LEGALITY

NOTE

This document is the Worksheet for LEGALITY.

The purpose of this document is to assist with

better engagement with the teaching and learning
content.

It is NOT to be citied for any academic purposes.

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REQUIREMENTS FOR A
VALID CONTRACT

Consensus Contractual Possibility Certainty

Formalities LEGALITY
Capacity

7.1. INTRODUCTION The contract must be legal in principle- Legality

• An underlying principle of the law of contract is that agreements seriously entered into should be
enforced.
▪ This finds expression in the principle of sanctity of contract (pacta sunt servanda).
• On the other hand, agreements contrary to public policy will not be enforced.
• Considerations of public policy indicating that an agreement should not be enforced are to be found in
Par 1.10
legislation, the common law, good morals and the public interest.
• Public policy is largely determined by the values enshrined in the Constitution.
• It often requires a process of weighing up or balancing of public and private interests to determine
legality (or illegality)
• When an agreement is considered contrary to public policy and unenforceable –
▪ The policy consideration indicating that the agreement should not be enforced is given
precedence over the policy consideration that agreements seriously concluded should be
enforced.
▪ Therefore, although X and Y have the right to have their contract enforced, if that agreement is
against [or in non-compliance with] public policy, it will be deemed unenforceable. This is
because the policy consideration that says contracts should be enforced is subsidiary [or less
in power] when weighed up with the policy consideration that states that an agreement
contrary to public will not be enforced.
• There are two possible outcomes:
▪ Generally speaking, illegal (unlawful) contracts are either –
▪ Void (and thus unenforceable) Par 7.2, pg. 2 – Worksheet 7

OR
▪ Valid but unenforceable (depending on the degree to which society regards a specific
contract as reprehensible) Par 7.3, pg. 12 – Worksheet 7

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7.2. ILLEGAL CONTRACTS THAT ARE VOID

• Contracts may be void for illegality for a variety of reasons.
• While the overarching consideration is whether the contract is against the public interest, the
specific illegality of a contract may be recognised at –
a. Common law or in statute
b. Simply with reference to certain moral and constitutional values
c. Even perhaps with reference to the unfair manner in which a contract is enforced.

The legality of a contract is predominantly (or largely) determined by public interest [which is the broad or umbrella term]. The exact reasons or
basis for the illegality will be found in Common Law or Statute; Constitutional Values and/or the manner of enforcement of the contract.

• For example –
a. X and Y’s contract cannot be enforced as the terms of the contract would infringe on X’s right to dignity, and the manner in
which it would do so is against the public interest – The contract is against public interest owing to a non-compliance with
constitutional values
b. The enforcement of X and Y’s contract would be in non-compliance with statute (or contrary to a principle or doctrine in
common law) and is therefore against the public interest.

7.2.1 Public interest

• The courts often state that a contract is illegal because it is contrary –

i. To good morals (contra bonos mores) on the one hand
ii. Public policy on the other.
• This distinction has little inherent value because the underlying principles very often overlap.
• Sasfin (Pty) Ltd v Beukes –
▪ Agreements which are undoubtedly contrary to the interests of society, whether they are (i)
contrary to law or morality OR (ii) run counter to social or economic expedience – will not be
enforced on the grounds of public policy.
▪ The interests of the society as a whole are of paramount importance in relation to the
concept of public policy.
• Recognised public interests include:
▪ Voluntarily concluded contracts should be complied with and enforced (sanctity of contracts)
▪ Simple justice between individuals should be taken into account;
▪ The parties to a contract should have equal bargaining power (As far as possible)
▪ The administration of justice should not 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 should not be interfered with

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WHAT LEGALITY COMES DOWN TO [3 Factors]

THE CONCLUSION OF THE THE PERFORMANCE OF THE PURPOSE OR OBJECT

CONTRACT MUST BE LEGAL THE CONTRACT MUST BE OF THE CONTRACT MUST BE
LEGAL LAWFUL
The following are examples of void
contracts which are contrary to a Examples of contracts with illegal • Both parties must have
statutory provision, good morals, or performances are – the same illegal intention
public policy –
in mind for the purpose of
• Contracts to commit a
a. Contracts that are void on the contract to be illegal.
crime (such as murder or
the basis of statutory • If one of the parties is not
robbery) or a delict.
prohibitions aware of the other’s illegal
• If X and Y conclude a
b. Certain pacta successoria motive, the contract does
contract in which they
(Contracts regarding the not have an illegal
will steal gold, that
devolution of a deceased’s purpose, but the innocent
contract is illegal due to
estate) party may validly refuse to
the performance
c. Contracts with enemy perform his or her
[stealing of gold]
subjects obligations because of the
d. Certain agreements that Where a contract can be carried illegal purpose of the other
oust the jurisdiction of the out in a lawful as well as an party.
courts unlawful manner, the presumption • Agreements that overthrow
is that the parties intended the the jurisdiction of the
EXAMPLE: PURPOSE OR OBJECT OF THE contract to be carried out in a courts are illegal.
CONTRACT MUST BE LAWFUL lawful manner. • Examples of agreements
i. Therefore, if X and Y have a that oust the jurisdiction of
• In a situation where
contract to steal gold, both X and Y the courts are (i) certain
having read X and Y’s
must intend on stealing the gold for summary execution
contract, it appears as
the purpose of their contract to be clauses (parate executie)
though there are two
deemed illegal.
and (ii) conclusive proof
ii. If X wants to steal, and Y wants to interpretations: (i) X and
clauses
purchase, the purpose of the Y can perform in terms of
• Similarly, a contract
contract is not illegal because both a lawful agreement OR
parties would not have the same between an insolvent
(ii) X and Y can perform
illegal intention or motive in mind. debtor and one of his or
in terms of an unlawful
iii. Additionally, the reason must be her creditors illegally to
agreement – the
due to X’s illegal intention (not grant that creditor
presumption
simply because Y does not want to preference above the
[conclusion] will be that
perform anymore). However, for debtor’s other creditors is
X and Y wanted to
point (ii) to be the case – Y must
illegal.
validly refuse to perform their conclude a lawful
• If X is an insolvent debtor
obligations in terms of the contract. agreement.
to Y and Z – a contract with
Y to give Y preference over
3 Z is an illegal contract.
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Specific examples of illegal contracts that are void

Contracts against good morals Statutory illegality

• An exact definition of what is contrary to • On occasion, the legislator gives concrete content to public policy
good morals (contra bonos mores) by expressly or impliedly prohibiting the conclusion of specific
remains elusive. types of contracts in general or under certain circumstances.
• Nevertheless, good morals apparently • The intention of the legislator is of primary importance in
refer to good behaviour in the community. determining whether a contract is void.
• In most of the instances where the court • Clearly, a contract is void where –
held that the performance was contrary to i. The relevant statutory enactment expressly so provides
good morals – or
▪ The conduct involved was (i) ii. Where it declares a contract to be of no force or effect.
immoral or (ii) sexually • A contract that is aimed at circumventing the provisions of a
reprehensible (such as an statute prohibiting an act or contract (in fraudem legis) is also
agreement to pay a prostitute for illegal and void.
sexual intercourse or the • A court may either –
insurance of a brothel). a. Sever the unlawful provision from the agreement.
• However, conduct against good morals is b. Alter the agreement to the extent required to render it
not limited to instances of sexual lawful.
immorality. c. Declare the entire agreement unlawful as from the date
• A contract in which a divorced father on which the agreement took effect.
exchanges their right to custody of their
The statute must be interpreted, and the courts take the cumulative effect
children for a financial reward, in which
of the following factors into consideration in determining whether the
such transfer of rights is detrimental to the
legislator impliedly intended the contract to be void:
children, is contra bonos mores, and as a
result is unenforceable. i. What is the object of the statute and what mischief (harm) is the statute
directed against?
Maseko v Maseko ii. If the validity of the contract brings about the harm the statute is directed
against = it is an indication that the legislator intended the contract to be
• The court held that the agreement was
void.
illegal on three grounds.
iii. Does the enactment impose a criminal sanction?
▪ It was designed to mislead creditor’s
▪ This is usually an indication that the legislator intended the
as to plaintiff’s worth – even if it
contract to be void.
hadn’t yet served that purpose.
iv. Does the enactment merely serve to protect the revenue of the State? If
▪ Undermined the institution of
the answer is in the affirmative, it is an indication that the legislator
matrimony.
intended the contract to be valid.
▪ Perpetuated fraud in against the
v. Does the provision merely protect individuals OR does it involve a public
court in divorce proceedings.
interest that requires protection by voiding the contract? If the provision
• Interestingly, the court remarked that the is for the protection of the public, it would be an indication that the
first reason was both immoral and against legislator intended the contract to be void.
public policy, illustrating the close vi. What are the consequences of a particular interpretation of the contract?
relationship between these concepts. A balance-of convenience test is employed that questions.

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Unfair contracts

• The individual interests of the parties also play a role in determining whether a contract or clause is against public policy.
• The necessity of doing simple justice between parties and the need to address inequality of bargaining power between parties are both recognised
as public interests.
• The unfairness or unreasonableness of a contract (or clause) towards one of the parties, as well as the interest that the other party seeks to protect
with the contract (or clause), are taken into account.

Barkhuizen v Napier

• Fairness alone cannot determine whether a contract is contrary to public policy, and another more concrete indication of public interest is required
than mere justice between the parties.
• Notions of fairness, justice and equity, and reasonableness cannot be separated from public policy.
• Public policy considers the necessity to do simple justice between individuals.
• It is informed by the concept of ubuntu.

Sasfin (Pty) Ltd v Beukes

The court warned –

• The power to declare contracts contrary to public policy should, however, be exercised sparingly and only in the clearest of cases
• One must be careful not to conclude that a contract is contrary to public policy merely because its terms (or some of them) offend one’s individual
sense of propriety and fairness.

Standard Bank of SA Ltd v Wilkinson

• The commercial life of the community is the setting against which the validity of contracts should be judged when applying the Sasfin principle.
• The court repeated the warning of the Sasfin case:
▪ A Court will not declare a contract or one of its clauses contrary to public policy unless –
▪ It is so clearly inimical to the interest of the community as a whole
▪ Having regard to the boni mores of the times
▪ That the harm to the public is substantially incontestable.

Afrox Health Care Bpk v Strydom –

• Unequal bargaining power between the parties during the conclusion of the contract is a factor in the consideration of public policy.

African Dawn Property Finance 2 (Pty) Ltd v Dreams Travel and Tours CC –

• A court may take the following factors into account to determine whether the contract is in whole or in part unconscionable, unjust,
unreasonable or unfair: (i) Circumstances of the contract that existed or were reasonably foreseeable at the time the conduct occurred or the
contract was concluded (ii) The conduct of the parties respectively (iii) Whether the consumer had to do anything that was not reasonably necessary
for the legitimate interest of the supplier as a result of the conduct of the supplier (iv) The fair value of the goods or services (v) The amount for which
and circumstances under which the consumer could get identical goods or services from a different supplier (vi) Whether the goods were
manufactured (vii) The nature of the parties, their relationship, and their relative capacity, education, experience, sophistication and bargaining
position (viii) Whether there was any negotiation between the parties and the extent thereof (ix) The extent to which a document complies with the
requirement that information has to be in plain and understandable language (x) Whether the consumer knew or ought to know of the existence and
extent of the provision that is alleged to be unconscionable, unjust, unreasonable or unfair, having regard to any custom and trade and previous
dealings between the parties.

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THE CONSEQUENCES OF A CONTRACT THAT IS VOID FOR ILLEGALITY

CONTRACT CANNOT BE ENFORCED REMOVING THE ILLEGAL PART OF A CONTRACT

[EX TURPI RULE] [SEVERANCE]

• It is an absolute rule that an illegal • Where the illegality only affects a part of a contract
contract cannot be enforced. • That part can be removed from the rest of the contract in
• From an illegal cause no action certain circumstances [Severance]
arises (ex turpi causa non oritur • The courts have in certain cases allowed the illegal part of
actio – known as the ex turpi rule). a contract to be severed from the rest, thus permitting the
• An illegal contract is void or invalid remainder of the contract to remain in force
since one of the requirements for a • In situations where public policy requires that the whole
valid contract is absent. contract be void, the courts will decline to remove the
• An illegal contract creates no offending section
obligations AND cannot be • Whether the illegal part is severable from the rest of the
enforced. agreement depends on the probable intention of the
• Performance by one or even both parties as it appears in [or can be inferred from] the terms
the parties to the illegal contract of the contract as a whole.
does not make the contract legal.
The courts have developed three guidelines to help them determine
• Neither party can (i) institute action
the intention of the parties:
on the contract OR (ii) claim
performance from the other party 1. Is the wording or grammar of the illegal part different from
• A court does not have the discretion the rest of the agreement?
to relax this rule and there are no 2. Is the illegal part secondary or expendable to the main
exceptions to it. purpose of the contract so that, if it is removed, the
essence or nature of the contract would not be affected?
▪ Severance should not affect the nature of the
EXAMPLE: SEVERANCE
contract that the parties have concluded.
• A contract is sometimes only partially illegal. 3. Is the illegal part the basis and reason for the contract?
• X and Y have a contract with 3 aspects (or (The courts regard this question as crucial).
parts) to it – ▪ The parties sometimes expressly include a
▪ Aspect 1 = Legal severability clause in their contract, but such a
▪ Aspect 2 = Illegal
clause is not always decisive.
▪ Aspect 3 = Legal
• A court will only find in favour of severability if the
• Severance would be ‘Aspect 2’ being removed
answers to ALL THREE (3) questions are in the affirmative.
and Aspects 1 and 3 remaining in force.

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RECLAIMING PERFORMANCE THAT HAS BEEN MADE IN TERMS OF AN ILLEGAL CONTRACT

[THE PAR DELICTUM RULE]

• If one or both have performed in terms of that void contract =

▪ such performance cannot be claimed back where the parties are equally guilty (unless the court specially allows
them to)
• The par delictum rule (where two parties are equally morally guilty, the one who is in possession is in the stronger position) =
▪ will prevent restitution from taking place.
• This rule does not preclude the enforcement of an unlawful contract by means of a claim for specific performance (that is the
function of the ex turpi rule) =
▪ But it does prevent a party from reclaiming his or her performance in terms of an unlawful contract
• The par delictum rule is based on two considerations of public policy =
▪ a court will not assist those who approach it with ‘unclean hands’ unlawful contracts should be discouraged.
• The par delictum rule only applies where =
▪ The parties are equally ‘guilty’ in concluding an illegal agreement.
• Accordingly, the rule will not apply where the plaintiff is less guilty than the defendant or is not morally guilty at all.
• If a contract is void and there has been performance =
▪ Restitution of what has been performed should, in principle, be granted.
• Where ownership of the performance has not passed =
▪ The performance can be reclaimed with the rei vindicatio (the action of the owner for the return of his or her
property)
• If ownership did pass =
▪ The claim for the return of the performance will be based on unjustified enrichment.
• Minister of Justice v Van Heerden –
▪ The par delictum rule may sometimes operate very harshly towards a party who claims the return of his or her
performance.

3 Consequences of an illegal contact:

1. Contract cannot be enforced.

2. The illegal part of the contract could be removed.
3. Performance cannot be reclaimed.

EX TURPI RULE SEVERANCE PAR DELICTUM RULE

Cannot enforce an illegal contract Illegal part(s) of the contract may be Cannot claim restitution of performance in terms of
removed an illegal contract
Always applies Applies where public policy allows the Applies where equally guilty parties of an illegal
illegal provision to be removed OR when contract seek to claim back performance(s) made in
public policy does not require the entire terms of that illegal contract
contract to be void
Can never be relaxed Depends on intention of the parties as Can be relaxed depending on the facts
determined by the 3 guidelines

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7.3. ILLEGAL CONTRACTS THAT ARE VALID BUT

UNENFORCEABLE
• Some contracts are against public policy, but this does not result in their invalidity – they are merely
unenforceable in a court of law.
• A party to such a contract may not institute an action on the contract, but the ordinary consequences
of unlawfulness (invalidity), as discussed above, do not apply.
• Such a contract may be validly performed, but the party who has performed may not claim restitution of
his or her performance.
• Certain wagering contracts and certain contracts in restraint of trade are prominent examples of valid
but unenforceable illegal contracts.
Agreements in restraint of trade

• Agreements in restraint of trade are characterised by the limitation of someone’s freedom to carry on a profession, trade or business.
• They are encountered frequently in the following contracts:
▪ Contracts of employment – where the employee undertakes not to compete with his or her employer after he or she has
left the employer’s service
▪ Sales of the goodwill of a business – where the seller agrees with the purchaser not to carry on a similar business in
competition with the purchaser
▪ Partnership agreements – where each of the partners undertakes not to compete with the partnership after leaving it.
• The enforcement of a restraint brings two contractual values into play:
i. Sanctity of contract (which considers the maintenance of agreements freely entered into, including limitations of future
economic activity, as paramount)
ii. Freedom of trade (which emphasises the right of an individual to engage without restriction in economic activity).
• These conflicting interests have to be balanced when the enforcement of a restraint is considered.

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Agreements in Restraint of Trade
Magna Alloys and Research (SA) (Pty) Ltd v Ellis – Basson v Chilwan –

• Overturned [previous] approach in favour of sanctity of contract to the • A restraint of trade clause is contrary to public policy if
following position: the consequence of the restraint is unreasonable.
▪ A contract in restraint of trade is now valid and enforceable • The reasonableness or otherwise of a restraint is
unless the party wishing to escape the consequences of the decided by weighing the interests of the community on
agreement can prove that the restraint is contrary to public the one hand, and the individual interests of the
interest and thus unenforceable. contracting parties on the other hand.
• It was held that the question whether a restraint is in conflict with the public • In this regard, the interests of the community involve the
interest is to be assessed with regard to the circumstances prevailing at the competing values of sanctity of contract and freedom of
time when enforcement of the restraint is sought. trade.
• Prior and subsequent circumstances may also be considered, such as the • A restraint that is reasonable as between the parties
course of dealings between the parties or the probable effect of a may nevertheless affect an element of public interest
prohibitory interdict. that does not relate to the parties.
• Furthermore, a reasonable restraint can be enforced for an indefinite time • The court proceeded to formulate a test to determine
by way of an interdict, on condition that the restricted party may approach whether an agreement in restraint of trade is
the court for an amendment of the order should the position regarding the reasonable.
respective interests of the parties undergo a significant change. • This test has proved authoritative.
• All these rules confirm that public policy has a potentially changing content. • The court posed the following four questions:
• The court also held that an agreement in restraint of trade may be enforced 1. Is there an interest of one-party worthy of
partially. protection?
• The power of the court to allow partial enforcement is subject to certain 2. If so, is that interest threatened by the
limitations. conduct of the other party?
▪ The party seeking partial enforcement must raise the issue and 3. If that is further so, does such interest weigh
establish a basis for partial enforcement. up qualitatively and quantitatively against the
▪ The party who does not wish to be bound by the restraint still interest of the other party to be economically
bears the onus of proving that partial enforcement is contrary to active and productive?
the public interest. 4. Is there another aspect of public policy
▪ A court will not partially enforce an unreasonable restraint that having nothing to do with the relationship
requires a drastic recasting of its provisions to make it between the parties that requires that the
reasonable (‘major plastic surgery’). restraint should either be maintained or
▪ The question is whether partial enforcement will materially alter rejected?
the contract
• There is no exhaustive list of factors that a court will take into account in
determining whether partial enforcement is justified.
• Two relevant factors are –
▪ Whether the restraint clause was calculated to be unduly
oppressive or designed to terrorise
▪ Whether partial enforcement would operate harshly or unfairly
towards the person bound by the restraint
• The restraint denier consequently bears the onus of proving that the
enforcement of the agreement is contrary to policy.
• The court also held that an agreement in restraint of trade that is contrary to
public policy is not void, but only unenforceable.

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First Question The interest • Lack of such an interest usually means the agreement is against public policy and thus
of The Basson protected by the unenforceable.
Test restraint of trade • Possible exceptions are where the parties have agreed to similar reciprocal restraints
agreement should be or where the party being restrained is directly compensated for agreeing to the restraint.
worthy of protection. • There is no exhaustive list of protectable interests, but the courts usually refer to
‘proprietary interests’ in this regard.
• Goodwill (trade connections) and confidential information (trade secrets) are two
generally recognised proprietary interests.
• Goodwill refers to the commercial reputation and trade connections of a business.
• A trade secret is information that is capable of application in trade or industry (useful),
only known to a restricted number of people (not public knowledge) and of economic
value.
• A capital investment in a joint business enterprise is not a protectable interest.
• The investment of time and money in the training of an employee is also not a
protectable interest, and nor is a skill acquired by an employee in the course of
developing his or her trade while working for the employer.
• An employer may never protect itself against the mere competition of its former
employee as the employer cannot protect itself against the inherent ability or general
knowledge of the employee.
Second Whether the • This will be the case when the interest is infringed, but the mere risk of infringement,
Question of protectable interest objectively assessed, will suffice.
The Basson is threatened by the
Test conduct of the other
party
Third Involves weighing up • This question implies a further question: does the restraint go further than necessary to
Question of the protectable protect the interest deserving protection?
The Basson interest(s) of the one • An agreement in restraint of trade may only restrict a party’s freedom of trade with regard
Test party (restraint to area, time and activities in so far as it is necessary to protect the other party’s
enforcer) against the protectable interest.
interest of the other • The question as to the reasonableness of a restraint depends on the facts of every case.
party (restraint • A restraint will, firstly, only be reasonable if it restricts competition within that area.
denier) to be • Secondly, a party’s ability to draw customers away from a business usually only lasts a
economically active certain period of time, because the relationship that the restricted party had with
and productive. customers is later replaced by other relationships, and customers also change as time
goes by.
• The restraint will, thirdly, be unreasonable if it prohibits all involvement with a competitor
of the restraint enforcer.
• The parties’ own view as to the reasonableness of the restraint, as stated in the restraint
agreement itself, and the fact that the parties did not conclude the contract on an equal
footing are not conclusive, but merely two further factors to be taken into account when
deciding whether a restraint is reasonable as between the parties.
• The importance of the relative bargaining positions of the parties is further informed by
the constitutional values of equality and dignity.
Fourth Any further relevant • The reasonableness of a restraint as between the parties is only an indication of whether
Question of aspect of public it probably is against public policy or not.
The Basson policy, other than the • Another aspect of public policy may require that a reasonable restraint should not be
Test reasonableness or enforceable or that an unreasonable restraint should be enforceable
unreasonableness of
the restraint as
between the parties.

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NOTE: UNDERSTANDING THE CHAPTER IN CONTEXT

After Lectures on Campus, Y tells X that Y has been having difficulty understanding certain concepts in a Law Module they are studying. X makes an
offer to Y (verbally – Sub-Par 1.7.1 & Par 2.1) proposing that for R150 per tutorial, X will give Y extra tutorial lessons in the Library Discussion Room
after every Lecture for that Law Module.

INTRODUCTION (7.1)

• An underlying principle of the Law of Contract is that X and Y’s agreement which has been seriously entered into should be enforced. However, if
this agreement is contrary to public policy, it will not be enforced. Since 1994, public policy has primarily been enshrined in the Constitution. If X and
Y’s agreement was contrary to public policy and unenforceable, the policy consideration that indicates the agreement should NOT be enforced would
take precedence over the policy consideration that says the agreement should be enforced. A determination of the legality (or illegality) of X and Y’s
agreement would often entail a balancing of public and private interests. If X and Y’s agreement was illegal, there would be two (2) possible
consequences = the agreement would be i) void therefore unenforceable OR ii) valid and unenforceable.

ILLEGAL CONTRACTS THAT ARE VOID (7.2) – The First Possible Consequence

• X and Y’s contract could be void for illegality for a number of reasons. The overarching consideration would be that their contract is against public
interest, however, the specific illegality of the contract may be recognized in 3 different ways.

PUBLIC INTEREST (7.2.1)

• Courts would usually state that X and Y’s agreement is contrary to good morals AND public policy. In case law (know the case!), it was found that if
X and Y’s agreement is clearly opposed to the interests of the community, it will not be enforced on the grounds of public policy. This is because the
interests of the community are of paramount importance in relation to the concept of public policy. While society has an interest in protecting different
sections as well as individuals, individuals and sections of society have an interest in the interests of society as a whole. There is a list of recognized
public interests – the ground of public policy and what is required for that ground to be invoked are found in the case (it is a self-
explanatory section).

THE CONCLUSION, PERFORMANCE AND OBJECT OF THE CONTRACT MUST BE LAWFUL (7.2.2)

• If the conclusion of X and Y’s contract is contrary to a i) statutory provision, ii) good morals or iii) public policy, it is void. There are four (4) examples
of the type of contract that would be void. The performance of X and Y’s contract must be legal, and so a contract to commit crime would not fall in
that category. However, arguably, X and Y’s tutorial agreement is legal. The purpose or object [the tutorial] must also be lawful. The purpose of the
contract would only be illegal if BOTH X and Y have the SAME illegal purpose in mind. If X has an illegal purpose that Y is not aware of, the contract
does not have an illegal purpose. The innocent party [Y in this instance] may validly refuse to perform their obligations [and the reason would be
because of X’s illegal purpose]. In addition to this, if Y was an insolvent debtor, and X was one of the creditors, a contract to give X precedence
above the other creditors [V, W and Z] is illegal.

SPECIFIC EXAMPLES OF ILLEGAL CONTRACTS THAT ARE VOID (7.2.3)

• Good morals apparently refer to good behavior in the community. Although in most instances the court held that performance was contrary to good
morals because the conduct was immoral and sexually reprehensible, conduct against good morals is not limited to instances of sexual immorality –
Maseko v Maseko shows a good example of this.
• The legislator gives concrete content to public policy by expressly or impliedly prohibiting the conclusion of specific types of contract in general or
under certain circumstances. The intention of the legislator is of primary importance in determining whether the contract is void. There are two (2)
clear instances where a contract is void, that is, if X and Y’s agreement is one that falls under those expressly deemed void by statutory
enactment OR those where statutory enactment declares the contract to be of no force or effect. If X and Y’s agreement is aimed at evading
provisions of a statute prohibiting an act or contract, it is also illegal. Sec 90 of the Nation Credit Act is an example of such a statutory enactment.
However, the particular statute has to be interpreted, and the courts take the cumulative effect of 6 factors of consideration, to determine whether the
legislator intended the contract to be void.

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NOTE: UNDERSTANDING THE CHAPTER IN CONTEXT

• A pactum de quota litis is no longer against public policy OR void. Previously, why was it against public policy? What is a pactum de quota litis? What
part of the law says it is no longer void or against public policy?
• The individual interests of X and Y also play a role in determining whether a contract or clause is against public policy. There are two (2) recognized
public interests. The unfairness OR unreasonableness of a contract towards one of the parties [Y], and well as the interest that X seeks to protect
with the contract are taken into account. What does the law say about notions of fairness, justice and equity, and reasonableness? In terms of the
law, when would a contract be against public policy? And what are the warnings with regards to that? In terms of the law, what is the setting against
which the validity of the contracts should be judged when applying the Sasfin principle? Unequal bargaining power between X and Y during the
conclusion of the contract is a factor in the consideration of public policy. What is the position of a time limitation clause? What factors does the court
take into account to determine whether the contract is in whole or in part unconscionable, unjust, unreasonable or unfair.
• The unfair enforcement of a contract could be contrary to public policy. When would the enforcement of a clause be invalid in terms of case law?

THE CONSEQUENCES OF A CONTRACT THAT IS VOID FOR ILLEGALITY (7.2.4)

• It is an absolute rule that an illegal contract cannot be enforced. If the illegality only affects one part of the contract = that part can be severed from
the rest of the contract. If both parties perform in terms of a void contract, such performance cannot be claimed back where the parties are equally
guilty.
• The ex turpi rule [7.2.4.1] = contract cannot be enforced. Neither party can institute action on the contract or claim performance from the other party
because from an illegal cause – no action arises (state the Latin maxim also when stating this in an answer). The courts do not have discretion to
relax this rule. Ex Turpi rule relates to the non-enforcement of the contract.
• Whether the illegal part is severable from the rest of the agreement depends on the probable intention of the parties as it appears in the terms of the
contract as a whole. The courts have developed 3 guidelines to help them determine the intention of the parties – what are they? (NB!) When will the
court only find in favour of severability?
• Par delictum rule relates to reclaiming performance of an illegal contract. If X and Y are both equally guilty, the par delictum rule prevents
restitution from taking place (study the dialogue box on the Par Delictum Rule – Pg. 11 – Worksheet 7). It prevents a party from reclaiming
performance in terms of an unlawful contract. When does it apply? What are the three (3) factors the courts take into consideration when deciding the
question of whether the par delictum rule should be relaxed?

ILLEGAL CONTRACTS THAT ARE VALID BUT UNENFORCEABLE (7.3) – The Second Possible Consequence

• Such a contract may be validly performed, but the party who has performed may not claim restitution of his or her performance.
• When are restraint of trade agreements frequently encountered? – 3 instances. What (2) values does the enforcement of a restraint of trade bring
into play? What does the law say about the validity and enforcement of a restraint of trade agreement? What is the position of a restraint of trade that
is against public policy? What is the onus of proof? When is a restraint of trade contrary to public policy? What is the test for reasonableness (4
questions). Whether a restraint is against the public interest is to be assessed with regard to the circumstances prevailing at the time when
enforcement of the restraint is sought.

SIDE NOTE:

▪ CASE LAW IS VERY IMPORTANT IN THIS CHAPTER, TAKE YOUR TIME TO UNDERSTAND THE CASES AND THE PRINCPLES
ESTABLISHED IN EACH

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 KTR 211: Worksheet 7 TM CHINGOKA
PRESCRIBED READING: CHAPTER 7
• Hutchison & Pretorius (eds) The Law of Contract in South Africa 2022 (4th Edition) Oxford University Press Chapter 7
• Cases Law in Chapter 7 of the Prescribed Book (specifically, those that appear in The Notes – Worksheet 7).
▪ Study the Cases in The Book (using The Notes in conjunction).
▪ You need not find the full cases – The Book and The Notes (together) are sufficient.
• ALL cases mentioned in The Notes are relevant for your understanding (and must be studied in the context in which they appear in The Book),
however, please pay close attention to the following –
▪ Sasfin (Pty) Ltd v Beukes
▪ Standard Bank of SA Ltd v Wilkinson
▪ Afrox Health Care Bpk v Strydom
▪ African Dawn Property Finance 2 (Pty) Ltd v Dreams Travel and Tours CC:
▪ Brisley v Drotsky
▪ Barkhuizen v Napier
▪ Minister of Justice v Van Heerden
▪ Jajbhay v Cassim
▪ Klokow v Sullivan
▪ Reddy v Siemens Telecommunications (Pty) Ltd
▪ Basson v Chilwan
▪ Magna Alloys and Research (SA) (Pty) Ltd v Ellis

NOTE FROM MR TM CHINGOKA ON THE USE OF THE WORKSHEETS

• The notes are designed in such a way to either (i) Explain the aspects of the prescribed book OR (ii) Breakdown the aspects explained in the prescribed
book to make it easier for Students to better understand certain concepts, elements, doctrines, and principles as they relate to Contract Law.
• As such, the notes are to be used as an aid to better understand the concepts in the book, meaning that they should be used together.
• The existence of one does not negate the other, rather, it emphasises the relationship between the two.
▪ This is considering there is also the Discussion Board should there be any uncertainties in understanding the content (having used both the
notes and the prescribed book together).
• Therefore, if a section/paragraph of the book is referred to in the notes, it is necessary to understand the section/paragraph referred to as a whole (using
the notes to help you understand that section).

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