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KembaraXtra- Case Law - National Westminster Bank plc v Morgan (1985) HL
This case concerns undue influence and the enforceability of a mortgage. Understanding the key elements is crucial.
I. Case Facts:
  • The Morgans' Financial Difficulty: Mr. Morgan's business troubles led to difficulties in repaying their Abbey National mortgage.
  • The Bridging Loan: They sought a five-week bridging loan from National Westminster Bank (the plaintiff) to settle the existing mortgage.
  • Mrs. Morgan's Condition: Mrs. Morgan explicitly stated she would only sign a mortgage charge limited to the bridging loan amount.
  • The Bank's Misrepresentation: The bank manager assured her the charge was so limited, despite it actually being an unlimited charge covering all of Mr. Morgan's debts to the bank. Crucially, the bank never attempted to use the charge for anything beyond the bridging loan.
  • The Dispute: When the bridging loan wasn't repaid, the bank sought possession of the Morgans' house. Mrs. Morgan claimed the charge was obtained through undue influence.
II. The Court's Holding:
The House of Lords held that undue influence was NOT established, and the bank could enforce the charge. Lord Scarman's judgment, supported by the other Lords, hinges on three key points:
  • (I) No Special Relationship of Trust and Confidence: The relationship between the bank and Mrs. Morgan was a standard business relationship, lacking the special fiduciary duty that would trigger a presumption of undue influence. The bank had no obligation to advise her.
  • (II) No Manifest Disadvantage: The transaction itself wasn't demonstrably to Mrs. Morgan's manifest disadvantage. While the charge was unlimited, the bank's actions (never attempting to use it beyond the bridging loan) are critical here.
  • (III) Preference for Sir Eric Sachs' Reasoning in Lloyds Bank v Bundy: The court explicitly chose Sir Eric Sachs' approach over Lord Denning MR's in Lloyds Bank v Bundy. This means the court rejected expanding undue influence to encompass general inequality of bargaining power. Undue influence requires more than just an unfair bargain; it necessitates an improper influence that vitiates consent.
III. Key Concepts & Distinctions:
  • Undue Influence: This requires proving an improper influence that vitiates consent, leading to a transaction that wouldn't have otherwise occurred. It's not merely about an unequal bargain.
  • Manifest Disadvantage: The transaction must be demonstrably unfair to the influenced party to trigger undue influence. This is a key element the court analyzed.
  • Fiduciary Relationships: Relationships of trust (e.g., solicitor-client, doctor-patient) carry a presumption of undue influence if the transaction is to the weaker party's disadvantage. The bank-customer relationship was not considered a fiduciary relationship in this case.
  • Inequality of Bargaining Power: The court rejected the argument that an unfair bargain alone suffices to establish undue influence. A separate improper influence is required.
IV. Study Questions:
  1. What were the specific facts that Mrs. Morgan relied on to claim undue influence?
  2. Why did the court reject the claim of undue influence? Explain the three key reasons given by Lord Scarman.
  3. How did the court's decision in this case clarify the relationship between undue influence and inequality of bargaining power? How does this relate to Lloyds Bank v Bundy?
  4. What is the significance of the fact that the bank never attempted to use the charge beyond the bridging loan?
  5. What constitutes a “manifest disadvantage” in the context of undue influence?
By carefully reviewing these notes and answering the study questions, you'll gain a thorough understanding of National Westminster Bank plc v Morgan and its implications for undue influence law. Remember to focus on the distinctions between different types of relationships and the specific requirements for proving undue influence.








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KembaraXtra- Case Law- Barclays Bank plc v O’Brien & Another (1993) HL This case examines the principles of undue influence and constructive notice in the context of a wife guaranteeing her husband's business debts. The key takeaway is that creditors (like Barclays Bank) have a responsibility to protect vulnerable parties from potential exploitation.
I. Core Facts:
  • Mr. O'Brien's company had a large overdraft with Barclays.
  • To secure further credit, Barclays required a charge (mortgage) on the jointly owned O'Brien's marital home.
  • Mrs. O'Brien signed the charge documents, but was misled by her husband about the amount and nature of the debt. She believed it was a temporary loan of £60,000, not the actual £154,000.
  • The bank provided Mrs. O’Brien with a letter recommending independent legal advice, but she didn't read it, and no one actively urged her to seek advice.
II. Legal Issues and Holdings:
  • Undue Influence: The court, applying Lord Browne-Wilkinson's framework, analyzed the situation through the lens of undue influence, despite the initial claim being based on misrepresentation.
    • Class 1 (Actual Undue Influence): Proving the wrongdoer directly coerced the complainant.
    • Class 2A (Presumed Undue Influence): Certain relationships (e.g., solicitor-client, doctor-patient) automatically raise a presumption of undue influence.
    • Class 2B (Presumed Undue Influence): If a relationship of trust and confidence exists (even outside Class 2A relationships), the presumption of undue influence arises. The burden then shifts to the wrongdoer to prove the transaction was freely entered into.
  • Spousal Relationships: While not automatically Class 2A, spousal relationships can fall under Class 2B where trust and confidence exist. The court implied this applies to other close relationships.
  • Constructive Notice: A creditor has constructive notice if they know facts that should raise concerns about potential undue influence but fail to investigate. The bank was deemed to have this.
  • Creditor's Duty: The court established a duty of inquiry on creditors when:
    • a. The transaction is not financially beneficial to the wife; and
    • b. There's a substantial risk that the husband has exploited the wife.
III. Key Principles Established:
  1. Undue Influence Categories: The three categories of undue influence (Class 1, 2A, and 2B) provide a framework for analyzing situations where one party may have unfairly influenced another.
  2. Spouses and Undue Influence: While the spousal relationship doesn't automatically trigger a presumption of undue influence (Class 2A), the potential for undue influence is significant and falls under Class 2B given the existing trust.
  3. Creditor's Duty of Inquiry: Creditors have a duty to take reasonable steps to ensure the guarantor (typically the wife) understands the transaction and its risks. This includes:
    • Meeting the wife separately from the husband;
    • Explaining the risks involved; and
    • Strongly urging independent legal advice.
  4. Constructive Notice: Failure to take these steps constitutes constructive notice of potential undue influence, rendering the transaction unenforceable against the vulnerable party.
IV. Application to the Case:
The bank was found to have constructive notice because the transaction (a wife guaranteeing her husband's debt) was inherently disadvantageous to her financially, raising a significant suspicion of wrongdoing. The bank's failure to ensure Mrs. O'Brien received independent advice meant they were liable. The charge was set aside.
V. Study Questions:
  1. Define actual, presumed (Class 2A), and presumed (Class 2B) undue influence. Give examples of each.
  2. Explain the creditor's duty of inquiry in cases involving spousal guarantees. Why is this duty imposed?
  3. What constitutes constructive notice? How did the bank in this case exhibit constructive notice?
  4. How might a creditor fulfill their duty of inquiry and avoid liability for constructive notice?
  5. How does this case impact the way banks and other financial institutions should conduct themselves when dealing with guarantees from spouses or those in similar relationships?
This study guide provides a comprehensive overview of Barclays Bank plc v O’Brien. Understanding the principles of undue influence and constructive notice, as applied in this case, is crucial for anyone studying contract law and related areas of equity. Remember to review the original case details for a more complete understanding.





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KembaraXtra – Case Law - CIBC Mortgages plc v Pitt and Another (1993) HL
This case examines undue influence and its impact on the enforceability of a mortgage. Understanding the key elements is crucial.
I. The Facts:
  • The Loan: Mr. Pitt obtained a loan from CIBC Mortgages, purportedly to buy a holiday home. The loan was jointly secured against the marital home by both Mr. and Mrs. Pitt.
  • Undue Influence: Mr. Pitt actually used undue influence on Mrs. Pitt to secure her agreement to the loan; he misrepresented the purpose (shares investment, not a holiday home). Mrs. Pitt signed documents without reading them.
  • The Loss: Mr. Pitt lost the money invested, leading to the bank seeking possession of the house.
II. The Legal Issue:
Can the bank enforce the mortgage against Mrs. Pitt despite the undue influence exerted by her husband?
III. The Holding:
The House of Lords held that the bank could enforce the charge. Crucially, the bank had no notice of the undue influence exerted by Mr. Pitt on Mrs. Pitt.
IV. Key Legal Principles from Lord Browne-Wilkinson's Judgment:
  • Actual Undue Influence vs. Presumed Undue Influence: The judgment distinguishes between:
    • Actual Undue Influence: Proving actual undue influence doesn't require demonstrating "manifest disadvantage" to the influenced party. This is a key departure from some previous interpretations.
    • Presumed Undue Influence: The judgment acknowledges ambiguity surrounding the "manifest disadvantage" requirement in cases of presumed undue influence, as established in Morgan. This area needs further clarification.
  • Fiduciary Duties: The principle that those with fiduciary duties (like a trustee) must demonstrate the fairness of transactions with those to whom they owe the duty is highlighted. This contrasts with the unclear requirement of proving disadvantage in presumed undue influence cases (a point of conflict from the Morgan case).
  • Bank's Knowledge: The bank lacked knowledge of the undue influence. The bank reasonably believed it was lending to a husband and wife jointly for a legitimate purpose (holiday home purchase), eliminating the duty to make further inquiries.
V. Comparison to Barclays Bank plc v O’Brien:
This case was heard alongside Barclays Bank plc v O’Brien. Both cases deal with undue influence and the knowledge of banks in mortgage agreements. Understanding Barclays Bank plc v O’Brien is important for a comprehensive understanding of the legal context.
VI. Key Concepts to Master:
  • Undue Influence: Understand the distinction between actual and presumed undue influence and the burden of proof in each.
  • Manifest Disadvantage: Know why this is not always a required element, especially in cases of actual undue influence.
  • Fiduciary Relationships: Understand the heightened duties of those in positions of trust.
  • Notice: The importance of a bank's knowledge or lack thereof regarding undue influence.
VII. Study Questions:
  1. Explain the difference between actual and presumed undue influence. How does the need to demonstrate manifest disadvantage differ between them?
  2. Why did the bank in CIBC Mortgages win the case? What role did the bank's knowledge play?
  3. What are fiduciary duties? How do they relate to undue influence cases?
  4. How does this case refine or clarify the principles from Morgan?
  5. How does this ruling compare and contrast with Barclays Bank plc v O’Brien? Consider the implications for banks in similar situations.
By focusing on these points and answering the study questions, you should gain a thorough understanding of CIBC Mortgages plc v Pitt. Remember to consult the full case text for complete detail and nuance.






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Tinsley v Milligan (1993) HL
Case Summary: Tinsley and Milligan jointly purchased a house, titled solely in Tinsley's name to defraud social security. After their relationship ended, Tinsley sought possession. Milligan counterclaimed, arguing a resulting trust existed, giving her a half-share based on her contribution to the purchase price.
Key Issue: Can a party rely on their own illegality to defeat a claim based on equitable principles (specifically, a resulting trust)?
The Holding: The House of Lords held in favour of Milligan, recognizing her equitable interest in the house.
Majority Reasoning (II & III):
  • II. Presumption of Resulting Trust: The joint contribution to the purchase price created a presumption of a resulting trust. This presumption grants Milligan an equitable interest in the house. The court doesn't enforce the illegal agreement; it merely recognizes an already existing equitable interest. This is distinct from enforcing an executory illegal contract.
  • III. Burden of Proof: The illegality (the fraud) wasn't the basis of Milligan's claim. Tinsley raised the illegality as a defence to Milligan's counterclaim. Lord Lowry clarifies: Milligan's claim arises from her equitable interest, not the illegal act. Tinsley cannot use his own illegality to defeat her claim. The maxim ex turpi causa non oritur actio (no action arises from a base cause) doesn't apply because Milligan's cause of action doesn't stem from the illegal act.
Dissenting Reasoning (I):
  • Lord Goff argued that older cases prevent equitable relief when a transaction is tainted by tillegality. He believed the house should remain with Tinsley, the legal owner. He felt the majority decision effectively enforced a partly executed illegal contract, which he opposed.
Note & Question:
The case focuses on a resulting trust, not a contract. The study guide's question asks if the majority's reasoning (II & III) applies to equitable interests arising from illegal contracts. This is a crucial point for further study. The majority's emphasis on the source of the equitable interest (contribution to purchase price, not the illegal agreement itself) suggests it might apply to other situations where the equitable interest is independent of the illegal activity, but this is not definitively established in the case.
Key Concepts to Understand:
  • Resulting Trust: An implied trust arising from the contribution to the purchase price of property.
  • Ex turpi causa non oritur actio: The principle that no action arises from a base cause.
  • Distinction between enforcing an illegal contract and recognizing a pre-existing equitable interest: This is the crux of the majority's argument.
  • Burden of proof: Who has the responsibility to prove the illegality?
Study Questions:
  1. Explain the difference between a resulting trust and an express trust.
  2. How does the majority's decision in Tinsley v Milligan reconcile with the maxim ex turpi causa non oritur actio?
  3. Critically analyze the dissenting judgment of Lord Goff. What are the potential implications of his approach?
  4. Does the reasoning in Tinsley v Milligan extend to equitable interests arising from illegal contracts? Justify your answer.
  5. What are the practical implications of this case for cohabiting couples who contribute to property purchase?
By addressing these points, you should gain a comprehensive understanding of Tinsley v Milligan and its implications in equity law.




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Attwood v Lamont (1920) CA
This case concerns the enforceability of a restrictive covenant in an employment contract. The key issue is whether the covenant, preventing the defendant (employee) from competing with the plaintiff (employer) in various trades within a 10-mile radius, is valid. The Court of Appeal held it was not.
I. Core Principle: Restraint of Trade in Employment Contracts
  • Different Standard than Goodwill Sales: Covenants between employer and employee are judged differently than those in the sale of a business's goodwill. Employers cannot use restrictive covenants to simply prevent employee competition per se (in and of itself) after employment ends.
  • Legitimate Protection: Only restrictions protecting the employer's proprietary rights are enforceable. These include:
    • Trade connections: Existing customer relationships.
    • Trade secrets: Confidential business information.
II. Burden of Proof:
  • The employer (covenantee) must prove the restrictive covenant is no wider than reasonably necessary to protect their legitimate business interests. This is a crucial element; the covenant must be narrowly tailored.
III. Reasonableness and Breadth of the Covenant:
  • Too Wide: The court found Attwood's covenant too broad. It covered numerous trades (tailor, dressmaker, draper, etc.), many of which the defendant was not involved in during his employment. This excessive scope made the covenant unreasonable. The covenant attempted to protect against competition in areas beyond the defendant's actual contribution to the plaintiff's business.
IV. Doctrine of Severance:
  • Limited Application: The court discussed the doctrine of severance, which allows courts to strike out unenforceable parts of a contract while leaving the rest intact. However, this only applies when:
    • The covenant is essentially a collection of distinct, independent covenants.
    • Severance is possible without altering the wording of the contract.
  • Severance Not Applicable Here: In Attwood v Lamont, the court ruled severance impossible. The covenant was considered a single, indivisible unit designed to protect the plaintiff's entire business, not separate parts.
V. Further Point on Enforceability (Even with Severance):
  • Even if severance were possible, focusing solely on the tailoring aspect (the defendant's actual role) wouldn't save the covenant. The restriction would still be viewed as an unreasonable restraint of trade preventing competition per se, rendering it unenforceable.
Q: Conflict Between Reasonings (III) and (IV)?
There's an apparent contradiction. Reasoning (III) analyzes the plaintiff's business into several trades to show the covenant's overbreadth. Reasoning (IV) argues the covenant protects a single, unified business, preventing severance.
Resolution: The seeming conflict arises from the court's approach. While the plaintiff had one overall business, the covenant's wording attempted to protect against competition in various distinct trades within that business. The breadth of the protection across these diverse trades made the covenant unreasonable, even though the underlying entity being protected was a single business. The court used the multiple trades to demonstrate the unreasonableness, while stating that the covenant's attempt to protect the whole business prevented severance. The key is not the number of trades, but the unreasonableness of the overall restriction.
Key takeaways for study:
  • Understand the difference in the treatment of restrictive covenants in employment versus business sales.
  • Grasp the employer's burden to show the necessity of the restriction.
  • Learn the limitations of the doctrine of severance.
  • Analyze how the breadth of the covenant, not just its target, impacts its enforceability.
  • Recognize the crucial distinction between protecting proprietary interests and simply preventing competition.
This study guide provides a structured framework. Ensure you understand each point thoroughly, referring back to the original text as needed. Consider creating flashcards for key terms and principles.




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Wyatt v Kreglinger & Fernau (1933) CA
Case Summary: This case concerns a dispute over a pension payment. Wyatt, an employee of Kreglinger & Fernau, received a letter upon his retirement promising a £200 annual pension with conditions: he couldn't work in the wool trade and couldn't act to the detriment of the defendants (excluding fair competition). Later, the pension was termed "remuneration." When the defendants stopped payments, Wyatt sued to enforce the agreement.
Key Issues:
  1. Contractual Obligation: Was there a binding contract to pay the pension, or was it merely a gratuitous promise? The Court of Appeal held it was a gratuitous promise, lacking consideration.
  2. Restraint of Trade: Even if a contract existed, was the condition restricting Wyatt's employment in the wool trade and prohibiting actions detrimental to the defendants a void restraint of trade? The court found this condition to be a void restraint of trade, rendering any potential contract unenforceable.
Court's Reasoning:
  • Scrutton LJ: Found no contract because the promise to pay the pension lacked consideration from Wyatt. The defendants were under no pre-existing obligation to pay him anything. The "pension" was essentially a gift.
  • Slesser LJ: Even if there were a contract, the restraint-of-trade clause was void. Forcing someone to limit their career prospects to receive a benefit is contrary to public policy as it restricts the individual's services and potential contributions to the wider market. The indirect restraint (loss of pension for working in the wool trade) was treated as equivalent to a direct restraint (a covenant not to compete).
Key Concepts and Principles:
  • Consideration: A crucial element of a legally binding contract. Something of value must be exchanged between parties. In this case, Wyatt provided no consideration for the defendants' promise of a pension beyond his past service, which was already compensated for.
  • Gratuitous Promise: A promise made without any expectation of something in return. These are generally not legally binding.
  • Restraint of Trade: Clauses in contracts that limit someone's ability to work are generally considered void unless they are reasonable in scope and duration and serve a legitimate business interest. This case emphasizes that even indirect restraints (as with the pension condition) can be deemed unreasonable and void.
  • Public Policy: The overarching principle that certain types of contracts are deemed unenforceable because they are detrimental to the public interest. In this case, restricting a person's career choices was deemed detrimental to the public interest.
Study Questions:
  1. What is the difference between a gratuitous promise and a contract?
  2. What constitutes "consideration" in contract law? Why was there no consideration in Wyatt v Kreglinger?
  3. Explain the concept of restraint of trade. Why was the restraint in this case deemed void?
  4. How did the court view the indirect restraint of trade imposed through the pension condition?
  5. What are the implications of this case for employers offering retirement benefits?
Conclusion:
Wyatt v Kreglinger & Fernau highlights the importance of consideration in contract formation and demonstrates the court's strict approach to restraints of trade, even indirect ones that may seem less obvious. Understanding these concepts is crucial for comprehending contract law principles.







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Kores Manufacturing Co Ltd v Kolok Manufacturing Co Ltd (1958) CA
Case Summary: This case concerns a restrictive covenant between two competing carbon paper and typewriter ribbon manufacturers, Kores and Kolok. In 1934, they agreed neither would employ each other's former employees (within the past five years). When Kores moved factories in 1955, the covenant's validity was challenged.
Key Issue: Was the 1934 agreement a valid restraint of trade?
Court's Decision: The Court of Appeal held the restraint was invalid.
Reasons for the Decision:
  • Unreasonable Scope: The agreement's geographical and employee scope were deemed excessive. The restriction wasn't limited to the period when factories were adjacent (Tottenham). It applied regardless of whether an employee possessed trade secrets. The court found that preventing an employee from joining a competitor solely because of that competitor status is not a legitimate business interest.
  • Implied Termination Clause: The court assumed (in Kores' favour) an implied term allowing termination on six months' notice. This highlights the court's reluctance to uphold such broad restraints.
  • Focus on Parties' Interests: The court primarily based its decision on the unreasonable nature of the restraint between the parties, not explicitly on public interest grounds, although subsequent cases (Esso Petroleum) suggested a public interest analysis might have been more appropriate.
Key Principles Illustrated:
  • Restraint of Trade: Agreements restricting trade are generally unenforceable unless reasonable in the context of protecting a legitimate business interest.
  • Reasonableness Test: The reasonableness of a restraint is assessed based on factors such as:
    • Geographical scope: How wide is the area covered by the restriction? (Here, it was deemed too broad.)
    • Duration: How long does the restriction last? (The court assumed a 6-month notice period, suggesting the original unlimited duration was problematic).
    • Nature of the employee's work: Did the employee have access to sensitive information? (The agreement didn't distinguish between employees with and without trade secrets.)
    • Legitimate business interest: Was the restraint necessary to protect a genuine business interest? (The court found preventing competition alone wasn't sufficient.)
  • Public Interest: While the court’s judgment primarily focused on the parties’ interests, the Esso Petroleum case suggests that the public interest is a relevant consideration when evaluating restrictive covenants. Broad restrictions that hinder competition are likely to be considered against the public interest.
Study Questions:
  1. What are the elements of a valid restraint of trade clause? Apply these elements to the facts of Kores v Kolok.
  2. Why was the geographical scope of the restraint in Kores v Kolok deemed unreasonable?
  3. How did the court address the absence of a specific termination clause in the agreement?
  4. Explain the difference between the court's approach in Kores v Kolok and the suggested alternative approach highlighted in Esso Petroleum.
  5. What are the implications of this case for employers seeking to include restrictive covenants in employment contracts? What specific measures should be taken to ensure such covenants are enforceable?
This study guide provides a framework for understanding the Kores v Kolok case and the principles of restraint of trade. Remember to consult the original case materials for a complete understanding.


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Eastham v Newcastle United Football Club Ltd & Others (1963) Ch
This case concerns the legality of the "retained players" system in professional football.
I. Case Facts:
  • Plaintiff (Eastham): An inside forward for Newcastle United, wanting to leave the club.
  • Defendants: Newcastle United Football Club, The Football Association, and The Football League.
  • Issue: Newcastle refused to release Eastham, placing him on a list of retained players. This, with support from the FA, Football League, and FIFA, effectively prevented him from playing professional football elsewhere. While Eastham was eventually transferred during the case, he sought a declaration that the retained players system was illegal.
II. The Retained Players System:
This system, supported by governing football bodies, prevented players from moving to other clubs without the releasing club's consent. This significantly restricted player mobility.
III. Court Decision & Reasoning:
  • Held: The court granted declarations that the retained players rules were invalid against all defendants.
  • Rationale: The court found that the defendants lacked any legitimate interest protected by the retained players rules. The court explicitly rejected the defendants' implied arguments that:
    • Trade secrets were involved: The court found no trade secrets were being protected.
    • Employer's customers were being canvassed: The court saw no evidence of this.
IV. Key Legal Principle:
The case establishes that restraints on trade (in this case, a player's ability to work) must be justified by a legitimate business interest. The retained players system, as implemented, failed to meet this threshold. The rules were deemed unreasonable restraints of trade, lacking a valid purpose beyond the benefit of the clubs themselves.
V. Study Questions:
  1. What was the central issue in Eastham v Newcastle United?
  2. Who were the parties involved, and what were their respective positions?
  3. Explain the "retained players" system and its impact on Eastham.
  4. What arguments did the defendants likely raise to justify the rules? Why did the court reject these arguments?
  5. What is the broader legal significance of this case regarding restraints of trade?
  6. How does this case illustrate the tension between the interests of individual players and the governing bodies of a sport?
VI. Memorization Tips:
  • Focus on the key legal principle: Restraints of trade must be justified by a legitimate business interest.
  • Use mnemonics or flashcards to recall the parties and the court's reasoning.
  • Connect the case to broader concepts of contract law and employment law.
This study guide provides a comprehensive overview of Eastham v Newcastle United. Thorough understanding of these points should facilitate a strong grasp of the case's legal significance.




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A Schroeder Music Publishing Co Ltd v Macaulay (1974) HL
This case concerns the validity of a contract between an unknown songwriter (plaintiff) and music publishers (defendants). Understanding this case hinges on the concept of contracts in restraint of trade and the principle of unconscionability.
I. The Facts:
  • The Contract: The plaintiff signed a standard contract granting exclusive rights to the defendants for all his compositions for five years, extendable to ten years if royalties reached £5,000. Crucially, the contract lacked safeguards for the plaintiff if the defendants chose not to publish or promote his work.
  • Consideration: The plaintiff received a paltry £50 upfront, with further payment contingent upon publication.
  • Plaintiff's Claim: The plaintiff argued the contract was void.
II. The Legal Issue:
Was the contract, which significantly restricted the plaintiff's ability to work with other publishers for a lengthy period, void due to being an unreasonable restraint of trade?
III. The Holding:
The court held the contract void.
IV. Lord Diplock's Reasoning (Key to Understanding):
Lord Diplock's judgment clarifies the historical and contemporary approach to contracts in restraint of trade:
  • Historical Context: While 19th-century judges ostensibly relied on economic theories, their decisions were essentially based on whether the bargain was conscionable (fair) between the parties.
  • Modern Test for Fairness: The test of fairness in a contract restricting trade is twofold:
    1. Are the restrictions reasonably necessary for the protection of the promisee's (defendants') legitimate interests?
    2. Are the restrictions commensurate with the benefits secured to the promisor (plaintiff)?
This requires a holistic assessment, considering all contractual provisions.
V. Application to the Case:
The court found the contract unfair because:
  • The lengthy period of restriction (5-10 years) was excessive given the lack of guarantees for the plaintiff.
  • The minimal upfront payment (£50) was disproportionate to the significant restraint on the plaintiff's freedom.
  • The absence of safeguards against non-publication or promotion severely disadvantaged the plaintiff.
VI. Key Concepts to Master:
  • Contracts in Restraint of Trade: Agreements that limit a party's ability to conduct business. These are generally unenforceable unless reasonable.
  • Unconscionability: A contract is unconscionable if it is grossly unfair or one-sided, often due to unequal bargaining power.
  • Reasonable Necessity and Commensurability: The two prongs of the test for determining the fairness of a restraint of trade clause. The restriction must be necessary to protect legitimate interests and proportional to the benefits received.
  • Consideration: The value exchanged between the parties in a contract. In this case, the court found the consideration inadequate in light of the restriction imposed.
VII. Study Questions:
  1. What were the key facts that led to the court finding the contract void?
  2. Explain Lord Diplock's interpretation of 19th-century case law on restraint of trade.
  3. Apply the "reasonable necessity" and "commensurability" test to the facts of the case. Why did the contract fail this test?
  4. How does this case illustrate the importance of considering all aspects of a contract when determining fairness?
  5. What are the potential implications of this case for other contracts involving exclusivity clauses and/or significant restraints on one party's business activities?
By thoroughly understanding these points and answering the study questions, you will have a strong grasp of the legal principles illustrated in Schroeder Music Publishing Co Ltd v Macaulay.





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English Hop Growers Ltd v Dering (1928) CA
Case Summary: This case concerns a contract between hop growers and their buying agent, English Hop Growers Ltd. The growers agreed not to sell their hops to anyone but the company for five years to stabilize prices and reduce competition. The defendant, a grower, breached this agreement. The court had to determine if the agreement was legally enforceable.
Key Issue: The legality of a restrictive covenant (agreement limiting future actions) within a contract. Specifically, the court considered whether the restraint on the growers' ability to sell their hops independently was reasonable.
Defendant's Argument: The defendant argued the agreement was unreasonable between the parties. Crucially, he did not argue it was unreasonable in the public interest (a key consideration in restraint of trade cases).
Court's Holding: The Court of Appeal held the restraint was valid.
Reasoning (Scrutton LJ): Scrutton LJ's judgment is central to understanding the decision. He considered the inherent volatility of the hop market (fluctuating yearly supply). He found that the growers' collective action – forming a single marketing agent to control prices and supply – was a reasonable way to address this market instability and ensure steady profits for all members. The arrangement, while limiting competition, was deemed acceptable because it was for the mutual benefit of the growers involved, and it wasn't challenged on grounds of public harm.
Key Principles & Concepts:
  • Restraint of Trade: Contracts that restrict a party's freedom to trade or compete are generally considered void unless they are reasonable.
  • Reasonableness: Reasonableness is assessed from two perspectives:
    • Reasonableness between the parties: Is the restraint fair to both sides given their relationship and the overall context? In this case, the court found it reasonable as it benefited all growers equally.
    • Reasonableness in the public interest: This aspect wasn't argued and thus not a factor in this specific judgement. A restraint could be deemed unreasonable if it harms the public (e.g., by creating a monopoly that raises prices excessively).
  • Market Volatility: The inherent instability of the hop market played a significant role in the court's determination of reasonableness. The agreement was viewed as a legitimate response to this market characteristic.
Study Questions:
  1. What was the main purpose of the agreement between the hop growers and English Hop Growers Ltd.?
  2. What argument did the defendant raise, and why was it insufficient to invalidate the agreement?
  3. Explain Scrutton LJ's reasoning for upholding the validity of the restraint. How did the nature of the hop market influence his decision?
  4. Differentiate between the two aspects of reasonableness concerning restraint of trade. Why was only one relevant in this case?
  5. How might this case be distinguished from a case where a restraint is deemed unreasonable in the public interest? Provide a hypothetical example.
This study guide provides a structured approach to understanding English Hop Growers Ltd v Dering. By carefully reviewing the summary, key principles, and study questions, you will gain a thorough grasp of the case's significance and its implications for contract law.





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