Illegal, unenforceable and impossible contracts

Question 1

In order for an agreement to be valid, it must be ________ therefore if an agreement is __________, it is generally ____ (but not always) and the courts will refuse to enforce it.

Answer 1

lawful
illegal
void

Question 2

When is an agreement illegal? [3]

Answer 2

1. Prohibited by statutes
2. Prohibited by common law
3. Unfair/unconscionable/unreasonable

Question 3

True or false, You can have a contract that is illegal and void OR illegal and valid.

Answer 3

True

Question 4

What is ‘statutory illegality’?

Answer 4

It is Contract prohibited by Statute and it is only void IF Parliament so
intends

Question 5

What is ‘common-Law ‘ illegality?

Answer 5

Court declares contract void because contra bonos mores/contrary public policy

Question 6

Define contra bonos

Answer 6

Against good morals

Question 7

True or false, You can have a contract that is illegal and void OR illegal and valid.

Answer 7

True

Question 8

Under statutory law, what is the fundamental principle?

Answer 8

“a thing done contrary to the direct prohibition of the law is void and of no
effect”. However, not always the case as it will “depend upon the proper construction of the particular legislation”

Question 9

What are the factors that indicate the intention of the legislature in statutory law? [5]

Answer 9

1. the subject-matter of the prohibition
2. its purpose in the context of the legislation
3. the remedies provided in the event of any breach of the prohibition
4. the nature of the mischief which it was designed to remedy or avoid
5. any cognizable impropriety or inconvenience which may flow from invalidity

Question 10

Under statutory law, what happens if the agreement/contract is to raise money for revenue?

Answer 10

If the purpose of the prohibition is simply to raise money for revenue. Then, the contract will be valid, but the parties may have to pay a prescribed fee.

Example: Certain legislature says that you cannot buy a TV without a licence
(prohibition, therefore illegal). Let’s say Game sells TVs to people without
asking for a licence.
Those contracts are illegal.
Purpose of legislation = raise money for revenue, therefore contract is valid.
For all sales → illegal but valid.
Game would probably have to pay a fine.

Question 11

Under statutory law, what happens if the contract would bring about harm that the legislation is trying to avoid?

Answer 11

If yes, then illegal and void

Example: Legislation prohibits trading in ivory, it’s illegal to buy and sell ivory
(unless the jewellery was made before the Act came into place). The whole
point is to protect the elephants. A contracts with B to sell him 3 tonnes of
ivory. A delivers the ivory, and B doesn’t pay.
Can A sue in court for breach of contract?
The agreement is illegal and it will be void because parliament intended for it to
be void, because enforcing the agreement will encourage killing elephants and
that is what the prohibition is trying to avoid.

Question 12

Under statutory law, would a contract cause a greater inconvenience to void the contract than to allow it to stand?

Answer 12

If yes – probably valid – depending on the other factors; refer to TV example.

Question 13

Under statutory law, do the statutes impose a criminal sanction?

Answer 13

If yes, probably void.

Example: the Drug Traficking Act prohibits dealing in drugs. If the person is
caught dealing, they can be liable to a life sentence. A sells B 50kg of cocaine. B
fails to pay. Can A enforce payments through the courts?
The contract is illegal and void. There is a criminal sanction up to life. And
enforcing the contract would bring about the harm that the system is trying to
stop.

Question 14

Under common law illegality, which illegal agreements/contracts are ALWAYS void? [5]

Answer 14

1. Agreement to commit a crime/delict.
2. Agreement which undermines institution of marriage:
   a) Agreement never to marry is illegal and void.
   b) Agreement that threatens an existing marriage.
3. Agreement in consideration of sexual immorality. e.g. prostitution
4. An agreement which conflicts with the Constitution as that is supreme law and common law is subject to constitutional values.
5. Unconscionable/unfair/unreasonable agreements

Question 15

Under common law what would happen if A hires B to kill his wife. B kills the wife and A refuses to pay the contract price. Will the courts enforce that?

Answer 15

NO. The contract is illegal and void

Question 16

Under statutory law, What does Section 5 of the Sexual Offenses Act 23 of 1957 say?

Answer 16

S 5 of the Sexual Offenses Act 23 of 1957: ‘Any contract to let any house or place to be kept or used as a brothel shall be null and void.’

Question 17

Under statutory law, What does Section 60 of the National Health Act 61 of 2003 say? [2]

Answer 17

S 60 of the National Health Act 61 of 2003:
S 60
4 (b) to sell or trade in tissue, gametes, blood or blood products, …
(5) Any person convicted of an offense to s(4) is liable on conviction to a fine or to imprisonment for a period not exceeding five years or to both a fine and such imprisonment.

Question 18

Under statutory law, What does Section 45, Prohibition on inducements, of the Long-term Insurance Act 52 of 1988 say?

Answer 18

S 45 Prohibition on inducements:
Unless done in accordance with the rules made under section 62, no person shall provide, or offer to provide, directly or indirectly, any valuable consideration as an
inducement to a person to enter into, continue, vary or cancel a long-term policy, other than a reinsurance policy

Question 19

Under statutory law, What does Section 60, Validity of contracts, of the Long-term Insurance Act 52 of 1988 say?

Answer 19

S 60 Validity of contracts A long-term policy, whether entered into before or after the commencement of this Act, shall not be void merely because a provision of a law, including a provision of this Act, has been contravened or not complied with in connection with it.

Question 20

What would be considered a constitutional value(s)? [4]

Answer 20

• Right to Equality
• Right to Freedom
• Right to Dignity
• Right to Justice and Access to the Courts

Question 21

Are agreements that are unfair upheld by the court?

Answer 21

Generally, agreements that are unfair are upheld by the courts i.e. valid. Because it is not the function of the court to help a bad bargainer.

Question 22

Under common-law illegality, why do courts declare a contract void?

Answer 22

because they are contra bonos mores (contrary to public policy or against good morals)

Question 23

What is the exception under common law when an agreement is unfair?

Answer 23

In extreme cases, the law will regard an agreement that is grossly unfair as ILLEGAL
and VOID.
These contracts are so unfair that they are unconscionable– so unfair that they
offend your conscience: illegal and void.

Question 24

How does the consumer protection act play a role in illegal contracts?

Answer 24

A supplier must not contract with a consumer on terms that are unfair, unreasonable or
unjust or at a price that is unfair, unreasonable or unjust.

• Is it excessively one-sided in favour of the supplier
• Is it so against the consumer as to be inequitable
• Nature of parties i.e. levels of education etc.

Question 25

How does the consumer protection act play a role in illegal contracts?

Answer 25

A supplier must not contract with a consumer on terms that are unfair, unreasonable or
unjust or at a price that is unfair, unreasonable or unjust.

Question 26

Is a contract that is void for illegality ENFORCEABLE?

Answer 26

NO, The position is the same for both statutory and common law illegality = Never enforceable!

Question 27

Is a contract that is void for illegality ENFORCEABLE?

Answer 27

NO, The position is the same for both statutory and common law illegality = Never enforceable!

Question 28

What does “ex turpi causa non oritur actio”

Answer 28

(from an illegal cause no action arises)

Question 29

When the contract is void due to illegality, what is the outcome?

Answer 29

the IN PARI DELICTO rule applies.
If the parties are in equal guilt, i.e. they both acted illegally, then they cannot recover their performance under unjustified enrichment.

Question 30

When the contract is void due to illegality, What is the outcome if only one party acted illegally?

Answer 30

then the party who was not in guilt can recover his/her performance under unjustified enrichment.

Question 31

When might the court relax the In Pari Delicto rule?

Answer 31

A court might relax this (par delictum) rule where it is “necessary in order to prevent
injustice or to satisfy the requirements of public policy” .

Question 32

What is severing or cutting out invalid terms?

Answer 32

If the illegal terms can be cut out from the rest of the contract, then the contract can
still be valid

Only terms that are not essential to give effect to the contract may be severed

Question 33

What is agreements in Restraint of trade ?

Answer 33

An contract in restraint of trade is one which that restrains a person’s freedom to
practice his business or profession.

Question 34

Are agreements in Restraint of trade usually valid?

Answer 34

These agreements are valid and generally enforceable. However, the courts will
refuse to enforce them if they are unreasonable, i.e. against public policy.

Question 35

What do the courts take into account when deciding if the restraint is unreasonable and therefore unenforceable? [9]

Answer 35

1. Did the restrainer (company) have an interest deserving protection? (income, revenue,
   confidential information)
2. Whether the restraint is necessary to achieve the protection.
3. Whether the restraint is overly broad with regard to the range of activities covered by
   it
4. The lifespan of the restraint. Is it reasonable depending on the facts?
5. Geographic area over which it will apply. It must be reasonable depending on the
   facts.
6. Would the person restrained be unduly prejudiced if it were enforced?
7. Has the restrainer spent a large sum of money to obtain it? What is large will depend
   on the facts.
8. Whether the enforcement of the restraint would deprive the public of valuable
   services?
9. If the court finds that the restraint is only partially unreasonable, then it can choose to
   cut out the unreasonable terms and enforce the rest.

Question 36

What is the general rule when assessing possibility of performance?

Answer 36

A contract is void if it is impossible of performance at the time it is entered into.
Therefore there can be no breach if the parties fail to perform.

Question 37

In order to render the contract void, the impossibility must be __________. i.e. it must be
attached to the ___________________ and not to the person – impossible for anyone in society (within reason)

Answer 37

objective
performance

Question 38

When can impossibility arise?

Answer 38

Impossibility can exist before contract concluded, or arise after concluded but
before delivery.

Question 39

What outcomes are always impossible OBJECTIVE outocmes?

Answer 39

• Acts of God or acts of nature e.g hurricane, earthquake, flood
• Unforeseen events that happen by chance. These are events that are not acts of
  nature, but which the average person can’t control. E.g. crisis in Syria

Question 40

What are the two kinds of impossibility? [2]

Answer 40

1. Objective physical impossibility
2. Objective legal impossibility

Question 41

A agrees to transport B to Mars. This is physically impossible for ANYONE in
society to do. So contract is VOID. Will A be in breach?

Answer 41

No. Objective physical impossibility

Question 42

X agrees to buy a house from Y, for R1 000 000. X is unable to raise the
finance. Will X be in breach

Answer 42

Yes, It is therefore impossible for him to pay the price = SUBJECTIVE.
Therefore, X is in breach as contract is not void

Question 43

What is the difference between illegal and legal impossibility?

Answer 43

The difference between legal impossibility & illegality is that with illegality, entering into
the contract itself is illegal, e.g. hiring B to kill someone for you. With legal impossibility,
the contract itself is not illegal, but the performance is.

Question 44

A agrees to sell the moon to B. This is impossible because no one owns the
moon. Is this a legal contract

Answer 44

Therefore this contract is legally impossible.
→ Legal impossibility because no one owns it.
→ Contract is void.

Question 45

A sells a farm to B. A does not own the farm. It is legally impossible for A to transfer ownership to B. What type of illegality is this and Is A in breach?

Answer 45

This is subjective legal impossibility because it is A’s own problem/fault and someone else/the owner could transfer ownership. Therefore the contract is valid and A will be in breach. Only objective impossibility makes a contract void.

Question 46

What are formalities?

Answer 46

there to serve as a guide to the parties against any unforeseen circumstances that may lead to litigation.

Question 47

What is the general rule for formalities?

Answer 47

Most contracts do not have to comply with any formalities to be valid. In other
words, they do NOT have to be in writing or signed by the parties (A verbal contract is normally binding)

Question 48

What contracts are required by law to comply with certain formalities? [4]

Answer 48

1. Sale of immovable property: must be in writing and signed by both parties or their duly authorised agents
2. Suretyship: must be in writing and signed by or on behalf of the surety
3. Donation: must be signed by or on behalf of the donor.
4. Antenuptial contract: must be in writing and signed by both parties in front of a notary
   and 2 witnesses to be valid between the parties.

Question 49

What legislation can impose formalities?

Answer 49

statutes + contract can impose formalities.

Question 50

What are examples of formalities? [5]

Answer 50

a) Written record
b) Signature of both parties
c) Agents acting on authority.
d) Notarial execution (in the presence of Notary public person)
e) Registration.

Question 51

S2 Alienation of Land act: Formalities in respect of alienation of land
(1) ___ alienation of land after the commencement of this
section shall, subject to the provisions of section 28,
be of any force or ______ unless it is contained in a
_____ of alienation signed by the parties thereto or by
their agents acting on their written authority.

(2) The provisions of subsection (1) relating to signature
by the _______ of a party acting on the written authority
of the party, shall not derogate from the provisions of
any law relating to the making of a contract in
writing by a person professing to act as agent or
trustee for a company not yet formed, incorporated or
registered.

Answer 51

No
effect
deed
agent

Question 52

What does failure to comply with section 2(1) of the Alienation of land act result in?

Answer 52

the invalidation of the agreement

Question 53

What does the Alienation of land (formalities) act Section 28 (2) state?

Answer 53

Any alienation which does not comply with the provisions of section 2(1) shall in all respects be valid ab initio (except) if the alienee had performed in full in terms of the deed of alienation or contract and the land in question has been transferred to the alienee.

Question 54

What is the Consumer protection act 68 of 2008, Section 48 (1) say? [2]

Answer 54

48. (1) A supplier must not—
    (a) offer to supply, supply, or enter into an agreement to supply, any goods or services—
    (i) at a price that is unfair, unreasonable or unjust; or
    (ii) on terms that are unfair, unreasonable or unjust;

Question 55

What is the Consumer protection act 68 of 2008, Section 48 (2) say? [2]

Answer 55

S48 (2):
(2) a transaction or agreement, a term or condition of a transaction or agreement, is unfair, unreasonable or unjust if—
(a) it is excessively one-sided in favor of any person other than the consumer;
(b) the terms of the transaction or agreement are so adverse to the consumer as to be inequitable;

Question 56

What is the Consumer protection act 68 of 2008, Section 52 (3) say? [2]

Answer 56

S52 (3)
52(3) If the court determines that a transaction or
agreement was, in whole or in part,
unconscionable, unjust, unreasonable or unfair,
the court may—
(a) make a declaration to that effect; and
(b) make any further order the court considers just
and reasonable in the circumstances, including,
but not limited to, an order—

Question 57

Under CPA 68 of 2008, S52 (3), what can the court order if just and reasonable? [4]

Answer 57

(i) to restore money or property to the consumer;
(ii) to compensate the consumer for losses or expenses relating to—
(aa) the transaction or agreement; or
(bb) the proceedings of the court; and

Question 58

Under CPA 68 of 2008, S52 (3), what can the court order if just and reasonable? [4]

Answer 58

(i) to restore money or property to the consumer;
(ii) to compensate the consumer for losses or expenses relating to—
(aa) the transaction or agreement; or
(bb) the proceedings of the court; and