Illegality Flashcards
Definition, Types & Illegal as formed/performed.
Illegality simply means something that is proscribed/prohibited by law or it is unlawful.
Statutory and Common Law Illegality. In the context of contract law, these are situations where the contract has been formed or performed by illegal means. When the contract is illegal as formed, the formation itself is illegal and when it is illegal as performed, the means of bringing the agreement to fruition is the illegality. E.g. Adam contracts Eve to steal Moses’ phone to sell to him - this contract is illegal as formed. However, where Adam buys the phone from Moses unaware that it was stolen from Eve, the contract will be illegal as performed and may vitiate the agreement b/w Adam & Moses. Eve may have an action to vitiate the contract as the phone was delivered to Adam by illegal performance.
Statutes that Prohibit the Formation of a Contract
The Child Rights Act 2007 prohibits contracting with children rendering any such contracts illegal.
The Money lenders Act 1960 prohibits compound interests being imposed on loans by individuals not registered as a money lender.
The Mines and Minerals Act prohibits sale of precious minerals w/o valid licence.
The Arms & Ammunition Act prohibits sale of certain ammunition w/o licence.
*Amadu v Sidiki: The plaintiff brought an action at the High Court (then called Supreme Court) because he’d discovered a diamond which he handed to his boss, the respondent, who sold it for GBP 44,000 without the plaintiffs knowledge and w/o giving him any of the proceeds despite several requests by A. The court ruled in favour of A holding the proceeds should be repaid to him.
S appealed the decision in the CA argued A did not have a legal claim to the proceeds as he lacked a valid licence and the transaction was illegal. The Minerals Act, Cap 196, S 67, prohibits the possession of any mineral except under certain conditions or of a licence granted under S 71, or the duly authorised employee of such lessee or holder. The act also states that any diamonds found belonged to the state. As neither A nor S bore a valid licence, S’ lawyer argued the transaction should be voided.
A’s lawyer attempted to bar S from arguing illegality as it had not been brought up at first instance in the HC.
CA rejected A’s argument holding they cannot turn a blind eye to a transaction that was illegal by statute simply because that argument hadn’t been raised in the HC and ordered the proceeds of the sale to be paid to the state as neither A nor S bore a valid licence. In handing his S the diamond instead of the State, the transaction became illegal as formed.
*Amadu v Sidiki:
The plaintiff brought an action at the High Court (then called Supreme Court) because he’d discovered a diamond which he handed to his boss, the respondent, who sold it for GBP 44,000 without the plaintiffs knowledge and w/o giving him any of the proceeds despite several requests by A. The court ruled in favour of A holding the proceeds should be repaid to him.
S appealed the decision in the CA argued A did not have a legal claim to the proceeds as he lacked a valid licence and the transaction was illegal. The Minerals Act, Cap 196, S 67, prohibits the possession of any mineral except under certain conditions or of a licence granted under S 71, or the duly authorised employee of such lessee or holder. The act also states that any diamonds found belonged to the state. As neither A nor S bore a valid licence, S’ lawyer argued the transaction should be voided.
A’s lawyer attempted to bar S from arguing illegality as it had not been brought up at first instance in the HC.
CA rejected A’s argument holding they cannot turn a blind eye to a transaction that was illegal by statute simply because that argument hadn’t been raised in the HC and ordered the proceeds of the sale to be paid to the state as neither A nor S bore a valid licence. In handing his S the diamond instead of the State, the transaction became illegal as formed.
*Basma v Wanza:
B & W were good friends who traded with each other frequently. B had loaned W some money on which they agreed a 100% interest rate. B sued for repayment of the principal, the interest and his solicitor’s fees. As S12 of the Money Lenders Act Cap 240 of SL 1960, prohibits a person from imposing compound interests if he isn’t registered as a money lender, W brought the argument that the agreement would be illegal as performed since it is legal to lend someone any amount of money one wishes. The court held the transaction to be illegal and stated that there was no evidence the parties agreed to interest being fixed at the prevailing bank rate, and even if the court were disposed to granting interest at the prevailing bank rate, no evidence had been brought forward of the current bank rate. The appeal was dismissed.
4 types of Illegality at common law
- Contracts to engage in corruption:
These are illegal and will be voided.
*Parkinson v College of Ambulance: - Contracts to engage in “sexual immorality”:
*Pearce v Brooks:
*Sutton v Mishon de Reya: - Contracts preventing administration of Justice:
*Scott v Avery: - Contracts to commit crime:
*Parkinson v College of Ambulance:
P & C had an agreement for P to donate money to a particular company for which C would get him knighted. C reneged on the agreement following the donation and P brought a claim to recover his money.
The action failed because this was corrupt practice and went against societal values. P was barred from recovering his money and from suing C for breach.
*Pearce v Brooks:
A prostitute who had been conducting her trade from hired carriages failed to pay the fees owed and the owner brought an action for recovery of the payment. The suit failed because the contract was, at the time, deemed formed for immoral purposes and was voided for contradicting public policy.
*Sutton v Mishon de Reya:
The parties had contracted to enter a master-slave sexual relationship. When one of the parties decided not to perform as agreed after receiving payment, the other party brought an action for specific performance. On appeal to the European Commission, it was held that the contract was valid since the values of society at that time had progressed in a manner that was not deemed against public policy or the values of society. The values of society at the time were able to accommodate and even be receptive to such agreements.
*Scott v Avery:
This is authority for the rule that unless the contract contains an arbitration clause, the law will not allow it to stand. Such contracts contradict public policy and are deemed illegal at common law.
*Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co. Ltd.:
Nordenfelt, having established a worldwide business manufacturing and trading weapons, sold his business. The contract of sale included a clause that prevented him from engaging in the ammunition business anywhere in the world for 25 years. Although it seems an unusually broad clause, the court enforced the clause since the world was the appropriate business.
Lord McNaughton said: “a clause by which someone restrains themselves from the exercise of his trade was prima facie unlawful.”
It is a principle of English law that all trade should be free. However, since it would discourage a person who’d built a valuable business from disposing of it to his best advantage and N had been paid a huge sum for his business the clause was upheld. This was also because it was not considered injurious to the public.
