Legality, Physical Possibility and
Formalities
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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)
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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?
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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
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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:
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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).
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Consequences of illegal contracts
◦ Contract is void.
 Performance cannot be claimed by parties.
 Performance already delivered cannot be claimed back.
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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
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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.
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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
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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.
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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.
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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.