ILLEGAL AND VOID CONTRACTS

Generally speaking, once all the elements required for the formation of a contract are present the contract becomes valid and enforceable. However, this position is not applicable to all cases of contract. The courts will not enforce a contract that is laced with illegality or a contract that is rendered void. A contract may be illegal or void both at common law and under the statutes.

Contracts Illegal or Void at Common Law.

The following contracts are regarded as illegal at common law:

1. Contract to commit a crime or fraud.

2. Contracts involving sexual immorality.

3. Contracts which tend to promote corruption in public life.

4. Contracts injurious to a state or friendly nation.

5. Contracts prejudicial to the administration of justice.

6. Agreement to oust the jurisdiction of the court.

7. Contracts prejudicial to freedom of marriage.

8. Contracts in restraint of trade.

A contract to commit a crime, a tort or fraud:

Any contract the object of which is a commission of crime, tort or fraud is void. See the case of Allen vs. Rescows, where one of the parties agreed to beat up a third party for some consideration advanced by the other party. It was held that the agreement is void.

Note however, that the fact that an illegal act is committed during the course of carrying out a lawful agreement does not invalidate the lawful agreement. In Guinness Nig PLC vs. Nwoke 2000 15 NWLR PT 689 P135@147, it was held the commission of crime is not a good ground for repudiation of a contract when such crime was never in the contemplation of the parties at the time of the contract.

Contracts involving sexual immorality

Any agreement which tends to promote sexual immorality is void. Thus a prostitute cannot bring an action to enforce the payment for services she might have rendered. Note that sexual immorality is not limited to the act of prostitution itself. Any agreement to provide goods or services in aid of prostitution is equally void at law.

In Upfill vs. Wright, the plaintiff let his premises to a woman knowing fully well that the defendant was the mistress of a certain man and that the rent of the premises would be paid with the money of the man who kept her. When the landlord sued the woman for unpaid rent it was held that he could not recover the rent because the agreement was tainted with immorality. It was further held that since the flat was let for the purpose of committing fornication, there was no difference between this transaction and one in which the flat was let for the purpose of prostitution.

However, this position has been severely criticised in view of the fact that it is now common place to have a man and a woman setting up a house together and having a family even without getting married. What may constitute sexual immorality must be viewed from the context of each individual case.

Contracts which tend to promote corruption in public life:

Any contract having the tendency of hosting sanity or to promote corrupt practices in public life is illegal and void. Such contract include contracts that would enhance fraudulent practice’s, misappropriation of public funds and all sorts of agreement involving bribery and graft. In Okoronkwo vs. Nwoga 1972 ECSLR 615. The plaintiff, a contractor sued the defendants who was a minister in the government of the federation of Nigeria to recover a motor car and the sum of £7500. The defendant had advertised for certain contracts and the plaintiff tendered for the job. He alleged that in order to ensure that he won the contract he gave the minister a motor and £7500 on his demand. However, he did not secure the contract. The plaintiff’s claim failed and the court held that the contract was illegal and void because it tended to promote corruption in public life. See also: FBN PLC vs. Akinyosoye (2005) 5 NWLR PT 918 P340 @396-397.

In Altimate Investment Ltd vs. Castle and Cubicles (2008) AFWLR PT 417 P 124. In this case, the plaintiff claimed the sum of N517,877.57 as sum due to humans facilitation fees for procuring a contract for the completion of a religious building at the university of Calabar from the EDUCATION Trust Fund. He claimed another sum of 1,730,099 as percentage which is a proportion of what the defendant will get by the end of the ETF project. The appellant was indeed a consultant to the project. In a suit to recover the amount, it was held that any agreement between the parties that any sum should paid to the apellants is contrary to public policy and therefore illegal because the effect of such agreement is that the sum be deducted from the contract sum. Such an agreement was held to be purely sabotage of the project.

Contract injurious to a State or a friendly nation

In the interest of a cordial relationship between states. Any agreement which contemplates hostile action against a friendly state or which involves doing an act which is illegal to a friendly state. An instance of this is a contract for the importation of arms or contracts relating to illegal bunkering of crude oil. Or a contract the object of which is a commission of crime to overthrow the govt of a friendly nation. In De wutz vs. Hendricks, a loan to support an armed attack on a friendly foreign country was held illegal.

See also: Regazzoni vs. KC Sethia Ltd where a contract was entered into for the export of Indian Jutes to Italy with a view to exporting same to South Africa. At the material time, Indian law forbade all sorts of trade with South Africa under the apartheid regime. The house of Lords refused to order specific performance of the contract because it was contrary to the laws of a friendly state. See also: Foster vs. Driscoll and Lemenda Trading Co Ltd vs. African Middle East Petroleum co Ltd.

Contacts Prejudicial to the Administration of Justice:

These are contracts which are entered into and have the capability of perverting justice. They are illegal and therefore unenforceable. In R vs. Panayiotou, X tried to bribe a certain woman to withdraw her complaint of rape against Y. It was held that X’s action constituted an attempt to pervert the cause of justice. Other instances of contracts which are prejudicial to the administration of justice include paying a witness to give evidence in court.

In Godwin Nwaigwe vs. Transproject Nig Ltd 2000 8 NWLR PT 669 page 664, the appellant was promised by the respondent in a written agreement a sum of money and a Peugeot 504 if he would testify against his labour union in a government enquiry. Subsequently, the respondent reneged on the contract. The respondent sued to enforce it but lost at the trial court. On appeal the court of appeal held that the contract to pay a witness to testify was tainted with illegality and such the court would not enforce such contract. The court said that a witness is only entitled to a nominal fee to cover transportation.

Another instance of contracts prejudicial to the administration of justice is maintenance and champerty. Any contract of maintenance and champerty is illegal. A contract of maintenance is any agreement whereby encouragement is given by another to a litigation by offering financial aid towards its execution in an improper manner without any just cause. See the case of Re Trepca mines Ltd where Lord Denning defined maintenance in the law of contract as “improperly stirring up litigation and strife by giving aid to one party to bring or defend a claim without just cause or excuse”.

On the other hand a champerty is a special category of maintenance whereby the assistance is given for a share in the proceeds of an action in return for giving evidence or providing financial assistance to the litigants.

See Michael Abdalah vs. FJC Palat, in this case, a solicitor entered into an agreement whereby he undertook to render his professional services to a client in a litigation and would be paid out of the proceeds of the litigation as a fee representing two and a half percent of the sum paid in addition to ten percent of the amount actually recovered from the litigation. It was held that the agreement was champertous and so the solicitor was unable to recover any payment as the services he purported to render was compounded by an illegal purpose.

Also in Re Cyril Bunting Rodgers Wright, a solicitor agreed with his client that they would share fifty fifty of the net proceeds that were approved from the litigation which the solicitor was handling for his client. He was found guilty of champerty and his name was struck of the roll. On appeal while the court agreed that the appellant was liable, the court felt that the punishment was too drastic he was therefore suspended from practice for one year.

Even though champerty by legal practitioners is viewed as bad practice, the consequence may no longer be in line with modern realities. In Oyo vs. Mercantile Bank of Nig Ltd 1989 3 NWLR pt 108 @213, the plaintiff appellant a legal practitioner was engaged by the defendant respondent to collect debts from his customers. Under the agreement the appellant would receive ten percent of any amount actually recovered. In carrying out his assignment the appellant wrote letters and entered into agreement with the affected customers of the respondent and the appellant filed 8 suits on behalf of the respondent.

When the appellant had made some progress in those matters the respondent prevailed on him to withdraw the suits in response to the approach made to the respondent by the debtors directly to negotiate repayment of the debt. The appellant thereafter sent his bill to the respondent. However the respondent offered 12,439.7 instead of 1,254, 282.33 being the agreed 10%. The appellant accepted the payment as part payment. When the respondent refused to pay the balance, the appellant instituted an action. The trial court dismissed the claim. His appeal was however allowed and the court of appeal said that a legal practitioner has a right to be remunerated for his services. He was however awarded 96,000 based on quantum meruit.

Agreement To Oust The Jurisdiction of The Court:

Any contract which purports to oust the jurisdiction of the court or which limits the rights of either party to the contract to maintain an action in the court law is invalid and therefore unenforceable. Such provision in an agreement ousting the jurisdiction of the court will also be in breach of the right to fair hearing as provided in S.36 CFRN 1999(as amended).

In Lee vs. Showmen’s Guild, Denning LJ made it clear that parties could agree to settle their matters in a domestic tribunal but can never make such a tribunal the final arbiter except in respect of facts only. Any agreement purporting to oust the jurisdiction of the court would be against public policy and to that extent void. The import of this is that any clause in an agreement which requires that before any dispute is taken to court for adjudication it must first be submitted to an arbitral tribunal is valid and enforceable;Scott vs. Avery.

Contracts Prejudicial To The Freedom Of Marriage

Contracts in this category involve contracts that may be prejudicial to the freedom to contract a marriage or contracts that tend to undermine or prejudice the existence or continuation of a subsisting marriage. In Lowe vs. Peers, a promise under seal by a man not to marry with any other person besides the plaintiff or otherwise to pay her £2000 was held void. Similarly in Cole vs. Gibson a marriage brokerage whereby a person undertakes to procure a marriage between two persons in consideration for some monetary reward was held illegal and void. In Spiers vs. Hunt a promise by a man to marry the plaintiff after his wife’s death was held illegal as it had the tendency to break up the marriage or to encourage immorality and may even lead to the commission of a crime.

Contracts in restraint of trade:

A contract in restraint of trade is one whereby a person seeks to restrict his capacity to freely and singly exercise his trade or profession. This is generally illegal and unenforceable. The following are the categories of persons whose relationships for whom contract in restraint of trade may applied to:

1. 1. Agreement between employers and employees

   2. Agreement between a vendor and purchaser of business

   3. Agreement between traders.

What is important here is that such restraint must be unreasonable to enable the contract to be void. If the restraint is reasonable the court may not declare the contract void or illegal. See: Veegee Nig Ltd vs. Contact Overseas Ltd (1992) 9 NWLR PT 266 P 503, Nordenfelt vs. Nordenfelt, Eso Petroleum Co Ltd vs. Harpers Garage Ltd.

Contracts Prohibited By Statutes

There are contracts that are prohibited by statutes or are subject to cergain conditions. These types of contracts are in the following categories:

1. Contracts that are expressly prohibited by statutes.

2. Statutory regulation of a particular trade or profession or dealing with particular commodities or services.

3. Statutory protection of the public in general or some class of people.

4. Revenue raising statutes

5. Wagering Contracts.

All contracts falling within the above category are generally illegal and there are sanctions for engaging in them.

Contracts Expressly Prohibited By Statutes:

Where a statute expressly prohibits contracts in a certain commodity, such contracts are illegal and thus void. For example contracts in hard drugs like cocaine, Indian hemp and heroine. The sale, transportation and handing of such products are prohibited by the National Drug Law Enforcement Agency Act or the Indian Hemp Act.

Similarly, where the contract involves foreign currency the permission of the CBN has to be sought. Where this is not done, such contracts will be illegal. In Chief Olyiuke vs. Okeke (1976) ANLR 148, a contract involving Biafra currency when the Central Bank(Currency Conversion) Decree prohibited the possession of Biafran currency was held to be illegal.

Also, any contract based on consideration which is illegal will be rendered void. See: Alhaji Rabiu Busari vs. Olabisi Williams.

Statutory Regulation Of A Particular Trade:

Contracts falling under this category involves contracts relating to statutory regulated professions like law, medicine, pharmacy, auctioneer, money lenders and mortgage. By S.21 of the Land Use Act it is illegal to alienate land without the consent of the Governor. In Savannah Bank vs. Ajiloh , a mortgage was held to be void because the Governor’s assent wasn’t sought pursuant to the execution of the mortgage. In contrast see: Adedeji vs. National Bank of Nigeria 1989 1 NWLR PT 96; Ayo Solanke vs. Abraham Abed and Anor 1962 ANLR PT 1 @230.

It should be noted that the decision in Savannah Bank has been severely criticised. Thus, the current position of the law is that parties are not prevented from entering into a a valid land transaction prior to the Governor’s consent. This is due to the fact that in most cases, the contract would have already been executed before the Governor’s consent would be gotten. See: Awodugbagbe light ltd vs. Chunkwe, Iragunima vs. RSHPDA 2003 5 SC P 179.

Statutory Protection of The Public In General Or Some Specific People:

A contract made in violation of a statute that seeks to protect the general public or a class of persons will also be void. For example under the Illiterate Protection Law a person who writes or prepares a document for an illiterate must read over and explain the content of the document to him and make his mark thereof. Thus a jurat showing compliance with the law is usually written on the document.

In Osefo vs. Nwania, the defendant was owing the plaintiff some specific sum of money but he refused to pay. He relied on the Illiterate Protection Act and contended that as an illiterate the receipt for the loan did not bear the name and address of the writer. The court held that the purpose of the Illiterate Protection Act was to protect illiterates, thus the action was dismissed. See also: Pilpert Ezeigwe vs. Awdu (2008) NWLR pt 1097.

Note that the purpose of the Illiterate Protection Act was to protect Illiterates. Thus, the act cannot be used by an illiterate to perpetrate fraud on others; Lawal vs. GB Olivant.

Revenue Raising Statutes:

Some statutes are created not solely for the purpose of invalidating some contracts but for generating revenue for the government. Such statutes include:

• Statutes relating to registration of business names under Part II of CAMA.

• Provisions relating to signage and advertisememt such as the Kwara State Signage Structures and Advertisement Agency Law.

Such statute may require a person to pay some certain sum for a permit upon making some payment to the appropriate authority before embarking on any transaction guided by such statute. Failure to comply with the provision might not necessarily invalidate contracts entered into but might incur a certain fine or other sanctions.

Similarly, S.8 of the Legal Practitioners Act requires legal practitioners to pay a certain sum as practising fee per year. Failure to do so would prevent him from being able to appear before the court and he may be deprived of other entitlements as a legal practitioner. However, it doesn’t invalidate transactions between the legal practitioner and his clients.

Wagering Contracts:

This is a contract by which two persons proposing to hold opposing views touching the issue of a future uncertain event mutually agree that one shall win from the other and the other shall pay or hand over to him a sum of money or other stakes; S.18 of the Gaming Act 1845 which is a statute of general application.

For a contract to be a wager, one party must win and one must lose. Where either party is seised of the event there is likely hood of the party which is seised to win. For example a wager of N100,000 between Mr A and B on what car Mr A would buy is no wager.

Note that football pool and horse racing betting do not constitute wagering contracts because the organisers neither win nor lose. They merely collect the total money pooled and remove the amount for winners from the sum. See Osorio vs. Carpona. Also, for a contract to be considered as a wager there must be two losing parties or two opposite camps.

Under old common law rules, wagering contracts were generally valid and enforceable but are statutorily null and void.

Consequences Of Illegal Contracts

When a contract is ex facci illegal whether illegality has been pleaded or not, the court would not close its eyes to such illegality as it is the duty of the court to refuse every such transaction. See: Sodipo vs. Lemilkand (supra); Altimate Ltd vs. Castle and Cubicles Ltd (supra). On the other hand when a contract is not ex facci illegal and the illegality depends on the circumstances of the case then the court will not entertain question of illegality unless it is raised in the pleadings; Total Nigeria PLC vs. Ajayi(supra).

When a contract is ex facci illegal it is void ab initio. See: Okworonkwo vs. Nwoga, FBN vs. Akinyosoye, Ajayi vs. Total Nig PLC (2014) AFWLR PT 719 1069 @1079.

Note finally that when a contract is not ex facci illegal and a party has benefitted from a contract to which he was a party, he cannot contend that the contract is illegal when it is his turn to fulfill his obligation. Most especially when the other party has fulfilled his own obligation. See: Kentus Chemical & Allied Project Ltd vs. UBA PLC (2014) AFWLR PT 718 P.980@991; Ben Chidoka vs. First City Finance Co Ltd; Hajia Balikis vs. Mrs Alimat Folabo Lawal & anor unreported suit no KWS/66/2014; Sanyinna