Other factors that render a contract void or enforecable

When is a contract illegal?

If it is prohibited by statute, it is prohibited by common law or it is unfair, unconscionable or unreasonable.

What does it mean when we say a contract is unconscionable?

It is so unfair or one-sided that the law considers it unjust to enforce. It happens when one party has much more power and they abuse that power to impose unfair terms on the weaker party. There is usually exploitation because the stronger party knew about the weakness and used it.

Is an illegal contract void or valid?

An agreement prohibited by statute/legislation is illegal and it is generally void but not in all cases. There are cases where the courts may enforce it. The legislature will often state in the particular statute that the prohibited agreement will be void. If the legislation does not state their intention then the court will look at certain factors to determine the intention of the legislature. This helps them determine if the legislature intended the prohibited agreement to be illegal and void or illegal and valid.

How will a person prove if an agreement is valid or void to the court?

Purpose of the law: if the law is just there to raise money, the contract is usually valid (but you pay a penalty). If enforcing the contract would cause the exact harm the law wants to stop, the contract is then void. If canceling the contract would cause more problems than keeping it, the contract is usually valid. If the law includes a criminal punishment, the contract is usually void, if it is just a fine for revenue purpose, the contract is usually valid.

What is the effect of contracts which are contra bonos mores (common law illegality)?

These are contracts that go against public policy or good morals and unlike statutory illegality they are always void.

What are the types of contracts that are deemed void according to common law?

Contracts to commit a crime or delict, contracts that harm marriage and contracts involving sexual immorality. Contracts that conflict with the constitution as it is the supreme law. Unconscionable/unfair/unreasonable contracts and contracts in restraint of trade.

What is a contract in restraint of trade?

A contract where one party agrees not to work, trade or compete in a certain way for a period of time or in a certain area. An example would be where you work for a company and when you leave, you sign an agreement saying, you cannot work for a competitor for 1 year. They are generally valid and enforceable but they will be void if they are unreasonable.

What makes a restraint of trade unreasonable?

Courts look at things like, does it protect a legitimate interest. Is the restriction too wide, for instance is it too long, is the area too big and is too restrictive, does it unfairly limit someone’s ability to work?

How will the CPA apply to unfair/unjust/unreasonable contracts?

It only applies where the supplier sells or leases goods or offers certain services in the ordinary course of business and where the consumer is not a juristic person with a net asset value or annual turnover above R2m. 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.

What are the factors that courts look at to determine if a contract is unfair, unreasonable or unjust?

Is it excessively one-sided in favor of the supplier, is it so against the consumer as to be unfair, the market value of goods or services, the nature of parties, e.g. was one uneducated and the other well educated and any other factors.

What happens if contracts are void for some other reason besides illegality?

Each party can recover their performance under the law of unjustified enrichment. However, in the case of contracts that are void due to illegality, the in pari delicto rule applies. If both parties are in pari delicto, they both acted illegally and therefore cannot recover what they have performed.

What is the general rule with regards to impossibility of performance in contracts?

A contract is void if at the time it is entered into it is impossible to perform. There can be no breach if the parties fail to perform as there is no valid contract, thus, both parties are excused from performing.

What type of impossibility renders a contract void?

The impossibility must be objective (the impossibility must attach to the performance) and not to the person (it must be impossible for anyone in society to perform). If the impossibility attaches to the person, then it is a subjective impossibility (the impossibility is due to the individual’s personal situation). In that situation the contract will not be void, it will be valid. If the person does not perform in that situation they will be in breach.

What are examples of objective impossibility?

It includes major acts of God or acts of nature, casus fortuitous: unforeseen events beyond the average person’s control such as war, Covid 19. Objective impossibility can either be physical or legal.

What happens if a party has guaranteed their performance?

They are then bound by that guarantee, even if their performance is objectively impossible, they can still be sued for breach by the other party.

How does the CPA treat impossibility?

It is treated the same as under the common law.

What is supervening impossibility?

It is when the contract becomes impossible of performance after it is entered into, it becomes objectively impossible after the offer and acceptance but before performance is due.

What are some examples where the law imposes formalities for contracts to be valid and enforceable?

A sale of immovable property must be writing and signed by both parties to be valid and enforceable. An ANC must be in writing and signed by both parties in front of a notary and 2 witnesses to be valid and enforceable, a suretyship contract must be in writing and signed by or on behalf of the surety to be valid and enforceable.

What does section 4 of the Competition Act under statutory illegality state?

It prohibits an agreement between competing companies which has the effect of preventing or lessening competition in the market.

What is vis major?

It is an irresistible force or event that cannot be controlled or prevented. It is something outside human control that makes performance impossible. Examples, natural disasters, wars, riots or government actions. If it occurs, a party may be excused from performing the contract, because performance becomes objectively impossible.