Legality or lawfulness of a contract

Continuation…

Agreements prohibited by common law

 Agreements are prohibited by common law if they are against public

policy or contra bonos mores (against good morals).

 Generally, the burden of proving that the agreement is prohibited by

common law is on the person seeking to avoid liability (see the case
of Govender v Naido 1959 (2) SA 776 (N)).

 An agreement cannot be attacked as being contrary to public policy

merely because it was induced by misrepresentation, duress, or
undue influence (although these factors will render the agreement
voidable at the instance of the innocent party).

 Public policy may be relied on as a cause of action or defence only if

the content of the agreement, or the performance that it
contemplates, is harmful to the public interest (see Barnard v Barnard
2000 (3) SA 741 (C)).

 Examples of agreements contrary to public policy

1. Interference with justice

 An agreement to commit a criminal or a civil wrong, which
involves the commission of a crime or delict, is void.
2. Marriage
 Agreements unreasonably restraining freedom of marriage
(such as a general restraint on marriage are void.

3. Immorality
 An agreement in consideration of sexual immorality, or for an
immoral purpose is void.

Restraint of trade contract

 Agreements in restraint of trade are characterised by the
limitation of someone’s freedom to carry on a profession,
trade, or business.

 These type of contracts are normally found in the following

type of agreements:
 Contracts of employment, where the employer
undertakes not to compete with his or her employer
after he or she has left the employer’s service;
 Sales of goodwill of a business, where the seller
agrees with the purchaser not to carry on a similar
business in competition with the purchaser; and
 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: sanctity of contract and freedom of contract. These
 conflicting interests have to be balanced when the
enforcement of a restraint is considered.

 When deciding on whether to enforce an agreements, which

interest will courts may likely give more weight to- freedom of
trade or sanctity of contract?

Study the following cases

 Magna Alloys and Research (SA) Pty v Ellis1984 (4) 874 (A)
 Basson v Chilwan 1993 (3) SA 742 (A)
 Alpine Caterers-Namibian case

 When deciding whether to enforce a restraint of trade agreement the

ultimate question is whether a restraint agreement or clause in an
agreement is lawful.
 When looking at the lawfulness of a restraint of trade agreement or
clause, we consider reasonableness and public policy of the restraint.
 Determining reasonableness we consider the time frame and the
geographical area of the restraint.

 If Y was employed in Windhoek by X and signed a restraint of trade

agreement stating that Y will not take up employer in the same scope
of business in Namibia for 10 years after the expiry of the contract of
employment-is such restraint agreement valid and enforceable.
 Basson case set out four important questions commonly referred to
as the Basson test that helps to answer the question as to whether a
particular restraint is valid and enforceable.

 Outline the Basson test

 What was the changed introduced by Magna Alloys case?

 If it happens that a restraint of trade clause is simply a clause in an

employment contract and this clause is invalid and unenforceable, is
it possible to have this clause severed and enforce the remaining
clauses of the contract?