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Contracts - 8 - Vitiating Facts - Coggle Diagram
Contracts - 8 - Vitiating Facts
Contracts
void
for illegality
Note automatic voiding (void ab initio) applies not just to strictly illegal contracts, but also those that are
"to the detriment of society as a whole"
and thus
"contrary to public policy"
Cannot be enforced by party committing the illegal act if contract becomes illegal/contrary to public policy
in performance
If illegal/contrary to public policy
at formation
, it is
void
Contracts which are illegal as formed
Automatically void; courts won't enforce
Contracts performed in an illegal manner
Eg long-distance lorry driver without HGV license - cannot enforce his side of the contract
Innocent party, as long as not aware of illegality and did not take part in illegality, retains remedies
Must cease performance as soon as they learn of the illegality
No rights can accrue from this point
Courts may
sever illegal part of contract
The 5 types of illegality
Illegal by statute - provides for performance of an illegal act that violates a statute ->
illegal and thus void
Illegal at common law
Eg contract to commit a tort
Also void automatically
Contrary to morality or the institution of marriage
Eg for prostitution
If a contract is made for an illegal purpose (e.g., hiring a caravan for use in prostitution), it will be void for illegality.
If one party knew about the illegal purpose at the time of the contract, they cannot enforce it.
However, if a party was unaware of the illegal use, they may be able to enforce the contract until they learn of the immoral or illegal use.
Damaging to the government
Eg trading with an enemy during wartime
May be void for illegality
Contracts that interfere with justice
Contracts that attempt to
undermine court's jurisdiction
Eg Agreement to conceal a crime -
void
Restraint of Trade
If a contract attempts to restrict freedom of parties to contract, it is
void unless reasonable
Eg non-competes, restrictive covenants
Reasonable - definition
Depends on whether parties could be viewed as acting in a normal commercial relationship; and
Whether the terms of the contract were negotiated with the benefit of legal advice
Party must show restriction is
REASONABLY NECESSARY for PROTECTION of its LEGITIMATE INTERESTS
Courts may consider whether these are
proportionate
Geographical scope
Duration
Examples
Eg non-disclosure agreement for trade secrets may be reasonable
Restriction on baker quitting bakery working in a different bakery within 1 mile for 6 months - reasonable
VERSUS:
Restriction on them working in
any
bakery in
the entire city
for 5 years as a baker - unreasoanbly
Anti-competitive agreements likely void as
breaches of competition law
Eg price fixing
Eg Businesses apportioning markets between themselves