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Illegality

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Illegality in Contract Law

Illegality in contract law refers to situations where the terms or purpose of a contract involve unlawful activities. Contracts that contain illegal elements are generally void and unenforceable because they contravene public policy or statutory law. The concept of illegality can arise from various circumstances, including statutory violations, agreements contrary to public policy, and contracts involving illegal activities.

Types of Illegality

Illegality in contracts can be classified into two main categories:

  • ★ Statutory Illegality: Occurs when a contract breaches a statute, either directly or indirectly. For example, a contract for the sale of drugs in violation of drug control laws is statutorily illegal and therefore void.
  • ★ Common Law Illegality: Involves contracts that contravene public policy, even if no specific statute is violated. This can include agreements to commit a crime, contracts promoting immorality, or agreements that restrict trade unreasonably.

The consequences of entering into an illegal contract vary depending on the nature of the illegality and the circumstances. Generally, the courts will not enforce an illegal contract, and the parties cannot sue for breach. Key consequences include:

  • ★ Void Contracts: Illegal contracts are typically void ab initio (from the beginning), meaning they have no legal effect and cannot be enforced.
  • ★ Restitution: In some cases, the court may order restitution if one party has unjustly enriched themselves at the expense of another. However, restitution is not always available, particularly if both parties are at fault.
  • ★ Severability: If a contract contains both legal and illegal elements, the court may sever the illegal parts, allowing the rest of the contract to be enforceable, provided it can stand independently.

Case Law

Statutory Illegality - Re Mahmoud and Ispahani (1921)

This case involved a contract for the sale of linseed oil, which was regulated under wartime legislation. The seller did not have the required license, rendering the contract illegal and unenforceable. The court held that neither party could recover under the contract due to statutory illegality.

Common Law Illegality - Pearce v Brooks (1866)

In this case, a contract for the hire of a carriage was deemed illegal because it was intended for immoral purposes (prostitution). The court refused to enforce the contract, illustrating the principle that contracts promoting immorality are void.

Examples

Example 1 - Statutory Illegality

Scenario:

A contract is made for the construction of a building without the necessary planning permissions. Since the contract involves illegal construction activities, it is void and unenforceable, and the parties cannot seek legal remedies under the contract.

Example 2 - Common Law Illegality

Scenario:

Two parties enter into an agreement where one agrees to pay the other to influence the outcome of a public election. The contract is illegal under common law as it involves corrupt practices, and therefore, it cannot be enforced.

Conclusion

Illegality in contract law ensures that agreements that involve unlawful activities or contravene public policy are not enforced by the courts. This principle protects the integrity of the legal system and public interest. Contracts found to be illegal are generally void, preventing the parties from enforcing the terms or seeking remedies. Understanding the nuances of statutory and common law illegality is essential for avoiding void agreements and recognizing unenforceable contracts.

Duress and undue influence Termination
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