Professional Documents
Culture Documents
Being able to distinguish between the different categories of contract is important as the consequences flowing from each are different
Legality of Contract
Categories of contracts
Void Contracts
An agreement rendered void by statute is void and will not be enforced by the courts.
Any money paid or property transferred under such an agreement may be irrecoverable.
Illegal Contracts
Illegality may arise either because the contract is of a kind prohibited by statute, or because it is of a class regarded as contrary to public policy.
Neither party has any rights or remedies.
Consequences of statutory illegality depend upon when the contract becomes illegal
If it is illegal as formed, the contract is void ab initio and property is only recoverable if disclosure of illegality is not essential to the cause of action
CASE: Re Mahmoud v Ispahani [1921]
If the contract is illegal as performed, the contract is void, but not void ab initio. The guilty party has no rights, but the innocent party is little affected
CASE: Anderson Ltd v Daniel [1924] CASE: St John Shipping Corporation v Joseph Rank Ltd [1957]
Contracts which would violate the social or moral attitudes of the community and are void ab initio include: contracts to commit a crime, a tort or a fraud on a third party; contracts that are sexually immoral or which prejudice the status of marriage; contracts prejudicial to the administration of justice
CASE: Public Service Employees Credit Union Cooperative Ltd v Campton (1984)
Contracts which would violate the social or moral attitudes of the community and are void ab initio include (cont.): contracts to the prejudice of public safety, or of good relations with other countries; contracts which tend to promote corruption in public life
CASE: Parkinson v College of Ambulance Ltd [1925]
contracts to defraud the revenue; and contracts that involve a breach of duty.
Contracts which attempt to oust the jurisdiction of the courts. [Distinguish between contracts which are binding in
honour only (where the parties expressly declare that they do not intend to create legal relations, e.g., Jones v Vernons Pools Ltd ( [1938]) from contracts which attempt to oust the jurisdiction of the courts];
restrict competition.
Clauses in contracts in restraint of trade are prima facie void as being contrary to public policy unless the restraint is reasonable
CASE: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894]
the geographic extent; the time period involved; the nature of the business and the activity being restrained; and whether the restraint is reasonable, both in the interests of the parties and the public.
If the person relying on the clause can show it is reasonable, the presumption of invalidity can be rebutted.
The restraint must not be any wider than is reasonably necessary to protect the covenantees interest.
Contracts of employment
As the parties are usually in an unequal bargaining position, restraint clauses are generally struck down by the courts unless: there is a protectable proprietary interest, e.g., intellectual property rights, customer connections
CASE: Forster & Sons Ltd v Suggett (1918)
Sale of a business assumes the parties are in a more equal bargaining position. Question of fact as to whether the restraint is reasonable (but look carefully at the type of business)
CASE: Amoco Australia Pty Ltd v Rocca Brothers Motor Engineering Co Pty Ltd [1973]