Paper 2.2 – Commercial and Business Law
By Ahmed Alasalli
Chapter 7 – Terms and Exclusion Clauses
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1. Explain the difference between terms and mere representations
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2. Explain the difference between implied and expressed terms of a contract and how they are inserted into a contract
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2. Explain the terms implied by the Sale of Goods Act 1979 and the Supply of Goods and Services Act
1982
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3. Know the difference between conditions and warranties and be able to give examples of each
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4. Explain what an exclusion clause is and know what tests such a clause has to pass before it will be valid both under the common law and under statute.
Terms of a contract – introduction
In determining the contents of a contract (i.e. the terms) there are a number of areas which need to be considered:
1.
whether a statement made in negotiations has become a term of the contract or not
2.
the need for certainty of essential terms of the agreement
3.
what, if any, terms will be implied into a contract
4.
the importance of any particular term and what happens if it is broken
5.
whether a term in a contract excluding or limiting a party’s liability for breach is effective
1.
Whether a statement made in negotiations has become a term of the contract or not.
A statement, written or oral, made during negotiations leading to a contract, may be a term of the contract or merely a representation inducing the contract. The importance of this distinction is due to the remedies available to a wronged party, as they will differ depending on whether there is a breach of a contractual term or merely a misrepresentation.
A representation (or a misrepresentation) is something that is said by the offeror in order to induce the offeree to enter into the contract. It only later becomes a term of that contract if it becomes formalised.
 if the representation is subsequently included in the contract as one of its terms and if it is then later found to be untrue the party misled has remedies for breach of the term, as well as for misrepresentation
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If, however, the representation does not become a term of the contract, the party misled will have remedies only for misrepresentation.
To decide whether a statement is a term or a mere representation, the following guidelines must be used:
 when the statement was made
 whether it was reduced to writing
 the importance of the statement to the recipient
 the strength of the statement by the maker
 whether the person making the statement was an expert
Bannerman v White
A buyer of hops asked the seller whether sulphur had been used in the treatment and added that if it had he would not buy. The sellers assured him that sulphur had not been used. Sulphur had been used!

Held: the court decided that as the use of sulphur was a vital part of the contract, around which the whole deal revolved: it was a term. (Point 3)
Schawel v Reade
Schawel was examining a horse which he was considering buying for stud purposes. The seller stated’ you need not look for anything, the horse is perfectly sound. If there was anything the matter with the horse I should tell you.’ Schawel then ceased his examination. A few days later a price was agreed upon and three weeks later Schawel bought the horse relying on the seller’s statement. The horse proved to be unsuitable for stud purposes.
Held: the seller’s statement was a contractual term. It was obvious from the words and actions of the parties that it was intended that in the purchase the responsibility for the soundness of the horse should rest upon the vendor. (Point 4)
Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd
Bentley was interested in purchasing a Bentley car with an ascertainable history the defendant, a car dealer, persuaded Bentley to purchase a car which was described as having a replacement engine and gearbox with only 20,000 miles on the odometer since replacement. The assertion relating to the mileage was false.
Held: the dealer’s statement became a term of the contract of sale, for breach of which damages were recoverable. The special skill and knowledge of the car dealer placed him in a stronger position than the purchaser, consequently the court could more easily infer that the statements relating to the condition of the car formed the basis of a contractual term rather than a mere representation. (Point 5)
Oscar Chess Ltd v Williams
Williams, on selling a car to the claimant company of car dealers, asserted that it was a 1948 model. The registration book appeared to confirm this statement, but some previous owner had altered it and the car was in fact a 1939 model.
Held: the statement was an innocent misrepresentation but not a term of the contract. The seller, who was not a car dealer with expert knowledge, did not intend to be bound contractually by his statement concerning the age of the vehicle. The dealers should have checked the engine and chassis numbers to verify the date of manufacture.
Thus, where a layman who does not normally deal in the kind of goods being disposed of makes an assertion to an expert the statement is unlikely to be a term of the contract, but a mere representation.
2.
The difference between implied and expressed terms
Expressed Terms
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Express terms may be written or oral or partly written and partly oral.
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Normally, an oral contract is as enforceable and as valid as a written contract.
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Express terms are terms specifically inserted into the contract by either or both of the parties.
An agreement can only be enforced as a contract if its terms are clear and complete on all essential points.
Thus the terms of the contract must be complete and certain of meaning.
King’s Motors v Lax
The parties agreed to an option to renew a lease ‘at such rental as may be agreed upon between the parties’

Held: the agreement was void for uncertainty since it was incomplete – the vital term as to amount or rent still being subject to negotiation.
Scammell v Ouston
An agreement provided for the balance of the price. ‘On hire purchase terms over a period of two years’
Held: the words ‘hire purchase terms’ was considered too imprecise and there was no contract.
Foley v Classique Coaches
In a contract to supply the petrol requirements of a bus company, no price was expressed or provided for but for some time before the dispute; petrol had been supplied at the supplier’s standard price to all his customers.
Held: this practice indicated what was to be implied (there was also arbitration on disputes if necessary).
Therefore, the course of dealing between the parties or the custom of their trade may suffice to indicate the missing term which they intended to adopt but did not express.
The Sales of Goods Act 1979, Supply of Goods and Services Act 1982
The Sales of Goods Act, Supply of Goods and Services Act provide that, in a contract for the sale of goods or supply of services where the contract is silent on price or how the price is to be fixed, a reasonable price must be paid. Thus, a valid contract will exist even though there is no express term as to price or the method of fixing the price.
Implied Terms
Implied terms are terms which are not expressly included by the parties but which nevertheless are still part of the workings of the contract. They can be implied by:
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A. the nature of the contract
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B. business efficacy
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C. Acts of Parliament
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D. Custom and usage.
As a general rule, implied terms bow to the express provisions of the contract. However, some of the statutory implied terms cannot be excluded even by express provision or can only be excluded to a limited extent.
A.
Terms implicitly required by the nature of the contract.
In some situations, for example, employment contracts, many matters are not expressly agreed.
The courts have implied terms which are required by the contractual relationship. These terms are implied into all similar contractual relationships unless excluded or inconsistent with the express terms. They are often called ‘terms implied in law’.
In employment contracts there are implied terms expressed as duties of the employee, e.g. to give honest and faithful service to his employer, and duties of the employer, e.g. to use reasonable care in providing a safe place of work for his employees. These terms are implied as result of the court deciding the content of these types of contracts generally rather than deciding what the intentions of the parties were in one particular situation.
B.
Terms as are necessary to give business efficacy to the contract.

The courts may imply a term where the parties have failed to cover a particular matter which, unless remedied, makes the agreement unworkable. The courts imply a term to implement the parties’ presumed intentions, to make the contract workable, ‘to give business efficacy’ to it.
The test of what will be implied in this way is whether, if an officious bystander had said to the parties, when they were making the contract, ‘You agree on this point?’, both would have replied, ‘Oh, of course’.
The moorcock
There was an agreement by a wharf (where a ship stops) owner to permit a ship owner to unload his ship at the wharf. The ship was damaged when, at a low tide, it was grounded on the bottom of the river on a hard ridge. (now the owner is supposed to know, from experience, must have the business efficacy to know the depth of the different types of ships, or at least ask!).
Held: the court implied a term into the agreement that the river bottom would be reasonable safe.
Such implied terms are based on the presumed but unexpressed intention of the parties. These implied terms are often called ‘terms implied in fact’.
C.
Terms implied by Acts of Parliament
Examples are the Sale of Goods Act 1979; the Supply of Goods and Services Act 1982; the Partnership Act
1890; and a number of employment Acts. Many of these implied terms are only effective in the absence of contrary agreement, e.g. terms in the Partnership Act 1890. Others, however, are automatically included in the contract and cannot be excluded, e.g. Sale of Goods Act 1979.
D.
Terms implied by Customs and Usage.
Any contract (oral or written) may be deemed to incorporate any relevant custom of the market, trade or locality in which it is made unless the custom is inconsistent with the express terms or the nature of the contract.
3.
Importance of the distinction between conditions and warranties
It has been common practice, but is now less common, to classify each term of a contract as a condition or a warranty. The distinction is only important if a contractual term has been broken.
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A condition is a vital term of the contract, breach of which may be treated by the innocent party as a substantial failure to perform a basic element of the agreement.
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The innocent party has the choice of either treating the contract as ended and claiming damages for any loss suffered, or merely claiming damages for the breach.
The individual circumstances of the case will usually indicate quite clearly which of these two alternatives is more appropriate.
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A warranty is a less important term which is incidental to the main purpose of the contract.
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Failure to observe it does not cause the whole agreement to collapse: consequently the innocent party may claim damages for its breach but not treat the contract as repudiated.
Poussard v Spiers
A soprano, Madame Poussard, agreed to sing in a series of operas for Spiers. She failed to appear on the opening night and Spiers refused her services for subsequent nights. She sued him for breach of contract.

Held: it was held that the obligation to appear on the opening night was a condition and since Madam
Poussard was in breach of this condition Spiers was entitled to treat the contract as at an end. He was therefore not himself in breach by refusing her services for the remaining nights.
Bettini v Gye
A tenor, Bettini, who agreed to sing in a series of concerts and to attend 6 days of rehearsals beforehand, failed to appear for the first 4 rehearsals days. Gye in consequence refused Bettini’s services for the balance of the rehearsals and performances. Betinni sued for breach of contract.
Held: the obligation to appear for rehearsals was a mere warranty and therefore Bettini’s breach did not entitle Gye to treat the contract as at an end. Gye was accordingly in breach of contract when he refused
Bettini’s services for the remainder of the contract.
How the distinction is made.
Whether a term is a condition or a warranty depends on a number of factors:
1.
Statute may declare the category of the term: for example, the Sale of Goods Act 1979 implies a term into every contract of the sale of goods to the effect that the seller has a right to sell and the SGA states that the term is a condition.
2.
The parties may expressly declare that a term is to be a condition: for example, when time is declared to be the essence of the contract. But mere use of the word condition or warranty is not of itself conclusive.
3.
In the light of the circumstances: the court considers in the light of the circumstances existing when the contract was made, whether the parties regarded the term as an important vital one going to the root of the contract or whether it was a term of lesser importance collateral to the main purpose of the contract. This will be a question of fact.
Innominate terms
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Items which fall between conditions and warranties are called innominate or intermediate terms or intermediate stipulations.
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Within this category the courts then consider whether the nature and effect of its breach is to deprive the injured party of substantially the whole benefit of the contract.
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If this is the effect of breach, sometimes called fundamental breach, then the injured party is entitled to terminate the contract.
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If the effect of breach is not serious the innocent party may not terminate the contract: he may only claim damages.
The Hansa Nord
Citrus pulp pellets were sold for ₤100,000. One of the conditions of the contract was: ‘shipment to be made in good condition’. On arrival not all the pellets were in good condition and their market value was reduced by ₤20,000. However, even if all the goods had been sound, the market value, which had fallen between sale and delivery, was only ₤86,000. The buyers rejected the goods which were later sold and eventually reacquired by the original buyers for ₤34,000 (and used by them for the original purpose).
Held: on the question of whether the buyers’ rejection had been justified, the provision as to shipment in good condition was neither a condition nor a warranty, but an innominate term. The effect of the breach was not sufficient to justify treating the contract as discharged. The buyer’s only remedy was in damages, i.e. the difference in value of the sound goods and the defective goods.
Unless a term is clearly a condition, modern cases tend to treat all terms as innominate and just consider the seriousness of the breach.

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A condition is a vital term, going to very root of the contract. If this is breached the innocent party can claim that the contract is repudiated and/or claim damages.
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A warranty is a less critical term. If this is breached he only option that the innocent party has is to claim damages for breach of contract.
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An innominate term is neither a condition nor a warranty at the time the contract is made but court will consider the effect of a breach of that term. If it goes to the root of the contract, term will be a condition. If not, it will be a warranty.
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The question of classification of terms only arises if the injured party wishes to end the contract; if the injured party wants damages alone there is no need to consider the status of the term broken.
4.
Explain what an exclusion clause is and know what tests such a clause has to pass before it will be valid both under the common law and under statute.
Definition and effect
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Exclusion clauses seek to exclude the party, from breach of contract, or, limiting his liability on a breach of contract.
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The law has tended to look unfavourably on such clauses and the courts have developed rules with the aim of protecting weaker parties from those in a superior bargaining position.
Application and validity of exclusion clauses
In order to be valid the exclusion clause must pass two separate tests:
A.
The common law test: i) ii) the clause must be incorporated into the contract and not added after the contract is complete the clause must be clear and precise; any vagueness will be construed against the party who is attempting to rely on it.
B.
the statutory test laid down by the Unfair Contract Terms Act 1977 (often known as UCTA), and additionally in the case of standard form contracts, the Unfair Terms in Consumer Contracts
Regulations 1999.
It is important to be aware of these tests when answering examination questions. It is also important to be aware that if the exclusion clause does not pass the first test it need not be subjected to the rigours of the
UCTA.
A.
i) The common law test – incorporated into the contract
It must be shown that the party who is to be bound by the clause did in fact agree to it.
L’Estrange v Graucob
The proprietress of a café bought a cigarette vending machine and signed a contract of sale, which she did not read, which contained a clause. ‘Any express or implied condition statement or warranty statutory or otherwise not stated herein is hereby excluded.’ The machine was defective.
Held: she was unable to recover the price or obtain damages as she was bound by the clause as she had signed the contract.
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If something is part of a signed document, it is a term even if the other party has not read the document.
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However, a signatory is not bound by an exclusion or limiting clause where his signature to the document was induced by fraud or misrepresentation by the other party, or his agent.
Curtis v Chemical Cleaning Company

The claimant took a white sating wedding dress to the defendants for cleaning. She was asked to sign a document which contained a clause: ‘that the dress is accepted on condition that the company is not liable for any damage howsoever arising’ but, before she singed she was told that the effect of the document which she was about to sign was to exclude liability for damage to beads or sequins. Without reading all the terms of the document the claimant then signed as she was asked. The dress was stained due to the negligence of the defendants.
Held: the defendants were liable and could not rely on the exclusion clause because of the misrepresentation as to the extent of the exemption clause.
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In exceptional cases a signed contract which contains extremely onerous exemption clauses will not bind the signatory unless the clauses were drawn to his attention.
If the document was not signed, e.g. in the case of a ticket or notice, the person relying on any exclusion clause contained in it must show:
 that the document was an integral part of the contract which could be expected to contain terms
 that the other party had notice of the exclusion clause, either when the contract was made or from prior dealings
Thompson v LMS Railway
T bought a railway ticket, which stated that she would travel subject to the company’s standard conditions of carriage. These conditions could be inspected at the station.
One of these excluded liability for injury to passengers.
T was unable to read, and so was unaware of the clause. She was injured and claimed damages.
Held: the ticket was a document which should be expected to contain terms, being more than a mere receipt for payment. The railway company had taken reasonable steps to bring exclusion clause to passengers’ attention, by incorporating it into the contract document. T was bound by the clause (even though she could not read: ‘illiteracy is a misfortune, not a privilege’) as were all other passengers.
The principle of the Thompson case still holds true, although the Unfair Contract Terms Act 1977 now prevents the exclusion clause of liability for death or personal injury by negligence.
 If not part of a signed document, an exclusion must be brought to the other party’s attention before or at the time the contract is made and reasonable notice must be given.
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The offeree is not bound if it can be shown that he did not know that the document contained (or incorporated by reference) terms of the contract or that reasonable notice of those terms was not given to him e.g. by stating where they could be read.
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An exclusion clause cannot be introduced into a contract after it has been made unless the other party agrees.
Chapelton v Barry UDC
C hired a deckchair. The chairs were stacked beside a notice which said ‘Hire of Chairs 2d for 3 hours’. He paid 2d and received a ticket which was, in effect, a receipt, on the back of which, unknown to him, were certain exemption provisions. The chair collapsed and C was injured.
Held: the defendants could not rely on the exemption clause because the contract was complete when the chair attendant accepted the money and up to that point there was no indication of any special terms. The ticket merely acted as a receipt after the contract had been completed.

Olley v Marlborough Court
A notice in a hotel room excluded liability for loss or damage to guests’ property.
Held: this was ineffective because the contract for accommodation had been made at the reception desk.
Thornton v Shoe Lane Parking
A clause on the back of the ticket produced by a machine at the entrance to a car park with an automatic barrier attempted to exclude liability.
Held: it was not a term of the contract. The contract was made when the offer by the car park was accepted by the driver activating the machine. The ticket was produced after acceptance.

When there has been a previous consistent course of dealings between the parties on terms which include a similar exemption clause, this might constitute notice of its existence in a later contract even though express notice in the later contract was not given prior to the contract being made.
J Spurling Ltd v Bradshaw
The defendant had dealt with the claimant for a number of years. On the contract in question he had delivered four full barrels to the claimant to store. As usual, he later received a document which both acknowledged receipt and contained a clause excluding liability for negligence by the claimant. The barrels were empty when he collected them. The defendant refused to pay and the claimant sued.
Held: the exclusion clause had been incorporated into the contract through previous course of dealings whereby he had been sent copies of documents containing the clause, even though he had never read the clause.

In Hollier v Rambler Motors it was stated that merely three or four dealings over a period of five years was insufficient to constitute a course of dealings.
Common Law Test – Construction of the clause
The party relying on the exemption clause to relieve him of all or part of the liability must prove that the term when properly construed covered the loss or damage suffered by the other party.
Thus a clause excluding liability for negligence will not operate to exclude liability for breach of contract.
If there is any doubt as to the meaning or scope, the ambiguity will be resolved by interpreting it against the person relying on it. This is known as the contra proferentem rule. In Hollier v Rambler Motors a contract exempting a garage from liability for damage to cars by fire was ambiguous in that it could have covered only non-negligent fire or both non-negligent and negligent fire. It was interpreted to include nonnegligent fire only.
Unfair Contract Terms Act 1977 (UCTA)
This Act relates to contracts made in the course of business on or after 1 February 1978 and provides the most important limitations on the validity of exemption clauses. If the clause passes the common law test it must still satisfy this statutory test.
The Act restricts the extent to which a person can exclude or limit his liability for negligence for breach of contract; and for misrepresentation.


Exclusion clauses purporting to exclude liability for negligence causing death or personal injury are void.

A person in a business cannot exclude or restrict liability for negligence causing loss other than death or personal injury unless it is reasonable; i.e. economic loss!
But what are the requirements of reasonableness?
The burden of proving reasonableness is on the party wishing to rely on the clause. To be reasonable the term must be a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.
St Albans City and District Council v International Computers
The Claimant entered into a contract with the Defendants for the supply of computer software designed to administer their collection of the community charge. The software contained an error which led to lost revenue. D sought to rely on their exclusion clause, limiting liability to ₤100,000.
Held: the exclusion clause was unreasonable, bearing in mind that the company had the protection of insurance worth ₤50 million.

Where the clause is attempting to limit (rather than exclude) liability the courts must have regard to the resources which that party could expect to be available to him for the purpose of meeting the liability should it arise and how far it was open to him to cover himself by insurance.
Overland Shoes Ltd v Schenkers Ltd
Schenkers Ltd were worldwide freight carriers. They entered into a contract with Overland Shoes Ltd to transport a consignment of shoes which Overland were importing from China. The contract incorporated the standard trading conditions of the freight carriers’ trading association, which included an exclusion clause. A dispute arose and Schenkers relied on the exclusion clause.
Held: the exclusion clause was reasonable under the UCTA. The clause formed part of a set of standard trading terms used by many trading associations throughout the world, which were carefully balanced, and which had long been recognised as fair and reasonable.
To ascertain the reasonableness in the context of contracts for the sale of goods and other transfers of goods, the UCTA 1977 lists five guidelines, which may be used when ascertaining the reasonableness of exemption or limitation clauses in relation to other breaches of contract:
1.
the strength of the bargaining positions of the parties relative to each other, taking into account the alternative means of supplying the buyer’s requirements
2.
whether the buyer received an inducement to agree to the term, or in accepting it had an opportunity of making a similar contract lacking such a term with other persons
3.
whether the buyer knew or ought to have known of the existence and the extent of the term, having regard to trade custom and any previous course of dealings between the parties
4.
Whether it was reasonable to expect when the contract was made that it would be practical for the buyer to comply with a condition such that liability of the seller would be excluded or restricted if he did not.
5.
Whether the goods were manufactured, processed or adapted to the special order of the customer, thus
I’m relying on you!
The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR)
These regulations work alongside and in conjunction with UCTA 1977. To be valid, an exclusion clause must satisfy both sets of rules. The regulations apply to any term in a contract:

 where the seller is acting in the course of his business and the buyer is not
 where the term is not individually negotiated between the parties, i.e. where it was drafted in advance and the consumer had no influence on the substance of the term, e.g. a term in a standard contract
If such a term is unfair, it will not be binding on the consumer.
A term will be unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties rights and this is to the detriment of the consumer, e.g. a clause giving the seller the right to determine whether the goods supplied under a contract actually conform with it.
In assessing whether a term is unfair or not, the Court will have regard, in particular, to the following:
 the strength of the bargaining positions of the parties
 whether the consumer had an inducement to agree to the term
 whether the goods or services were sold or supplied to the special order of the consumer
 the extent to which the seller or supplier had dealt fairly and equitably with the consumer
The regulations also provide that a seller should ensure that any written term of a contract is expressed in plain intelligible language and if there is any doubt as to the meaning of a term, it should be construed in favour of the consumer.
Contracts in restraint of trade
Restraint of trade exists where a contract imposes on a person a restriction wholly or in part from carrying on his or her trade, business profession or occupation as he or she wishes. Note that trade is not here limited to the usual sense of the word.
Two types of contract in restraint of trade are:

Where an employer requires his employee to agree not to solicit his customers or use his trade secrets after leaving his employment, or to enter the employment of a competitor.

Where the vendor of a business, including goodwill, covenants with the purchaser that he will not carry on a competing business; the same principle applies to a partner retiring from a partnership
In both these cases, the restraint of trade clause is part of a larger contract. These clauses are sometimes known as ‘restrictive covenants’.
Furthermore, in both these cases it is only the validity of the restraint of trade clause which is generally in question, not the rest of the contract. The general rule is that these clauses are contrariety to public policy and therefore not valid at common law. However, it may be enforceable if the person attempting to rely on it can prove that it is reasonable if:

A. it is imposed to protect a legitimate interest of a party to the contract; and

B. as between the parties it is a reasonable safeguard of that interest (i.e. it is no wider than necessary to protect that interest)’ and

C. It is reasonable in the interest of the public (i.e. it is not prejudicial to the public interest).
A. Legitimate interest
 trade secrets – an employer is entitled to protect his proprietary interest by restraining his former employee from using knowledge gained during his employment of a secret manufacturing process

Business connections – an employer is entitled to prevent employees from using confidential relationships. An employee’s close and regular contract with his employer’s business customers may cause them to place confidence in his skill and judgement, with the result that they would probably

transfer their custom to him if he set himself up in business or went to work for a competitor in the same area.
Forster & Son v Suggett
Suggett, who was employed as works engineer, covenanted with his employers that for five years after leaving his present employment he would not engage in the manufacture of glass bottles, or nay business connected with glass-making, these two activities being the main activities carried on by the claimant company. An action was brought to restrain a breach of this promise.
Held: since the defendant had acquired knowledge of secret processes used by the client company, the restraint clause imposed upon him was both reasonable and enforceable to restrain his violation of that covenant.
Fitch v Dewes
Dewes, a solicitor’s managing clerk, promised that, on termination of his employment with Fitch, he would not be engaged or manage or be concerned in the office, profession or business of solicitor within a radius of seven miles of the Town Hall of Tamworth. Whilst with Fitch, Dewes dealt with the affairs of almost half of his employer’s clients. An action was brought to restrain a breach of this restrictive covenant.
Held: although there was no time limit to the covenant, making it lifelong, it was nonetheless reasonable and enforceable in the circumstances since it conferred a necessary protection of Fitch’s business, as Dewes had been in a position to have influence over the clients.
B.
No wider than necessary
This means that restraint imposed must be reasonable in scope, geographical extent and duration.
The wider the area stipulated, or the longer the period during which it will continue, the greater the burden on the employer to justify its reasonableness.
British Reinforced Concrete v Schelff
S, who ran a small local business for the sale of road reinforcements, sold it to the claimant company, a large nationwide company which manufactured and sold road reinforcements. In the contract of sale S covenanted that he would not for three years… ‘Be concerned in… the business of the manufacture or sale of road reinforcements in any part of the UK’
Held: the covenant was too wide for two reasons. First: the scope of the restraint was too wide in that it sought to restrain manufacture whereas his business was purely sale. Second, the area of the restraint was too wide since it applied to the whole of the UK whereas his business operated only in a local area.
C.
Severance
Where any part of the covenant offends against the common law the whole covenant, as a general rule, is void.
Sometimes, however, it may be possible to sever void restraints from valid restraints. The court will do this if it can delete a restraint. This is called the blue pencil test .
The blue pencil test permits the court to delete offending portions of restraints only if the remainder can be enforced without being rewritten.