ILLEGALITY AND UNENFORCEABLE CONTRACT

Topic of the day

- The meaning of illegality

- The classifications of illegality

- The consequences of illegality

- Difference between contracts which are illegal in formation and in performance

THE MEANING OF ILLEGALITY

In contract law, illegality refers to the situation where the subject matter or purpose of the contract violates the law. This may occur due to legal provisions or common law principles.

Violation of the law may render the contract invalid or unenforceable. Specific cases and chapters may vary by jurisdiction, but common examples include contracts involving illegal activities, contrary to public policy, or contracts prohibited by law. In general, courts generally will not uphold contracts that involve illegal conduct.

THE CLASSIFICATIONS OF ILLEGALITY

Illegal acts in contract law can be divided into three main categories which are; statutory illegal acts, common law illegal acts and public policy illegal acts.

  1. Statutory illegality: A contract that directly violates a specific statute or law is a statutory offence. An example is the contract to sell an illegal substance, in violation of the Controlled Substances Act.

  2. Common Law illegality: this occurs when the purpose or subject-matter of the contract is inconsistent with common law principles. An example is a contract which promotes fraud or duress because it may be considered unlawful at common law.

  3. Public Policy illegality: A contract that violates public policy, even if it is not manifestly illegal, is unenforceable. An example is a contract that promotes unfair competition or harms public welfare may be void.

THE CONSEQUENCES OF ILLEGALITY

The consequences of violating contract law include:

  1. Contract voidability: Illegal conduct renders the contract void or voidable, making it impossible for both parties to perform it. An example is if a contract involves illegal conduct, the affected party may seek to have the contract declared void.

  2. Restitution and Recovery: The court may order compensation requiring the parties to return benefits obtained under an illegal contract. An example is where money paid in an illegal gambling contract may be recovered by restitution.

  3. No damage or performance: the courts will generally deny damages or specific performance to illegal contracts because enforcement of them would be contrary to public policy. An example is where a party cannot claim damages for breach of an illegal contract.

  4. Criminal Sanctions: in some cases, participation in an illegal contract may result in criminal charges or penalties. An example is the participation in fraudulent contracts which may result in legal consequences.

  5. Exceptions and Limitations: The court may consider exceptional circumstances, such as where one party is less at fault or where public policy supports the enforcement of a modified agreement. An example is where it would be unjust to enforce the entire contract, and the court may allow one party to recover compensation to a reasonable extent.

THE DIFFERNCE BETWEEN CONTRACTS WHICH ARE ILLEGAL IN FORMATION AND IN PERFORMANCE

In contract law, the difference between entering into an illegal contract and performing an illegal contract is as follows:

  1. Illegal in formation: this occurs when the creation or formation of a contract violates the law. An example is the contract to engage in illegal activities (such as the sale of stolen goods) whereby such contracts are usually void and unenforceable from the outset.

  2. Illegal in performance: this occurs when a contract is formed but performed in a manner contrary to law. An example is where a contract for the delivery of goods obtained through illegal means. Although the contract is initially valid but the involvement in illegal performance may render the contract unenforceable and the parties may face consequences for their illegal conduct.