Illegal Contracts

LAW OF CONTRACT II
ILLEGAL CONTRACTS
• An illegal contract is unenforceable
• In SR Nicholas Ltd vs. Hassen, 13MLR, 415, the Supreme Court Of Appeal quoted
with approval the statement of Devlin J in St John Shipping Corporation v.
Joseph Rank Ltd (1956)3 All ER 683 as follows:
“A contract which is entered into with the object of committing an illegal
act is unenforceable. The application of this principle depends on proof of
the intent, at the time the contract was made, to break the law; if the
intent is mutual the contract is not enforceable at all; and if unilateral, it is
unenforceable or the unit of the party who is proved to have it. ….. the
second principle is that the court will not enforce a contract which is
expressly or impliedly prohibited by statute… it is unenforceable whether
the parties meant to break the law or not.”
CONTRACTS CONTRAVENING STATUTE
• Cheshire’s Contract Law, 12th Edition, at 349:
“A contract that is expressly or implicitly prohibited by statute is illegal. In
this context, ‘statute’ includes the orders, rules and regulations….. ”
• Gestetner Limited vs. Malawi Revenue Authority, Civil Cause No. 115 of 2008,
Kapanda J:
“As stated earlier, which i repeat here, there are two instances when a
contract is said to b illegal. First, it is when a contract is expressly or
impliedly prohibited by a statute and secondly, it is when the contract
itself is for the doing of something which is illegal, immoral or against public
policy or where it is founded on an illegal consideration”
• See also SR Nicholas Ltd vs. Hassen, 13 MLR, 415.
CONTRACTS CONTRAVENING STATUTE
• Disregard for statutory provision may render contract either illegal as formed or
illegal as performed;
• If its very creation is prohibited, then it is void ab initio;
• If it is lawful but executed illegally, all rights and remedies are withheld from the
party in the wrong – Anderson Ltd v Daniel [1924] 1 KB 138: where statute
required that artificial fertilizers sellers’ invoices state % of certain chemical
substances contained in the goods, sellers action for price of goods failed since
they had sold 10 tonnes without complying with the requirement:
• What has to be determined is whether it was the express/implied intention of
the legislature that the violation should deprive him of all remedies (or perhaps
only be liable to a find, for example – see Shaw v Groom [1970] 1 All ER 702)
• See also St John Shipping Corporation v Joseph Rank Limited [1957] 1QB 267,
[1956] 3 All ER 683.
CONTRACTS AGAINST PUBLIC POLICY
• Winga vs. Southern Bottlers Ltd (1997)1 MLR, 373, Tembo, J (as he was then) at 376, quoted with approval
the following statement by Scott LJ In Alexander v. Rayson (1936)1 KB 169:
“It is settled law that an agreement to do an act that is illegal or immoral or contrary to public
policy, or to do any act for a consideration that is illegal, immoral or contrary to public policy, is
unlawful and therefore, void.”
• See also Jassani vs. Nkhalamba, 14 MLR, 109, Gestetner Limited and SR Nicholas Ltd ;
• If a contract falls in any of these heads it will be illegal;
➢ Contract to commit a crime, a tort or fraud on a third party;
➢ Contract that is sexually immoral;

➢ Contract which is going to prejudice public safety
➢ Contracts prejudicial to the administration of justice;
➢ Contracts that are liable to contempt public life;

➢ Contracts which would defraud public revenue
COMMISSION OF CRIME/TORT/DEFRAUDING THIRD PARTY
• It does not matter that the parties entered into the contract ignorant of this;
• Scott v Brown, Doering, Mcnab & Co. (1884) 2 Q.B. 724: contract to purchase shares at
a fictitious premium in order to artificially enhance value of shares;
• Winga case contravened the Road Traffic Act and was a crime;
• Beresford v Royal Insurance Co. Ltd (1938) 2 ALL E.R. 602: where a man shot himself(at
the time suicide was still a crime) before policy would have been invalidated for non-
payment, claim for benefits rejected:
“To enforce payment in favour of the assured’s representative would be to
give him a benefit, albeit in a sense a post-mortem benefit, the benefit, namely,
of having by his last and criminal act provided for his relatives or creditors.”
• Gray v Barr (1971) 2 Q.B. 534: it was held to be contrary to public policy to allow a
party that had unlawfully attacked and unintentionally killed x to be indemnified from
the consequences of his actions, although unintentional.
SEXUALLY IMMORAL CONTRACTS
• The courts will not enforce a sexually

reprehensive contract, e.g. involving
prostitution;
• Benyon v Nettleford (1880) 3; Ayerst v Jenkins
(1873) L.R. 16 EQ 273: an agreement to bring
about or facilitate illicit cohabitation is illegal;
• Relevance today??
PREJUDICIAL TO PUBLIC SAFETY
• Lord Alvanley in Furtado v Rogers (1802) 3 BOS & P 1914:

“We are all of opinion that … it is not competent to any
subject to enter into a contract to do anything which
may be detrimental to the interests of his own country;
and that such a contract is as much prohibited as if it
had been expressly forbidden by an Act of Parliament”.
In this context, it is those contracts which tend to benefit an
enemy country or disturb good relations with a friendly
country
PREJUDICIAL TO THE ADMINISTRATION OF JUSTICE
• Keir v Leeman (1846) 9 Q.B. 371: where a compromise was accepted to avoid a
prosecution of riot and assault against sheriff’s officer and assistants while levying
execution of judgement debt, it was held:
“If the offence is of a public nature, no agreement can be valid that is
founded on the consideration of stifling a prosecution for it … in the
present instance, the offence is not confined to personal injury, but
accompanied with riot and obstruction of a public officer in the execution of
his duty. These are matters of public concern and therefore not legally the
subject of a compromise.
• Such an agreement is void even if the prosecutor derives no gain, and even if it
secures the very object for which the proceedings were taken;
• The rule only applies to a matter which pre-eminently affects the interests of the public;
so that in Fisher & Co. v Appolinaris Co (1875) 10 CH. 297 an agreement for an
apology in consideration for abandonment of prosecution for infringement of trade
mark against a company was held to be valid.
CONTRACT LIABLE TO CORRUPT PUBLIC LIFE
• Parkinson v The College of Ambulance and Harrison (1925) 2 K.B. 1: contract to
procure a title for a man in consideration for money payment was held to be
illegal at common law – in this case, he was persuaded to make charitable
donation on fraudulent grounds that they could procure for him a knighthood;
he could sue neither for money had and received nor for the recovery of
damages, nor could he repudiate the contract and regain his money on the
plea that the transaction was executor;
• On the same principle, an agreement to assign or mortgage future instalments
of the salary of a public office is void, since the law presumes that the object of
the salary is to maintain the dignity of the office and to enable the holder to
perform his duties in a proper manner (Liverpool Corporation v Wright (1859)
Johnd 359)
CONTRACT TO DEFRAUD THE REVENUE
• Miller v Karlinski (1945) 62 T.L.R. 85:
The terms of a contract of employment were that the employee should receive a
salary of £10 weekly and repayment of his expenses, but that he should be
entitled to include in his expenses account the amount of income tax due in
respect of his weekly salary. in an action brought by him to receiver ten week’s
arrears in salary and £21 2s 8d for expenses it was divulged that about £17 of this
latter sum represented his liability for income tax. It was held that the contract
was illegal, since it constituted a fraud upon the revenue. No action lay even to
recover arrears of salary because the illegal stipulation is not severable from the
lawful agreement to pay the salary.
• See also Napier v National Business Agency Ltd (1951) 2 ALL E.R. 21 and
Gestetner Limited case

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LAW OF CONTRACT II

➢ Contract that is sexually immoral;

➢ Contracts that are liable to contempt public life;

• The courts will not enforce a sexually

• Lord Alvanley in Furtado v Rogers (1802) 3 BOS & P 1914:

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