Theme 3 PT 3 Flashcards
Agreements seriously entered into should be enforced
1) Sanctity of contract/ Pacta sunt
servanda
2) Agreements contrary to public policy
cannot be enforced
Public policy is informed by:
1) Legislation.
2) Common law.
3) Good morals and
4) Public interest.
LEGALITY
1) Agreements that are contrary to public
policy are illegal, and consequently,
unenforceable in law.
2) For an agreement to be enforceable, it must be a legal one
Legality based on Public policy
1) Public policy anchored primarily in the
values enshrined in the Constitution.
2) Agreements that are contrary to public
policy cannot be enforced despite what
the cornerstone of sanctity of contract
dictates
Illegal contracts:
1) Void (Unenforceable)
2) Valid (Unenforceable)
Sasfin (Pty) Ltd v Beukes:
1) Agreements which are clearly inimical of
the interest of the community, whether
they are contrary to law or morality, or
run counter to social or economic expedience, will accordingly, on the
grounds of public policy not be enforced.”
ILLEGAL CONTRACTS THAT ARE VOID
1) The interests of the community/ society
as a whole are of paramount importance.
Courts considers all relevant interests to
decide whether a specific agreement is
against public policy or not.
2) Interests conflicting/ competing: The
courts will strike balance
Barkhuizen v Napier:
The correct approach in challenging the
constitutional validity of a contractual
term is to determine whether the term is
contrary to public policy as informed by
the constitutional values-particularly
those contained in the Bill of Rights
Contracts void because their mere conclusion is contrary to statutory provisions, good morals or public policy:
1) Statutory prohibitions.
2) Pacta (Pactum) successoria.
3) Agreements that oust the jurisdiction of the courts
Performance in contracts must be legal:
1) Contracting with a party to commit a crime (robbery, kidnapping, murder) OR a delict.
2) Where contract can be carried out in a lawful and unlawful manner: Presumption is that it was intended to be carried out in a lawful manner.
3) The purpose and object of the contract must also be lawful
Examples of illegal or invalid contracts:
1) Contracts against good morals
2) Statutory illegality
3) Constitutional invalidity
4) Pacta de quota litis, Champerty and
maintenance
Contracts against good morals:
1)Good morals refers to good behavior in
community.
2) Immoral and sexually reprehensible
conduct: An agreement to pay a
‘prostitute’ for sexual intercourse or
insurance of a brothel
Maseko v Maseko
1) Plaintiff in order to protect her house against possible attachment by one of her
creditors, agreed to marry the defendant, transfer the house into his name and
thereafter get divorced.
2) The defendant undertook to re-transfer the house after the threat of attachment
was over.
3) The plaintiff was never insolvent at any stage, but the court held that the
agreement was illegal on three grounds:
(1) It was morally reprehensible because; it was designed to mislead
potential or existing creditors as to the plaintiff’s worth;
(2) Undermine the institution of marriage; and
(3) Perpetuated fraud against the court in divorce proceedings.
4) Court remarked that he first ground was both immoral and against
public policy
S 51 of the CPA
Prohibits a number of clauses in consumer contracts
S 90 NCA: Certain clauses in a credit agreement are illegal and there are remedies available
1) Sever the unlawful contractual provision from the agreement;
2) Alter the agreement to render it lawful; or
3) Declare the agreement entirely unlawful.
Statutory illegality
1) Statute may prohibit certain types of agreements or the
inclusion of certain provisions in an agreement.
2) Consequently, such agreements or provisions in an agreement will
not have any legal force.
3) Contracts aimed at circumventing statute are illegal and thus void
What if the statute does not expressly stipulate that a contract or contractual provision of a certain nature is void?
Then it ought to be determined whether the legislature impliedly intended the nature
of an agreement or provision to be void
Gambling and wagering:
❖ S 16(1) National Gambling Act:
1) Bets arising from unlawful gambling activities are unenforceable and does not expressly state that wagering contracts are void.
2) Looking at the overall intention of the legislature, it seems it is implied that wagering contracts arising from unlawful
gambling activities are void.
Pacta de quota litis, Champerty and
maintenance:
1) GR: Invalid
2) Exception: Concluded in good faith to assist litigant
Unfair contracts
1) Contracts must be fair & reasonable to the parties.
2) Barkhuizen v Napier:
2.1) Fairness, justice & reasonableness cannot be separated from public policy.
2.2) Public policy takes into account the necessity to do simple justice between individuals, informed by the concept of Ubuntu.
3) Various factors are considered in determining the (un)fairness of a contract or contractual provision: Bargaining power…Courts exercise a discretion…
4) Good faith…Fairness
Beadica v 231 CC v Trustees for the Oregon Trust
1) Pacta sunt servenda is not the only nor the most important consideration informing the judicial control of contracts in the constitutional era.
2) Courts will declare invalid a contract that is prima facie inimical to a constitutional value or principle or otherwise to public policy.
3) Where a contract is not prima facie contrary to public policy, but it’s
enforcement in particular circumstances would be, a court will
decline to enforce it.
4) He who alleges bears the burden of proof
CPA:
1) Prohibits supplier from offering goods or services at an unreasonable price or on terms that are unfair, unjust and
unreasonable
Unfair enforcement of contracts:
1) Unfair enforcement of contracts could be
contrary to public policy.
2) Brisley v Drotsky assumed that the
Sasfin principle could be extended to the
enforcement of a contractual
terms…Non-variation clause…
Consequences of a contract that is void
for illegality
1) Illegal contracts cannot be enforced as they create no obligations.
2) If illegality only affects a part of the contract: The illegal part be severed from the rest of the contract in certain circumstances.
3) Where parties performed in terms of a void contract: Performance cannot be claim back where the parties are equally guilty, unless the court allows them
Contract cannot be enforced (ex turpi rule):
1) Illegal contracts=Void
2) Illegal contracts create no rights and obligations and thus cannot be enforced.
3) If a party suffers damage as a result of an illegal contract, they cannot claim contractual damages from the other party (ex turpi rule).
4) Rule cannot be relaxed by the courts under any circumstances and there are no exceptions to the rule.
5) Performance by either party to the contract does not make the agreement legal
Severing the illegal part of a contract:
1) Sometimes a contract can be partially illegal.
2) Courts have in certain instances allowed the illegal parts to be severed from the rest, thus permitting the remainder of the agreement to remain in force.
3) In some instances the courts have refused: Public policy required the entire contract to be declared void
Benlou properties (Pty) Ltd v Vector Graphics (Pty) Ltd:
1) Illegal part of the contract is grammatically or notionally distinct
from the rest of the agreement? E.g. Illegal part form an independent clause of the contract..
2) Illegal part subsidiary or collateral to the main purpose of the contract, so if that if it is removed, the substantive character of the
contract remains unchanged
Would the parties have entered into the contract without the illegal part?
All answered in the affirmative? The severability is possible.
Reclaiming performance that has been made in terms of an illegal contract (Par delictum rule):
1) In principle, restitution of what has been performed must be granted.
2) Ownership of performance not passed: Reclaim performance through rei vindicatio.
3) Ownership of performance passed: Unjustified enrichment.
4) Par delictum rule: Parties are equally morally guilty, the one in a stronger position will prevent restitution from taking place
