Contracts can become unenforceable if they are illegal. There are three ways a contract can be illegal: 1) if a statute expressly prohibits the contract, 2) if a contract is created legitimately but later performed in an illegal manner, or 3) if it violates common law principles such as committing a crime, promoting corruption, deceiving authorities, or violating public morals. If both parties are at fault, the defendant's position is stronger. However, there are exceptions if one party is not equally at fault. Statutes can also make contracts void from the outset. Additionally, contracts may be void under common law if they restrict trade in an unreasonable manner unless reasonable exceptions apply.
Contracts can become unenforceable if they are illegal. There are three ways a contract can be illegal: 1) if a statute expressly prohibits the contract, 2) if a contract is created legitimately but later performed in an illegal manner, or 3) if it violates common law principles such as committing a crime, promoting corruption, deceiving authorities, or violating public morals. If both parties are at fault, the defendant's position is stronger. However, there are exceptions if one party is not equally at fault. Statutes can also make contracts void from the outset. Additionally, contracts may be void under common law if they restrict trade in an unreasonable manner unless reasonable exceptions apply.
Contracts can become unenforceable if they are illegal. There are three ways a contract can be illegal: 1) if a statute expressly prohibits the contract, 2) if a contract is created legitimately but later performed in an illegal manner, or 3) if it violates common law principles such as committing a crime, promoting corruption, deceiving authorities, or violating public morals. If both parties are at fault, the defendant's position is stronger. However, there are exceptions if one party is not equally at fault. Statutes can also make contracts void from the outset. Additionally, contracts may be void under common law if they restrict trade in an unreasonable manner unless reasonable exceptions apply.
because it is illegal Illegal Contracts [Statute] Express Prohibition - Intention of Parliament is clear that contracts are prohibited - Contracts are illegal in their formation - Re Mahmoud and Ispahani: = Seeds, Oils and Fats Order 1919 [Sale prohibited unless both buyer and seller has licence] = Claimant has licence [Defendant untruthfully claim he did] = Claimant agree to sell but defendant later refuse = Claimant brought action for non-acceptance = Court held contract for sale prohibited under statute [Unenforceable] Illegal Contracts [Statute] Implied Prohibition - Contract created legitimately - Later carried out in illegal manner [Performance] - St John Shipping Corporation v Joseph Rank: = Claimant carried grain for defendants from Alabama to England = Claimant overloaded ship [Load line was submerged] = Merchant Shipping (Safety and Load Lines Conventions) Act 1932: > Offence to load ship to extent that load line is below water = Defendant withhold partial payment = Plaintiff allowed to full payment = Illegal act was merely incidental to the performance of contract = Performance did not render contract illegal Illegal Contracts [Common Law] Contract to commit crime/civil wrong: - Everett v Williams: = Two highwayman agree to share spoils of crime = One man try to evade agreement [Another attempt to sued for his share] = Unsuccessful [Particular interest is illegal at common law]
Contracts intend to promote corruption: - Parkinson v College of Ambulance Ltd and Harrison: = Claimant given charity of 3,000 = Wanted assurance that could secure him knighthood = Not allowed to claim money back due to illegality Illegal Contracts [Common Law] Contracts to deceive public authorities: - Miller v Karlinski: = Agreement between employer / employee = Agree party of salary hidden to defraud the Revenue = Agreement has no criminal conspiracy between parties = Consider illegal as it was against public policy
Contracts against public morals: - Pearce v Brooks: = Claimant hired carriage to prostitute knowing she uses it to see clients = Unable to enforce contract when she failed to pay hire charge Effect of illegal contracts - in pari delicto potior est conditio defendentis - If both parties are in the wrong, a defence is set up - Party own conduct is mutally wrong, court cant do anything about it - Keir v Leeman: = Plaintiff cant sue on counter promise = Contract was illegal [Damage administration of justice]
- Exceptions to the rule [cessante ratione legis cessat ipsa lex] - The law itself ceases if the reason of the law ceases: - A party can recover money if not in pari delicto [Not in equal fault] - Kiriri Cotton Co v Dewani: = Uganda Land Registration Ordinance 1949 = Protection to tenants [Place burden of observing on landlord] = Parties not on equal fault [Landlord can recover premium paid] Void Contract [Statute] - Contract is void, if statute provides that it is void i) Gambling Act 2005 [Section 335]: - Contracts that concern gambling are legal provided comply with general contractual rules discussed in the book]
ii) Life Insurance Act 1774: - If person takes insurance policy on the life of person in whom the person taking out the insurance policy has no insurable interest
Void Contract [Common Law] - Contract void if contravene public policy [Adapt to changing economy / social conditions] - Restraint of trade contravene the concept of laissez-faire [Free Market] - Contracts that restrict freedom of trade are prima facie void: > Prevent people from signing away livelihood at request from people with strong bargaining power > Avoid depriving public of people's expertise - Exception to restraint of trade [Allow restraint]: - Nordenfelt v The Maxim Nordenfelt Guns & Ammunation Co Ltd = Lord MacNaghten [Reasonable]: > Between parties [Restraint no wider than to protect legitimate interest] > Public interest [Restraint not unduly limit public choice] Effect of Void Contract - All of contract need not be void, only the offending clause - Severance: = Possible to divide illegal part of contract from rest = Enforce provisions which are not affected by illegailty - Goldsoll v Goldman: = Claimant bought business of defendant [Traded imitation jewellery in UK] = Term in contract [Defendant would not trade imitation / real jewellery in UK] = Court of Appeal state it was unreasonableness for claimant to restrict defendant from trading in real jewellery = Unreasonable parts could be severed / remaining agreement could be enforced