Contract Legalities Are Important

I remember discussing a contract problem with a friend many years ago.  This person’s father-in-law was a college professor who had given him some advice about the contract.  I raised some questions about the legality of the contract.  The father-in-law was of the emphatically firm opinion that the contract was governed only by its printed terms – and nothing more.

This college professor was extremely educated and highly qualified. However, his credentials and background were in academic areas and not in law.  He didn’t know about one of the basic principles of contract law, which concerns legality.  The general rule is that in order to be enforceable, a contract must be legal.  Contracts which violate a point of law are frequently held to be unenforceable.

It might be difficult to imagine how a contract could be illegal, but such contracts do exist.  For example, if an unlicensed person agreed to provide legal or medical services which required a license, then such a contract would be illegal and would most likely be unenforceable.  If such a person provided unlicensed services but wasn’t paid for those services, then the law probably wouldn’t requirement payment from the person who received the services.  (There are other reasons why it’s not a good idea to enter into illegal contracts.  In addition to being unenforceable, there can be other laws that might be broken by such a contract, with additional undesirable consequences).

So how are real estate contracts concerned with this principle?  Here’s an example.  The city of Pasadena passed an ordinance which required that a “Certificate of Occupancy” be issued before a building could be used or occupied.  The city passed this ordinance to insure that occupied buildings met the health and safety provisions of the Pasadena municipal code.  A landlord leased a property to a tenant, and the tenant failed to pay the rent.  The landlord filed an eviction proceeding against the tenant, and sought a judgment for back rent in the amount of $600 and an order evicting the tenant from the property.

The trial court held that the landlord was entitled both to the past due rent and possession of the property.  However, the Court of Appeal held that the landlord was not entitled to any back rent.  The Landlord had rented the property to the tenant without first getting a Certificate of Occupancy.  This was an illegal arrangement, and the Landlord was at fault.  Because the Landlord had illegally rented the property to the tenant, the Landlord was unable to court proceedings to obtain a judgment against the tenant for the past due rent.  However, even though the Landlord was not entitled to collect any past-due rent, the Court specifically noted that the tenant wasn’t entitled to stay there “rent-free” until the Landlord got the Certificate of Occupancy.  The Landlord therefore received a judgment evicting the tenant from the premises because of the unpaid rent.  But due to the illegal nature of the contract, the Landlord wasn’t entitled to collect any of the past due rent.

Situations can differ, and the outcome in one legal situation can’t always be used to reliably predict the outcome in a different situations.  Persons with lease or contract questions should always consult competent legal counsel in determining their rights and obligations in any given situation.

Copyright 2017 ROBERT B. JACOBS