INTRODUCTION TO

COMMERCIAL LAW
(CLAW 621) 2018
 TOPIC 4&6
GENERAL PRINCIPLES OF
CONTRACT
• Definition & Formalities:

• Essential Elements, Void & Voidable:

• lawfulness:

• Intention:

• Capacity:

• Agreement – Offer & Acceptance:

• Consensus & Certainty:

• Possibility of performance:

• Breach, Termination & remedies:

 THE ESSENTIAL ELEMENTS OF A
CONTRACT:
1. There must be an agreement (consensus conveyed by offer and
acceptance) to perform something;

2. There must be an intention to create a legally binding relationship

(known as animus contrahendi);

3. There must be reality of consent between parties;

4. Parties must have capacity to enter into a contract;

5. The terms of the contract must be sufficiently certain to be enforced;

6. The contract must be possible of performance;

7. The contract must be lawful;

8. Any formalities required of the contract must be in place.

Lawfulness

5
 Lawfulness

• The principle of sanctity of contract means that

agreements reached between people should be
recognised as binding and enforced by the courts.

• BUT for an agreement to give rise to obligations the

terms must be lawful.
• The requirement of lawfulness includes statutory law
and the common law.
6
• There are some agreements which are contrary to our morality
or that are against social or economic values, and therefore
should not be enforced on the grounds of public policy.

• Courts, therefore weigh competing principles of sanctity of

contract, with prevailing legislation, common law, morality and
the public interest, to determine what public policy is.

• The concept of public policy is a developing standard that

changes from time to time.
7
General principle: (note, there are exceptions, e.g., statutory
illegality)
A contract is unlawful if:
●
The making of the agreement is illegal (drug deal,
unregistered firearm).
●
The contract provides for a performance which in itself is
unlawful (agreement to rob a bank).
●
The agreement is made for a common purpose which is
illegal (X agrees to sell a gun to Y, knowing Y wants gun to
kill mother-in-law).
●
The agreement is unlawful is it facilitates or indirectly
encourages an illegal act (the effect).
8
It is important not to confuse illegality with:

●
The failure to follow statutory formalities (it is not an
illegality).

●
Lack of capacity, which does not give rise to illegality
(the agreement may be unenforceable, but is not
unlawful).

●
Lack of authority, which does not equate to illegality. 9
• As a general rule, all agreements are lawful unless they are
prohibited either by statute or by common law.

• Agreements against public policy or good morals will be

prohibited by common law.

• An unlawful agreement is void.

10
 Common law

●
General principle – an agreement is illegal and void
under the common law if it offends against public
policy.
●
This refers to both the making and the enforcement of
the contract. If either is against public policy, the
agreement is regarded as void.

11
Public policy: Doesn’t have a clearly defined content or meaning.

It has been described by the English judge Burrough as “a very

unruly horse, and when once you get astride it you never know
where it will carry you”. However, the difficulty is not
insurmountable, and Lord Denning stated that, “With a good
[person] in the saddle, the unruly horse can be kept in control
[and it] can jump over obstacles”.

12
Important considerations:

(1) Public policy is continually changing (each generation

has its own set of ideals).

For example, prostitution.

(2) It is shaped by a multiplicity of factors, for example:

Society’s morals and values, religious convictions,

constitutional values, behavioural trends; government
practices and policies, population growth, crime stats,
unemployment, the needs of the environment.
13
The enquiry may be even more difficult in SA as opposed
to other countries due to the diverse ethnic groupings.
There is also a vast array of different cultures, wealth
classes and historical disadvantages and many of these
groupings have divergent perceptions.

●
For example, in one society it is permissible to have
more than one wife, while in others, it is not.

14
The following examples of contracts would be contra bonos
mores and would not be enforced by the courts:

1) An agreement to support an enemy of the state.

2) An agreement to undermine order, the administration of

justice or the functioning of the courts, for example, to commit
a crime or a delict, or to bribe a witness.

15
 The following examples of contracts would be contra bonos
mores and would not be enforced by the courts:

3) An agreement unreasonably restraining the freedom to marry

or divorce.

4) An agreement to defraud the public, or for a public official to

use his or her influence corruptly to obtain a benefit for another
person.

16
The following examples of contracts would be contra bonos
mores and would not be enforced by the courts:

5) An agreement for an immoral purpose, for example, to sell a

human being.

6) Agreements that are so unfair that they are contrary to

public policy (Unconscionable agreements)

• The courts have recently recognised that an agreement

may be so unfair, harsh or oppressive as to be contrary to
public policy. However, it is stressed that this is limited to
extreme cases. 17
 Statute
• There are a large number of agreements which are prohibited
by statute (for example, the Competition Act, the Consumer
Affairs Act and the Sale and Service Matters Act).
• Statutory prohibition or illegality does not always render a
contract void.
• General Rule: An agreement is void for illegality if it is
prohibited and rendered void by a legislative enactment.
●
E.g. The sale of a portion of agricultural land without
Ministerial consent.
●
A sale of foreign currency without treasury permission.

18
• The courts will assess each matter on a case by case basis
to determine whether the legislature intended that an
agreement be rendered void.

• In determining this intention, the court will consider the

language, scope and object of the Act, and the justice of
taking one side in the case as opposed to taking the
opposing side in order to set a precedent.

19
• The court will also consider:

– The criminal sanctions, if any in the statute.

– Whether sanctioning the activity would give rise to the

purpose of the legislation.

– Whether greater hardship would follow by voiding the

agreement vs leaving it legal.

• The courts take a vigorous view, however, and try to uphold

agreements in cases where it would cause more harm to hold
the agreement void than it would to allow the agreement to be
20
enforced.
END