LEGAL PRINCIPLE: CONTRACT LAW – Illegality of Contract – Contract Founded on Exchange Control Contravention Is Void and Unenforceable
PRINCIPLE STATEMENT
A contract is illegal if the consideration or promise involves doing something illegal or contrary to public policy, or if the intention of the parties is to promote something illegal. An illegal contract is void and cannot be the foundation of any legal right.
RATIO DECIDENDI (SOURCE)
Per Kutigi, JSC, in Alao v. African Continental Bank Ltd. (1998) NLC-141995(SC) at pp. 10–11; Paras A–B.
"The law is very clear on the effect of illegality on a transaction or contract. It is the law that a contract is illegal if the consideration or the promise involves doing something illegal or contrary to public policy or if the intention of the parties in making the contract is thereby to promote something which is illegal or contrary to public policy. An illegal contract is a void contract and it cannot be the foundation of any legal right."
EXPLANATION / SCOPE
Illegality renders a contract void and unenforceable. The court will not assist a party to an illegal contract. The principle applies to contracts prohibited by statute or common law. The illegality may be in the consideration, promise, or intention. The rule prevents the court from enforcing illegal transactions. The parties are left where they are found. The court may raise illegality suo motu. The principle is based on public policy. The exception is where the illegality is not central to the contract. The burden of proving illegality is on the party asserting it.