Introduction

Contracts can be unenforceable 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