Legal Updates

An agreement unlimited in time may be deemed as violating public policy and will be limited

April 22, 2020

A company specializing in brokerage for the raising of financial loans entered into an agreement with a borrower for off-bank loan from a third party. The agreement between the companies included a clause, according to which the agreement was unlimited in time, does not require the broker to be the effective cause in securing the loan and prevented the borrower from contesting this issue. The borrower refused to pay brokerage fees for additional loans taken.
The Court held because the agreement was not time-limited it should be set for four years. An agreement, which is unlimited in time, and does not empower one of the parties to terminate it, is in violation of public policy and must be partially invalidated and limited to a reasonable time under the circumstances. In order to determine whether an agreement, or a specific clause in such, are in violation of public policy, one must check whether the agreement or the clause are in line with basic perceptions and values held by the society and public view regarding the appropriate or non-appropriate behavior as to contractual relations between parties. However, public policy need be balanced against other rights and interests. Here, one must balance between the parties consent, which need be honored, and the social norm and public view that does not favor everlasting agreements, and which views a clause preventing a party from contesting this issue, while the broker is not required to be the effective cause in securing a loan – as unreasonable. All this leads to the conclusion that the clause is in violation of public policy and the agreement period need be shortened.