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Published by Diana Soni

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Published by: Diana Soni on Dec 31, 2012
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For an agreement to constitute a legally enforceable contract, it must have been entered into for a
lawful purpose. An agreement to do something which is prohibited by statute or the common law
is not a contract - although such agreements are generally called "illegal contracts"



There are numerous examples of "illegal contracts" of which the following may be mentioned:


Contracts illegal by statute

Whether a particular contract is prohibited by a particular statute depends on the wording of
the statute. For example, employment act, contracts for the payment of wages or salaries in
kind are illegal.


Contracts illegal at the common law

A contract which is prohibited by the common law is usually described as being "contrary to
public policy" (i.e. the court is of the view that it is in the public interest that the contract
should not be enforced). Such a contract may be one which:


Tends to promote corruption in the public service, as illustrated by Parkinson v.
College of Ambulance Ltd.


Tends to promote sexual immorality, such as in Pearce v. Brooks (1866)

(iii)Tends to interfere with the sanctity of marriage, such as Wilson v. Carnley
(1908).However, in Fender v. St. John - Mildmay (1938) the House of Lords held
that a contract made between decree nisi and decree absolute, for marriage after the
dissolution of the existing marriage is valid (despite the fact that it rendered
reconciliation between parties to the divorce proceedings almost impossible).

(iv)Tends to fetter the freedom of marriage.


Tends to prejudice the administration of justice, such as -





Champerty: Trendex Trading Corporation v. Credit Suisse (1982), or



(v)Tends to prejudice the administration of justice.

(a)champerty agreement
(b)maintenance: Trendex Trading Corporation v Credit suise.

Effects or Consequences of Illegality

Illegality renders a contract unenforceable. The contract creates no rights and imposes no
obligations on the parties. This is because the contract is beyond the pale of law hence neither
party has a legal remedy. As a general rule money or goods changing lands under an illegal
contract are irrecoverable. This is because gains and losses remain where they have fallen. A court
of law cannot assist parties to adjust their rights if the contract is tainted with illegality. However
money or goods changing hands under an illegal contract may be recoverable where


a party repents or regrets the illegality before the contract is substantially performed.


The parties are not in pari delicto i.e. not equally to blame.


The owner of the goods or money establishes title thereto without relying upon the illegal
contract as was the case in Amar Single Kulubya.


These are contracts which the law treats as non-existent. As a general rule illegal contract is only void but not
certain rights may be salvaged by the innocent party. A contract may be rendered by statute or at common law
i.e. courts of law.

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