Legality and Formalities of a Contract

• Author: Carolyn MacLean/Alex Colangelo
• Pages: 171-189

171

Introduction ........................... 172

Legality ............................... 172

Contracts That Violate Statute Law ....... 173

Contracts That Violate Public Policy ...... 176

Restitution: A More Modern Approach

to LegalityIssues ................. 179

Form and Writing Requirements ......... 182

Formal and Simple Contracts ........... 182

The Statute of Frauds ................. 184

Technical Requirements for Written

Contracts ....................... 184

Protecting Weaker Parties ............... 186

Chapter Summary ...................... 188

Key Terms ............................. 188

Review Questions ...................... 188

Exercises .............................. 189

Learning Outcomes

After completing this chapter, you should be able to:

• List at least three illegal purposes that can affect the

validity of a contract.

• Explain the difference between an unlawful

andan illegal contract, and describe the impact

onthe remedy available to the parties in the event

ofa breach.

• Describe the difference between a simple contract

and a formal contract.

• Describe at least two contract “formalities” and

understand how to comply with a requirement

forformalities.

Legality and Formalities

ofaContract

11

© [2023] Emond Montgomery Publications. All Rights Reserved.

172 PART II CONTRACT LAW

Introduction

In Chapter 10, you learned that the validity of a contract requires that the parties

hadan intention to be legally bound, that one party made an offer that the other

accepted in its entirety without any changes, and that there was an exchange of

consideration.

In this chapter, we examine two additional contract elements: legality and formal-

ities. Both a contract’s legality and the requirement that some contracts meet certain

legal formalities are essential to a contract’s validity and enforceability. You will learn

in this chapter that the legal formality of requiring contracts to be in writing applies

only to certain well-defined categories of contracts.

Legality

To be binding and enforceable on the parties, a contract must have a legal purpose; its

purpose cannot violate any statute or public policy. The courts will not enforce a con-

tract found to have an unlawful purpose, meaning a purpose that violates a statute or

public policy. The courts will declare it to be void or illegal or both. For example, you

cannot take out a contract with an assassin to kill someone and then sue the assassin

in court if that person fails to fulfill the contract.

The distinction between a contract that is merely void for having an unlawful pur-

pose and one that has an unlawful purpose and is also illegal is important. If the

contract is merely void for being unlawful, the court may grant some remedies to the

parties who entered into it by attempting to restore them to their original positions.

For example, if money and goods have changed hands but the contract is unlawful,

the court may order the goods and the money returned.

However, if the contract is not only unlawful but also illegal, the court will not grant

any remedies to any party who knowingly entered into it. Remedies are discussed in

more detail in Chapter 17.

Example of Effects of Illegality #1

In the case of Archbolds (Freightage) Ltd v S Spanglett Ltd,1 the Court examined

the possible threefold effect of illegality upon a contract, stating:

[I]f at the time of making the contract there is an intent to perform it in an

unlawful way, the contract, although it remains alive, is unenforceable at the

suit of the party having that intent; if the intent is held in common, it is not

enforceable at all. Another effect of illegality is to prevent a plaintiff from

recovering under a contract if in order to prove his rights under it he has to

rely upon his own illegal act …. The third effect of illegality is to avoid the

contract ab initio [void from the time it is made] and that arises if the making

of the contract is expressly or impliedly prohibited by statute or is otherwise

contrary to public policy. [Emphasis added.]

1 [1961] 1 QB 374 at 388 (CA). For some recent examples of contract illegality, see Casimir v Parker, 2019 BCSC 939;

Lindsay v Ambrosi, 2019 BCCA 442.

consideration

the price, which must be

something of value, paid

in return for a promise

ab initio

“from the beginning”;

a contract that is void

ab initio—invalid from

the beginning—cannot

give rise to any rights

© [2023] Emond Montgomery Publications. All Rights Reserved.