Illegality and Public Policy in Contract Law

Not all agreements, even if validly formed, will be enforced by the courts. The law recognises certain categories of contracts that, despite satisfying the basic requirements of offer, acceptance, consideration, and intention to create legal relations, are nonetheless unenforceable because they are either illegal or contrary to public policy. This principle reflects the fundamental truth that contract law exists not merely to facilitate private arrangements, but to serve the broader interests of society.

As the Supreme Court of Nigeria declared in Nnadozie v Mbagwu,¹ “a contract is illegal if the consideration or the promise involves doing something illegal or contrary to public policy.” This seemingly simple statement masks a complex area of law that requires careful navigation, particularly in the Nigerian context where statutory law, common law principles, and considerations of public policy intersect.

The doctrine of illegality serves multiple functions. First, it prevents the courts from becoming instruments for enforcing transactions that undermine the rule of law or harm societal interests. Second, it acts as a deterrent, discouraging parties from entering into objectionable agreements. Third, it protects vulnerable members of society from exploitation through unconscionable bargains. Understanding this area of law is essential for any legal practitioner, as the consequences of illegality can be severe and far-reaching.

The Nature of Illegality

Defining Illegality

An illegal act may be defined as an unlawful act—one which the law forbids. In the context of contract law, illegality arises in two principal ways: by statute or by virtue of common law principles. This dual source of illegality reflects both the legislative will of the state and the evolutionary development of legal principles through judicial decisions.

It is crucial to distinguish between contracts that are illegal and those that are merely void. As the Supreme Court explained in Fasel Services Ltd v Nigerian Ports Authority,² where a statute declares a contract void and imposes a penalty for its violation, the contract is illegal ab initio. However, where the legal sanction is merely to prevent abuse or fraud and no penalty is imposed for violation of the statutory provision, the violation renders the contract merely voidable, not illegal.

This distinction carries significant practical consequences. An illegal contract is treated as if it never existed—it is void ab initio and completely unenforceable. A void contract, while also unenforceable, may permit certain remedies in exceptional circumstances. The label attached to a contract can therefore determine whether an innocent party can recover money paid or property transferred.

The Dual Classification

The law recognises two broad categories of objectionable contracts:

1. Contracts illegal at common law or by statute: These are agreements that are forbidden either by legislative enactment or by established principles of the common law. Such contracts are deemed so harmful to society that the courts will refuse to lend any assistance whatsoever to parties seeking to enforce them. The maxim ex turpi causa non oritur actio (from an illegal cause, no action arises) applies with full force.
2. Contracts void at common law on grounds of public policy: These are agreements that, while not expressly prohibited or carrying criminal sanctions, are considered prejudicial to the public interest and are therefore rendered unenforceable. Such contracts offend certain social and economic attitudes of the community but may not rise to the level of immorality or criminality associated with illegal contracts.

The distinction between these categories is not always clear-cut, and much depends on judicial interpretation of legislative intent and evolving standards of public policy. Nevertheless, the consequences of illegality differ significantly from those of mere voidness, making the classification of paramount importance.

Contracts Illegal by Statute

Express Prohibition

Where a statute expressly prohibits a particular type of contract, there is usually no doubt about its illegality, especially where the act prohibited is made a criminal offence. The principle was clearly stated in Langton v Hughes:³ “what is done in contravention of the provisions of an Act of Parliament cannot be made the subject-matter of an action.”

A prime example in Nigerian law is found in the Land Use Act 1978. Section 22 provides that it shall not be lawful for a holder of a statutory right of occupancy granted by the Governor to alienate his right without the Governor’s consent first obtained. Similarly, Section 21 contains parallel provisions for customary rights of occupancy. Section 26 of the Act declares that all dealings in rights of occupancy that do not comply with the Act are null and void.

The Supreme Court in Savannah Bank Ltd v Ajilo⁴ held that any transaction involving the transfer of an interest in a right of occupancy granted under the Land Use Act requires the consent of the Governor under section 22, otherwise the purported transaction would be null and void. This position has been consistently applied by Nigerian courts and represents a clear example of statutory prohibition.

Another important illustration comes from wartime legislation. In Re Mahmoud and Ispahani,⁵ it was forbidden by statutory order to buy or sell linseed oil without a licence. The plaintiff agreed to sell linseed oil to the defendant, having asked whether he possessed a licence. The defendant falsely assured him that he did. Subsequently, he refused to accept the oil on discovering his lack of licence. The court refused to entertain the plaintiff’s action for damages, holding that the statutory order was a clear and unequivocal declaration by the legislature that such contracts shall not be entered into.

Implied Prohibition

More difficult questions arise where the prohibition is implied rather than express. Where a contracting party performs an act prohibited by statute in the course of executing the contract, the central question becomes whether only the prohibited act is illegal, or whether the entire contract is tainted with illegality.

The answer depends upon the object and policy of the legislature in enacting the prohibition. As the courts have recognised, statutes may prohibit acts for various purposes: to raise revenue, to regulate business practices, to protect the public, or to maintain public order. The intended scope of the prohibition must be ascertained through careful statutory interpretation.

Revenue Protection vs. Public Protection

The distinction between statutes enacted merely for revenue purposes and those designed to protect the public is crucial. In Smith v Mawhood,⁶ a tobacconist was allowed to recover the price of tobacco delivered, notwithstanding his failure to take out a required licence and to have his name painted on his place of business as statutorily required. The court determined that the statute’s primary purpose was revenue collection, not public protection, and therefore the contract itself was not prohibited.

Contrast this with Cope v Rowlands,⁷ where a statute provided that any person acting as a broker in the City of London without a licence should forfeit £25 for every such offence. The plaintiff, an unlicensed broker, sued for compensation for stock bought and sold on the defendant’s behalf. The court held the contract void, reasoning that “the object of the legislature is the benefit and security of the public in those important transactions which are negotiated by brokers.”

The Nigerian courts have adopted this approach. In Thirwell v Oyewumi,⁸ the court distinguished between statutory provisions that impose penalties (making contracts illegal) and those that merely set out formalities without sanctions (making contracts void but not illegal). This distinction, though sometimes subtle, can determine the availability of remedies.

The Labour Act Illustration

Section 1 of the Labour Act provides an example of implied prohibition in Nigerian law. The section stipulates that payment of a worker’s wages in any manner other than legal tender shall be illegal, null and void. While the provision does not explicitly state that contracts violating this requirement are prohibited, the use of the words “illegal, null and void” coupled with the protective purpose of the Act suggests that such contracts fall within the category of statutory prohibition designed for public protection.

Penalties and Illegality

An important principle established by Nigerian courts is that a contract declared void by statute may not be illegal unless a penalty is imposed for its violation. As stated in Revenue Mobilisation, Allocation and Fiscal Commission v Units Environmental Sciences Ltd:⁹

Where a statute declares a contract or transaction between parties void and imposes a penalty for its violation, the contract or transaction is illegal ab initio. However, where the legal sanction is merely to prevent abuse or fraud and no penalty is imposed for the violation of the provision of the statute, the violation is merely voidable and not illegal.

This principle was further elaborated in First Amalgamated Building Society Ltd v Ibiyeye,¹⁰ where the court held that contracts prohibited by statute coupled with provisions for sanction are illegal. If the law requires certain formalities as conditions precedent to validity without imposing penalties, failure to comply renders the transaction void but not illegal.

Supervening Illegality

Circumstances may arise where a contract, lawful when made, becomes illegal due to subsequent legislative action. This is known as supervening illegality and operates as a form of frustration. The principle was examined in Revenue Mobilisation, Allocation and Fiscal Commission v Units Environmental Sciences Ltd,¹¹ where the court held that a contract may be discharged by supervening prohibition where the prohibition would have made the contract illegal had it been in force when the contract was made.

However, the court emphasised that supervening illegality must strike at the root of the contract. In that case, legislation regulating salary structures was held not to constitute supervening prohibition barring the construction of staff housing, as there was no prohibition in the Act against entering such agreements. The appellant retained the option to provide accommodation or monetise it, and therefore the contract was not frustrated.

Contracts Illegal at Common Law

While statutory illegality derives from express or implied legislative prohibition, common law illegality arises from judicial determinations that certain types of contracts are so injurious to society that they cannot be countenanced by the courts. These categories have developed over centuries of case law and reflect fundamental principles of morality, justice, and social order.

Contracts to Commit Crimes, Torts, or Fraud

Any contract whose object, direct or indirect, is to commit a crime, tort, or fraud on a third party is illegal and unenforceable. The rationale is self-evident: the courts cannot assist parties in accomplishing unlawful purposes without undermining the rule of law itself.

Criminal Purposes

In Allen v Rescous,¹² an agreement whereby one party agreed to assault a third party at the behest of another for consideration was held void and unlawful. Similarly, in Berg v Sadler & Moore,¹³ a contract to obtain goods by false pretences was unenforceable.

Tortious Purposes

An agreement to commit a tort is equally objectionable. In Clay v Yates,¹⁴ an agreement involving the publication of a libel was held illegal. The principle extends to any agreement whose purpose is to injure third parties through wrongful acts.

Fraud on Third Parties

Contracts designed to perpetrate fraud on third parties are particularly reprehensible. In Mallalieu v Hodgson,¹⁵ a debtor made a compromise with his creditors to pay 6 shillings 8 pence for every pound owed. He thereafter entered a separate agreement with one creditor to pay part of his debt in full. The agreement was declared void as a fraud on all other creditors.

The Nigerian case of Okoronkwo v Nwoga¹⁶ provides a striking illustration. A contractor bribed a public officer with a car and £7,500 on the understanding that the officer would influence his being awarded a lucrative government contract. When he failed to secure the contract, the contractor sought recovery of the £7,500 and the car. The court held that the agreement, being one to defeat fellow contractors through bribery, was criminal, illegal, and contrary to public policy. The claim was dismissed.

The Principle Against Benefiting from Crime

An allied rule provides that no person shall benefit from his own crime. In Giles v Giles,¹⁷ a wife who killed her husband was convicted of manslaughter by reason of diminished responsibility. Although the hospital order suggested she was not deserving of punishment, the court held she was nevertheless precluded from taking a benefit under her deceased husband’s will, stating that the degree of moral guilt was irrelevant once a person has been justly convicted.

Similarly, in Gray v Barr,¹⁸ the defendant involuntarily killed a person during an unlawful violent attack, amounting to manslaughter. When he sought indemnity under an insurance policy for damages awarded to the victim’s widow, the court held it contrary to public policy that he should be indemnified for the consequences of his intentional violent and unlawful attack.

Sexually Immoral Contracts

Although Lord Mansfield laid down in James v Randall¹⁹ that contracts contra bonos mores are illegal, the law in this context primarily concerns itself with what is sexually reprehensible. Modern Nigerian courts must navigate this area carefully, balancing traditional moral standards against contemporary social realities and constitutional rights.

Prostitution-Related Contracts

The law has historically refused to enforce contracts connected with prostitution. In Pearce v Brooks,²⁰ a coach-building firm hired an ornamental carriage to a prostitute, knowing it would be used to further her immoral trade. When she failed to pay the hire, the court refused the plaintiffs’ claim to recover the money, holding they could not benefit from facilitating immoral purposes.

Similarly, in Upfill v Wright,²¹ a landlord who let premises to a woman knowing she was a kept mistress was not permitted to recover rent, as the rental agreement was tainted with immorality.

Modern Applications

The application of this principle in contemporary Nigeria requires sensitivity to changing social mores while respecting cultural values. Courts must distinguish between contracts that genuinely offend public morality and those that merely reflect disapproval of particular lifestyle choices that may not warrant legal intervention.

Contracts Prejudicial to Public Safety

Contracts prejudicial to public safety fall under two heads: friendly dealings with hostile states and hostile dealings towards friendly states.

Trading with the Enemy

During war, contracts made with alien enemies are illegal because they tend to aid the enemy’s economy. The leading Nigerian authority is Daps v Haco Ltd,²² arising from the Nigerian Civil War (1967-1970). The plaintiff, an employee, was in Port Harcourt (under Biafran control) for a considerable period of the war. After the war, he sought recovery of unpaid salaries. The court held that the outbreak of war had frustrated the contract of employment, and the suit was dismissed.

The principle was further illustrated in United Cinema and Film Distributing Co v Shell BP Petroleum Dev Ltd,²³ where the plaintiffs hired films and equipment to the defendant for employees in Eastern Nigeria. The defendant’s properties, including the plaintiff’s equipment, were seized by the Biafran government. The court held the contract was frustrated by the seizure.

Rights Accrued Before Hostilities

An important qualification exists: where performance has been completed, accrued rights in favour of an enemy at the outbreak of war, though not immediately enforceable, are not destroyed. As Lord Parker stated in Daimler Co Ltd v Continental Tyre and Rubber Co:²⁴

Common law does not countenance the confiscation of enemy property and, subject to what may be arranged in the ultimate peace treaty and to any statutory provisions for the administration of enemy property found in this country, it is well established that contractual rights already accrued in favour of an alien enemy at the outbreak of war remain intact, though of course the right to enforce them is suspended until hostilities cease.

Violations of Friendly States’ Laws

Any agreement contemplating hostile action against a friendly state, or involving acts illegal under a friendly state’s law, is unenforceable as a breach of international comity. In Foster v Driscoll,²⁵ parties concluded an agreement to import whisky into the United States in breach of prohibition laws. The English court refused to enforce the contract as it violated the law of a friendly state.

Similarly, in Re Watz v Hendrick,²⁶ an agreement in England to raise money supporting a revolt against a friendly government was held unlawful.

Contracts Prejudicial to the Administration of Justice

Any contract tending to affect the administration of justice, however slightly, is illegal and void. The public interest in the proper administration of justice overrides private arrangements that might compromise the integrity of legal processes.

Stifling Prosecutions

It is in the public interest that suppression of prosecution should not be made a matter of private bargain. Any agreement to stifle or compromise prosecution for offences of public concern is illegal and void, even if the prosecutor derives no gain and even if the agreement secures the object for which proceedings were taken.

The seminal case is Keir v Leeman,²⁷ where A commenced prosecution for riot and assault against seven defendants who had assaulted a sheriff’s officer during execution. Before trial, X and Y agreed to pay A the debt amount plus costs in consideration that A would not proceed with the prosecution. A consented to a “not guilty” verdict. When X and Y were sued, they successfully pleaded the agreement was an unlawful compromise and therefore void. The court stated:

The offence is not confined to personal injury, but is accompanied with riot and obstruction of a public officer in the execution of his duty which are matters of public concern and therefore not legally the subject of a compromise.

In R v Andrew,²⁸ the defendant was convicted for demanding a bribe to give false evidence at court hearings. The court held there could be few more serious offences than those tending to distort the course of public justice.

Compromisable Offences

However, if the offence is not of public concern but one where the injured person has choice between civil and criminal remedy (such as libel or assault), compromise is lawful and enforceable. In Fisher & Co v Apolinaris Co,²⁹ the Apolinaris Company prosecuted Fisher under the Trade Marks Act for selling mineral water in bottles bearing their trademark. An agreement was reached whereby, in consideration of abandonment of prosecution, Fisher would give a letter of apology for publication. The court held the agreement valid, as there was nothing unlawful in withdrawing prosecution for such an offence.

Similarly, in McGregor v McGregor,³⁰ a separation agreement between spouses who had brought cross-summonses for assault was held valid despite requiring withdrawal of the assault charges, as assault is an offence where the injured party may choose between civil and criminal remedies.

Maintenance and Champerty

Maintenance is improperly stirring up litigation by giving aid to one party to bring or defend a claim without just cause. Champerty is where the maintainer will receive a share of what may be recovered in the action.

In Nigeria, however, the Rules of Professional Conduct permit contingent fees under certain conditions. Rule 42 of the Rules of Professional Conduct (now superseded but illustrative of the principle) allowed lawyers to take as fees part of the gains of a successful suit, whether in cash or kind, provided certain conditions were met. This pragmatic accommodation recognises that contingent fee arrangements can facilitate access to justice, particularly for indigent litigants.

Corruption in Public Life

Any contract tending to corruption in the administration of public affairs is illegal. This category reflects the fundamental importance of integrity in governance and public administration.

Sale of Public Offices

Contracts for buying, selling, or procuring public offices are illegal. In Garforth v Fearon,³¹ A agreed that if, by B’s influence, he were appointed Customs Officer, he would appoint B’s nominees as deputies and hold profits in trust for B. After securing the post, the court held no action lay for breach, as the agreement was illegal.

Misuse of Public Office

In Montifiore v Menday Motor Co Ltd,³² a contract whereby a government board member would use his office to obtain funds for financing a private company could not be enforced as contrary to public policy.

Bribery Provisions

Sections 98 and 116 of the Criminal Code make it an offence to ask for or give bribes to public officers. The Okoronkwo v Nwoga case discussed earlier illustrates the application of these provisions. The court’s dismissal of the contractor’s claim to recover the bribe sends a strong message: courts will not aid parties seeking to benefit from corruption, regardless of whether the corrupt purpose was achieved.

Defrauding the Revenue

If it is apparent that the design of one or both parties is to defraud revenue (whether national or local), such contract is illegal and void. In Miller v Karlinski,³³ a contract of employment provided that the employee’s expense account would include income tax due on his salary. The court held the contract illegal as constituting fraud upon the revenue. The illegality infected the entire contract, rendering even the legitimate claim for salary arrears unenforceable.

In Alexander v Rayson,³⁴ a property owner sought to reduce her local rates by splitting the rental agreement into two documents: one showing a low rent for the premises and another showing additional payment for “services.” The court held the arrangement was a fraudulent device to evade rates and was therefore illegal.

The Nigerian Revenue Service depends upon honest disclosure and payment of taxes. Contracts designed to circumvent tax obligations undermine public finances and are therefore treated severely. The principle extends to agreements to evade customs duties, import/export regulations, and other fiscal obligations.

Legal Consequences of Illegality

The consequences of illegality depend significantly on whether the contract is illegal in its formation or merely in its performance. This distinction, while sometimes subtle, carries profound implications for the parties’ rights and remedies.

Contracts Illegal as Formed

A contract is illegal as formed when its very creation is prohibited. This occurs where parties expressly agree to do something forbidden by statute or common law, or where both parties intend to exploit a facially lawful contract for illegal purposes.

The Fundamental Principle: Ex Turpi Causa

The foundation of consequences for illegal contracts is the maxim ex turpi causa non oritur actio (from an illegal cause, no action arises). As the Court of Appeal stated in Osifo v Okogbo Community Bank:³⁵

A court of law will not lend its aid to enforce the performance of a contract which appears to have been entered into by the contracting parties for the express purpose of carrying into effect that which is prohibited by the law of the land or even is founded upon an immoral consideration… A contract cannot arise out of an illegal act.

This principle has several implications:

1. The Contract is Void Ab Initio

An illegal contract is treated as if it never existed. Neither party can sue on it for performance or damages. The contract is void from the outset, not merely voidable at a party’s option.

In Nnadozie v Mbagwu,³⁶ the court held that when a contract is rooted in illegality, it must not be pleaded and, if pleaded, cannot be enforced in any court. This absolute bar reflects the courts’ refusal to become instruments for advancing unlawful purposes.

2. Court May Raise Illegality Suo Motu

Even if illegality is not pleaded, courts have a duty to refuse enforcement. In Sodipo v Lemminkainen (No 2),³⁷ the court held that when a contract is ex facie illegal, whether the alleged illegality has been pleaded or not, the court would not close its eyes against it. Once illegality is brought to the court’s attention, it must be considered and resolved.

3. Money Paid and Property Transferred are Irrecoverable

The maxim in pari delicto potior est conditio defendentis (where both parties are equally at fault, the position of the defendant is the stronger) applies. The defendant may keep what he has received. Gains and losses remain where they have fallen.

In Taylor v Chester,³⁸ the plaintiff deposited half a £50 note as pledge to secure payment for a debauch at the defendant’s brothel. When the defendant refused to return the note, an action in detinue was dismissed. The plaintiff could not impugn the pledge’s validity without revealing the immoral character of the underlying contract.

The Nigerian case Busari v Williams³⁹ illustrates the principle. The respondent hired a hackney carriage licence to the plaintiff in breach of Lagos City Council by-laws. When the defendant seized the licence following a dispute, the plaintiff sought recovery of his £600. The court held it would not assist a person who had participated in an illegal transaction.

Exceptions to the General Rule of Non-Recovery

Despite the harshness of the in pari delicto rule, equity and justice require certain exceptions:

Exception 1: Independent Cause of Action

A plaintiff may recover if he can frame a cause of action entirely independent of the illegal contract, without disclosing the illegality. In Singh v Kalubya,⁴⁰ a statutory ordinance in Uganda prohibited sale or lease of “Mailo” land by an African to a non-African without the Governor’s written consent. The plaintiff, an African, leased such land to the defendant, an Indian, without consent. After several years, the plaintiff gave notice to quit and sued for recovery of the land. He succeeded because his claim was based on registered ownership, not on the illegal agreement.

Similarly, in the Nigerian case Adesanya v Otuewe,⁴¹ the appellant bought land from six family representatives, two of whom were not true representatives. The deed was not registered as required. The court held the appellant had valid title under native law and custom based on payment and delivery of possession, independent of the inadmissible receipt. The appellant was not in pari delicto with the fraudulent vendors and could therefore recover.

Exception 2: Parties Not In Pari Delicto

Where parties are not equally at fault—where one has been the victim of fraud, duress, oppression, or has stood in a fiduciary relationship that was abused—the less blameworthy party may recover.

In Hughes v Liverpool Victoria Legal Friendly Society,⁴² insurance represented as lawful was in fact illegal. The insured, induced by the insurer’s fraudulent misrepresentation, was entitled to recover premiums paid because he was not equally culpable.

In Re Thomas,⁴³ a client sought to recover money paid pursuant to a champertous agreement with his solicitor. The court held the fiduciary relationship meant the parties were not in pari delicto, and recovery was permitted.

The Adesanya v Otuewe case also illustrates this exception. The fraud of two family members did not vitiate the agreement because the appellant was not privy to it. As the court stated, there was no basis for holding the appellant in pari delicto with the ostensible vendors.

Exception 3: Statutory Protection

Where a statute renders a contract illegal for the protection of one class of persons, that class may recover. The Illiterates Protection Act provides an example. The Act requires anyone writing a document at an illiterate person’s request to read and explain it before signature, and to write their name and address on it. Section 4 imposes penalties for non-compliance.

In U.A.C. v Edems and Ajayi,⁴⁴ and Osefor v Uwania,⁴⁵ courts held that while the literate person cannot enforce contracts failing to comply with the Act’s requirements, the illiterate person can enforce such contracts. The statute protects illiterates from exploitation, and permitting the literate party to avoid obligations would defeat that purpose.

Exception 4: Locus Poenitentiae (Place of Repentance)

Where a contract is still executory, a party may recover what he has transferred if he repudiates before substantial performance. This doctrine of “timely repentance” requires:

(a) Timely Repudiation: The party must repudiate before the illegal purpose is substantially carried out.

In Taylor v Bowers,⁴⁶ the plaintiff, pressed by creditors, transferred goods to Alcock to put them beyond creditors’ reach. Alcock assigned them to the defendant (one of the creditors) by fictitious bill of sale. Before any creditor was defrauded, the plaintiff repudiated and sought recovery. The court allowed recovery as the fraudulent purpose had not been carried out.

Contrast Kearley v Thompson,⁴⁷ where solicitors agreed not to appear at a bankrupt’s examination in consideration of payment. They did not appear. Before discharge application, the plaintiff sued for return of the money. The court held that non-appearance at examination was sufficient execution of the illegal purpose to defeat recovery.

(b) Voluntary Repentance: Repudiation must be voluntary, not forced by intervention of authorities or the other party’s breach.

In Bigos v Bousted,⁴⁸ A agreed to supply B with Italian currency in contravention of the Exchange Control Act 1947. B deposited a share certificate as security. A failed to supply the currency, and B sued to recover the certificate. The court held B’s change of heart, occasioned by A’s failure to perform, did not bring him within the exception. He had not truly repented but merely been frustrated by circumstances.

Collateral Contracts

A subsequent or collateral contract founded on or springing from an illegal contract is itself illegal and void. In Fisher v Bridges,⁴⁹ A agreed to sell B land to be used for an illegal lottery. After conveyance and partial payment, B covenanted to pay the balance of £630. The covenant was unenforceable as it sprang from the illegal sale agreement.

The rationale is clear: parties cannot circumvent the prohibition on illegal contracts by recasting obligations into new agreements. To permit enforcement of collateral contracts would undermine the policy against illegal transactions.

Contracts Illegal as Performed

A more nuanced situation arises where a contract, lawful on its face and in formation, is performed illegally by one party without the other’s knowledge or participation. The consequences here depend on whether the innocent party knew of, participated in, or condoned the illegality.

The Guilty Party Has No Remedy

The party who performs the contract illegally suffers the full impact of the ex turpi causa maxim. In Cowan v Milbourn,⁵⁰ the defendant agreed to let assembly rooms but withdrew consent upon learning they would be used for blasphemous lectures. The plaintiff’s action for breach failed. The court held that the illegal purpose, once known, prevented enforcement even though the contract itself was facially lawful.

In Anderson Ltd v Daniel,⁵¹ a statute required sellers of artificial fertilisers to provide invoices stating percentages of chemical substances. The sellers delivered ten tons without compliance. The court held the sellers could not recover the price because they failed to perform in the only manner the statute permitted.

The Innocent Party’s Rights

The innocent party’s rights depend on his knowledge and conduct:

1. Before Discovery of Illegal Purpose: The innocent party may enforce the contract, sue on quantum meruit for work done, or recover property transferred.

2. After Discovery: If the innocent party discovers the illegal purpose before it is carried into effect, he cannot recover if he allows it to proceed nonetheless. His continuing participation taints him with the illegality.

3. Prevention of Performance: If the guilty party’s conduct prevents performance, the innocent party may recover.

In Clay v Yates,⁵² a printer recovered the value of work done towards publishing a treatise which, after major work was completed, he found contained defamatory material. The court allowed recovery on quantum meruit as he ceased work upon discovery.

The Nigerian case Thirwell v Oyewumi⁵³ provides important clarification. The appellant sold shares without required consent from the Nigerian Enterprises Promotion Board. When transfer approval was not obtained, the respondent demanded refund. While acknowledging that courts will not aid illegality, the court held this was not an illegal contract but one rendered void by failure to obtain requisite consent. The contract was ex facie legal; only the performance mode fell foul of the law. The innocent party could therefore recover.

Similarly, in Marles v Philip Trant & Sons Ltd (No 2),⁵⁴ the defendants sold wheat to farmers including the plaintiff but failed to deliver statutory particulars as required by the Seed Act 1920. The plaintiff could recover damages for breach of warranty, since the warranty was given at the lawful stage of agreement. The contract was not illegal from inception but only rendered illegal by the method of performance.

Determining Substantial Performance

The key question in illegal performance cases is often whether the illegal act was merely preparatory or constituted substantial performance. In St John Shipping Corporation v Joseph Rank Ltd,⁵⁵ a shipowner overloaded his ship while performing carriage contracts, incurring statutory penalties. The court held the Act’s object was to prevent overloading through fines, not to prohibit contracts. The contracts remained enforceable, and the defendant could not withhold freight.

This case establishes that for a contract to be rendered illegal as performed by statute, the illegality must affect the core of the contract. Peripheral violations, while potentially creating liability for penalties, do not necessarily vitiate the entire agreement.

Contracts Void on Grounds of Public Policy

While illegal contracts are absolutely prohibited, another category comprises contracts that, though not criminal or forbidden, are nonetheless considered harmful to society’s interests. These contracts are void rather than illegal—a subtle but important distinction.

The Distinction Between Void and Illegal

As noted in Wallis v Day,⁵⁶ contracts contrary to public policy but not illegal are not totally void. The key differences include:

1. Money and property: May be recoverable in certain circumstances
2. Subsequent transactions: Valid unless intended to further the improper purpose
3. Severance: Lawful promises may be separated and enforced
4. Lesser moral opprobrium: Parties are not stigmatised as criminals

Contracts Ousting Jurisdiction of Courts

A contract purporting to destroy the right of parties to submit questions of law to courts is contrary to public policy and void. The principle was articulated by Lord Denning in Lee v Showmen’s Guild of Great Britain:⁵⁷

Parties cannot by contract oust the ordinary courts from their jurisdiction. They can, of course, agree to leave questions of law, as well as questions of fact, to the decision of the domestic tribunal… but they cannot prevent its decisions being examined by the courts.

In Baker v Jones,⁵⁸ an association’s rules provided that its central council should be sole interpreter of rules and that decisions should in all cases be final. The court held this provision void and asserted jurisdiction to consider whether the council’s interpretation was legally correct.

Nigerian Application

In the Nigerian case Bello and Dairo v Alowonle,⁵⁹ a partnership dissolution instrument provided that no legal proceedings should be instituted by any partner against another regarding partnership matters, and that all rights and liabilities should be deemed satisfied upon signing. When the plaintiffs sued for partnership debts and to prevent the defendant from trading under the dissolved partnership name, the defendant relied on the ouster clause. The court held the clause contrary to public policy as it purported to remove the court’s jurisdiction. The relevant paragraph was void, though the rest of the agreement remained enforceable.

Arbitration Agreements Distinguished

Importantly, arbitration agreements do not oust jurisdiction. An agreement to refer disputes to arbitration before commencing legal proceedings is valid and enforceable. If one party breaches the agreement by commencing court proceedings, the other may apply for a stay of proceedings.

Section 5 of the Arbitration and Conciliation Act 1988 provides that where a party commences court action regarding a matter subject to arbitration agreement, the other party may apply for a stay, which the court shall grant if satisfied there is no sufficient reason why the matter should not be arbitrated.

The distinction was drawn in Scott v Avery,⁶⁰ where the House of Lords held it lawful to make an arbitral award a condition precedent to legal proceedings, but contrary to public policy to prohibit submission to courts altogether. Arbitration defers access to courts; ouster clauses purport to eliminate it entirely.

Contracts Prejudicial to Marriage Status

Marriage status is a matter of public interest. Nothing should be allowed to impair the sanctity of marital obligations or weaken spousal loyalty.

Restraints on Marriage

Contracts unduly restricting or hampering freedom to marry are void. In Lowe v Peers,⁶¹ a man promised under seal not to marry anyone except a particular woman (Mrs. Lowe), agreeing to pay £2,000 if he married anyone else. The contract was held contrary to public policy.

The principle reflects society’s interest in preserving marriage as a free institution. While the law permits marriage settlements and reasonable provisions concerning marriage, it will not enforce contracts that place undue fetters on the fundamental right to marry.

Nigerian Application: Promises to Marry Already-Married Persons

The Nigerian case Alake v Oderinlo⁶² provides important guidance. The respondent claimed recovery of money given to the appellant in consideration of her promise to marry him. At the time of the agreement, the appellant was lawfully married to another man under customary law. One term provided that she should seek divorce.

The court held the contract contrary to public policy and unenforceable. As the court stated:

At common law, a promise by a man to marry one whom he knows to be already married is void as against public policy and as tending to immorality. So also is a similar promise by a married woman to marry after her husband’s death or after her divorce.

The promise was contrary to public policy because it tended to break up the appellant’s existing marriage and encourage immorality. The fact that the marriage was under customary law did not affect the invalidity, as customary law also places great premium on marriage sanctity.

Separation Agreements

A contract providing for immediate separation is valid if followed by immediate separation. However, contracts for possible future separation are void as opposed to elementary considerations of morality. The distinction recognises that once a marriage has irretrievably broken down, parties may legitimately regularise their affairs, but agreements contemplating future breakdown undermine marital stability.

Maintenance Agreements and Ouster of Jurisdiction

A wife’s promise not to apply to court for maintenance raises special considerations. In Hyman v Hyman,⁶³ the House of Lords held such agreements void, stating that “the wife’s right to future maintenance is a matter of public concern which she cannot barter away.” The rationale is that if husbands fail to maintain wives, their support may become a charge on public funds.

However, in Bennett v Bennett,⁶⁴ the court held that while a covenant not to apply for maintenance was void, valid promises in the same agreement (such as property settlements) could survive if severable.

Contracts in Restraint of Trade

This is perhaps the most extensively developed category of contracts void for public policy. A contract in restraint of trade restricts a party’s future liberty to carry on trade, business, or profession in such manner and with such persons as he chooses.

The Basic Principle

Such contracts are prima facie void but become binding upon proof that:

1. The restriction is justifiable as reasonably necessary to protect a legitimate interest; and
2. The restriction is reasonable from the viewpoint of both parties and the public.

The foundational statement of principle appears in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd:⁶⁵

All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions… The true view at the present time I think, is this: The public have an interest in every person’s carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, are contrary to public policy, and therefore void, unless justified in the circumstances of a particular case.

Categories of Restraint

1. Employee Restraints

An employee’s agreement not to compete after leaving employment is reasonable only if:

• The employer has a proprietary interest requiring protection (trade secrets or business connections);
• The restraint is no wider than necessary regarding area, duration, and scope of prohibited activities.

In Nissan (Nig) Ltd v Yoganathan,⁶⁶ a high-profile employee executed a service agreement containing a restrictive covenant prohibiting him from engaging in similar business for one year after leaving employment. When he joined a competitor, Nissan sought to enforce the covenant. The court held:

Article 5 of the Service Agreement is a restraint of trade since it restricts the 1st respondent’s liberty to carry on his trade/profession. This type of restraint is acceptable by the courts and is enforceable… The reason for the restrictive covenant was that the 1st respondent while working for the appellant was in a position and in fact was a custodian of the trade secrets and confidential information, vital to the appellant’s business.

The case establishes that protection extends beyond mere prevention of competition. The covenant must protect genuine proprietary interests such as trade secrets, confidential information, or valuable business connections. A restraint merely to prevent competition will not be enforced.

2. Vendor Restraints

Restraints on vendors of businesses are more readily upheld than employee restraints, as the vendor receives consideration (the purchase price) specifically for the restriction. However, validity still requires:

(a) Genuine Sale: There must be an actual, not colourable, sale of business. Covenants in gross, not protecting the business actually sold, will not be upheld.

In Vancouver Malt and Sake Brewing Co Ltd v Vancouver Breweries Ltd,⁶⁷ the appellants held a licence for beer manufacture but only manufactured sake. They assigned the licence to respondents (actual beer brewers) and covenanted not to brew beer for fifteen years. The court held the covenant void as there was no brewing business to protect; the covenant was in gross and unenforceable.

(b) Protection Limited to Business Sold: Only the actual business sold is entitled to protection.

In British Concrete Co v Schelff,⁶⁸ plaintiffs manufactured and sold “BRC” road reinforcements. Defendants sold “Loop” reinforcements. When defendants sold their business and agreed not to compete in manufacture or sale of road reinforcements, the court held the covenant void. Only the “Loop” variety business was transferred, and therefore only regarding that variety was restraint justifiable.

3. Trading Combinations and Exclusive Dealing

Agreements between manufacturers or merchants to regulate trade relations (output restrictions, price maintenance) and exclusive dealing agreements (solus agreements) are subject to restraint of trade doctrine.

In Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd,⁶⁹ the House of Lords examined two solus agreements whereby garage owners agreed to purchase all petrol requirements from Esso. One agreement was for 4 years 5 months, the other for 21 years (secured by mortgage). The court held the shorter term reasonable and enforceable, but the longer term excessive and void.

Test of Reasonableness

The test established in Mason v Provident Clothing and Supply Co,⁷⁰ applying Lord Macnaghten’s formulation in Nordenfelt, requires:

1. Prima Facie Void: All restraints of trade are initially void.
2. Justification Required: The party seeking to enforce the restraint must prove it is reasonable regarding:
   • Parties’ Interests: The restraint must be no wider than necessary to protect the covenantee’s legitimate interests
   • Public Interest: The restraint must not injure public interest
3. Burden of Proof:
   • The covenantee must prove reasonableness between parties
   • The covenantor must prove injury to public interest
4. Reasonableness Factors:
   • Area: Not more extensive than employer’s interest requires
   • Duration: Not longer than necessary
   • Scope of Activities: Not broader than justified

Nigerian Applications

The Nigerian case Leontaritis v Nigerian Textile Mills Ltd⁷¹ applied these principles. A restraint on a senior employee of a Lagos-based textile mill prohibited him from taking any interest in or entering any business similar to or competing with the employer’s business anywhere in Nigeria for two years after leaving employment. The court held the restraint valid:

A restraint on a senior employee of a textile mill based in Lagos, prohibiting him for a period of two years after leaving the employment of the mill, from taking any interest either directly or indirectly, or from entering into any business similar to or competing anywhere in Nigeria with the employer’s business was valid. The respondent textile mill, though based in Lagos, had a thriving market throughout the whole of Nigeria.

The case illustrates that nationwide restraints may be reasonable where the employer’s business operates nationally.

In Mesrop Kholopikiaan v Metal Furniture Nigeria Ltd,⁷² a restraint clause in a service agreement prohibited the plaintiff from working for any company carrying on similar business within 800 miles of Lagos for five years. The court held the restraint void as it covered not only the whole of Nigeria but also extended to some West African states, far exceeding what was necessary to protect the employer’s interests.

Severance

Where a restraint clause is partially unreasonable, courts may sever the objectionable parts if possible. Two forms of severance are recognised:

1. Elimination of Void Promises: Removing an entire void promise while preserving the rest of the contract.

In Goodinson v Goodinson,⁷³ a maintenance agreement between separated spouses included the wife’s promise not to take matrimonial proceedings for maintenance (void as ousting jurisdiction). The court held this promise severable, and the rest of the contract remained enforceable.

2. Reduction of Promises (“Blue Pencil Test”): Removing objectionable words or phrases from a single promise.

In Goldsoll v Goldman,⁷⁴ a covenant restricted the defendant from dealing in “real or imitation jewellery” throughout the United Kingdom and in specified foreign countries. Since the plaintiff’s business primarily involved imitation jewellery, the court severed “real or” and the foreign countries, enforcing the remainder.

The “blue pencil test” requires that the objectionable portion be capable of removal by striking through without affecting what remains. Courts will not rewrite agreements or add words to create promises the parties never made.

Distinction Between Service and Sale Contracts

Courts apply stricter scrutiny to employee restraints than vendor restraints. As Attwood v Lamont⁷⁵ and Goldsoll v Goldman demonstrate, the basic element of divisibility necessary for severance may be more readily found in sale agreements than service agreements. Justice demands that purchasers reap benefits of what they bought, making courts more willing to salvage reasonable portions of vendor covenants.

Practical Considerations and Conclusion

The Importance of Careful Drafting

The law of illegality and public policy imposes significant obligations on legal practitioners. When drafting contracts, solicitors must:

1. Ensure Statutory Compliance: Verify that the contract does not contravene any statutory provision, whether federal or state legislation. This requires familiarity with relevant statutes in areas such as land law, labor law, corporate law, and industry-specific regulations.
2. Avoid Common Law Prohibitions: Ensure the contract’s purpose and terms do not violate established common law principles regarding public policy.
3. Consider Restraint of Trade Issues: When including restrictive covenants, ensure they are:
   • Necessary to protect legitimate interests
   • No wider than required in area, duration, and scope
   • Drafted to permit severance if possible
4. Include Severability Clauses: Where appropriate, include provisions stating that invalid clauses should be severed without affecting the rest of the contract. While not foolproof, such clauses may assist courts in preserving the agreement’s valid portions.

Advising Clients

When advising clients, practitioners should:

1. Conduct Due Diligence: Before entering contracts, investigate whether the proposed transaction complies with all legal requirements and does not offend public policy.
2. Assess Risks: Where legality is unclear, advise clients of potential risks and consequences of proceeding.
3. Document Legitimacy: Ensure documentation clearly establishes the lawful purpose and nature of transactions to avoid later challenges.
4. Avoid Participation in Illegal Schemes: Refuse to assist clients in structuring or implementing illegal arrangements. Professional ethics and personal legal liability preclude such involvement.

The Courts’ Role

Nigerian courts have shown willingness to apply illegality principles rigorously while recognising the need for justice and equity. Several themes emerge from the case law:

1. Protective Approach: Courts protect vulnerable parties (such as illiterates) from exploitation through unequal bargains.
2. Discretionary Relief: Where appropriate, courts fashion equitable remedies to prevent unjust enrichment while maintaining disapproval of illegal conduct.
3. Public Interest Paramount: Courts subordinate private arrangements to public interest, refusing to become instruments for advancing unlawful purposes.
4. Balanced Approach: Courts distinguish between peripheral illegality and fundamental illegality, focusing on whether illegality strikes at the contract’s root.

Conclusion

The doctrines of illegality and public policy represent the law’s recognition that contract law exists not merely to facilitate private arrangements but to serve society’s broader interests. While the principle of freedom of contract is fundamental, it is not absolute. The law draws a line where private agreements conflict with public welfare, statutory policy, or basic principles of morality and justice.

For Nigerian law students and practitioners, mastering this area requires:

• Understanding the distinction between contracts illegal at formation and those illegal in performance
• Recognising the difference between illegal and merely void contracts
• Appreciating how the consequences vary depending on the parties’ culpability
• Applying the principles flexibly while maintaining their underlying rationale

The cases demonstrate that courts balance competing interests: the sanctity of contract, the importance of legal certainty, the need to deter wrongdoing, and the demands of justice and equity. This balancing act requires careful analysis of each case’s unique circumstances.

As Nigeria continues to develop economically and socially, new questions will arise regarding which contracts should be considered contrary to public policy. Courts must navigate between preserving traditional values and accommodating modern commercial realities. The fundamental principle remains constant: the law will not aid those who seek to exploit the legal system to advance improper purposes, but neither will it permit technical rules to produce gross injustice.

Understanding these principles is essential not only for passing examinations but for practicing law ethically and effectively. The lawyer who grasps the interplay between statutory prohibition, common law illegality, and public policy concerns will be better equipped to advise clients wisely and to advocate effectively before the courts.

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Footnotes

1. (2008) 3 NWLR (Pt. 1074) 363 ↩

2. (2009) 9 NWLR (Pt. 1146) 400 ↩

3. (1813) 1 M & S 593 ↩

4. (1989) 1 NWLR (Pt. 97) 305 ↩

5. (1921) 2 KB 716 ↩

6. (1845) 14 M & W 452 ↩

7. (1836) 2 M & W 149 ↩

8. (1990) 4 NWLR (Pt. 144) 384 ↩

9. (2011) 9 NWLR (Pt. 1252) 379 ↩

10. (2008) 14 NWLR (Pt. 1107) 375 ↩

11. (2011) 9 NWLR (Pt. 1252) 379 ↩

12. (1676) 2 Lev. 174 ↩

13. (1937) 2 KB 158 ↩

14. (1856) 1 H & N 73 ↩

15. (1851) 16 QB 689 ↩

16. (1972) ECSLR 615 ↩

17. (1972) Ch. 544 ↩

18. (1970) 2 QB 626 ↩

19. (1774) 1 Cowp. 37 ↩

20. (1866) LR 1 Ex. 213 ↩

21. (1911) 1 KB 506 ↩

22. (1970) 2 All NLR 47 ↩

23. (1973) 3 UILR 439 ↩

24. (1916) 2 AC 307 ↩

25. (1929) 1 KB 470 ↩

26. (1824) 2 Bing. 314 ↩

27. (1846) 9 QB 371 ↩

28. (1973) QB 422 ↩

29. (1875) 10 Ch App. 297 ↩

30. (1888) 21 QBD 424 ↩

31. (1787) 1 Hy Bl. 328 ↩

32. (1918) 2 KB 241 ↩

33. (1945) 62 TLR 85 ↩

34. (1936) 1 KB 169 ↩

35. (2006) 15 NWLR (Pt. 1002) 260 ↩

36. (2008) 3 NWLR (Pt. 1074) 363 ↩

37. (1986) 1 NWLR (Pt. 15) 220 ↩

38. (1869) LR 4 QB 309 ↩

39. (1973) 3 ECSLR 518 ↩

40. (1964) AC 142 ↩

41. (1993) 1 NWLR (Pt. 270) 414 ↩

42. (1916) 2 KB 482 ↩

43. (1894) 1 QB 747 ↩

44. (1958) 14 NLR 105 ↩

45. (1971) 1 ALR 421 ↩

46. (1876) 1 QBD 291 ↩

47. (1890) 24 QBD 742 ↩

48. (1951) 1 All ER 92 ↩

49. (1854) 3 E & B 642 ↩

50. (1867) LR 2 Exch. 230 ↩

51. (1924) 1 KB 138 ↩

52. (1836) 1 H & N 73 ↩

53. (1990) 4 NWLR (Pt. 144) 384 ↩

54. (1954) 1 QB 29 ↩

55. (1957) 1 QB 267 ↩

56. (1837) 2 M & W 273 ↩

57. (1952) 2 QB 329 ↩

58. (1954) 2 All ER 553 ↩

59. (1968) 2 ALR 118 ↩

60. (1856) 3 HL Cas 811 ↩

61. (1768) 4 Burr 2225 ↩

62. Unreported, Suit No 23A/74 delivered on January 24, 1975 ↩

63. (1929) AC 601 ↩

64. (1952) 1 KB 249 ↩

65. (1894) AC 535 ↩

66. (2010) 4 NWLR (Pt. 1183) 135 ↩

67. (1934) AC 181 ↩

68. (1921) 2 Ch 563 ↩

69. (1968) AC 269 ↩

70. (1913) AC 724 ↩

71. (1967) NCLR 114 ↩

72. Unreported, High Court of Lagos, Suit No IK/180/69, delivered March 5, 1971 ↩

73. (1954) 2 QB 118 ↩

74. (1915) 1 Ch 292 ↩

75. (1920) 3 KB 571 ↩