An agreement might look good on paper, check all the right boxes when it comes to the elements of a valid contract, but be totally unenforceable because of some illegality.
It is unfortunate that many unsuspecting individuals constantly invest large sums in such transactions, which they cannot recover when the transaction goes south.
What is an illegal contract?
In Alao v. ACB Ltd., the Supreme Court of Nigeria defined a contract as illegal if the consideration or promise involves doing something illegal or contrary to public policy or if the intention of the parties in making the contract is to promote something that is illegal or contrary to public policy.
An illegal contract is a void contract and cannot be the foundation of any legal obligation. In other words, when the object of either the promise or the consideration is to promote the committal of an illegal act, the contract itself is illegal and cannot be enforced.
The word “consideration” means the payment for a product or service rendered. This could be in monetary or any other form that holds value to the parties involved.
Here’s an example of an Illegal Contract
An individual manufactures and sells unregistered health products to large distributors, who then sell them to retailers.
A major distributor has taken delivery of the products and failed to remit payment for the products.
The money the said manufacturer has with the distributor is a lot and will have a negative impact on the manufacturer’s business if not paid promptly.
Now, there’s a contract between the manufacturer and the distributor for a particular amount of money and mode of payment for the shipment. If the manufacturers goes to court to commence an action against the distributor, the manufacturer will not be able to enforce the contract.
The reason for this is simple: selling unregistered health products is an illegality in the first instance. You cannot, therefore, use the law to enforce a transaction based on such illegality.
Instances where a contract will be deemed illegal and unenforceable
1. Contracts Contrary to Law:
Any contract that involves activities or terms that are expressly prohibited by law is considered illegal. For example, contracts related to illegal drugs or other criminal activities would be considered illegal contracts.
- Contracts Against Public Policy:
Contracts that are against public policy, which means they are deemed harmful to the general welfare and interests of the public, are also illegal. Such contracts may include agreements to engage in fraudulent activities or contracts that promote corruption.
- Contracts with Minors:
Contracts with individuals who are legally considered minors (under 18 years of age) are generally voidable. They are not necessarily illegal, but they lack legal capacity, and the minor can void the contract.
- Contracts Obtained Under Duress or Fraud:
Contracts that are entered into under duress or through fraudulent means may be illegal. For example, if someone is forced to sign a contract against their will or misled through fraudulent misrepresentations, the contract could be challenged.
- Contracts in Violation of Regulatory Requirements:
Certain industries and professions in Nigeria are regulated by specific laws and regulations. Contracts that violate these legal requirements may be considered illegal. For example, contracts in the healthcare or legal profession may need to adhere to specific rules and regulations.
The need to have a lawyer to help guard against entering illegal contract
It’s important to consult with a legal professional to understand the specific circumstances that may lead to an illegal contract and the potential consequences. This information is provided as general guidance and should not be considered legal advice.
Kindly share this post using any of the buttons below.
Consider joining our WhatsApp channel to get early updates about new posts.