Legality, Physical Possibility and Formalities

A contract itself can be prohibited or a contract can be legal at first glance, but prohibited because it was concluded for an illegal purpose or the performance is unlawful.

Contracts may be illegal because it is prohibited by legislation or common law (contracts against good morals)

Legality

Some contracts need to be in writing----Why?

Contracts contrary to statutory provisions◦ Some contracts my require permission

for the conclusion thereof eg. Permit to sell liquor. Thus the conclusion of a contract contrary to the statutory provisions could be invalid and coupled with a criminal sanction.

Contracts contrary to the common law◦ These contracts are against good morals

and public policy.◦ Determining what is against good

morals and public policy may differ from time to time, but courts are generally conservative regarding these matters.

◦ Prostitution?

Prostitution- is performance possible?

Contracts contrary to good morals◦ Contracts contrary to what the society regards as proper

and virtuous / leads to sexual misbehaviour / prejudice the stability of marriage.

◦ These contracts will be void.◦ Prostitution- the “Kylie” cases

Contracts contrary to the public interest◦ Obstructing the administration of justice and prejudice to

the public service. Eg. Contract to commit a crime. Contract is void.

◦ Limitation of free participation in legal and commercial life

Eg. Contract providing for hereditary succession forbidden. Contracts which restricts free competition (eg. Monopolies)

is also prohibited. Sasko cases and SA Express cases

A Contract binds your hands!!

◦Restraint of trade Prohibitions allowed if it is enforced to protect a

substantial interest and not merely calculated to exclude competition.

Should these contracts be allowed? Commercial freedom vs. contractual freedom

Magna Alloys v Ellis, 1984: Restraint protecting an interest is in principle valid

and enforceable; It will be unenforceable if in conflict with the public

interest; If you do not want to be bound by the restraint you

must prove it is contrary to public interest; The court will decide at the time of the hearing

whether it is contrary public interest; Unreasonable restraint is probably against public

interest; Court may reduce restraint

Unreasonable restraints (normally against public interest) Factors include: Nature of the act forbidden; Nature and extent of the interest which is protected; Period of restraint; Area of restraint; Type of business concerned; Relationship between the parties.

◦ Solus contracts Person undertakes to sell only one person’s products.

◦ Wagers and lotteries Natural obligations – recognised but not enforced, unless

regulated by law.◦ Wilful misconduct

Contracts excluding wilful misconduct are invalid (void). Consequences of illegal contracts

◦ Contract is void. Performance cannot be claimed by parties. Performance already delivered cannot be claimed back.

Performance must be capable of delivery◦ Impossibility at the time of conclusion of the

contract: No contract comes into being. It must be clear that the performance is

objectively impossible, difficulty or inconvenience to perform is not sufficient.

◦ Performance becomes impossible after conclusion of the contract: Contract comes into being but is terminated

due to impossibility.◦ Performance made impossible by debtor:

Contract is valid and enforceable

Physical Possibility of Performance

If performance cannot be determined, no obligation comes into being.

Determinable performances:◦ Generic obligation:

A buys a cow from a stud – election of cow (of average quality) lies with debtor.

◦ Alternative obligation: Performance is selected from alternatives within a

reasonable time.

Performance must be Determined / Determinable

External visible form of the contract. Formalities required by Legislation:

◦ Contract of sale, exchange or donation of land In writing Signed

◦ Credit Agreements Copy of the agreement must be delivered to the consumer.

◦ Long term lease contracts Registered against the title deed of the land.

◦ Bills of exchange, cheques and promissory notes In Writing Signed

◦ Ante nuptial contracts Notarially executed Registered within 3 months

◦ Lease contracts of mineral rights Notarially executed Registered in the Deeds Office

Formalities

Credit card transaction

◦ Contract of suretyship In writing Signed

◦ Executory contract of donation In writing Signed

◦ Purchase of a housing interest in a retirement village In writing Signed

◦ Permission of a spouses married in community of property for certain contracts In writing

◦ Contract between a home builder and housing consumer In writing Signed

Formalities required by Parties:◦ Parties can negotiate their own formalities for a

certain contract.◦ The intention of the parties will determine when

the contract is concluded. Eg. Oral contract must be put in writing...... Is this a formal requirement? Will is merely serve as proof of the oral contract?

◦ Variation of Formal Contracts Variation must meet the formal requirements set by

the parties or law.

Parol Evidence rule:◦ Rules that apply to written contracts:

A contract entirely reduced to writing is the exclusive memorial of the contract between parties.

Generally no evidence, oral or otherwise, may be advanced to alter the written document.

The purpose of written contracts is to prevent uncertainty and evidence contradicting the written document will frustrate this purpose.

Rectification:◦ Remedy for the unfair application of the parol evidence

rule.◦ If the contract does not reflect the agreement and

intentions of the parties, correction can be claimed.

Interpretation of contract and terms

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