illegal contracts

Illegal Contracts are void ab initio at common law provided the illegality was present at the time the contract was formed and an exception does not apply. The exceptions to illegal contracts (the contract will not be held to be void ab initio) are:  

1. the parties were not in pari delicto
2. where a party genuinely repents and repudiates the contract prior to performance
3. where the claim for relief may be framed in a manner that does not refer to the illegality otherwise present in the contract.

Where a contract has been tainted by illegality and lawful provisions exist within it, unless one of the foregoing exceptions apply the entire contract will be void ab initio.

Performance

Contracts that are illegal in their performance may or may not be void. The remedy of damages may be available to the innocent party for breach of contract. Knowledge or notice of the illegality is a central consideration.

Contracts dealing with the following subject are illegal and void ab initio at common law:

1. contracts that are in restraint of trade
2. contracts that attempt to oust the jurisdiction of the courts
3. contracts that are damaging to the institution of marriage
4. that to commit a crime, tort or fraud
5. threatening to damage foreign relations or safety of the public in the UK
6. pervert the course of justice, such as a contract to commit perjury
7. causing corruption in public life (payment for knighthoods)
8. promoting sexual immorality (a prostitute hiring a bus for the purpose of attracting clientele).

Usage: The contract that purported to bind the witness to give false evidence in the litigation was held to be an illegal contract by the court.

Related Words: void; ab initio; contracts; in pari delicto; restraint of trade; agreement; common mistake.