Contract Law: Minors, Misrepresentation and Influence

Title: NEW MANAGER The band has been in contact with a new manager, Tia Altos, who has been recommended to them by Matt at Aurora Records. Tia has agreed to manage the band. TONY’S ALLEGATIONS Tony Bee is not at all happy that the band has found a new manager. He alleges that the contract which was made between him and the band was exclusive and has indicated that he intends to bring proceedings against the band members for breach of contract. He alleges that it was an express term of the agreement that the band would not engage any other manager during the term of the agreement and would not enter into any other contract with another manager for a period of 6 months following the termination of the contract management contract with him. The Band Name Tony alleges that he suggested the name Da Jura Rachel & friends take the view that the name “The Jury” was their idea and that the name Da Jura evolved after a number of development meetings where ideas were thrown around the table for discussion. The recording contract Tony alleges that he should receive a percentage of the income from the sales of CDs and downloads. He alleges that he attended one or two of the meetings with the record company and that his input was vital in achieving the high levels of royalties and other favourable terms. MANAGEMENT CONTRACT WITH TONY Rachel has found a copy of a letter sent by Tony after he agreed to act as the band’s manager. It does appear to suggest that they agreed that he would act exclusively as their manager and that they were not entitled to engage any other manager. However, the band believe that Tony has not fulfilled his duties as a manager by trying to secure them work. He has shown an unacceptable level of commitment towards the band. He is often preoccupied with his other business ventures and sees Da Jura as a hobby. Over the last two years Tony has organised a few gigs at a number of locations, but nothing of the calibre of Wembley. Mike has actually been contacting local venues to arrange for the band to perform. There has been no suggestion that there is a recording contract in the pipeline. Age of Jer and Mike Both Jer and Mike were minors when they agreed for Tony Bee to act as their manager. Can Tony enforce the contract against them? Misrepresentation It appears that Tony doesn’t know anything much about the music industry and certainly does not have contacts in any of the big record companies. Can the band members bring a claim for misrepresentation against Tony? If so, what would their remedies be? Undue influence None of the band members received any legal advice when they entered into the agreement with Tony. Rachel had some knowledge of law, having studied it at university, but felt very much out of her depth when trying to understand the impact of the decisions which were being made. Can the band members rely on the equitable doctrine of undue influence and elect to set aside the contract? Restraint of trade The band members would like your advice on whether the contract is in restraint of trade. SUMMARY produce a piece of advice for the band members, dealing with the points raised above. You should illustrate your opinions as to how the law would consider their positions with the use of authorities (case law or statute law).

ANSWER

This scenario throws up a large number of legal issues for consideration. For the sake of clarity and brevity each issue will be presented under a separate heading.

MINORS

The age of majority in order to achieve the full capacity to contract was reduced from 21 to 18 by section 1 of the Family Reform Act (1969). The common law position is that contracts with minors are unenforceable unless they are of a certain kind and for the benefit of the minor. Moreover, the Minors’ Contracts Act 1987 has made amendments to the common law in some respects.

In Denmark Productions v Boscobel Productions (1967)^[1] it was held that a contract under which a minor appoints a manager or agent to look after his business affairs is in modern conditions a necessity if he is to earn a living and achieve fame and if it is for his benefit it will be upheld. However, in De Francesco v Barnum (1890)^[2], the court looked into such a contract which was prima facie binding on a minor, it discovered that the contract contained onerous terms unduly restrictive of the minors in question. It was therefore held that the contract was an unreasonable one in the circumstances and that it would be treated as unenforceable against the minors.

It is submitted that the contract in this case incorporates at least one entirely unreasonable term, namely that the minors allegedly agreed not enter into any other contract with another manager for a period of 6 months following the termination of the contract management contract with Tony Bee. This, as will be discussed, is a blatantly unreasonable restraint of trade and thus it is concluded that a court in this case would refuse to enforce the alleged contract against either Jer or Mike.

MISREPRESENTATION

It is difficult to offer cogent advice on the matter of misrepresentation because we do not know what statements were made by Tony prior to the alleged formation of contract. However, in general terms a misrepresentation is a false statement of fact offered before contract formation takes place, with the intention that it will serve to encourage contract formation. We cannot comment on the substance of Tony’s pre-contractual claims but again in general it should be noted that statements of opinion later discovered to misrepresent the truth are unlikely to be deemed a legal misrepresentation unless the statement is made in the course of a business and reliance on them is deemed to be reasonable in all the circumstances of the case: see for example, Bisset v Wilkinson^[3]. An incomplete statement or so-called half-truth may also constitute misrepresentation as the case of Couston v Miller demonstrates.^[4]

The band members should be advised that in order to found a claim the statements made by Tony must not only have been false but they must have prompted them to enter into the alleged contract and they must have been in some way material to the “agreement” ultimately made. Misrepresentation is classified under three headings: innocent, negligent and fraudulent.

We cannot advise further on this point, without knowledge of what Tony actually said, however we can advise in general terms that the remedies available include rescission and damages. Rescission is probably not available on these facts given that the brief indicates that the agreement has been in operation for at least two years and has therefore been ratified by implication by the band (although note the point regarding unenforceability against Jer and Mike due to their status as minors as noted above).

UNDUE INFLUENCE

Again, this advice is prejudiced by the lack of information presented in the brief. The alleged contract between Tony Bee and the band is referred to as alleged because no evidence of it is presented in the brief except a unilateral assertion by Tony in a letter he sent to Rachel after he supposedly agreed to act as the band’s manager. However, we can advise that undue influence is an equitable doctrine which protects the weaker parties to a contract where it appears that unwarranted pressure has been exerted by the stronger party to compel the acceptance of certain contractual terms. Contracts affected by undue influence may be set aside (Royal Bank of Scotland v Etridge No.2 (1998)^[5], but this remedy is subject to the same limitations as per misrepresentation and given the duration of the arrangement under review it may have been deemed ratified by the non-minor members of the band.

In some relationships of unequal power undue influence may be presumed, see for detailed comment: Credit Lyonnais Bank Nederland v Burch [1997]^[6]. It may be that the relationship in this case is presumed to be one affected by undue influence but if that is not the case it will be for the parties to establish their claim. This should be an easy matter for the minors (although their contract is probably negated in any event), and given their participation in the agreement undue influence may be an easier matter for the other band members to prove.

RESTRAINT OF TRADE

A contract in restraint of trade is a contract which includes terms that seek to restrict or limit the economic freedoms of one or both parties. Such contracts are prima facie void on grounds of public policy (see Wyatt v Kreglinger and Fernau (1933)^[7]), but may be accepted by a court if the restrictions are reasonable in all the circumstances of the case.

In the scenario under review Tony Bee alleges that it was an express term of the agreement that the band would not engage any other manager during the term of the agreement and would not enter into any other contract with another manager for a period of 6 months following the termination of the management contract with him. Again this advice is prejudiced by a lack of information in the brief. We are not informed as to the length of the alleged contract or any other terms attached to it. However it is submitted that it is blatantly restrictive of trade to seek to enforce a term stating that after termination of the management contract the band are not entitled to appoint another manager for a period of six months. It is likely that a court would consider this condition to be not only unreasonable and draconian, but even commercially ridiculous in all the circumstances.

Terms are tested for reasonableness in this context by reference to any need to protect sensitive information or business interests, and by reference to their geographic and temporal extent. There is no suggestion that Tony Bee would be protecting any particular business interest by preventing the band from appointing a new manager after the end of their relationship, and the restriction’s putative extent is global for a period of six months. One might ask just what the band is supposed to do in the meantime? It is submitted that a court certainly would, before rejecting the condition in unequivocal terms. This restrictive condition will therefore fail to prevent the appointment of a new manager.

THE END

WORD COUNT: 1174 (text of answer only, excluding footnotes)

BIBLIOGRAPHY

Keenan D. and Riches S., Business Law, Seventh Ed, (2001) Longman

Halston R., Contract Law, (2001) Pearson

Keenan D., Smith and Keenan’s English Law, (1998) Pitman Publishing

Cases as footnoted

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Footnotes

^[1] 111 Sol. J. 715.

^[2] 45 ChD 430.

^[3] [1927] AC 177.

^[4] (1862) 24 D 607.

^[5] 4 All ER 705.

^[6] 1 All ER 144.

^[7] 1 KB 793.