All business activities are based on contracts between the concerned parties.
There are many points to regulate such contracts.
An essential point is the observance of public interest.
Generally, public policy is a broad concept that is impossible to define precisely.
Perhaps, the most realistic way is to see courts’ views regarding “public policy” which is determined by what courts feel is in the interest of the society.
Public policy may change from time to time due to social and economic conditions.
Ultimately, such conditions could make behaviour that was acceptable earlier as unacceptable nowadays, or the contrary.
There is therefore no simple rule for determining when a particular contract is contrary to public policy and we could treat it as illegal.
Public policy is contradicted by immoral and unethical agreements, even though they may not call for performance of an illegal act.
The courts have broad discretion in ruling on questions of public policy and this discretion can provide the legal system with a degree of healthy flexibility.
Courts differ in their views of what constitutes public policy, a difference that can make a contract legal in one place and illegal in another.
However, by reference to many courts precedents, we find some consistency in classifying certain contracts as contrary to public policy.
Good examples include contracts injurious to public service.
The public interest is best served with public officials fully and faithfully performing their duties.
It should come as no surprise, then, agreements to induce public servants to deviate from their duties are illegal.
Also, contracts that aim to restraint trade activities, on the assumption that the economic system is a matter of public interest, must be served by free competition.
Courts, therefore, look very closely at agreements that attempt to limit competition to see whether the restraint imposed is reasonable or should be rejected for violating public policy.
Another type is when there is an exculpatory clause in a contract.
Such clause is known when a provision in a contract refers to relieve one party to the contract from liability for the consequences of his negligence.
Public policy generally favours holding people responsible for their behaviour. Also, an agreement that tends to induce a person with fiduciary powers, to breach his fiduciary duties as contrary to public policy are illegal.