illegal contract

a contract may be described as illegal if:

(1) the aim or object of the contract is criminal or immoral;

(2) some specific rule of statute or common law says that it is;

(3) the method of contracting is illegal.

At common law, contracts to commit a crime or promote sexual immorality are illegal. This latter proves difficult in an era when many people live in a state that at the time when many of the authorities were decided was considered immoral. Thus, contracts between cohabitees vary in effect across the Anglo-American world.

Trading with the enemy is contrary to public policy, another head of illegality. Restrictive covenants and contracts in restraint of trade are regarded suspiciously by the courts. There is a general assumption that such contracts are illegal but in modern times their commercial necessity means that the assumption is easily reversed.

Certain gaming contracts are made illegal by statute, and in any event wagering transactions are sponsiones ludicrae and are not enforced.

As the name suggests, the unfair contract terms Act 1977 and other legislation make certain contract terms to have no legal effect.

In New Zealand, under the Illegal Contracts Act 1970, illegality in respect of breach of statute is now determined by the provisions of the enactment and the test is whether the enactment provides for illegality or its object requires illegality. Contracts may be illegal either on creation or on performance. The particularly interesting thing about the Act is that it allows the court very wide power of relief that can be exercised in favour of a party to an illegal contract.