Illegal Contracts

When dealing with contract law, many problems can arise. There can be illegal terms in the contract or it can just be void. There are restraints on trade which include limiting employees from competing against their employers post employment and so on. Throughout this essay, these restrictions will be analyzed. The difference between illegalities, voids and restraints will be presented, along with cases to provide examples. It must be known that there is a difference between void contracts and illegal contracts.

A void contract is not even considered a contract, as it is unable to be enforced by law. In the event that a contract is not only void but illegal, the courts will refuse to help a party who purposely agreed to an illegal arrangement. (Smyth, 2007) There will be no suing for any promised money, or the return of previously transferred property. It is known that when both parties have the knowledge of the illegalities, the court will not assist either of them. This leaves the defendant in a stronger position, as the plaintiff has no assistance.

(Smyth, 2007) When one thinks of specifications in a contract, they think that the contract’s conditions are final in terms of the employees’ actions in the future. However, this is false. There are three clauses: the restraint of trade agreement, the non-competition clause and the restrictive covenant. (Ball, 2008) The purpose of these clauses is to restrict employees from being able to work for a company in the same industry as their employer. It is important that employers be aware that there is a lot of skill needed to create an enforceable restraint on post-employment positions.

(Ball, 2008) As mentioned above, a major issue that arises within contracts is restraints of trade. It is important to know what restraints of trade means before going into further detail of how they relate to illegalities in contracts. A restraint of trade is a contract in which one party agrees with another party to place restrictions on future trading with another external party. (Overall, 2008) A contract is considered illegal if it opposes good morals, according to common law. Unless an agreement unreasonably limits a person’s ability to trade, it is enforceable.

(Overall, 2008) As it stands in present day, it is seen that all restraints of trade are enforceable unless otherwise proved so in court. In order for courts to do so, they must take into consideration a number of factors. The first factor is the reasonableness of the restriction. If the restraint of trade exceeds any necessary lengths it would take to protect the interests of an employer, by public policy it is deemed unreasonable. (Overall, 2008) To show that a restraint of trade is unreasonable, there are three issues to be examined. The first is whether or not sport is considered a trade.

In the British case Gasser v. Stinson, the International Amateur Athletic Federation made an argument that amateurs could not make enough money to make a living for themselves. (“Restraint of Trade”, 2006) As well, the money they did make was from contracts between federations and sponsors. This statement was rejected by the judge when he said, I am unable to accept that these circumstances take the case out of reach of restraint of trade law. The policy underlying restraint of trade law is that people should be free to exploit for their financial gain the talents and abilities that they may have.

I would accept that restraint of trade law would not be applicable to activities that were undertaken for no financial reward at all (for example, school sport). . But, in a sport which allows competitors to exploit their ability in the sport for financial gain and which allows that gain to be a direct consequence of participation in competition, a ban on competition is, in my judgment, a restraint of trade. (“Restraint of Trade”, 2006) In the case Johnson v. Athletics Canada and the International Amateur Athletic Federation, the judge took on the understanding of the British case, and claimed that sport is ultimately, a restraint of trade.

(“Restraint of Trade”, 2006) The next issue that shows that trade is unreasonable is the ability of one to earn a living from the specific restricted trade. An example of this would be a doping penalty. Some athletes have been banned for years or even their entire lives. Various courts have found this to be a restriction, while others have found it to be sufficient. In the European Economic Union, a two week suspension of a tennis player for misconduct is detrimental to their freedom to earn a living, and therefore, unreasonable.

The third issue is proving the restriction is in fact unreasonable. The organization that is insisting the restriction must prove that under the circumstances, it is reasonable. (“Restraint of Trade”, 2006) What is deemed as reasonable is dependent on the law. In Robertson v. Australian Professional Cycling Council Incorporated, an Australian doping case, the courts looked at whether or not the restriction was necessary to meet the organization’s goals, and if there was possibly another means of doing so in a less limited manner.

(“Restraint of Trade”, 2006) There are times when an employee has signed an earlier contract that did not contain a restraint of trade, and then is forced to sign a restraint of trade later on. This was the case in Paragon Business Forms Ltd. V. Du Preez. (“Restraint of Trade”, 2006) When an employee maintains that he was forced to sign the restraint in fear of losing his employment, it allows him to prove that the trade is invalid. This pressure is the second factor when looking at the enforceability of restraints of trade.

Finally, a restraint of trade could be held unenforceable if it was created to come into effect after the employee has left the employer, and designed to prevent the employee from competing against that employer. (“Restraint of Trade”, 2006) The topic of restraint of trade relates highly to athletics. Many coaches and athletes nowadays are able to make a living through either their knowledge or ability of specific sports, or through business opportunities (an example being becoming the spokesperson for a brand).

(“Restraint of Trade”, 2006) A restraint that directly or indirectly forbids a person from earning financial compensation is considered a restraint. If this restraint is unreasonable, it is illegal. This being said, it is not uncommon to see parties enter into contracts that limit the territory in which one may work, or possibly seeing an agreement in which a party will not work for a competitor for a certain period of time after leaving their previous employer. (“Restraint of Trade”, 2006) There are a few Canadian cases that used the doctrine of restraint of trade. In the case Figure Skating Coaches of Canada v.

Canadian Figure Skating Association, the association passed a by-law that made it a requirement for any coaches of clubs to obtain and pay for a membership. The coaches association challenged this as a restraint on trade. Although this case never went to court, the coaches were able to create a temporary sanction in order to prevent the Canadian Figure Skating Association from requiring memberships. (“Restraint of Trade”, 2006) The Competition Act is a federal legislation in Canada that also deals with restraint of trade concerns. (“Restraint of Trade”, 2006).

This legislation includes professional sport, and is directed towards prohibiting unfair competition. This legislation does not include amateur sport for the most part, with the exception of if the amateur athlete is at an elite level and has the ability to earn significant remuneration. While the legislation is based on similar notions, the Competition Act has various differences. First of all, it talks about “undue” restriction rather than “unreasonable. ” It is against imposing unreasonable opportunities to partake in sports or place limits on the mobility of a player. (“Restraint of Trade”, 2006) In the case, Dr.

Bernard Lyons v. Dr. Joseph Multari, there is an example of restriction and non-competition clauses. Dr. Joseph Multari became Dr. Bernard Lyons’ associate in Lyons’ dental practice in Windsor, Ontario in June 1993. (“Lyons v. Multari, 2000”) There was less than a page of handwritten contract that was signed by both of them. The contract contained three provisions: one was to do with Multari’s remuneration, the second was a non-competition clause that limited where Multari could work post-employment (3 years-5 miles), and the third was a six month notice requirement before leaving the practice.

On January 18, 1995, Multari gave his six months notice. Six months later he began working in another office located more than five miles from his previous employer. Dr. Multari and Dr. Paul George then opened an oral surgery practice in Windsor on January 2, 1996. (“Lyons v. Multari, 2000”) Because this practice was located 3. 7 miles from his previous employer Lyons’ office, Multari had breached the second part of his contract. Lyons then took action against him, claiming that he had breached the contract.

Multari argued that Lyons had interfered with his practice during his last six months of employment, which resulted in loss of income. On December 14, 1998, Daudlin J. supported the restrictive covenant and granted Lyons fixed damages of $70,431. 60. Multari tried to explain that he did not understand what the covenant meant. This case illustrates an issue about the terms supplied in the business contracts made between these two doctors. There is the defence that “The public have an interest in every person carrying on his trade freely: so has the individual.

All interference with individual liberty of action in trading, and all restraints of trade themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. ” This statement was made by Lord Macnaghten in the case Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd. (“Lyons v. Multari, 2000”) Although this example is not considered void, it is a prime example of the questions about the permissibility of restraints of trade. (“Lyons v. Multari, 2000”) Illegal contracts will be considered void when the illegal term is presented, and when the contract was formed without exception.

These exceptions are when a party rejects the contract before actually carrying it out; and, “where the claim for relief may be framed in a manner that does not refer to the illegality otherwise present in the contract. ” (“Term: Illegal Contracts”, 2008) When unlawful conditions exist within a contract, unless one of the above exceptions is valid, the contract is considered just void. “Contracts that are illegal in their performance may or may not be void. ” (“Term: Illegal Contracts”, 2008) If the innocent party breaches the contract, the damages may be more so available.

Contracts are illegal and void at common law when concerned with the following matters: ? Damaging contracts to the institution of marriage ? The threat to harm foreign safety of the UK public ? Corruption in public ? The promotion of sexual immorality ? Corrupt justice (contract to commit perjury) ? Contracts that try to overthrow the courts’ jurisdiction ? Contract to commit a crime, fraud or tort Contracts dealing with restraint of trade. (“Term: Illegal Contracts”, 2008) There are rules in which the courts must abide by when interpreting whether or not the terms of a contract are uncertain.

Determining the intentions of the parties involved in the contract is standard. It is also customary to refer to the common usage dictionary in order to understand the meaning of certain words. (Duhaime, 2008) There are many aspects to look at when doing so. First of all, the assumption should be made that all terms in the contract have some meaning. A court will only void a contract if there are terms that are impossible to interpret and therefore must be removed. A court can refer to words that have been put in margins, headings, or that have been crossed out.

If there are unclear articles within the contract, the courts may look at any circumstances under which the contract was signed in hopes of understanding any ambiguity. (Duhaime, 2008) The same words should be given the same meaning throughout the entire contract. Words such as “may” do not imply obligatory actions. “A court may even incorporate a business custom into a contract if it is so certain, universal and notorious as to be worthy of judicial notice unless this trade or commercial usage was unknown to one of the parties (or not reasonably known) or contradicted by a specific term in the contract.

This would apply within the context of certain industries or professions which have standard operating procedures. ” (Duhaime, 2008) Verba Fortius Accipiuntur Contra Proferentem is a latin term that states that if words of a contract at vague, and have two different possible meanings, these meanings should be interpreted against the writer of the contract and not the other party. (Duhaime, 2008) In conclusion, illegal contractual terms in contracts are difficult to come by. There are many measures that can be taken in order to decipher between illegalities and contracts that are void.

Restraints of trade are becoming a very useful tool in the legal system. As sports continue to become more involved in business and also rely on sponsorships for athletes, this will become a more frequent doctrine. It is important to make sure that any restraints that are made are reasonable and justifiable to avoid any legal issues. With that, these cases are purely up to the courts and cannot be taken lightly in the future as they can be very damaging to an individual if considered unfair. Bibliography Ball, Stacey R.

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2008. 24 Mar. 2008 http://www. eepublishers. co. za/view. php? sid=8175. “Restraint of Trade: Breathing New Life Into an Old Legal Doctrine. ” Centre for Sport and Law Inc. 2006. Centre for Sport and Law Inc. 23 Mar. 2008 http://www. sportlaw. ca/articles/coach/coach13. htm. Smyth, J E. , D A. Soberman, and A J. Easson. The Law and Business Administration in Canada. 11th ed. Toronto: Pearson Prentice Hall, 2007. 139-147. “Term: Illegal Contracts. ” Gillhams Solicitors. 2008. Gillhams. 29 Mar. 2008http://www. gillhams. com/dictionary/442. cfm.