Describe about the Corporation Law for Valid Contract Agreement.
Consideration
Whether Richard has a right in law to sue his father and claim his weekly allowance of $200.
The issue which is aroused amid Richard and his father can be resolved by understanding the elements of contract, more precisely, the application of ‘intention to create legal relationship’ and ‘capacity of the parties to the contract’. A contract is an agreement which is supported by consideration, intention to create legal intentions and capacity of the party to the contract. Once a contract is made then it is enforceable by the parties to the contract. (The Law Handbook 2016)
To make a valid contract there must be presence of an agreement which is the combination of an offer and an acceptance. An offer is the communication of the offeror intention to an offeree with a hope that the offeree will confirm to the terms which are communicated to him (Payne v Cave (1789). When an offeree approves an offer without any changes then such an approval is called an acceptance which results in a binding agreement between the parties Carlill v Carbolic Smoke Ball Co (1893). (The law Teacher 2016)
However, when an offeror and an offer exchange their mutual promises then it is very necessary that such promises must be supported by legal intention. In contract law, every exchange of an offer and acceptance must be made by the parties to abide by the same legally. If the party’s does not wish to be bound by such agreement legally then such agreements are not contract irrespective of the fact that all contractual elements are present (Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1989). (Clark 2010)
In contract law, the general presumption that prevails in regard to ‘intention to create legal relationship’ principle is that when the parties are in domestic relationship then they do not intent to abide by the contract legally, however, when the parties are in commercial relationship, then the parties intent to abide by the contract legally. In the leading case of Balfour v Balfour (1919) the court held that since the parties are in family relationship thus there is no intention to create legal relationship. (Clark 2010)
However, this general presumption is not always true and if evidence can be laid down to the contrary then there can be establishment of valid contract. For instance, if it can be proved that parties in domestic relationship intend to abide by the contract legally then there is valid contract between them. Likewise, if it can be proved that the parties in commercial relationship do not intent to abide by the contract legally then there cannot be any contract between the parties. For instance, in the leading case of Ermogenous v Greek Orthodox Community of SA Inc (2002) the court held that presumptions can be rebutted if evidence can be laid down for the same. (Clark 2010)
Thus, presence of legal intention is very important to make a binding contract.
Also, another element which is very necessary in order to make a valid contract is that the parties to the contract must be capable to make a valid contract. The offeror and offeree are considered to be able to make a valid contract provided they are not of unsound mind and they have attained the age of majority, that is, they are above 18 years of age. If a contract is made with a party who is not attained 18 years and is thus a minor, then , such contracts has no legal value in the eyes of law and the can be availed by a minor. However, there are two instances when a contract with a minor has legal sanctity in the eyes of law. The same are:
When a contract is made with minor for his employment, then, such contracts are valid (De Francesco v Barnum(1890).
When a contract is made with the minor for his necessity then such kinds of contracts are also valid (Peters v Fleming(1840)
Lastly, the agreement must always be supported by a valid consideration. A consideration is a value which is exchanged amid the parties to support the promises. A consideration need not be absoluter but must be sufficient in order to be valid (Australian Woollen Mills v The Commonwealth (1954). (Moles & Sangha 1998)
Thus, compliance of all the elements will make a contract valid and binding upon the parties.
After understanding all the relevant principles of law, the same is now applied to the facts of the case.
As per the fact, father of the Richard has asked Richard to mow the front yard and backyard of the family property and keep it tidy in exchange of a weekly allowance of $ 200. It is submitted that an offer was made by the father of Richard which was duly accepted by him for a valuable consideration of $200.
However, considering Richard as minor, it is important to analyze whether the contract is valid. It is submitted that Richard was impoverished and it is presumed that he is minor. In such scenario, a contract with minor for his necessity is valid and is binding upon the parties. Considering the law in De Francesco v Barnum (1890) & Peters v Fleming (1840), it is submitted that the contract amid Richard and his father is valid on the ground of capacity.
Also, it is important to analyze whether the contract is valid provided the parties are in domestic relation.
By applying the law in Ermogenous v Greek Orthodox Community of SA Inc (2002), it is submitted that though both the parties are in family relationship, that is, they hold a father-son relationship, but the circumstances of the case depict that they intent to abide by their contract legally. Thus, there is an intention to create legal relationship.
Thus, all contractual elements are present in the given case.
Conclusion
It is thus submitted that all the elements of a valid contract are present and the parties intent to abide by the contract legally, thus, there is a valid contract that is established amid the parties.
Non-compete Clause
The main issue that is present in the given factual scenario is Can Frère Bros sue Joe for non-compliance of the contractual terms amid the parties and if Yes, then what are the remedies that can be availed by Frère Bros against Joe.
The raised issue can only be evaluated by understating the legal implication of ‘non-compete clauses’ in a valid contract.
A valid contract is made when all the elements of a contract are present, such as, agreement (offer and acceptance), consideration, legal intention of the parties and capacity of the parties to the contract. When a valid contract is made then both the offeror and the offeree has an obligation to comply with the terms and conditions which are mentioned in a contract. (The Law Handbook 2016)
Generally, in employment contracts, an employer tries to protect his confidentiality and good will by incorporating a non-compete clause in the contract. A non-compete clause is a clause which aims at restricting an employee to deal in similar kind of business activities at some other region or for a limited time period. An employee cannot undertake n the employers business activities to such an extent which is made part of the contract and to which he has agreed to. The basic reason for the incorporation of non-compete clauses are: (Hopgood Ganim 2016)
To maintain the confidentiality and secrecy of the employers business. Generally, when an employee is working with an employer then he is aware of some of the confidential information of such business. In order to protect such confidentiality which he might lose if the employee will start working somewhere else, for instance, with the competitor of the employer, an employer may rely on a non-compete clause and restrict the employee to provide such confidential information to someone else (AGA Assistance Australia Pty Ltd v Tokody (2012).
An employer may incorporate the clause in order to protect the good will of the business. Normally, it is believed by an employer that of the employee states similar business to which an employer is engaged in, the employee may hamper the good will of the business. In order to protect such good will of the business, the incorporation of non-compete clue is valid.
If the incorporation of the non-compete clause is necessary for the legitimate interest of the business then such clauses are absolutely valid in law and must be availed by an employer.
However, non-compete clauses are only valid when;
They are in favor of the public policy. If the non-compete clauses are framed in such a manner so that they are not in favor of the public policy then the clause has no legal sanctity in law (Spencer v Marchington (1988).
Such clauses must be incorporated for some limited time periods and not for an infinite time frame. Generally a restriction of up to two years is considered to be valid in nature. A restriction beyond two years is not valid unless the employer proves that the restriction is very necessary for the legitimate interest of his business.
In the leading case of Smith v Nomad Modular Building Pty Ltd (2007) it was held by court that generally the non-restrain clause is up to 3 years and a restrain above three years is invalid unless and until there are specific reasons to justify the same. (Mayor 2016)
If the employer is not able to comply with the non-compete clause that is imposed upon him, then the employer is liable to sue such an employee and various remedies can be attained by him. Such as: (Mayor 2016)
Damages,
Injunction
After understating the law that is applicable in the given situation, the same is applied to the facts of the case.
As per the facts, a contract was established amid Joe and Frère Bros. the contract was made amid them for five years according to which Joe will provide his services to Frère Bros exclusively and he is restricted to act in any film which is of some other company.
Thus, Joe is an employee of Frère Bros for five years and a non-compete clause was imposed upon him for five years. However, the clause was volatile by Joe in the very first year when he entered into a contract to star in a film being made by Pretty Pictures.
It is submitted that the non-compete clause is valid amid Joe and Frère Bros provided the clause is not against the public policy and is for a limited time frame. As per the law laid down in Smith v Nomad Modular Building Pty Ltd (2007) a limitation of above two years is generally held to be against the policy of the public and is not valid clause.
Thus, considering the same the law could be held invalid.
But, the clause will be binding upon the parties if Frère Bros can establish that the clause is required for the legitimate interest of the company and to maintain the good will of the company.
However, if the clause is held to be valid, then Frère Bros can sue Joe and can claim remedies from him in the form of injunction and damages.
Conclusion
It is submitted that Frère Bros can sue Joe if it is proved that the non-compete clause of five years is valid and is in the legitimate interest of Frère Bros. Otherwise, the clause is invalid as the restriction was for a long period of time.
Reference List
Brooks A (2001) The Limits Of Competition: Restraint Of Trade In The Context Of Employment Contracts(online). Available at: https://www.austlii.edu.au/au/journals/UNSWLawJl/2001/27.html#fnB9. [Viewed on 11th September 2016].
Brown M (2016) non-compete clause < https://www.mayerbrown.com/files/uploads/Documents%5CGuide%20to%20Restrictive%20Covenants/MB_rest_cov_asia.pdf>. [Viewed on 11th September 2016].
Clark J (2010) Intention to create legal relations (online). Available at: https://www.australiancontractlaw.com/law/formation-intention.html. [Viewed on 11th September 2016].
Hopgood Ganim (2016) Non-compete Clause (online). Available at: https://www.hopgoodganim.com.au/page/Publications/Industrial_and_Employment_Law_Alert_Recent_court_case_provides_clues_to_successfully_enforcing_non-compete_restraint_obligations_-_31_Aug_2012/. [Viewed on 11th September 2016].
Moles & Sangha (1998) consideration (online). Available at: https://netk.net.au/Contract/04Consideration.asp. [Viewed on 11th September 2016].
The law HandBook (2016) Elements of contract (online). Available at: https://www.lawhandbook.org.au/07_01_02_elements_of_a_contract/. [Viewed on 11th September 2016].
The Law Teacher (2016) cases on formation of contract offer (online). Available at: https://www.lawteacher.net/cases/contract-law/agreement-cases.php. [Viewed on 11th September 2016].
Case law)
Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1989).
AGA Assistance Australia Pty Ltd v Tokody (2012).
Australian Woollen Mills v The Commonwealth (1954)
Balfour v Balfour (1919)
Carlill v Carbolic Smoke Ball Co (1893).
De Francesco v Barnum (1890).
Ermogenous v Greek Orthodox Community of SA Inc (2002)
Payne v Cave (1789).
Smith v Nomad Modular Building Pty Ltd (2007).
Peters v Fleming (1840)
Spencer v Marchington (1988).
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