Illegality in Contract law: If contracts are freely and voluntarily entered into by the parties, they will be enforced by the courts. But this statement is not completely true, for the courts will not enforce an illegal contract, even though all the elements required for the formation of valid contracts are present.
The main reason for this is that it is not the policy of the law to aid citizens in carrying out unlawful agreements.
In the law of contract, the term ‘illegal’ is a very wide, vague and imprecise one. Thus, it embraces illegal contracts strictly so called, and void contracts. It also includes contracts rendered illegal or void by statute and those rendered illegal or void by common law. Because of this lack of clarity in the definition of illegal contracts, it has become virtually impossible to carry out a logical and satisfactory classification of the subject.
However, four our purpose, contracts will be classified into:
A. Contracts rendered illegal at Common Law
B. Contracts rendered illegal by Status
C. Contracts rendered Void by Common Law
D. Contracts rendered void by Status.
A. Contracts Rendered illegal at common Law
The following contracts are traditionally regarded as contracts coming within the group of contracts rendered illegal at common law, on the ground of public policy:
- A contract to commit a crime, a tort or a fraud.
- A contract affecting the freedom of marriage.
- A contract injurious to a friendly State or detrimental to the state
- A contract prejudicial to the administration of justice
- A contract that tends to promote corruption in public life.
- A contract to defraud the revenue.
It is necessary to note that these contracts will of necessity contain over-laps. For example, a contract to defraud the revenue or to promote corruption in public life, or a contract prejudicial to the safety of the state, will also be a contract to commit a crime. We shall, therefore, discuss the cases under headings with which they have a preponderance of factors. Also, a contract that is sexually immoral has been transferred from this section, in which it is traditionally found, to the section on void contracts, because such contracts are strictly not illegal, but merely void.
Illegality in Contract law
- A contract to commit a Crime, A Tort, or a Fraud.
A contract between two or more persons to murder or assault another person, or to rape a woman, or to commit any other crime is illegal. The breach of such agreements cannot be the subject matter of an action in a court of law. For example, X agrees to pay $500.00 if Y assaults Z, who is X’s political rival. If Y accomplishes his own part of the arrangement, there is no doubt that the $500.00 is irrecoverable, for the court cannot lend its support to reap the benefit of a criminal act. Again, an agreement to take shares in a company in order, fraudulently, to induce the public to believe that there is a market for the shares is an indictable conspiracy and is illegal. Similarly, an agreement by the proprietors of a newspaper to indemnify the printers against claims arising out of libels published in the newspaper is void.
Equally illegal is an agreement involving the publication of a libel or a deceit or the perpetration of a fraud. In Mallalieu v Hodgson, a debtor made a composition with his creditors to pay 6s.8d for every pound owed. He then entered into a separate agreement with the plaintiff, one of the creditors, to pay him a part of his debt in full.
This agreement was declared void as a fraud on all the other creditors.
2. Contracts affecting the Freedom of Marriage.
Contracts within this category are normally treated as merely void, not illegal. However, we are classifying such contracts here under illegal contracts because, such contracts, if actually performed, would result in the commission of a crime.
For example, where a person, who is already married, makes a promise to marry another woman on the death of his wife, it is against public policy if the woman knew that the man was married at all material times. Public policy frowned upon such a contract as it would not only encourage infidelity by the man but it may even tempt to the untimely death of the wife. Where, however, a married man promises to marry a woman who did not know that he was married, the promise will be actionable. Also, an agreement to make provisions for a wife so long as she lives apart will be void as it encourages separation and immorality.
Contracts which restrains the freedom of marriage is prima facie void. This is aimed at maintaining the sanctity of marriage. Thus, a contract whereby a person promises to marry no other person than a particular man or woman, as the case may be, is void. And, for the same reason, marriage brokerage contracts under which a person, in consideration of a promised sum of money, procures a marriage between two others is illegal and void.
If an already married man concludes a statutory marriage with another woman, he will be guilty of bigamy under Section 370 of the Nigerian Criminal Code, and liable on conviction to a maximum of seven years imprisonment. Where a man already married under customary law, concludes a statutory marriage with another woman, or if already married under the Statue marries another woman under customary law, he will be guilty of an offence under the Marriage Act, and is punishable on conviction by imprisonment for five years.
Finally, it may be noted that in certain circumstances, it is permissible to restrain a person’s freedom to marry. Thus, contracts restraining marriage with a particular person or otherwise only partially restraining marriage are valid. For example, if Christopher insists that his maid servant should remain single while she is in his service, it is perfectly valid as opposed to an agreement between the parties whereby a woman promises not to marry for the rest of her life, which is a contract clearly in restraint of marriage and therefore void.
- A Contract Injurious to a Friendly State or Detrimental to the State.
In the interest of good relationship between States, an agreement which contemplates hostile action against a friendly State, or which involves doing an act which is illegal under the law of a friendly State, is illegal. Therefore, any contract which is hostile or injurious to another country that is friendly with Nigeria is unlawful and unenforceable. Hostile activities may include things done to cause a breach of the laws of a foreign and friendly country or actions done to bring about anarchy in a friendly state. An obvious example is an agreement to obtain arms and other materials in Nigeria for the overthrow of a friendly government. Even a loan meant to be used in supporting an armed attack on such a country is illegal.
- Contracts Prejudicial to the Administration of Justice. We shall treat such contracts under two headings:-
a. Contracts Relating to Criminal Prosecution and Bankruptcy. An agreement to stifle a prosecution for a criminal offence is void, because the police have an interest in the proper administration of justice. However, where the offence for which the defendant is prosecuted is essentially civil in nature, even though it could also be criminal, an agreement to settle it out of court would be valid and enforceable. In other words, if the offence was one for which the injured party could sue and recover damages as well as one which could be the subject of criminal proceedings, an agreement for compromise will be valid. Offences which come within this category include libel and assault.
In McGregor v McGregor, a separation agreement between a husband and his wife, who had earlier brought cross-summons against each other for assault was held valid in spite of the fact that part of the terms of the agreement required that the parties should withdraw the suits for assault.
An agreement between a prisoner and a person who has stood bail for him to indemnify him against the bail is void, as tending to defeat the object for which bail was granted.
A contract tending to defeat the bankruptcy law is void. Thus, in John v Mendoza, M. owed J. E852 and promised that if J. would tell M’s trustee in bankruptcy that the money was a present, M. would, notwithstanding, still be J’s debtor.
It was held that, the agreement was void.
b. Contracts of Maintenance and Champerty.
It is illegal for a person to contract with another whereby encouragement is given to another to litigate by offering financial aid towards its execution. One commits the tort of ‘maintenance’ when he improperly encourages another to litigate.
Maintenance has been defined as:
Improperly stirring up litigation and strife by giving aid to one party to bring or defend a claim without just cause or excuse.
In other words, maintenance is a tort whereby a person who, having no legal interest in civil proceedings or the subject matter (and with no lawful justification) assists one of the parties with money or otherwise to institute, prosecute or defraud an action. The tort is actionable at the suit of the other party.
Champerty is that special category of maintenance whereby the assistance is given for a share in the proceeds. It is a contract or arrangement whereby a person obtains a promise of a share in the proceeds of an action, in return for giving evidence in court or providing financial assistance to the person who conducts the litigation. Contracts having maintenance or champerty as their object tend to pervert the course of justice and are illegal.
However, it is not maintenance when the person giving assistance is a near relation, or acts from motives of charity, or has a common interest with the person assisted. In modern law, the term ‘common interest’ is interpreted widely, and it has been held in Martell v Consent Iron Co. Ltd, that a person who has ‘a legitimate and genuine interest in the result of an action’, must be taken to have such interest.
‘trafficking in litigation’, i.e. the assignment of a bare cause, is champerty, unless the assignee has a genuine and substantial interest in the litigation.
It must be noted that giving financial assistance to another to enable him to litigate on a matter in which he has a good cause of action is not maintenance, except where some impropriety is established against the donor.
The person against whom the maintained action is brought may, if he sustains special damage, sue the maintainer. The fact that the maintained action was successful is no bar to his recovering damages.
C. Witness’s Contract Not to Give Evidence. A contract by which a witness binds himself not to give evidence before the court on a matter on which the judge says he should give evidence, is contrary to public policy and is not enforced by the court.
- A Contract that Tends to Promote Corruption in Public Life. It has been stated by Arson in his book, Principles of the English Law of Contract, that:
‘The public has an interest in the proper performance of their duty by public servants and is entitled to be served by the fittest persons procurable’.
Thus, any contract whereby a person is to be appointed into a public office for a private consideration or gratification received by those in a position to make or influence such an appointment is contrary to public policy and void. Thus, in Montifiore v Menday Motor Co. Ltd., it was held that, a contract whereby a member of a government board was to use his office in order to obtain funds for financing a private company could not be enforced as it was contrary to public policy, According to Sharman, J.:
‘In my judgment, it is contrary to public policy that a person should be hired for money or valuable consideration when he has access to persons of influence to use his position and interest to procure a benefit from the Governor’.
A contract to procure a title of honour from reward is also void. Thus, in Parkinson v College of Ambulance Ltd., the secretary of the College of Ambulance promised Col. Parkinson that if he made a large donation to the college, which was a charitable institution, he would receive a knighthood. The Colonel made a large donation (E3,000) and promised more when he received the knighthood. When this did not materialize, i.e. not receiving the knighthood, he sued for the return of his money.
It was held that, the action was ‘manifestly illegal’ and failed, because the contract was against public policy and illegal.
6. A Contract to defraud the revenue.
Any contract deliberately entered into by parties, with the intention of depriving the State of revenue it is lawfully entitled to, is contrary to public policy and therefore illegal and void. Thus, in Napier v National Business Agency Ltd, N was employed as Secretary and Accountant at a salary of e13 a week with E6 a week as expenses. Both parties knew that his expenses were less than E1 a week.
It was held that, the contract was to evade tax and was illegal. And since it was impossible to sever the part dealing with salary from the part dealing with expenses, the whole was unenforceable.
Also, in Alexander v Rayson, the plaintiff let a flat to the defendant for E1,200 per annum.
In a bid to defraud the revenue and pay a much smaller amount of tax than he would normally be obliged to pay, the plaintiff prepared two documents for the purpose of the rent agreement. The first one disclosed that the rent for the flat and certain services was only E450. The second one disclosed a fee of E750 for the same services, plus the use of refrigerator. The plaintiff intended to tender only the first document to the rating authorities and thus pay tax on only E450, instead of on E1,200.
When the defendant failed to pay an installment due under the agreement, the plaintiff sued him to recover the unpaid sum.
It was held that, the contract was illegal, since the documents were intended to be used for the purpose of defrauding the revenue. The claim was therefore dismissed.
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