Illegal contracts

CPA-Business-Law-Section-1 BLOCK RELEASE

An illegal contract is one which is prohibited law or which contravenes a provision of law or one which ids contrary to public policy. Where both parties are guilty of the illegality they are said to be in pari delicto and none of them can enforce the contract. But where only one of the parties is guilty of the illegality, the contract may in certain circumstances be enforced the innocent party. Thus an agreement to commit murder or assault or robbery would be illegal.

Void and illegal contracts, both cannot be enforced law but the two differ in some respects.
All illegal agreements are void but all void agreements are not necessarily illegal. For example, an agreement with a minor is void as against him but not illegal. Similarly, when an agreement is illegal, other agreements which are incidental or collateral to it are also considered illegal, provided the third parties have the knowledge of the illegal or immoral design of the main transaction. For example, ‘A’ engages ‘B’ to murder ‘C’ and borrows KSH. 5000 from ‘D’ to pay ‘B’. We assume ‘D’ is aware of the purpose of the loan. Here the agreement between A and
B is illegal and the agreement between A and D is collateral to an illegal agreement. As such the loan transaction is illegal and void and D cannot recover the money. But the position will change if D is not aware of the purpose of the loan. In that case, the loan transaction is not collateral to the illegal agreement and is valid contract.

An unenforceable contract is one which though valid, cannot be enforced because none of the parties can sue or be sued to it. For instance, section 6 (1) of the Sale of Goods Act (Cap 31) provides.

“A contract for the sale of any goods of the value of two hundred shillings or upwards shall not be enforceable action unless the buyer shall accept part of the goods sold, and actually receive the same, or give something in earnest to bind the contract, or in part payment, or unless some note or memorandum in writing of the contract be made and signed the party to be charged or his agent in that behalf” Unless the conditions laid down in the above provision are complied with, the contract cannot be enforced. The contract itself is valid but its enforceability depends on whether the above provision has been complied with.

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