Lesson 8: Legality of Subject Matter

In contract law, the legality of the subject matter is a fundamental principle that determines the enforceability of a contract. Simply put, a contract must be for a lawful purpose; otherwise, it's like trying to enforce a contract to rob a bank—it's not going to happen. This principle ensures that the performance of the contract doesn't make you a wanted criminal or a societal villain. Let's dive in and make sense of it, shall we?

Key Concepts

Understanding the legality of subject matter involves several key concepts:

• Illegal Contracts: Contracts formed for illegal purposes, like a pact to rob a bank or defraud someone, are automatically void. Think of these as "no-go" zones.
• Contracts Against Public Policy: Even if not explicitly illegal, contracts that violate public policy (like an agreement to fix prices) are unenforceable. These are like the "no-fly" zones of contracts.
• Severability: If a contract contains both legal and illegal provisions, courts may play surgeon and enforce the legal parts while cutting out the illegal ones.

Illegal Contracts

Contracts that involve illegal activities are void from the outset. Examples of illegal contracts include agreements to commit criminal acts, contracts involving fraud, and agreements that violate licensing requirements. Here is a simple diagram illustrating the concept:

graph TD
    A["Illegal Contract"] --> B["Void and Unenforceable"]
    B --> C["Cannot be Enforced in Court"]

Contracts Against Public Policy

Contracts that contravene public policy are also unenforceable. Public policy refers to societal standards and principles that promote the welfare and good of the community. Examples include contracts that restrain trade, such as certain non-compete agreements, and contracts that promote unethical behavior.

graph LR
    P["Public Policy"] -->|Violates| Q["Contract"]
    Q -->|Unenforceable| R["Court Invalidates Contract"]

Examples of Contracts Against Public Policy

• Contracts that restrict marriage or divorce.
• Contracts that involve bribery or corruption.
• Contracts that promote restraint of trade.

Severability

Severability is a principle that allows a court to enforce the legal parts of a contract while invalidating the illegal portions. This principle is particularly important when a contract contains multiple provisions, some of which may be problematic.

graph BT
    A["Contract with Legal and Illegal Provisions"] --> B["Sever Legal Provisions"]
    A --> C["Invalidate Illegal Provisions"]
    B --> D["Enforceable in Court"]
    C --> E["Unenforceable in Court"]

For more information on related topics, explore our other lessons:

• Lesson 7: Capacity to Contract
• Lesson 9: Bilateral vs. Unilateral Contracts

Legality and Public Policy

Contracts must not only adhere to laws but also align with public policy. Public policy is a broad concept that encompasses societal norms, morals, and the common good. Contracts that go against public policy are deemed unenforceable, even if they do not explicitly violate any laws.

Here is a diagram to illustrate how contracts that violate public policy are treated:

graph LR
    X["Public Policy Violation"] --> |"Violates Public Policy"| Y["Unenforceable Contract"]

Contracts Involving Immoral Acts

Contracts that require parties to engage in immoral acts are also void and unenforceable. Immoral acts may not be illegal per se, but they violate societal standards of decency and ethics. Examples include contracts for services of an illegal nature or those that promote unethical behavior.

Examples of Immoral Contracts

• Contracts for illegal gambling services.
• Contracts hiring someone to commit an unethical act, such as hacking.
• Agreements to defraud or deceive others.

Case Law

Several landmark cases illustrate the principle of legality of subject matter in contract law. Studying these cases provides a deeper understanding of how courts approach contracts that involve illegal or immoral activities.

graph TD
    A["Landmark Case: Case Name"] --> B["Key Decision"]
    B --> C["Impact on Contract Law"]

For example, in the case of Strong v. Repide, the court held that a contract involving fraudulent misrepresentation was unenforceable, setting a precedent for future cases involving fraud.

Severability Clauses

To safeguard the enforceable parts of a contract, many include severability clauses. A severability clause explicitly states that if any part of the contract is found to be illegal or unenforceable, the remainder of the contract will still be valid.

Here is a diagram illustrating the concept of a severability clause:

graph BT
    A["Contract with Severability Clause"] --> B["Invalid Provision"]
    A --> C["Valid Provisions"]
    B --> D["Ignored"]
    C --> E["Enforced"]

Enforcement and Judicial Discretion

Ultimately, the enforcement of contracts involving legality issues is subject to judicial discretion. Judges assess the nature of the contract, the intentions of the parties, and the extent to which the contract violates legal statutes or public policy. They then decide whether the contract, or parts of it, can be enforced.

A flowchart summarizing the decision-making process in court:

graph TD
    F["Contract Presented in Court"] --> G["Assessment of Legality and Public Policy"]
    G -->|Legal and Conforms to Public Policy| H["Enforceable"]
    G -->|Illegal or Violates Public Policy| I["Unenforceable"]
    I --> J["Invalid"]
    H --> K["Valid"]

For more information on related topics, explore our other lessons:

• Lesson 7: Capacity to Contract
• Lesson 9: Bilateral vs. Unilateral Contracts