executed. Generally, this is relevant to contracts for the sale of land and to tenancies.

Answer 18

1) Affirmation of the contract 2) Lapse of time 3) Restitution is impossible 4) Third parties have acquired rights in the subject matter of the contract 5) Award of damages in lieu of rescission

Answer 19

Affirmation: Affirmation refers to a party's confirmation or endorsement of the terms of a contract after a potential right to rescind or reject the contract. It implies a conscious decision to continue with the contract despite having the option to void or cancel it. Acceptance: Acceptance refers to the agreement to the terms of an offer made by another party. It is one of the essential elements required to form a legally binding contract. Acceptance signifies that the party agrees to the terms of the offer and intends to be bound by them.

Answer 20

No. A representee who affirms the contract, with full knowledge of the facts, cannot subsequently avoid the contract. (Long v Lloyd [1958] 1 WLR 753).

Answer 21

A claimant who is unaware of his right to choose between acceptance and affirmation may reserve his right to rescind (Peyman v Lanjani [1985] 1 Ch 457).

Answer 22

For non-fraudulent (innocent and negligent): The claimant has to act within a reasonable time frame. The time runs from teh date of the contract. For fraudulent misrepresentation, the clock starts when the fraud is, or should have been, discovered (s. 32 Limitation Act 1980).

Answer 23

No. In this case, the case has lapsed. Leaf v International Galleries (1950) 2 KB 86.

Answer 24

Because recission is an equitable remedy. The maxim delay defeats equity applies.

Answer 25

When the parties cannot be restored to their original position. In such cases, the right to rescind is lost.

Answer 26

Where the consumer goods have already been consumed, or where natural resources have been totally exhausted by the time the claimant elected to plead rescission (Vigers v Pike (1842) 2 ER 220).

Answer 27

No. Precise restoration is not required and the remedy is still available if substantial restoration is possible.

Answer 28

No, if the party acquires right in property in good faith and for value, the misrepresentee will lose his right to rescind (Phillips v. Brookrs Ltd. (1919) 2 KB 243).

Answer 29

No, this is because the third party is considered to have purchased the goods without notice of the representation (s. 2(2) Misrepresentation Act 1967).

Answer 30

Section 2(2) of the 1967 Act. 1) The claimant would have the right to rescind 2) Misrepresentation was non-fraudulent 3) It would be equitable to award such damages with reference to the type of representation involved and the loss that the claimant would suffer if the contract were to be maintained

Answer 31

For wholly innocent representation. Indemnity along with an order for rescission.

Answer 32

It mandates that the person making the statement must over the expenses of the person relying on the statement. Such expenses must have directly arisen from the obligations of the contract.

Answer 33

Expenses that arose directly from the obligations of the contract, for example the costs of repairs ordered by authorities (Whittington v Seale-Hayne 1900).

Answer 34

Under common law, damages were only available for fraudulent misrepresentation based on tortious action for deceit. For a negligent or innocent misrepresentation, the common law afforded only the remedy of rescission, with no right to damages at common law. For wholly innocent, negligent misrepresentation, courts may grant indemnity besides rescission.

Answer 35

The award of damages in lieu of rescission. Before the act, it was not possible to claim damages for innocent misrepresentation. The remedy is equitable and, therefore, at the court's discretion.

Answer 36

Restitution. The purpose of damages is to restore the victim to the position he occupied before the representation had been made.

Answer 37

the test of remoteness. The injured party may recover for all the direct loss incurred, as a result of the fraudulent misrepresentation, regardless of foreseeability (Doyle v Olby (Ironmongers Ltd (1969) 2 QB 158).

Answer 38

Scope of Damages: The court in Doyle v Olby (Ironmongers Ltd (1969) 2 QB 158 focused on the principle that damages for fraudulent misrepresentation should cover all losses that directly result from the fraud, without the need to show that those losses were foreseeable. This is because fraudulent misrepresentation is considered a deliberate wrongdoing, and the measure of damages is aimed at restoring the victim to the position they would have been in had the fraud not occurred. Direct Consequences: The damages awarded were meant to reflect the direct consequences of the fraud, including not only the actual losses but also the loss of the expected benefit from the transaction. The court did not impose a foreseeability requirement in the same way as might be required in tort cases involving negligence.

Answer 39

East v Maurer (1991), the Court of Appeals, while agreeing with the Doyle proposition, held that the assessment of loss of profits was to be made on a tortious basis, that is, by putting the claimant in the same position he would have been in, had the wrong not been committed. The Court of Appeals held in Downs v Chappell (1996) that the claimants' damages were to be assessed by reference to what they lost as a result of entering into the transaction. The claimants were NOT entitled to recover damages AFTER the date he discovered the misrepresentation had had an opportunity to avoid further loss. In Smith New Court Securities Ltd. v Scrimgeour Vickers (Asset Management) Ltd. (1996), as a result of fraudulent misrepresentation the claimants were induced to make a bid to buy shares in company F, at a price of 82.5 p per share, rather than 78p per share, which is what they would have bid, in the absence of misrepresentation. The House of Lords found that a fraudulent misrepresentation has occurred, the claimant was entitled for all damage (consequential losses included), from the point of entering into contract, regardless of whether such damage was foreseeable or not. In this case, the claimants were entitled to receive the difference between what they paid for the shares (82.5p) and what they had received from their subsequent sale (44p), rather than the less generous difference between the contract price (82.5p) and the market price at the time of the sale (78p).

Answer 40

Rescission (subject to court's discretion) and damages in the tort of negligence.

Answer 41

There are two: Damages at common law and damage s under s. 2(1) Misrepresentation Act 1967.

Answer 42

Damages for negligent misrepresentation requires the test of remoteness in the tort of negligence. This means, that the injured party may recover for only reasonably foreseeable loss. Damages for fraudulent misrepresentation do not follow the test of remoteness (Doyle v Olby (Ironmongers Ltd (1969) 2 QB 158).

Answer 43

If the contract contained a clause for misrepresentation. The enactment of the Misrepresentation Act 1967.

Answer 44

It entails that to claim tortious damages, damages most have been reasonably foreseeable.

Answer 45

S. 2(1) Misrepresentation Act 1967

Answer 46

It reverses the burden of proof.

Answer 47

S. 2(1) of Misrepresentation Act 1967

Answer 48

The court controversially decided that under the Act, the appropriate measure of damages was the same as that for common law fraud, or damages for all losses flowing from a misrepresentation, even if unforeseeable. The reasoning of the decision has been much criticised by academic lawyers such as Treitel and Hooley, partly for its overly literal interpretation of the statute, and for its dubious finding of fact that a deliberately false document was made negligently, rather than fraudulently.

Answer 49

1) Recission with an indemnity 2) Damages in lieu of rescission, in the court's discretion, under s. 2(2) Misrepresentation Act

Answer 50

Negligent: s. 2(1) Innocent: s. 2(2)

Answer 51

In cases of non-fraudulent misrepresentation, there is no automatic right to damages. Instead, the court is given discretion, where the injured party would be entitled to rescind the contract, to award damages in lieu of rescission. Damages under s. 2(2) cannot be claimed as such, they can only be awarded by the court.

Answer 52

According to Thomas Witter Ltd. v TBP Industries Ltd. 1996 All ER 573, this will not be a bar provided the claimant had such a right in a past.

Answer 53

This is unclear. Some authorities suggest that damages under s. 2(2) may be lower than the damages awarded under s. 2(1). Chitty suggests the possibility of a special measure to compensate the injured party for the loss of the right to rescind. According to contract law experts, Cheshire & Fifoot, compensation should be limited to indemnity. This was, in substance, the view taken by the High Court in Thomas Witter Ltd. v. TBP Industries Ltd.

Answer 54

The nature and seriousness of the misrepresentation, the loss that would be caused if the contract were upheld, and the loss that recission would cause to the other party. So, where the the misrepresentation is trivial and where recission itself would have serious consequences for the representor, the court is unlikely to grant recission.

Answer 55

No. On the grounds that doing so would be inequitable. To order the defendants to return the purchase price and interest would be unfair in the circumstances.

Answer 56

It depends. There are two sources to consider. Any term of a contract which excludes liability for misrepresentation or restricts the remedy available is subject to the test of reasonableness. Section 3 Misrepresentation Act, as amended by s. 8 Unfair Contracts Terms Acts 1977, provides that: If a contract contains a term which would exclude or restrict a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made; or b) any remedy available to another party to the contract by reason of such a misrepresentation. That term shall be of no effect except insofar it satisfies the requirement of reasonableness as stated in s. 11(1) of the Unfair Contract Terms 1977; and it is for those claiming that the term satisfies that requirement to show that it does. In relation to customer contracts, the Consumer Rights Act 2015 invalidates any terms restricting liability for misrepresentation to the extent that they fail the test of unfairness as set out in section 62 of the Act.

Answer 57

No, the Court of Appeal held that the statement was a misrepresentation, enabling the provisions of the Misrepresentation Act. In other words, it did not pass the reasonableness test. Any term of a contract which excludes liability for misrepresentation or restricts the remedy available is subject to the test of reasonableness. Section 3 Misrepresentation Act, as amended by s. 8 Unfair Contracts Terms Acts 1977, provides that: If a contract contains a term which would exclude or restrict a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made; or b) any remedy available to another party to the contract by reason of such a misrepresentation. That term shall be of no effect except insofar it satisfies the requirement of reasonableness as stated in s. 11(1) of the Unfair Contract Terms 1977; and it is for those claiming that the term satisfies that requirement to show that it does.

Answer 58

The Court held that the clause in the contract prevented the seller from being responsible for any misrepresentation made, s.3 could NOT qualify the right of a principal to publicly limit the otherwise ostensible authority of his agent.Su

Answer 59

The remedies available for fraudulent misrepresentation are rescission and damages based on the tort of deceit. The remedies for negligent misrepresentation are: 1) Damages under common law are based on a tortious measure and these are limited by the rules of the remoteness of damage, i.e. those which are reasonably foreseeably (Hedley Byrne v Heller, 1964) 2) Recission and damages based on the tort of deceit under s. 2(1) of the Misrepresentation Act 1967 (Royscott Trust Ltd v Rogerson 1991) The remedy for innocent misrepresentation is either 1) Recission with an indemnity 2) Damages in lieu of recission (subject to court's discretion)

Answer 60

It will be voidable.

Answer 61

Threats of Violence Threats to Property Economic Duress

Answer 62

If the victim protested at the time or took steps to avoid the contract once he entered into it.

Answer 63

In Occidental Worldwide Investment Corp v Skibs A/S Avanti (1976), it was stated obiter that duress would eb a defence if a person was forced to enter into a contract because of the treat of having a valuable paining slashed or his house burned down.

Answer 64

No, the court held that the illegitimate pressure exerted by the building company amounted to economic duress. North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979] QB 705.

Answer 65

The test was introduced in Pao on v Lau Yiu Long. 1) Whether the person alleged to have been coerced did or did not protest 2) Whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy 3) Whether he was independently advised 4) Whether after entering into the contract he took steps to avoid it

Answer 66

Judgment: Unlawful Industrial Action: The House of Lords (now the Supreme Court) found that the ITF’s boycott was unlawful because it did not follow the legal procedures required for industrial action under the relevant statutes. Consequences for Contracts: The court held that because the ITF’s actions were unlawful, Universe Tankships was entitled to seek relief. This included potentially avoiding or claiming damages for obligations arising from the union’s unlawful behavior.

Answer 67

1) There was a threat (or pressure exerted) by the defendant that was illegitimate 2) The illegitimate threat (or pressure) caused the claimant to enter into the contract 3) In the context of economic duress, that the claimant had no reasonable alternative to giving in to the threat or pressure.

Answer 68

In the context of commercial negotiations, parties are entitled to use their bargaining power. It is therefore open to a powerful commercial party to impose onerous terms as a condition for entering into a transaction.

Answer 69

No, the airline's actions were determined to be a hard-nosed exercise of monopoly power, which did not by itself amount to illegitimate pressure. Something more would have bene needed but there were no findings that the airline used any reprehensible means to manoeuvre the agent into a position of increased vulnerability for the purposes of exploitation. It was therefore held that the agent could not rescind the new agreement.

Answer 70

1) Where a defendant used their knowledge of the claimant's criminal activity, or that of a person close to the claimant, to obtain a personal benefit from the claimant by the use of express or implicit threat 2) Where the defendant, having exposed himself to a civil claim by the claimant, deliberately manoeuvred the claimant into a position of vulnerability by illegitimate means and so forced him to waive his claim

Answer 71

Unless 1) He has expressly or impliedly affirmed it 2) Allowed time to lapse 3) There has been an intervention by a third party

Answer 72

No, even if the contract is not rescinded. This is because the doctrine of duress was founded upon the basis that no binding agreement existed in the first place due to a lack of true consent, although damages incurred from duress maybe recoverable, on a reliance basis, as they are for the most categories of misrepresentation.

Answer 73

Undue influence is a concept of equity. Duress is a common law (legal) concept.

Answer 74

It applies when one party is able to exert influence over another, to the extent of preventing them from exercising independent judgement, and uses this influence to force them into making a gift or entering into a contract.

Answer 75

1) Actual (express) influence 2) Influence which is presumed from the special relationship between two parties

Answer 76

Actual undue influence occurs where the claimant can prove that they entered into the transaction as a result of undue influence from the other party and would not have done so otherwise. The party seeking to avoid the transaction must prove that the gift or contract was the result of improper pressure.

Answer 77

It's actual (express) undue influence. Williams v Bayley 1866 LR 1 HL 200.

Answer 78

The claimant must show, on the balance of probabilities, that the defendant used undue influence in respect of a particular transaction. The claimant need not show that there has been a previous history of such influence, nor show that the transaction was manifestly disadvantageous to the claimant. The doctrine can apply even if it's the first time that the undue influence for the particular disputed transaction has occurred.

Answer 79

Actual (express) undue influence: Burden of proof is on the claimant. Presumption of Undue Influence - on Basis of Special Relationship: The burden of proof is on the party receiving the benefit to show that the benefit was NOT obtained by undue influence.

Answer 80

Class A: Fiduciary relationship: Undue influence will be presumed in cases where a fiduciary relationship exists between the parties (solicitor-client, parent-child, doctor-patient, trustee-beneficiary, religious adviser and disciple, etc.). although not as between husband and wife, in absence of any particular circumstances of dependency, coupled with mutual trust. Class B: Confidential relationship: However, even if no fiduciary relationship exists, a confidential relationship may still exist - and a presumption of undue influence raised - if the complainant can prove the existence of a relationship, under which the complainant, generally ,reposed trust and confidence in the wrongdoer.

Answer 81

Hewett v First Plus Financial Group (2010) EWCA Civ 312 The case was about a wife who was cheated on by her husband. Her trust and confidence in her cheating husband gave rise to an obligation of candour and fairness owed to her. This trust and confidence was sufficient to affect the mortgage company by such undue influence as occurred between her and her husband. This is because her decision to accede to her husband's request to re-mortgage the matrimonial home was based upon the assumption that he was as committed as she was to the marriage, their family and to the preservation of their future home life. The case involved Mrs. Hewett, who entered into a secured loan agreement with First Plus Financial Group Plc. Her husband, without her knowledge, had been having an affair, which he did not disclose to her when they entered into the loan agreement. The loan was secured against their home, and Mrs. Hewett later sought to challenge the agreement on the grounds of undue influence. The loan agreement was found to be voidable, meaning Mrs. Hewett could rescind the agreement because it was entered into under undue influence.

Answer 82

No, unless the customer placed him or herself entirely in the hands of the bank and was provided no opportunity to seek independent advice.

Answer 83

The complainant only has to show, in the first instance, that THERE WAS a relationship of trust and confidence between the complainant and the wrongdoer, of such a nature, that it is fair to presume that the wrongdoer abused that relationship in procuring the complainant to enter into the impugned (bestritten) transaction. There is no need to produce evidence that the actual undue influence was exerted in relation to the particular transaction impugned.

Answer 84

Once a confidential relationship has been proved, the burden then shifts to the wrongdoer to show that the complainant entered into the impugned transaction freely, for example, by showing that the complainant had independent advice.

Answer 85

The House of Lords in this case spoke of the need for a ‘manifest disadvantage’ in the transaction before undue influence could arise. CIBC Mortgages Plc v Pitt [1993] 4 All ER 433. A person can establish undue influence without having to prove that the transaction put them at a manifest disadvantage.

Answer 86

Allcard v Skinner (1887) 36 Ch D 145. The claimant’s confessor introduced to the defendant, a lady superior of a sisterhood, when she was young. The claimant decided to become a member of the sisterhood. As part of her initiation, she had to swear a number of vows of obedience and poverty. The vow of obedience required her to treat the defendant as the word of God. Sisters required the defendant’s permission to seek external advice or counsel. The vow of poverty required her to give away all her possessions, either to relatives, the poor or to the sisterhood itself. The defendant held any property given to the sisterhood on trust for the organisation. The claimant chose to give all her possessions to the sisterhood. Just over a decade later, she left the sisterhood. She discussed the possibility of reclaiming her property with a lawyer shortly after, but did not act on this. Six years after that, she claimed back the property. She argued that she had made the gift under undue influence. The Court of Appeal concluded that the gift was tainted by undue influence. They presumed this from the claimant’s relationship with the sisterhood, the defendant and her confessor.

Answer 87

The court introduced the factor of proportionality. "The court highlighted that in cases where a gift is made by a donor to a person who stands in a confidential relationship with them (such as a spiritual advisor, family member, or close friend), the court must consider the size and nature of the gift in relation to the circumstances. Small Gifts and Independent Advice: If the gift is small or insignificant, the mere fact that the donor did not receive independent legal advice may not be sufficient to set aside the gift. In these cases, there must be some proof that the donee (the recipient of the gift) actively exerted influence over the donor to obtain the gift. The existence of a confidential relationship alone is not enough to invalidate the gift if it is of a minor value. Large or Significant Gifts: If the gift is large or substantial to the point that it cannot be reasonably explained by normal motives such as friendship, family ties, charity, or other typical reasons, the situation changes. In such cases, the burden of proof shifts to the donee (the recipient) to show that the gift was made freely and without undue influence. The court presumes that undue influence may have been exercised simply because the size of the gift is disproportionate to the nature of the relationship or the donor's circumstances.

Answer 88

In Allcard v Skinner (1887), the claimant was unsuccessful because of laches and acquiescence—legal principles that prevent a claim from being successful due to an unreasonable delay in asserting one's rights (laches) and behavior that suggests acceptance or approval of the situation (acquiescence). The court found that Miss Allcard had waited too long after leaving the religious order to challenge the gifts she made, and her inaction implied acceptance of the situation, thus barring her claim.

Answer 89

Lloyd's Bank v Bundy (1975) Facts: In this case, Mr. Bundy, an elderly farmer, mortgaged his farmhouse to Lloyd's Bank to secure his son's business debts. He did this without independent legal advice, relying entirely on the bank's assurances that the transaction was in his son's best interests. The bank had persuaded Mr. Bundy to mortgage his house to the hilt and it did not appear that his son's financial circumstances were likely to improve. Role of Independent Advice: The court emphasized that Mr. Bundy was in a relationship of trust and confidence with the bank, and because he had no independent legal advice, he was not fully aware of the risks involved. The court found that the transaction was unfair and voidable due to the lack of independent advice and the undue influence the bank exercised over Mr. Bundy. National Westminster Bank v Morgan (1985) Facts: A house was owned jointly by Mr. and Mrs. Morgan. The husband became unable to meet the payments, whereupon he made re-financing agreements with the bank, secured by a mortgage in the bank's favour over the matrimonial home. The bank manager called at the home o get the wife to execute the charge, which turned out to be unlimited in extend, and could, thus, even extend to all of the husband's business liabilities (this was contrary to what the bank had told her). The couple could not pay the mortgage. The bank obtained an order to possess the house. Role of Independent Advice: The House of Lords held that while Mrs. Morgan's lack of independent advice was a factor, it alone was not enough to prove undue influence. The court ruled that there must be evidence of actual undue influence or a manifest disadvantage in the transaction. In this case, the court found that although Mrs. Morgan lacked independent advice, the transaction itself was not manifestly disadvantageous, and thus the claim of undue influence failed. The court also held that if she had suffered a loss as a result of the manager's incorrect statement, her remedy would be to sue in respect of negligent misrepresentation. Note that the second claim was before CIBC Mortgages Plc v Pitt [1993] 4 All ER 433. A person can establish undue influence without having to prove that the transaction put them at a manifest disadvantage.

Answer 90

The Court of Appeals disallowed an appeal on the basis that there was no manifest disadvantage to the wife. She had benefited from the business which se secured and there was a strong probability would have entered into the transaction, even if the husband had not deliberately concealed from from her the nature of the documents she had signed.

Answer 91

The effect of a transaction brought about by undue influence by a third party typically arises where a wife guarantees her husband's business debt with a bank, by using the jointly owned matrimonial home as security. In such situations, the courts have held that the transaction with the creditor can be set aside, even though the husband was not a party to the transaction.

Answer 92

a) A bank is always on inquiry where a wife offers to stand surety for her husband's debts b) A bank is also put on inquiry where the wife becomes surety for the debts of a company in which she and her husband both hold shares c) A bank is NOT put on inquiry where the money is advanced to husband and wife jointly, unless "the bank is aware the loan is being made for the husband's purposes as distinct from their joint purposes"

Answer 93

The bank should insist that the wife attend a private meeting (in the absence of the husband) with a representative of the creditor in which she is told the extent of her liability as surety (guarantor), warned of the risk she is running and urged to take independent legal advice. However, in later cases, the private meeting failed to materialize, and the requirement changed to merely a need to ensure that the wife had independent advice. Lord Nicholls, in Royal Bank of Scotland plc v Etride (which came after the O'Brien case), accepted that the banks were not arranging private meetings for valid reasons. The emphasis, therefore, moved to the independent advice wives were receiving. This was not always of high quality.

Answer 94

Banks should a) communicate directly with the wife, informing her that for its own protection it would require written confirmation from a solicitor acting for her that the solicitor had fully explained the nature of the documents and their practical implications for her b) tell her that the reason for this is that she would not be able to dispute that she is legally bound once she had signed the documents c) the wife should be told that she may use the same solicitor as her husband but that she must be asked if she would prefer a different solicitor d) the bank must provide the solicitor with all the financial information s/he needs e) the bank should not proceed with the transaction until it has received an appropriate response directly from the wife

Answer 95

It follows that significant burdens are now placed on solicitors advising those entering into a security arrangement for the borrowing of another person. If the solicitor does not give the kind of independent advice required of him in Etridge, he is liable to find himself being sued in negligence and/or breach of contract. The business lender is now entitled to assume that the legal adviser has carried out his function and will have an enforceable security and transaction against the wife. Needless to say, the cost of legal advice in security transactions has risen.

Answer 96

The remedy is rescission, in which case the whole transaction will be set aside.

Answer 97

1) If the party affirms the contract, by performing obligations without protest 2) If the party delays in taking action (laches) after the influence has ceased to have effect 3) If an innocent third party has acquired rights 4) If the parties cannot be substantially restored to their original positionsI

Answer 98

Where a bank has broken a duty of care to a wife-surety. In such cases, damages may be available in negligence.

Answer 99

A mistake occurs where either one or both of the purportedly contracting parties believe that one set of facts exist, and this belief is subsequently shown to be wrong. An operative mistake will render a contract void. The mistake must, however, occur during the formation of the contract.

Answer 100

1) Common mistake 2) Mutual mistake 3) Unilateral mistake 4) Documents mistakenly signed

Answer 101

It occurs when both parties are mistaken about the same fact, or set of facts. It occurs when both parties contract but contemplate different facts. This means that the terms of the agreement are so uncertain that it is impossible to impute any agreement between the parties; both parties are at cross purposes. A unilateral mistake occurs where just one party errs regarding a particular fact.

Answer 102

1) Mistake as to the existence of the subject matter of the contract (rex extincta) 2) Mistake as to the possibility of performing the contract 3) Mistake as to quality

Answer 103

Where parties enter a contract with the mistaken belief as to the existence of the subject matter, and it turns out that it does not exist anymore or have never existed in the first place.

Answer 104

No, it's a mistake to the existence of the subject matter (rex extincta). The agreement was rendered void. Galloway v Galloyway 1914.

Answer 105

Res extincta is a Latin term that translates to "a thing that has ceased to exist." This doctrine applies in situations where a contract is made for the sale of goods or property that, unknown to both parties at the time of the contract, does not exist or has ceased to exist.

Answer 106

The court applied the doctrine of res extincta to declare the second marriage void. The principle here was that the second marriage was based on the mistaken belief that the first wife was deceased, making the marriage contract effectively void because it was premised on a non-existent fact—a "thing" that did not exist.

Answer 107

The court rejected the idea that the contract was void due to a common mistake (as in the res extincta doctrine). The CDC was found to have assumed the risk of the tanker's existence because it had made a specific representation about it. The CDC could not argue that the contract was void because the mistake was their fault, not a shared misunderstanding. The High Court of Australia ruled in favor of McRae, finding that the CDC was liable for breach of contract. The court held that the CDC had made a positive assertion about the existence of the tanker, which amounted to a promise that the tanker existed at the specified location. Since the tanker did not exist, the CDC was in breach of that promise.

Answer 108

No. It was declared void due to common mistake (impossibility of performance). The Privy Council ruled that the contract was void because it was impossible to perform. The contract required the delivery of a specific quantity of sisal, but since the land could not produce that amount, it was impossible for Skeikh Bros to fulfill their contractual obligations. This impossibility was not due to any fault of either party but was instead due to the fundamental nature of the land itself.

Answer 109

No. Mistake as to the Possibility of Performance: The court held that the contract was void because it was based on a fundamental mistake regarding the possibility of performance. Both parties entered into the contract under the mistaken belief that the coronation procession would occur, but since it had already been canceled, the contract's purpose was impossible to achieve.

Answer 110

No. Mistake as to the Possibility of Performance. The House of Lords held that the contract was void due to mutual (or common) mistake. The doctrine of common mistake was applied because both parties were under a mistaken belief about a fundamental aspect of the contract—that Phibbs had the authority to lease the fishery. Since Phibbs did not actually own the fishery and thus could not lease it, the contract was fundamentally flawed.

Answer 111

This depends on the facts and circumstances. Generally, neither party can rely on his own mistake to void a contract when the issue of quality is engaged.

Answer 112

Mistake as to Quality: The House of Lords ruled that the contracts were not void. The court held that the mistake about the quality of the subject matter (the executives' performance) was not sufficient to void the contracts. The court made a distinction between a mistake about the quality of performance and a mistake about a fundamental fact that is essential to the existence of the contract. Quality vs. Fundamental Mistake: The court concluded that a mistake as to the quality of the subject matter (in this case, the executives' performance due to undisclosed breaches) does not render a contract void. Instead, for a contract to be voided due to a mistake, the mistake must be about a fundamental fact that affects the essence of the contract itself, rather than its performance or quality. In essence, the contract can only be set aside for failure of some condition on which the existence of the contract depends, or for fraud, or on some equitable ground.

Answer 113

At common law, for a contract to be voided due to a mistake, the mistake generally must be about a fundamental aspect of the contract that goes to its very essence or root. The mistake should concern something essential to the performance of the contract or the existence of the contract itself. Solle v Butcher is significant because, although the mistake was not sufficient to void the contract under common law standards, equity found it to be a basis for relief. Equity allows for more flexible remedies in situations where a common mistake affects the fairness of the contract, even if it doesn’t meet the stringent common law requirements.

Answer 114

Mistake as to Quality: The Court of Appeal held that the contract could not be rescinded based on the mistake about the painting's quality. The court ruled that the mistake was about the quality of the painting, which, under the common law doctrine of mistake, did not render the contract void or voidable.

Answer 115

Raffles v Wichelhaus (1864) 2 H & C 906, often referred to as the "Peerless" case, is a classic English contract law case that addresses the issue of mutual mistake and contractual ambiguity. It is famous for its role in demonstrating how mutual misunderstanding about a fundamental term of a contract can render the agreement void. Facts: The case involved a contract for the sale of cotton that was to be shipped on a specific vessel named "Peerless." The contract specified that the cotton was to be shipped on the "Peerless" arriving from Bombay. However, there were two ships named "Peerless" arriving from Bombay at different times. The seller and buyer each had a different ship in mind, and both believed they were contracting for a shipment on the specific "Peerless" ship they intended. When the seller shipped the cotton on the "Peerless" arriving in October, the buyer had anticipated the "Peerless" arriving in December. Mutual Mistake: The court held that the contract was void due to mutual mistake. The mistake regarding the specific "Peerless" ship was deemed to go to the root of the contract. Since both parties had different ships in mind and the term "Peerless" was ambiguous, there was no true consensus on the fundamental term of the contract. Ambiguity and Mistake: The case illustrates that when there is a mutual misunderstanding about a crucial term of the contract, the contract may be considered void for lack of mutual assent. In this case, the term "Peerless" was ambiguous, leading to a fundamental misunderstanding between the parties.

Answer 116

1) Mistaken as to the terms of the offer 2) A unilateral mistake as to the identity of the other party

Answer 117

The party that is aware of the other party's mistake will be unable to enforce his version of the contract ash has a duty to disclose the existence of the mistake.

Answer 118

The defendants, Colin & Shields, were furriers who mistakenly offered to sell hare skins to the plaintiff, Hartog, at a price per pound rather than per piece. Normally, such transactions were conducted on a per-piece basis, and the price per pound was significantly lower. Hartog, aware of the usual practice and the apparent mistake, accepted the offer. Legal Issue: The main issue was whether the contract was valid, given that the plaintiff knew or ought to have known that the defendants had made a mistake in quoting the price per pound rather than per piece. Unilateral Mistake: The court found in favor of the defendants, ruling that there was no binding contract. The court held that the plaintiff must have known that the price offered was a mistake, and it was not permissible to "snap up" an offer that was clearly made in error. Objective Understanding of Contract Terms: The decision emphasized that a contract is based on the objective understanding of the terms by both parties. Since the plaintiff knew or should have known that the offer was made by mistake, there was no "meeting of the minds" (consensus ad idem) regarding the price, and therefore, no valid contract.

Answer 119

1) Mistaken as to the terms of the offer 2) A unilateral mistake as to the identity of the other party

Answer 120

A unilateral mistake as to the identity of the other party will render the contract void. However, if the mistake is simply one as to the attributes of the other party, it will not render the contract void.

Answer 121

When a rogue assumes the identity of another person, with a fraudulent intent, the contract was held to be void (Cundsy v Lindsey 1878) When a rogue assumes the identity of a foctional person, the contract was NOT held to be void (Kings Norton Metal Co v Edrige 1897)

Answer 122

For a mistake as to identity to be "operative" (i.e., sufficient to render a contract void), the mistaken party must be able to demonstrate specifically who they intended to contract with. This requirement means that the party claiming to have made a mistake must clearly identify the person or entity with whom they thought they were entering into a contract, and show that this identity was a fundamental part of the agreement.

Answer 123

Non est factum is a legal doctrine that translates from Latin to "it is not my deed." It is a defense in contract law that allows a person to avoid being bound by a contract or document that they signed under certain circumstances. This doctrine is used when someone signs a document mistakenly, believing it to be something fundamentally different from what it actually is. In this case, the House of Lords held that the plea of non est factum was not available to Mrs. Gallie. Although she was misled, she had not taken sufficient steps to ensure she understood the document. The court emphasized that non est factum requires the document to be fundamentally different from what the signer believed it to be, and the signer must not have been negligent. To successfully claim non est factum, the person must not have been negligent in failing to understand the document. They must have taken reasonable care to ensure they understood what they were signing. This defense is not available if the person simply failed to read or understand the document because of carelessness.

Answer 124

The contract went against public policy and was, thus, unenforceable at Common Law. These roulette wheels were hired with the express purpose that the wheel be used for a game which was unlawful under the Betting and Gaming Act 1960.

Answer 125

No, due to public policy it was held to be unenforceable.

Answer 126

A) Contracts to commit a crime or other act which is contrary to public policy. Such contracts are held to be illegal, as formed, or illegal in their inception and are, therefore, unenforceable by either party, whether or not either of both parties are aware that the intended act is contrary to the law or public policy. Example: Parties who were innocently involved in the hire of a roulette wheel with the express purpose that the wheel be used for a game which was unlawful under the Betting and Gaming Act 1960. B) Contracts entered into with the purpose of furthering the commission of a legal wrong, or carrying out conduct which his otherwise contrary to public policy. Example: A lessor let property to a lessee, fraudulently misrepresenting that no planning permission was necessary for the lessee's intended use. Summary of Differences: Illegality at Formation vs. Illegality in Purpose: Category A involves contracts that are illegal from the moment they are formed because they explicitly aim to achieve an unlawful result. Category B involves contracts that might be legal on their face but are entered into with the purpose of furthering an illegal act or conduct contrary to public policy. Awareness of Illegality: In Category A, the awareness of the parties regarding the illegality does not affect the enforceability; the contract is void regardless. In Category B, the enforceability depends on proving the illegal intent behind the contract, which may not be apparent at the contract's formation.

Answer 127

No, in common law, it does not affect enforcement. In Whetherell v Jones (1832), the claimant succeeded in an action for the price of goods delivered, despite his unlawful performance in providing an irregular statutory invoice. What matters in such cases are the consideration and the matter to be performed. The plaintiff sold spirits, misstating the strength to reduce the tax. Held: A failure only to comply with regulations, which would result in a penalty, did not render void a sale of goods, and the plaintiff was entitled to recover the contract price.

Answer 128

1) Contracts prejudicial to family life and the status of marriage 2) Contracts to commit a crime or tort 3) Contracts to defraud the public revenue 4) Contracts prejudicial to the administration of justice 5) Contracts tending to corrupt public officials 6) Contracts promoting sexual immorality

Answer 129

1) Contracts imposing a restraint on marriage 2) Contracts imposing liability for marrying 3) Contracts providing for future separation of married couples

Answer 130

The primary reason was that the settlement was deemed to contravene public policy. In the case, the deed was found to be invalid because it was established with the intent of facilitating or anticipating a separation between the parties, which was against public policy at the time. The court held that arrangements made to provide for or anticipate separation, especially in a way that encouraged it, were not enforceable. This principle reflects the broader legal stance that agreements designed to facilitate or anticipate separation undermine the institution of marriage and are not supported by law. The case is significant in illustrating how legal agreements related to marital separation need to align with public policy considerations to be enforceable.

Answer 131

"Elliot v Richardson" (1870) is notable for its involvement in a contract where one party agreed to provide false evidence. The case is significant because it dealt with the enforceability of agreements that are intended to commit fraud or involve criminal conduct. In "Elliot v Richardson," the court ruled that a contract to provide false evidence was unenforceable. This decision reinforced the principle that agreements which involve criminal actions or fraud cannot be upheld by the courts. The case illustrates the legal system's stance against facilitating or endorsing unethical or illegal behavior through contractual agreements.

Answer 132

It is an interim injunction which would restrain the divulger from: 1) publishing information which concerns the other person and is said to be confidential or private; and 2) publicising or informing others of the existence of the order and the proceedings

Answer 133

he case of Pearce v Brooks (1866) involved the issue of sexual immorality. The contract in question was between Pearce, a coachbuilder, and Brooks, a woman engaged in prostitution. Pearce had agreed to let Brooks use his carriage for her activities, but when he sought to enforce the contract, Brooks argued that it was based on sexual immorality and therefore unenforceable. The court ruled in favor of Brooks, stating that the contract was unenforceable because it was made to facilitate an immoral and illegal activity. The judgment underscored that contracts which are intended to support or promote immoral or illegal behavior are not recognized by the law, reflecting the legal system's stance on maintaining public morality and preventing the endorsement of unethical conduct. However, courts need to apply the moral standards of the day.

Answer 134

No. This is Curragh Investments Ltd v Cook (1978). In Curragh Investments Ltd v Cook (1978), the issue revolved around the validity of the contract due to the company registration. Specifically, Curragh Investments Ltd, the plaintiff, was not properly registered as a company at the time the contract was entered into. The main issue was whether a contract with an unregistered or improperly registered company could be enforced. The court considered the implications of the company's registration status on the enforceability of the contract. The court ultimately ruled that the contract was unenforceable because the company, being improperly registered, lacked the legal capacity to enter into a binding contract. This case highlights the importance of proper company registration and compliance with corporate formalities for a company to enter into enforceable contracts.

Answer 135

The central issue in the case was whether the contract could be enforced, given that one of the parties (Isphani) lacked the required license under the law. The court ruled that the contract was unenforceable because it involved an illegal act: the sale of linseed oil by an unlicensed seller. Even though Mahmoud had the proper license, Isphani’s lack of compliance with the statutory requirements made the contract illegal from the outset. He fraudulently misrepresented himself as having a license. The court refused to enforce any part of the agreement, reaffirming the principle that contracts involving illegal activities, or those that violate statutory provisions, cannot be upheld by the courts. Re Mahmoud and Isphani reinforces the principle that contracts involving illegal activities or those that are contrary to statutory regulations are void and unenforceable. This case illustrates the strict approach courts take toward contracts that involve regulatory breaches, even if only one party is in violation.

Answer 136

A: In Re Mahmoud and Isphani, the statute did not explicitly state that contracts made without a license were void, but it regulated the sale of linseed oil, allowing only licensed traders to sell. The court inferred that enforcing the contract would undermine the purpose of the law, even though the statute did not expressly void such contracts. Thus, the prohibition was implied. A: In Curragh Investments Ltd v Cook, the statute (Companies Act) explicitly stated that unregistered companies lacked the legal capacity to enter into contracts. The prohibition was clearly outlined in the law, making such contracts automatically void, so the prohibition was express.

Answer 137

1) Where the parties are not at equal fault or in pari delicto 2) Where the claimant has repudiated the illegal purpose on time 3) Where the claimant does not found his claim on the illegality 4) The range of factors test

Answer 138

The phrase "illegal contracts may be enforceable in absence of pari delicto" means that even when a contract is illegal, it might still be enforceable if the parties involved are not equally at fault. Normally, when both parties are equally engaged in illegal conduct, the principle of in pari delicto prevents either party from seeking legal remedies or enforcing the contract. However, if one party is significantly less at fault—perhaps due to being misled or deceived about the legality of the contract—the court may still allow for enforcement or recovery. This is because the principle of in pari delicto does not apply when one party is clearly the victim of fraud or undue influence, thus providing a potential avenue for legal relief despite the contract’s illegal nature.

Answer 139

In Hughes v Liverpool Victoria, the claimant was allowed to recover premiums paid on an illegal life insurance contract because the defendant fraudulently misrepresented the legality of the contract. Although the in pari delicto principle typically bars recovery when both parties are at fault in an illegal agreement, the court made an exception since the claimant had been misled and was not equally at fault.

Answer 140

Locus poenitientiae means "a place of repentance," and in contract law, it allows a party the opportunity to change their mind or withdraw from a contract before it is fully performed or executed, provided that the other party has not yet incurred any irreversible obligations.

Answer 141

Locus poenitientiae means "a place of repentance," and in contract law, it allows a party the opportunity to change their mind or withdraw from a contract before it is fully performed or executed, provided that the other party has not yet incurred any irreversible obligations. When a party withdraws from the illegal contract during the time for repentance, this repentance exception mitigates the harshness of the illegaility doctrine, which is founded in restitution.

Answer 142

Taylor's claim was successful because he repudiated the illegal scheme before it was fully carried out. The court allowed him to recover the goods as he acted to distance himself from the fraud before any actual harm was done to the creditors. The concept of locus poenitientiae (the opportunity to withdraw from an illegal act) applied, permitting recovery of the goods as long as the illegal purpose had not been fully realized.

Answer 143

The Court of Appeals held that where was a partial performance of an illegal contract, money paid under that illegal contract could not be recovered. Locus Poenitientiae could not be claimed by the claimant as there had been partial performance.

Answer 144

Kearley's claim to recover the money was unsuccessful. The Court of Appeal ruled that where there has been partial performance of an illegal contract, money paid under such a contract cannot be recovered. This is because the illegal contract had already been partly executed, and Kearley could not reclaim the money paid under it. Role of Locus Poenitientiae: Locus poenitientiae, or the opportunity to withdraw from a contract before the illegal purpose is fully realized, did not benefit Kearley in this case. The Court held that because part of the illegal agreement had already been performed, Kearley could not recover the money. Distinguishing Taylor v Bowers: Taylor v Bowers (1876) dealt with a different scenario. In that case, Taylor had given goods to his nephew to hide from creditors as part of a scheme to defraud them. When Taylor attempted to repudiate the illegal scheme before it was fully carried out, the court allowed him to recover the goods. The key point was that the illegal act had not been completed, so the contract could be voided, and Taylor could recover his property. Distinction: Partial Performance: In Taylor v Bowers, the illegal act (fraudulent hiding of goods) had not been fully completed before Taylor sought to reclaim the goods. Because Taylor repudiated the illegal act before it was fully realized, he was able to recover his property. Execution of the Illegal Act: In Kearley v Thomson, the illegal agreement had been partially executed (the solicitors had already refrained from opposing the discharge). Because part of the illegal contract had been performed, Kearley was not allowed to recover the money.

Answer 145

Bowmakers sued Barnet Instruments for conversion (the wrongful possession of goods), seeking to recover the machinery. The court ruled in favor of Bowmakers. It held that Bowmakers could rely on the tort of conversion to recover the goods because their claim did not rely on the enforcement of the illegal contract. Bowmakers’ right to the goods existed independently of the illegal agreement.

Answer 146

Sue for restitution. Restitution does not require a valid contract. Restitution is a legal remedy that operates independently of whether a contract exists or is valid. Its purpose is to prevent unjust enrichment, meaning one party should not unfairly benefit at the expense of another, even if no valid contract exists between them. The principle that restitutionary recovery may have the same effect as enforcing the contract refers to situations where a party seeks to recover money or goods transferred under an illegal or unenforceable contract, and the court allows them to do so even though the contract itself cannot be enforced.

Answer 147

The UK Supreme Court ruled in favor of Patel, allowing him to recover the £620,000. The Court took a significant step in reshaping the approach to illegality in contract law by rejecting the strict rule that parties involved in illegal contracts cannot seek recovery. Instead, the Court introduced a more flexible, policy-based approach. The Court set out a three-stage test to determine whether enforcing an illegal contract or allowing recovery would be contrary to public policy: 1) What is the underlying purpose of the prohibition that has been transgressed? The court considers the purpose of the law that was broken (in this case, insider trading laws). 2) Would denying the claim enhance or undermine the purpose of the prohibition? Denying recovery in this case would not promote the purpose of insider trading laws, as the illegal act never occurred. 3) Is there a public policy reason for allowing recovery, or would it be disproportionate to deny recovery? Denying Patel recovery would be disproportionate, especially since the illegal act (insider trading) was never carried out. Patel v Mirza marked a significant shift in English law by adopting a more nuanced approach to illegal contracts. Instead of applying a strict rule that denies recovery in cases of illegality, courts now use a balancing approach, considering public policy and the specific circumstances of the case.

Answer 148

The UK Supreme Court ruled in favor of Grondona, allowing her to recover damages for professional negligence despite her involvement in the illegal mortgage fraud. The rationale was that the public interest in holding solicitors accountable for professional errors outweighed the undesirability of enabling someone involved in fraud to bring a claim. The courts prioritized upholding high standards in the legal profession over strictly punishing the fraud. Application of the Patel v Mirza Test: The court applied the three-stage test established in Patel v Mirza to determine whether Grondona’s claim should be barred due to the illegality of the underlying transaction: Purpose of the Prohibition Transgressed: The illegal act in question was the mortgage fraud, but the purpose of the prohibition was to prevent dishonest conduct in obtaining loans. Would Denying the Claim Enhance or Undermine the Purpose of the Prohibition? Denying the claim would not further the aim of preventing mortgage fraud. Instead, it would undermine the system of professional standards expected of solicitors. The solicitor’s error had no direct relation to the mortgage fraud itself. Proportionality: It would be disproportionate to deny Grondona the ability to claim against the solicitors for negligence, as the public policy goal of holding professionals accountable for their duties was separate from the illegality of the underlying transaction.

Answer 149

Severance allows the court to eliminate the objectionable parts of a contract, while enforcing the remainder. Severance of a clause will only be allowed if the clause forms a subsidiary, rather than a substantial part of the contract. This power is seldom used, as the fear is that it may be considered tantamount to condoning illegal actions.

Answer 150

The third covenant (not to initiate matrimonial proceedings) was contrary to public policy, as it sought to prevent the wife from accessing legal remedies available to her in family law matters. The scenario you’ve described relates to the principle of severance in contracts involving illegal or public policy considerations. Here’s a breakdown of the key points and how they apply: Severability of Terms: The illegal covenant was not the only or main consideration provided by the wife. The rest of the agreement, including the maintenance payments, was not dependent on this illegal term. Non-Vitiating Clause: The illegal covenant did not vitiate the entire agreement because it was a separate term that could be severed from the rest of the contract. The primary consideration (maintenance payments) and the other lawful covenants (indemnity and not pledging credit) were enforceable and were not tainted by the illegal clause. Enforcement of Lawful Terms: The court allowed the wife to sue for arrears in maintenance payments because the remaining parts of the contract were valid and could be enforced independently of the illegal covenant.

Answer 151

Restraints of trade are contractual agreements or clauses that limit an individual's or a company's ability to freely conduct business or engage in a particular occupation. These restrictions are often imposed to protect legitimate business interests, such as confidential information, goodwill, or to prevent unfair competition. However, since they restrict economic freedom, they are subject to legal scrutiny and may be considered void unless they meet certain conditions. Types of Restraints of Trade: Non-Compete Clauses: Agreements that prevent an employee from working for a competitor or starting a competing business within a certain geographic area and for a specific time after leaving employment. Non-Solicitation Clauses: Prevent an individual from soliciting a company’s clients, customers, or employees for a period after leaving employment or a business partnership. Exclusivity Agreements: Agreements that restrict one party from doing business with anyone other than the other party in the contract.

Answer 152

The clauses must go no further than necessary to protect the legitimate interest of the party relying upon the clause, both within a specified geographical area and within a specific period. The clause must be reasonable in terms the public interest and this will be determined as a matter of law by the court, which may take into account such matters as trade practices and customs.

Answer 153

Legal Issue: The key legal question was whether Fowler was under an obligation to not use or disclose the confidential information he obtained during his employment after his employment had ended. Judgment: The Court of Appeal held that there was a distinction between trade secrets and mere confidential information obtained during the course of employment: Trade Secrets: Information that is highly confidential, and the employee is bound not to disclose it both during and after employment. This could include processes, formulas, or detailed customer information developed through significant effort or expense by the employer. Mere Confidential Information: Ordinary information that an employee acquires while performing their job, such as customer lists or pricing details. While employees are obligated not to misuse this information during their employment, they are generally not bound by the same level of confidentiality after leaving employment unless there is an explicit agreement (e.g., a non-disclosure or non-compete clause). Conclusion: The court ruled in favor of Fowler, stating that the information he used was not classified as a trade secret but rather confidential information that he had become aware of in the normal course of his employment. Because there was no explicit restriction in his contract about using this information post-employment, Fowler was not liable for using it in his new business. Employers cannot prohibit former employees from using their personal skill and knowledge even if acquired in the course of their employer's business, since employees should be free to exploit their assets in the marketplace.

Answer 154

The court has the power to sever the whole, or part(s) of the condition which is too wide to be enforceable, while leaving in place the provision which the court considers to be reasonable. Whether or not this is possible is a matter of construction as the part to be severed must be independent of the remaining provisions.

Answer 155

1. the court must be able to sever without having to add words to the agreement, or modify the wording of what remains; 2. there must remain adequate consideration to support the part(s) of the covenant which remain; and 3. the removal of the unenforceable provision must not so change the character of the contract that it becomes "not the sort of contract that the parties entered into at all"

Answer 156

No Blue-Pencil Rule Application: Courts are bound by the terms as they are written in the contract. If a restrictive covenant is too broad or unreasonable (for example, by covering too large a geographical area or lasting for an excessive duration), the court cannot change or rewrite the terms to make them reasonable. Instead, the court must either enforce the covenant as it is or strike it down entirely.

Answer 157

1) trade secrets 2) business connections

Answer 158

The primary legal issue was whether the restrictive covenant, which prevented Suggett from working in the glass industry for five years, was reasonable and enforceable. Judgment: The court upheld the restrictive covenant, ruling in favor of Foster & Sons Ltd. The key reasons for the court’s decision were: Legitimate Business Interests: The court recognized that the company had a legitimate interest in protecting its confidential information and trade secrets, particularly the specialized glass-making processes that Suggett had learned during his employment. Reasonableness of the Covenant: The five-year restriction was considered reasonable in this case, given the nature of the industry and the sensitivity of the information involved. The court took into account that glass manufacturing was a specialized field, and the trade secrets Suggett had access to were valuable and required protection for a certain period. Protection of Trade Secrets: The court emphasized the importance of protecting trade secrets, which justified the imposition of the restrictive covenant. Since Suggett had access to these confidential processes, the restriction on his future employment was deemed appropriate to safeguard the company’s interests. The court upheld the restrictive covenant, finding it to be reasonable and necessary to protect Foster & Sons Ltd's business interests. The case established that restrictive covenants are enforceable if they are designed to protect legitimate business interests such as trade secrets and if the restrictions are reasonable in scope and duration.

Answer 159

An employer may use a covenant against solicitation of persons with whom the employer does business. The longer the duration of the covenant, the higher the burden on the employer to show it is reasonable.

Answer 160

Home Countries: The court determined that the non-compete clause was reasonable in its geographical scope and duration. The area and time frame were not excessively broad or long and were appropriate for protecting the company's business interests without imposing undue hardship on Skilton. Office Angels: The court concluded that the geographical and temporal scope of the restrictive covenant was too broad. The restrictions went beyond what was necessary to protect the legitimate business interests of Office Angels. The area covered most of the City of London where there were already hundreds of other employment agencies concentrated in the same area.

Answer 161

Sale of business restraints are restrictive covenants imposed when one party sells a business to another. These restraints are typically included in the sale agreement to protect the buyer's interests by preventing the seller from engaging in activities that could harm the value of the business being sold. These restrictions are often aimed at ensuring that the seller does not set up a competing business, solicit former customers, or interfere with the business’s goodwill after the sale. Any restraint will be void unless it is necessary to protect the business sold and not to hinder competition. Restraints against mere competition will not be allowed by the courts.

Answer 162

British Reinforced Concrete: The covenant was found to be too broad in both its geographical and temporal scope. It effectively prevented Schelff from working in the entire industry for five years, which was considered excessive and unnecessary to protect the company's business interests. Nordenfelt: While the covenant was global and applied for 25 years, the court ruled that, given the specialized nature of the arms industry and the importance of protecting the business's goodwill, the restraint was reasonable. Nordenfelt was one of the few experts in the field at the time, and a narrower restriction might not adequately protect the buyer.

Answer 163

Exclusive dealing agreements are contracts between a supplier and a buyer (or distributor) in which the buyer agrees to only purchase goods or services from the supplier for a specified period. These agreements are common in industries such as retail, manufacturing, and distribution and can come in various forms, such as exclusive supply agreements or exclusive distribution agreements. They may be prohibited under retained EU law as anti-competitive and may also be challenged under common law. These agreements are void subject to reasonableness.

Answer 164

Restraints of trade, more precisely exclusive dealing agreements. The House of Lords distinguished between the two agreements based on their duration: 21-year agreement: The court found this agreement to be an unreasonable restraint of trade. The 21-year term was excessive and unfairly restricted Harper’s Garage from engaging with other petrol suppliers. It imposed too significant a burden on Harper's Garage and was not proportionate to the benefit Esso provided. 4.5-year agreement: The court ruled that this agreement was reasonable. A period of 4.5 years was considered acceptable because it allowed Esso to protect its investment in the petrol stations while not imposing an unduly long restriction on Harper’s Garage.

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