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Contract Law Vitiatingf Factors Illegal And Void Contracts Notes

BCL Law Notes > Contract Law: Vitiating Factors Notes

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Illegal and void contracts

• Illegality occurs when a contract has all the legal elements on the face of it, but one of the parties is able to avoid the contract by claiming that it is illegal

• For ex: you could have a perfectly complete contract w/ somebody to commit a murder but if they didn't carry out their end, obviously, you cannot sue them

• Generally, judges won't involve themselves In illegal activity - you can't persuade a judge to enforce illegal, contractual rights.

• Everything will depend on circumstances - sometimes deliberate,
sometimes one side breaking the law, sometimes both
Traditionally, you'll see it provided in the following way in text books:

- Illegal contracts and void contracts
- Illegal = where the whole contract potentially breaches either a statue or a common law rule
- Void = the contract is fine, but an element of it is regarded as being against public policy.
Courts can't adopt a rigid approach on what this entails because public policy evolves. What was against public policy at one time, could be normal
For ex: employment contract including a clause saying that you can never be employed again - this is technically not illegal but the courts just won't allow it.
Paul says this isn't very realistic but we'll consider it anyway:
If legislation expressly and clearly says that a particular kind of contract is unlawful, this is straightforward and unambiguous < this is rare.
Legislation usually makes conduct unlawful but contracts, not so much.
For example:

Family home protection act -
: if a home is owned by a married couple, one can't sell it w/out the written consent of the other person.
: they have a mutual and equal interest in the home as they both contributed in some way to it. (by money, work, raising a family…) Gaming and lotteries act -
: although you can gamble away and there are many ways to do so, you can't have a contract for gaming or lotteries or gambling. If you're owed money from gambling, you can't sue for it,
Where litigation occurs

• Incredible web of rules and regulations in modern life

• But, what almost none of it does, is tell you the actual contractual effect of it or the implications if conduct is involved in logistics of the contract

• This is where the contract is not expressly against the law but the question of if it was impliedly prohibited by the legislation.

• Suppose I contract to sell a sack of potatoes with you, when my lorry is driving to you it breaks the speed limit, does that mean that the contract is voidable? What if driver has no licence?

St John Shipping v Joseph Rank
Buyer contracted to buy something transported by a ship. (grain). The weight laws were breached and they were prosecuted and fined as there was too much on it. What about the goods and the contract? The buyer refused to pay for the percentage of the cargo that was overweight. He agreed to pay for the lawful weight of the goods but nothing else. This case came to court and the buyer must argue that he doesn't have to pay for ANY of it - he has to argue that it was an illegal contract, otherwise it just wouldn't be a successful argument. Hypothetical given by the court to trick the barrister - if this was a lorry driving 1 mph over the limit, would the outcome you're arguing be the same? To which he answered yes. Rejected. The courts said that this is ridiculous
- There's so much legislation - how could anyone know if they're complying with every single part of the law.
If this was the lawanyone could get out of any contract < not sensible for commercial world Find a way to pick apart their conduct to point out that they were acting unlawfully, in a sense saying that it's too easy to break the law - has to be relevant'A service of trained observers on all our main roads would soon pay for itself'


➢ Whether the statute MEANT to prohibit the contract
Does it look like the legislation intended to affect contracts?
Is the contract in question in breach of the legislation?
Here for example, the contract is for the sale of goods and the legislation is to do with overloading ships. Unrelated.

Quinn v IBRC 2015
IBRC > used to be Anglo-bank. Quinn family being sued for unpaid loans by the bank. Huge business so huge loans. Quin family said that the bank can't sue this for the loans because the loans were illegal - they were loaning them money so they could buy shares in the bank - the bank were giving loans to the family, to buy shares in their own company. This is against both Irish and international law. Shares based on shares and credibility > shares goes up,
more investments come etc. Court
Policy grounds >
- Illegality not a defence here. the mere fact that the loans were for illegal purpose, didn't mean the Quinn family didn't have to pay them
Discretionary issue of interpreting legislation in the above case:
It's not absolutely discretionary, it's discretionary in regards to looking at each piece of legislation.
- each time new legislation arises in these contract cases, the courts will have to interpret them and this will then set precedence for the future. TEST FOR THIS



is the contract designed to do the very thing the legislation is prohibiting?
Does public policy require that the contract should be unenforceable in addition to any consequences of the breach?
(are the consequences of the breach enough punishment?)
Must consider weight attached to the undesirability of courts advocating illegality
Who is legislation aimed at? If its designed to impose burden on one category of people and protecting others - may be interpreted differently (as opposed to compelling compliance with a certain regime on BOTH parties)
Is voidness counterproductive to the legislations aim?
Consider if Oireachtas elected to not include penalty of this sort


• Ex: contract to commit a crime - there's no legislation explicitly saying this, but its obvious

• Where you're alleging that someone intended to commit a crime, bar is very high and court expects very clear and convincing proof > not easy whatsoever

Everet v Williams 1893
Two highway men (thieves) - very organised and formed written agreement about how the stolen goods were divided. One of them sued.

Clay v Yates 1856
Contract defaming someone. Court: we're not getting involved in a contract committing a tort????
- Unenforceable

Gray v Hibernia Insurance
P was insured under fire insurance policy. He had been acquitted on criminal arson charge but failed in malicious damages action surrounding the same fire,

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