Gibson, Business Law 11^th Edition

Chapter 4: Validity

LO 4.1 Explain capacity to enter a valid contract and recognise some individuals’ restricted capacity to enter into a contract

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. Which of the following groups is presumed to have limited contractual capacity?
2. Pensioners.
3. Welfare recipients.
4. Foreigners.
5. Teenagers.

Difficulty: Basic

Topic: Do parties to the contract have full contractual capacity

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.1 Explain capacity to enter a valid contract and recognise some individuals’ restricted capacity to enter into a contract.

LO 4.2 Outline the common law rules regarding contracts with minors and discuss classification of contracts for an infant

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. A contract with a minor, which has no legal effect on either party, is called:
   • • • 1. A voidable contract.
         2. A void contract.
         3. A good contract.
         4. A valid contract.

Difficulty: Basic

Topic: Who are infants (or minors)

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.2 Outline the common law rules regarding contracts with minors and discuss classification of contracts for an infant.

1. Why was the plaintiff successful in the case of Hamilton v Lethbridge [1912] HCA 20?
   1. The defendant was no longer a minor.
   2. The services provided to the defendant were deemed to be necessaries.
   3. The contract was deemed to be beneficial to the minor.
   4. The contract was for interest in the shares of the company.

Difficulty: Moderate

Topic: Who are infants (or minors)

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 4.2 Outline the common law rules regarding contracts with minors and discuss classification of contracts for an infant.

True/False: Identify whether the statement is True or False.

1. According to the Minors (Property and Contracts Act) 1970, full contractual capacity is awarded to individuals from the age of 18.
2. True
3. False

Difficulty: Complex

Topic: Who are infants (or minors)

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.2 Outline the common law rules regarding contracts with minors and discuss classification of contracts for an infant.

LO 4.3 Discuss the impact of statutory rules in New South Wales and South Australia regarding contracts with minors

True/False: Identify whether the statement is True or False.

1. In determining the contractual liability of infants according to the Minors (Property and Contracts Act) 1970 of New South Wales, the courts will consider the way in which the infant paid for their goods and services.
   1. True
   2. False

Difficulty: Moderate

Topic: Statutory modifications in New South Wales and South Australia

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.3 Discuss the impact of statutory rules in New South Wales and South Australia regarding contracts with minors.

1. In South Australia, the Minors Contracts (Miscellaneous Provisions) Act 1979, rules that guarantors will no longer be liable for contracts entered into by infants reaching full age.
   1. True
   2. False

Difficulty: Basic

Topic: Statutory modifications in New South Wales and South Australia

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.3 Discuss the impact of statutory rules in New South Wales and South Australia regarding contracts with minors.

LO 4.4 Describe common laws on capacity to contract for corporations, bankrupts and mentally unsound and intoxicated persons.

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. The beneficiaries in O’Connor v Hart [1985] 1 NZLR 159 were unable to have the contract set aside because:
   • • • 1. The beneficiaries were not mentally unsound.
         2. The beneficiaries were not aware that the farmer was mentally unsound.
         3. The beneficiaries could not establish that Hart was mentally unsound and that the other party was aware or should have been aware of this.
         4. None of the above.

Difficulty: Complex

Topic: Do mentally unsound and intoxicated persons have capacity to contract

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.4 Describe common law rules on capacity to contract for corporations, bankrupts and mentally unsound and intoxicated persons.

True/False: Identify whether the statement is True or False.

1. A corporation is a legal entity with its own legal rights and duties and therefore contracts are enforceable against the corporation as an artificial person.
   1. True
   2. False

Difficulty: Basic

Topic: Corporations capacity to contract

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.4 Describe common law rules on capacity to contract for corporations, bankrupts and mentally unsound and intoxicated persons.

1. A person wishing to repudiate a contract for intoxication must bear the burden of proof.
   1. True
   2. False

Difficulty: Basic

Topic: Do mentally unsound and intoxicated persons have capacity to contract

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.4 Describe common law rules on capacity to contract for corporations, bankrupts and mentally unsound and intoxicated persons.

LO 4.5 Identify and assess the effect of different mistakes on liability in contractual situations

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. Which of the following is the best description of a ‘common mistake’?
2. Both parties have made the same mistake about the existence or identity of the subject matter of the contract.
3. One of the parties is mistaken as to the nature of the document that they have signed.
4. Both parties are mistaken about a material fact that is important to the subject matter of the contract.
5. One of the parties is mistaken about a material fact regarding the subject matter of the contract, and the other party takes advantage of this mistake.

Difficulty: Moderate

Topic: What is mistake

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.5 Identify and assess the effect of different mistakes on liability in contractual situations.

1. The ‘mutual mistake’ concept is best described by which of the following scenarios?
   • • • 1. Both parties have made the same mistake about the existence or identity of the subject matter of the contract.
         2. Both parties are mistaken about a material fact that is important to the subject matter of the contract.
         3. One of the parties is mistaken about a material fact regarding the subject matter of the contract, and the other party takes advantage of this mistake.
         4. One of the parties is mistaken as to the nature of the document which they have signed.

Difficulty: Moderate

Topic: What is mistake

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.5 Identify and assess the effect of different mistakes on liability in contractual situations.

1. In David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48, which of the parties was successful in establishing money paid under a mistake of law?
   1. The appellant.
   2. The tax office.
   3. The respondent.
   4. The payee.

Difficulty: Complex

Topic: What is mistake

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 4.5 Identify and assess the effect of different mistakes on liability in contractual situations.

1. Which of the following situations appear to describe non est factum?
   • • • 1. A beneficiary and an insurance company negotiated a life insurance policy, both unaware that the subject of the life insurance policy was in fact already dead.
         2. X purchased goods on credit from Y, believing Y to be Z and unaware that Y had purchased Z’s business. Y was aware of X’s mistake.
         3. Two parties agreed to send goods by a particular ship, but there were two ships with that name and each party was thinking of a different ship.
         4. X, who spoke little English, signed a document granting Y an option, believing it to be a receipt. This belief was encouraged by Y.

Difficulty: Moderate

Topic: What is mistake

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.5 Identify and assess the effect of different mistakes on liability in contractual situations.

1. In which of the following cases was the plaintiff able to establish mistake so that the contract was found to be void?
   • • • 1. Leaf v International Galleries [1950] 2 KB 86.
         2. McRae v Commonwealth Disposals Commission (1951) HCA 79.
         3. David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48.
         4. Cundy v Lindsay [1878] 3 App Cas 459.

Difficulty: Moderate

Topic: What is a mistake

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.5 Identify and assess the effect of different mistakes on liability in contractual situations.

True/False: Identify whether the statement is True or False.

1. Contracts entered into under duress can still be enforced by the courts.
2. True
3. False

Difficulty: Basic

Topic: Step 5: Have the parties consented

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.5 Identify and assess the effect of different mistakes on liability in contractual situations.

1. A unilateral mistake is where one of the parties is mistaken about a material fact regarding the subject matter of the contract, and the other party takes advantage of this mistake.
   1. True
   2. False

Difficulty: Basic

Topic: What is mistake

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.5 Identify and assess the effect of different mistakes on liability in contractual situations.

1. A contract can be rendered void solely by a mistake of law.
   1. True
   2. False

Difficulty: Basic

Topic: What is mistake

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.5 Identify and assess the effect of different mistakes on liability in contractual situations.

1. In the case of a contract for the sale of goods that is rendered void for mistake, a third party who has subsequently acquired those goods will not be entitled to retain them.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: What is mistake

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.5 Identify and assess the effect of different mistakes on liability in contractual situations.

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. Why are courts generally reluctant to set aside a contract due to a mistake by one of the parties? Do you agree with this reluctance?

Difficulty: Complex

Topic: What is mistake

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 4.5 Identify and assess the effect of different mistakes on liability in contractual situations.

1. In Hartog v Colin & Shields [1939] 3 ALL ER 566, the court ruled that the plaintiff must have realised there was clearly a mistake with the price and declared the contract void. Do you think this ruling is fair given today’s climate of discounted online shopping?

Difficulty: Complex

Topic: What is mistake

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 4.5 Identify and assess the effect of different mistakes on liability in contractual situations.

LO 4.6 Identify the different types of misrepresentations and discuss their effect on a contract and statutory intervention for remedies. Identify and assess the effect of different mistakes on liability in contractual situations

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. Which of the statements below qualifies as a representation?
2. Statement of opinion.
3. Statement of fact.
4. Statement as to future conduct or intention.
5. Statement of law.

Difficulty: Basic

Topic: What is misrepresentation

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.6 Identify the different types of misrepresentations and discuss their effect on a contract and statutory intervention for remedies.

1. Which of the following statements is the best description of a ‘fraudulent’ misrepresentation?
   • • • 1. Silence or non-disclosure about a fact, which creates a false impression.
         2. A false statement of fact made with the belief that it is true, which the other person relies upon and suffers loss.
         3. A false statement of fact made knowingly, which the other person relies upon and suffers loss.
         4. A false statement of fact made carelessly, which the other person relies upon and suffers loss.

Difficulty: Basic

Topic: What is misrepresentation

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.6 Identify the different types of misrepresentations and discuss their effect on a contract and statutory intervention for remedies.

True/False: Identify whether the statement is True or False.

1. A false statement of fact made carelessly, which the other party has relied upon and suffered a loss, represents a negligent misrepresentation.
   1. True
   2. False

Difficulty: Basic

Topic: What is misrepresentation

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.6 Identify the different types of misrepresentations and discuss their effect on a contract and statutory intervention for remedies.

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. Explain how an innocent misrepresentation occurs?

Difficulty: Basic

Topic: What is misrepresentation

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.6 Identify the different types of misrepresentations and discuss their effect on a contract and statutory intervention for remedies.

1. Distinguish between the terms ‘rescission’ and ‘repudiation’.

Difficulty: Complex

Topic: What is misrepresentation

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.6 Identify the different types of misrepresentations and discuss their effect on a contract and statutory intervention for remedies.

1. Why has the common law of misrepresentation been largely superseded by consumer protection legislation such as the Competition & Consumer Act (2010) (Cth)?

Difficulty: Complex

Topic: What is misrepresentation

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 4.6 Identify the different types of misrepresentations and discuss their effect on a contract and statutory intervention for remedies.

1. Do you think the current legislation is successful in dealing with innocent misrepresentations? Give a reason to support your answer.

Difficulty: Complex

Topic: What is misrepresentation

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 4.6 Identify the different types of misrepresentations and discuss their effect on a contract and statutory intervention for remedies.

LO 4.7 Explain the doctrines of duress and undue influence, and describe their effect to avoid liability on a contract.

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. Which of the following situations appears to involve ‘duress’?
   • • • 1. A property developer promised their accountant a share in a business venture in return for a reduction in their bill.
         2. A woman gave all her property to the religious order of which she was a member.
         3. A man induced another to sign a contract by telling him that if he did not, he would report his son to the police for committing a criminal offence.
         4. An elderly Italian couple sign a mortgage in favour of a Bank guaranteeing their son’s debts; the Bank manager knows the couple are unaware of the son’s financial difficulties.

Difficulty: Moderate

Topic: What actions can constitute duress or undue influence

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 4.7 Explain the doctrines of duress and undue influence, and describe their effect to avoid liability on a contract.

1. Which of the following statements is the best description of ‘undue influence’?
   • • • 1. The improper use of a position of influence or power to induce a contract.
         2. The improper use of a superior bargaining position to induce a contract.
         3. The improper use of violence or of threats of violence to induce a contract.
         4. The improper use of fraudulent information.

Difficulty: Basic

Topic: What actions can constitute duress or undue influence

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.7 Explain the doctrines of duress and undue influence, and describe their effect to avoid liability on a contract.

1. Why was the plaintiff in Johnson v Buttress [1936] HCA 41 successful?
2. He had established duress.
3. He had proved unconscionability.
4. He had proved undue influence.
5. He had proved no special relationship existed.

Difficulty: Moderate

Topic: What actions can constitute duress or undue influence

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.7 Explain the doctrines of duress and undue influence, and describe their effect to avoid liability on a contract

True/False: Identify whether the statement is True or False.

1. To establish duress, the onus is on the coerced party to show it was the only reason they entered into the contract.
2. True
3. False

Difficulty: Basic

Topic: What actions can constitute duress or undue influence

Learning Outcome: LO 4.7 Explain the doctrines of duress and undue influence, and describe their effect to avoid liability on a contract

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. A separating husband has drafted consent orders. The husband informs his wife that she should refrain from seeking legal advice and that once the orders are signed, he will commence child support payments to her. Does this situation appear to involve a form of duress or undue influence?

Difficulty: Complex

Topic: What actions can constitute duress or undue influence

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.7 Explain the doctrines of duress and undue influence, and describe their effect to avoid liability on a contract.

LO 4.8 Describe unconscionable conduct, its common law remedies and the effect of statutory modifications to the common law

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. Which of the following statements is the best description of ‘unconscionability’?
   • • • 1. The improper use of fraudulent information.
         2. The improper use of violence or of threats of violence to induce a contract.
         3. The improper use of a position of influence or power to induce a contract.
         4. The improper use of a superior bargaining position to induce a contract.

Difficulty: Basic

Topic: Unconscionable (unfair) contracts

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.8 Describe unconscionable conduct, its common law remedies and the effect of statutory modifications to the common law

1. Which of the following situations will not give rise to a successful claim of unconscionability?
   • • • 1. The language of the transaction was complex.
         2. The plaintiff sought independent expert advice.
         3. The plaintiff was elderly.
         4. The plaintiff was illiterate.

Difficulty: Moderate

Standard/Graduate Attribute AACSB: Application of knowledge

Topic: What are unconscionable (unfair) contracts

Learning Outcome: LO 4.8 Describe unconscionable conduct, its common law remedies and the effect of statutory modifications to the common law

1. In Commercial Bank of Australia v Amadio (1983) HCA 14 which of the following was not a reason why the bank was considered to have acted unconscionably?
   • • • 1. The bank took advantage of the Amadios’ special disabilities.
         2. It did not insist that the parents obtain separate independent advice.
         3. The bank exercised economic duress.
         4. The bank did not explain the real financial position of the son whom his parents were trying to help.

Difficulty: Basic

Topic: What are unconscionable (unfair) contracts

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.8 Describe unconscionable conduct, its common law remedies and the effect of statutory modifications to the common law

True/False: Identify whether the statement is True or False.

1. When deciding on ‘unconscionable conduct within the meaning of the unwritten law’, the courts may consider the bargaining power and positions of the parties involved.
   1. True
   2. False

Difficulty: Moderate

Topic: What are unconscionable (unfair) contracts

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.8 Describe unconscionable conduct, its common law remedies and the effect of statutory modifications to the common law

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. Do you think it is fair that judges decide what is unconscionable within the meaning of the written law on a case-by-case basis?

Difficulty: Complex

Topic: What are unconscionable (unfair) contracts

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 4.8 Describe unconscionable conduct, its common law remedies and the effect of statutory modifications to the common law

LO 4.9 Identify how some contracts are void or made illegal by statute, and the extent of invalidity

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. If a contract is found to be illegal at the time of its creation, it will be:
   • • • 1. Valid and enforceable.
         2. Valid but unenforceable.
         3. Valid but voidable.
         4. Void and unenforceable.

Difficulty: Basic

Topic: What type of contracts are illegal by statute

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.9 Identify how some contracts are void or made illegal by statute, and the extent of invalidity.

True/False: Identify whether the statement is True or False.

1. The intention of a statute will determine whether a contract is illegal and unenforceable.
   • • • 1. True
         2. False

Difficulty: Moderate

Topic: What type of contracts are illegal by statute

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 4.9 Identify how some contracts are void or made illegal by statute, and the extent of invalidity.

1. A term in a contract that attempts to exclude the implied terms of the Australian Consumer Law is void and unenforceable.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: What type of contracts are illegal by statute

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.9 Identify how some contracts are void or made illegal by statute, and the extent of invalidity.

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. Explain what is meant by a ‘contract void by statute’.

Difficulty: Basic

Topic: What type of contracts are illegal by statute

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.9 Identify how some contracts are void or made illegal by statute, and the extent of invalidity.

LO 4.10 Explain the common law position in relation to the types of contract that are illegal and types of contracts that are void

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. Contracts that are illegal at common law will not be enforced if they:
   1. Are breaking the law.
   2. Involve unlawful sexual acts.
   3. Endanger public safety.
   4. All of the above.

Difficulty: Basic

Topic: What is the common law position of contracts that are illegal and those that are void

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.10 Explain the common law position in relation to the types of contract that are illegal and types of contracts that are void.

1. A clause in a contract which provides that the courts may not be used to resolve any disputes between the parties is:
   • • • 1. Void at common law.
         2. Illegal at common law.
         3. Referred to as a ‘restraint of trade’ clause.
         4. By its very nature incapable of being enforced by the courts.

Difficulty: Moderate

Topic: What is the common law position of contracts that are illegal and those that are void

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.10 Explain the common law position in relation to the types of contract that are illegal and types of contracts that are void.

True/False: Identify whether the statement is True or False.

1. Contracts that are binding in honour only but attempt to oust the jurisdiction of the Courts are valid.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: What is the common law position of contracts that are illegal and those that are void

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.10 Explain the common law position in relation to the types of contract that are illegal and types of contracts that are void.

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. Identify the three types of contracts not illegal in toto but void at common law.

Difficulty: Basic

Topic: What is the common law position of contracts that are illegal and those that are void

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.10 Explain the common law position in relation to the types of contract that are illegal and types of contracts that are void.

• Contracts prejudicial to the status of marriage;
• Clauses in contracts that attempt to oust the jurisdiction of the courts; and
• Clauses in contracts in restraint of trade.

These contracts may contain offensive terms.

LO 4.11 Describe restraint of trade and explain situations where such restraints are seen as reasonable and legally enforceable

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. Which of the following is not a factor to consider in determining the validity of a restraint of trade clause?
   • • • 1. The type of business involved.
         2. The geographic extent of the restraint.
         3. The relative bargaining powers of the parties.
         4. The amount of consideration paid.

Difficulty: Moderate

Topic: Restraint of trade

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 4.11 Describe restraint of trade and explain situations where such restraints are seen as reasonable and legally enforceable

1. The decision in Attwood v Lamont [1920] 3 KB 571 was based on the fact that:
   • • • 1. The restraint of trade clause was an unreasonable exercise of the employer’s superior bargaining power.
         2. The restraint of trade clause was a reasonable protection of the employer’s proprietary interest.
         3. The restraint of trade clause was imposed merely to restrict competition.
         4. Arms-length bargaining with legal advice on both sides meant there was no inequality of bargaining power.

Difficulty: Moderate

Topic: Restraint of trade

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 4.11 Describe restraint of trade and explain situations where such restraints are seen as reasonable and legally enforceable

1. Which of the following factors are relevant to the validity of a restraint of trade clause in a contract of employment?
   • • • 1. Whether the employee has acquired skills or information belonging to their employer.
         2. The relative bargaining powers of the parties.
         3. The area and duration of the restraint.
         4. All of the above.

Difficulty: Moderate

Topic: Restraint of trade

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 4.11 Describe restraint of trade and explain situations where such restraints are seen as reasonable and legally enforceable

1. Which of the following scenarios is the best description of an invalid restraint on trade?
   • • • 1. A restraint upon a solicitor from carrying on business in the same city for one year after the sale of the practice.
         2. A restraint upon the vendor of a business from carrying on a similar business within the same district in the next three years.
         3. A restraint upon an employee from divulging trade secrets.
         4. A restraint upon the vendor of a business from carrying on a similar business anywhere for the rest of his life.

Difficulty: Moderate

Topic: Restraint of trade

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 4.11 Describe restraint of trade and explain situations where such restraints are seen as reasonable and legally enforceable

True/False: Identify whether the statement is True or False.

1. An employer can enforce a restraint of trade clause in a contract of employment with an employee, provided it is not an attempt to limit competition.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: Restraint of trade

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 4.11 Describe restraint of trade and explain situations where such restraints are seen as reasonable and legally enforceable

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. Explain why the courts are generally reluctant to enforce restraint clauses in contracts of employment.

Difficulty: Basic

Topic: Restraint of trade

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 4.11 Describe restraint of trade and explain situations where such restraints are seen as reasonable and legally enforceable

A restraining clause in contracts of employment would likely be considered valid in these two cases:

• Restraints on confidential information or trade secrets learnt during employment. See Forster & Sons Ltd v Suggett (1918) 35 TLR 87; and
• Protection of trade connections, such as customer lists.

In order for such clauses to be held valid and reasonable, it must be shown that there is some proprietary interest owned by the employer that requires protection.

1. How can the court’s willingness to declare a contract illegal or void at common law be reconciled with the courts’ determination to respect the notion of ‘freedom of contract’?

Difficulty: Complex

Topic: Restraint of trade

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 4.11 Describe restraint of trade and explain situations where such restraints are seen as reasonable and legally enforceable