Legality
LACO – agreements seriously entered into should be enforced (pacta sunt
servanda).
Agreements that are inimical to societal interests are considered to be contra bones
mores – won’t be enforced
Since 1994: public policy anchored in constitutional values.
Illegality of a contract has two possible consequences:
1. Unlawful contracts are void + thus unenforceable;
2. Valid but unenforceable depending on the degree to which society regards a
specific contract as reprehensible.
Agreements are illegal if they are in conflict with common law or statutory law (incl.
the Constitution) in that either the conclusion of an agreement, its performance or the
reason for its conclusion (the object or purpose of the agreement) is contrary to
public interest or a statutory prohibition.
Illegal Contracts that are Void
Overarching consideration – is the contract against public interest?
- However, the specific illegality of a contract may be recognised at common law or
in statute, or simply with reference to certain moral + constitutional values, or
even perhaps with reference to the unfair manner in which it is enforced.
Public Interest
Contra bones mores – ‘Agreements which are clearly inimical [detrimental] to the
interests 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 is not be enforced’ (Sasfin (Pty) Ltd v Beukes)
Interests of the community or society as a whole are paramount in relation to the
concept of public policy.
Recognised public interests:
- Voluntarily concluded contracts should be complied with + enforced (sanctity of
contracts);
- Simple justice between individuals should be taken into account;
- As far as possible, the parties to a contract should have equal bargaining power;
- The administration of justice shouldn’t be defeated, obstructed, or perverted;
- The safety of the State should be preserved;
- The public service should function properly; and
- The full exercise by persons of their legal rights shouldn’t be interfered with.
Reasons why public policy isn’t problematic:
- Courts use their power to strike down a contract for being contra bonos mores
sparingly + only in the clearest of cases. An arbitrary + indiscriminate use of this
competence will undermine certainty + security in contractual provisions, + the
principle of sanctity of contract is usually afforded preference over other public
interests.
- Courts will declare a contract illegal if they consider the tendency of the contract
+ not its actual proven result, to be against public policy. If the contract is capable
of being implemented in a manner that is against public policy, but the tendency
is neutral, the contract will be valid.
, - The court will be careful not to conclude that a contract is contrary to public policy
simply because it offends the court’s individual sense of propriety + fairness.
(Sasfin + Barkhuizen)
- Since inception of constitutional dispensation, public policy is rooted primarily in
Constitution + its values, but it isn’t the sole source. (Common law
considerations)
- Legal precedents, therefore, provide guidelines as to whether a particular
contract or term is contrary to public policy. However, case law prior to 1994
should be tested against constitutional values, + should be considered that public
policy on a particular issue could have changed in the meantime.
*Barkhuizen v Napier*:
‘Correct approach to a constitutional challenge to a contractual term is to determine
whether the term of the contract is contrary to public policy.’ – ‘This approach leaves
space for pacta sunt servanda to operate but simultaneously allows courts to decline
to enforce contractual terms that are in conflict with the constitutional values even
though the parties may have consented to them.’
Public policy has no fixed meaning – open-ended standard; represents the public
opinion of a particular community at a particular time.
Court will consider all relevant public interests in deciding whether or not a contract is
contrary to public policy. Courts will balance the interests.
Sanctity of contract is given preference
Pre-constitution – freedom of contract (by extension the sanctity of contract) – given
preference over other public interests.
- Courts now exercise restraint when declaring a contract or a clause contrary to
public policy, + preference prevailed when SA became a constitutional state.
Barkhuizen – CC, by implication, acknowledged the preference shown to freedom to
contract – self-autonomy (incl. contractual autonomy) – the ability to regulate one’s
own affairs, even to their own detriment, is the very essence of freedom + also
informs the principle of the sanctity of contract + informs numerous other
constitutional right.
- Inequality of bargaining power between parties is an important factor that reduces
the weight that should be attached to the values of freedom + dignity.
- Freedom of contract limited where the self-respect + dignity of the parties is
diminished.
- Countervailing public interest or interests will then trump sanctity of contract.
- Court further stated that public policy imports notions of fairness +
reasonableness – it would preclude the enforcement of a contractual term if its
enforcement would be unjust or unfair.
Party wishing to rely on illegality should plead it + bears the onus of proving it
Illegality must appear from contract or from unambiguous evidence of the illegality of
the contract
Conclusion, the performance, and object of the contract must be lawful
Some contracts are void because the mere conclusion of them is against a statutory
provision, good morals, or public policy. Like:
, - Contracts that are void on the basis of statutory prohibitions – i.e. contract to buy
+ sell drugs
- Certain pacta successoria
- Contracts with enemy subjects; and
- Certain agreements that oust the jurisdiction of the courts.
The performance of the contract must be legal
- i.e. contracts with illegal performances – ‘commit a crime’ – illegal contract.
Where contracts can be carried out lawfully or unlawfully, the presumption is that the
parties intended for it to be carried out lawfully.
Purpose/object of the contract must also be lawful
- Purpose of contract will only be illegal if both parties have the illegal purpose in
mind. If one of the parties is unaware of the other’s illegal motive, the contract
doesn’t have an illegal purpose, but the innocent party may validly refuse to
perform their obligations because of the illegal purpose of the other party.
Specific Examples of Illegal or Invalid Contracts
Contracts against good morals
Distinction between agreements contrary to good morals + those against public
policy – unclear, however, courts have indicated that these concepts are
interchangeable when dealing with the issue of contractual illegality.
Good morals apparently refer to good behaviour in community.
- In most cases where the court held that the performance was contrary to good
morals, the conduct involved was immoral or sexually reprehensible, like an
agreement to pay a prostitute for sexual intercourse or the insurance of a brothel.
Example – Maseko v Maseko – 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 + thereafter get divorced.
The defendant undertook to retransfer the house back to her after the threat of
attachment was over. Although the plaintiff was never insolvent at any stage, the
court held that the agreement was illegal on three grounds:
1. It was morally reprehensible – it was designed to mislead existing or potential
creditors as to the plaintiff’s worth, even if it hadn’t yet served that purpose.
(Court noted this was both immoral + contra bonos mores – these concepts are
linked)
2. The agreement undermined the institution of marriage.
3. It perpetuated fraud against the court in the divorce proceedings.
Statutory Illegality
