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)

 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?

 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

◦ 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

 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.

 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

◦ 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.