Categories of illegal contracts:
- Contracts illegal under Statute
- Contracts illegal at Common Law
Illegal contracts under legislation
Express Illegality
- This is where an act is prohibited by statute and the parties enter into a contract to do that act.
- If an act is illegal under statute then a contract to do that act will also be illegal and unenforceable.
Gray v Cathcart (1899) 33 I.L.T.R 35
- An agreement to lease unsanitary premises was deemed unenforceable on the ground that it was an offence under statue to occupy unsanitary lodgings.
Illegality by Implication
- This is where the breach arises in the course of performance.
St. John Shipping v Rank (1957) 1 Q.B. 267
- The plaintiffs agreed to transport cargo belonging to the defendants .
- Contrary to the legislative requirements , the plaintiff’s ship was deliberately overloaded, the plaintiff reasoning that the excess profit would outweigh any possible fine it might occur.
- The court concluded, on a reading of particular statute, that the contract was enforceable.
- The contract itself was not contrary to law, though there was illegality in the manner in which it was performed. Such illegality was not fatal to the enforcement to the contract.
Illegal contracts at Common Law
A contract to commit a crime or a tort
The principle of ex turpi causa non oritur actio arises, suggesting that from the circumstances of a crime there can arise no action in law.
Allen v Rescous (1676) 2 Lev 174
- Allen gave Rescous money to beat up a 3rd party.
- Rescous promised that if he did not beat up this 3rd party that he would give Allen double the original money.
- Rescous did not beat up the 3rd party and Allen sued for his money.
- It was held that the action must fail because the contract was illegal and void.
Beresford v Royal Insurance Co. Ltd (1937) 2 AER 243
- A Major Rowlandson had insured his life for £50,000.
- He ran out of money and had debts.
- To pay the debts he committed suicide so that his creditors could benefit from the insurance policy.
- At this time suicide was a crime in England.
- The court held that his executors could not recover from the insurance company because the court would not enforce a transaction which would enable criminal or personal representatives to recover fruits of his crime.
A contract involving immortality
Pearce v Brooks (1866) LR 1 EX 213
- Miss Brooks was a prostitute.
- She hired a carriage for the purpose of practicing her profession.
- The plaintiff later sued her for non-payment of the hire.
- It was held that the plaintiff could not recover.
- Their knowledge that the carriage was to be used for prostitution made the contract an illegal one.
Upfill v Wright (1911) 1 KB 506
- Upfill let a flat to Miss Wright.
- Upfill knew that Miss Wright was the mistress of a certain man and that the man would be giving her money to pay the rent.
- Upfill sued Miss Wright for arrears of rent.
- It was held that as the landlord knew that the flat was to be used for an immortal purpose the lease was tainted with immorality and the landlord could not recover.
Contracts to prejudice the administration of justice
a) Contracts to discontinue legal proceedings
- Contracts in this category usually concern agreements that compromise legal proceedings of a criminal nature.
- The most important element here is public concern at prosecuting the accused. However, there can be an exception to this if the particular crime the person is accused of does not contain any element of public concern.
Keir v Leeman (1846) 9 QB 371
- ‘ In the present instance the offence is not confined to personal injury, but it is accompanied with riot and obstruction of a public officer in execution of his duty. These are matters of public concern and therefore not legally subject of a compromise.’ (Denman CJ)
b) Contracts to refrain from legal proceedings.
Rourke v Meady (1879) 4 LR (Ir) 166
- An agreement that the defendant would honor a negotiable instrument, which had been forged by a relative, in the face of a threat of prosecution against the defendants relative was held to be valid.
c) Maintenance and Champerty
Maintenance involves ‘ improper stirring up litigation and strife by giving aid to one party to bring or defend a claim without just cause or excuse’
Uppington v Bullen (1842) 2 Dr. & War. 184
- A solicitor sold sold land to Mr Fleming for £400 but agreed to accept £100.
- The remainder of the proceeds was to be used by the solicitor to take a case on Fleming’s behalf.
- The agreement was deemed illegal, as it involved supporting or ‘maintaining’ a third party in pursuing litigation.
Champerty , like maintenance , concerns agreements to fund speculative litigation. A contract is champertous if it involves providing financial support for litigation in exchange for a right to share the winnings.
McElroy v Flynn (1991) I.L.R.M. 294
- A contract to share an inheritance in exchange for helping to make a legal claim upon it was deemed illegal.
Contracts to defraud the Revenue
A contract that is created with a view to evading taxes owed to the Revenue is illegal in Irish law.
Miller v Karlinski (1945) 62 TLR 85
- Miller was employed by Karlinski.
- Miller was to be paid £10 a week and expenses. But it was also agreed that under ‘expenses’ he could include his income tax liability.
- Miller later sued to recover 10 weeks arrears of salary plus £21 in expenses.
- It emerged at the trial that about £17 of the £21 really represented his liability for income tax.
- It was held that the whole contract was illegal since it constituted a fraud upon the revenue. Therefore, the court held that Miller could not recover his expenses or his salary.
Alexander v Rayson (1936) 1 KB 169
- Alexander rented a flat in Picadilly to Mrs Rayson for £1,200 p.a. However, in order to lower the rateable value of the flat, Alexander gave her 2 agreements.
- 1) A lease of the lat for £450.
- 2) A contract for services for £750.
- After a disagreement Alexander sued for money owed under the agreement.
- It was held that the agreement constituted a fraud upon the Revenue and that Alexander could not recover under either agreement.
Contracts liable to corrupt public life
This category refers to the buying and selling of public offices, and it also included the buying and selling of titles.
Parkinson v College of Ambulance Ltd & Harrison (1925) 2 KB 1
- Colonel Parkinson was told by the secretary of the College of Ambulance that if he made a large donation to the charity that the charity would get him a knighthood.
- Parkinson donated £3,000.
- He never got the knighthood and he sued to recover his money.
- It was held that his action would fail because a contract for the purchase of a title was illegal and void.
A contract prejudicial to Public Safety
Contracts in this category relate to dealing with the ‘enemy’ countries.
Ross v Shaw (1917) IR 367
- A contract concerning goods to be obtained from Belgium could not be lawfully performed because of German occupation During WWI.
- The plaintiff’s action for non-delivery of the goods failed.
Consequences of Illegality
a) A contract illegal in itself.
- The general rule regarding contracts in this category is that both parties are denied any right or remedy whatsoever.
- The contracts which are illegal as formed are void ab initio.
There are 2 exceptions to the rule that a party cannot recover what he had given to the other party under an illegal contract.
1. if the parties are not in pari delicto ( equally to blame), the courts may allow the less- blameworthy party to recover what he had given to the other party under the contract. It is necessary for the party who seeks to be allowed to do this to prove that he had been the victim of fraud, duress or oppression on the part of the defendant. Courts may also grant relief where the illegality comes from a statute whose aim is to benefit a protected class of people when the less blame -worthy party is a member of this class
Kiriri Cotton Ltd v Dewani (1960) 1 AER 177
- A prospective tenant paid a premium to a landlord in order to secure the lease of a flat.
- This was contrary to an ordinance which had been passed for the protection of tenants. However, neither the landlord or the tenant knew of this ordinance.
- The tenant later sued to recover the premium.
- It was held that he could succeed.
2. Where a party to an executory contract repents before performance, he may recover what he has transferred to his co-contractor provided that he takes proceedings before the illegal purpose has been substantially performed.
Kearley v Thomson (1980) QBD 742
- The Court of Appeal stated that because no creditors had been defrauded the party could ‘repent’ and be reimbursed, notwithstanding the illegality.
Collateral Contracts
A subsequent or collateral contract which is based on an illegal contract is also deemed to be illegal and void.
Fisher v Bridges (1854)
- Bridges had promised by deed to pay Fisher £630, which represented the balance of the purchase price for land that he had bought earlier.
- Both parties knew that the land was to be disposed of by an illegal lottery- therefore the contract of the sale of the land was illegal and void.
- Fisher sued under the second contract – the deed regarding the balance of money.
- The action failed.
b) A contract illegal in its performance
In these situations, the contract is lawful in its formation, but one party, unknown to the other, intends to exploit it from an unlawful purpose.
Cowan v Milbourn (1867) LR 2 Exch 230
- Milbourn let a room to the plaintiff.
- He then discovered that the room was to be used to the purpose of delivering blasphemous lectures ( advocating atheism), so he told the plaintiff that he would not allow his to use the room.
- The plaintiff then claimed damages for the breach of contract.
- It was held that the plaintiff could not recover damages as he had intended to use the room for an unlawful purpose.
Irish Law Notes 