Contracts In Restraint Of Trade Essay

2068 words - 8 pages

The term contract can be defined simply as a written or spoken agreement between two or more parties, intended to be enforced by law. Both parties are free to negotiate and draw the frames of their contracts. However this freedom is not unlimited. In certain circumstances a contract may fall into the "illegal contracts" category and for this reason become unenforceable. Herein arise two questions: Firstly, how far can the negotiators go in determining their obligations in order to have a valid agreement and secondly, can the parties go so far as to restrict their own freedom to negotiate?Despite the various classifications of the illegal contracts in theory they can be divided into two large categories: contracts that break the law and contracts contrary to public policy. In the first category are contracts that contradict the legal provisions of the state, in particular statute and common law. They could generally be defined as contracts relating to committing crime, committing tort, and contracts expressly forbidden by statute. Different authors have slightly different definitions for the second category. Nevertheless in general, the contracts contrary to public policy could be listed as contracts that pervert the course of justice, those promoting sexual immorality, contracts concerning marriage, contracts which oust the jurisdiction of the court and contracts interfering with human rights. This group can be expanded upon and it is important to note that contracts in restraint of trade also belong to it, although mentioned separately by most authors. Contrary to public policy, contracts in restraint of trade are unenforceable. They are also declared to be prima facie void, which in other words means that they are presumed to be invalid unless the opposite is proven before the court.In "The modern Law of Contract"R.Stone considers the contracts in restraint of trade as ones, which bring conflict to the principles of "freedom of contract" and of "free market" . The freedom of parties to set the terms and conditions of a contract in this case, is seen to be used as a limitation of their right to freely compete in the market. Such a restriction of competition automatically determines those contracts to be contrary to the public policy. For this reason the consequences of restraint of trade contracts are undesirable with respect to the common law. It is important to note that when talking about contract it is more likely to be a covenant included in the contract that is unenforceable on these grounds. In an eventual process it is the court's duty to decide whether to validate or to keep such clauses or the whole agreement void. This, however, raises the following two questions: What exactly is a contract of restraint of trade? What are the criteria used by the courts in deciding whether to uphold such a contract? Firstly different definitions could be extracted from the case law. In Petrofina (Great Britain) Ltd v Martin , a contract in restraint...

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