Also found in: Financial.
illegal contracta contract maybe described as illegal if the aim or object of the contract is criminal or immoral; some specific rule of statute or common law says that it is; 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. Included are pacta de quota litis, or ‘agreements to share the proceeds of litigation’, a rule that prevents lawyers in the UK taking percentage fees. Certain gaming contracts that are made used to be illegal by statute but the Gambling Act 2005 provides that the fact that a contract relates to gambling will not affect its enforcement.
In all these cases the rule ex turpi causa non oritur actio applies: ‘an action does not arise out of an illegal cause.’ This can be harsh if property or money has been transferred contrary to some obscure and technical statute and the parties are not equally blameworthy (in pari delicto). The law of restitution maybe argued in such cases. As the name suggests, the UNFAIR CONTRACT TERMS Act 1977 and other related legislation mitigates the effect of certain terms and this is done by making certain contract terms illegal.