Contracts Rendered Illegal by Statute

Contracts Rendered Illegal by Statute:

There are some contracts which are prohibited under the express or implied provisions of statute and declared to be unlawful or void in the sense that they are illegal. Statutes rendering contracts illegal can take various forms. These include:

  1. The express prohibition of certain types of contracts.
  2. The regulation of a particular trade, profession, or the dealings in a particular commodity or resource.
  3. The protection of a class of persons, the public or the promotion of an object of public policy.
  4. The raising of revenue
  5. Express prohibition of Certain Types of Contracts.

Where a statute expressly prohibits or bans the making of certain types of contracts, any such contracts subsequently made is illegal and void. For example, a contract to import goods like champagne, lace materials, or ready-made cloths into Nigeria would be illegal in view of the various statutes prohibiting the importation of these items.
Thus, in Chief A.N. Onyiuke III v G.F. Okeke, the plaintiff brought a claim or E1,650 being the value of 110 tins of palm oil sold and delivered to the defendant in the Republic of Biafra sometime in 1969. It was admitted by both parties that the transaction was in Biafra currency. The defendant argued that the contract was illegal because of the currency in which it was expressed.
The Supreme Court held that, the contract was illegal, for it had contravened the provisions of Act No. 48 of 1968, which made it an offence to possess or deal in Biafra currency.
Furthermore, in Alhaji Rabiu Busari v Olabisi Williams, the defendant who was the recipient of a hackney carriage (taxi) license issued by the Lagos city Council, hired it to the plaintiff for the operation of the plaintiff’s taxi for E600. This was in breach of the City Council’s by-law which prohibited the transfer of carriage licenses. When, as a result of a dispute between the parties, the defendant seized the license from the plaintiff, the latter brought an action to recover his E600.
It was held that, the court would not lend itself in any way to assist a person who has taken part in an illegal transaction; therefore, the action failed.

2. The Regulation of a Particular Trade, profession, or the Dealing in a particular Commodity or Resource.

There are many types of transactions that come under this head. They include enactments regulating the practice of professions like law, medicine, pharmacy, auctioneers, companies etc. it also covers laws and regulations concerning dealings in land. Thus, Section 21 of the Land Use Act, 1978, it is unlawful for any customary right of occupancy of land to be alienated by assignment, mortgage, and transfer of possession or sublease or otherwise, without the consent of the Governor of the State, or in some cases, without the consent of the relevant Local Government Council. This same rule also applies to a holder of a statutory right of occupancy, although in this case the consent is limited to the Governor.

Protection of a Class, or the Public, or the Promotion of an object of Public Policy – Contracts Rendered Illegal by Statute

Where a statute is enacted specifically for the protection of a class of citizen or the public generally, any contract that is entered into breach of such a statute would be illegal and void. For example, under the Illiterates Protection Act, any person who writes or prepares a document at the request of, on behalf of an illiterate person, must read it over and explain the contents to the illiterate person before the latter signs it or makes his mark on it. Also, the writer of the document must write his name and address on the document. Section 4 of the Act provides a fine of E50 or six months imprisonment for failure to comply with the above stipulations. Thus, in Osefo v Uwania, the defendant who owed the plaintiff a small sum of money, bluntly refused to pay, relying on the Illiterate Protection Act. He claimed that he was an illiterate person and that, since the receipt recording the loan transaction did not bear the name and address of the writer (the plaintiff), the defendant was not bound by the contents of the receipt.
The court stated that the object of the Act was to protect an illiterate person from possible fraud, and dismissed the action for the plaintiff’s non-compliance with the statute.
Another statute which has been interpreted and applied in the same manner is the Moneylenders Act of the Federation of Nigeria, and its counterparts in the States. The Act makes provision for a series of conditions which a moneylender must satisfy before he can enforce the repayment of a debt or retain property deposited with him as security. These include a memorandum of contract in writing signed by the parties before the money is lent. The memorandum must contain:
a. The date the loan was made;
b. The amount of the principal of the loan;
c. The rate of interest per centum per annum, payable in respect of the loan.

The money lender must issue a receipt for every payment made to him at the time the payment is made. He must also keep a book in which he shall enter in connection with every loan made by him all the information required for the above memorandum. The book is also to show all sums received in respect of the loan or the interest thereof with the dates of payment in each case. The maximum rate of interest chargeable is also provided.
Any moneylender, who fails to comply with any of the requirements listed above, not only loses his right to enforce any claim in respect of the transaction, but is guilty of an offence and liable to a fine of E10 in the first instance and E5 for each day the offence continues. Thus, in the famous case of Kasumu v Baba-Egbe, Baba-Egbe mortgaged a leasehold land to a licensed moneylender as security for a loan. The moneylender kept no books recording the transaction as required by Section 19 of the Moneylenders Act. The transaction was, therefore, held to be unenforceable. Baba-Egbe now instituted an action claiming the redemption of the property and recovery of possession.

The question was whether he could be made to repay to the appellant so much of the money lent as still owed with interest.
The West African Court of Appeal and, on appeal, the Judicial Committee of the Privy Council held, that the appellant was not entitled to recover, because the mortgage transaction, not having been recorded in a book as required by section 19 of the Act, was unenforceable. The Privy Council therefore ordered the cancellation of the mortgage and the delivery of the cancelled deeds and title deeds to the administrators of the borrower’s estate. According to the Court:

When the governing statute enacts that no loan which fails to satisfy any of these requirements is to be enforceable, it must be taken to mean what it says, that no court of law is to recognize the lender as having a right at law to get his money back. That is part of the penalty which the law imposes. There is no room to reform the terms of the law since the statute is not concerned with the vice of its contents but with the vice of the conditions under which it was made. The provisions of Section 19 are not purposeless; they seem to assume that no loan that is not contemporaneously recorded can be established with sufficient certainty to be recognized at law”.

If the lender fails to comply with the requirements of the statute, he cannot escape the consequences of illegality by bringing an action to recover the bare capital without interest and by claiming that the transaction was not a loan under the Moneylenders Act, but a friendly loan. As stated by Onyeama, Ag. C.J. (as he then was) in Nnadi v Akanni:

in my judgment a money lender doesn’t escape the net of the Moneylender’s Ordinance by calling a loan a friendly loan or by saying it was made without interest…The plaintiff in this case admitted carrying on the business of money lending and has lent money to the defendant on previous occasions. There is nothing in the Moneylenders Ordinance excepting from the operation of the ordinance loans made by moneylenders to their friends or free of interest”

  1. Revenue raising Statutes.

Within this category comes the Registration of Business Names Act, 1961, which requires all owners of business to register them for a fee. One of the aims of the Act was to raise revenue. However, it does not mean that a purchaser of goods from a store whose name has not been registered by its proprietor can refuse to pay the purchase price on the ground that the owner of goods had failed to comply with the statute. The Statute does not prohibit the contracts concluded by the proprietors of the business, it merely makes them liable to a penalty of E10 for every day during which the default continues.

Also, in the same category are the Purchase Tax Laws which were introduced by many states in Nigeria with the principal aim of raising revenue. In States, an extra tax of two and half per cent to five percent of the bill, whereas for the purchase of cars, it comes to two and half per cent. In cinemas all over the country, the proprietors pay a tax every time a film is shown and the audience itself pays a tax which is included in the price of his ticket. Failure of any establishment to include this tax in a purchase of gods or services will not render the contract illegal or void, rather, the seller of the goods or services will pay the prescribed penalty for failing to comply with the provisions of the statute.

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