Illegal agreement
Encyclopedia
An illegal agreement, under the common law
of contract
, is one that the court
s will not enforce because the purpose of the agreement is to achieve an illegal end. The illegal end must result from performance of the contract itself. However, a contract that requires only legal performance on the part of each party, such as the sale of packs of cards
to a known gambler, where gambling
is illegal, will nonetheless be enforceable. A contract directly linked to the gambling
act itself, such as paying off gambling debts (see proximate cause
), however, will not meet the legal standards of enforceability. Therefore an employment contract between a blackjack
dealer
and a speakeasy
manager, is an example of an illegal agreement and the employee has no valid claim to his anticipated wages if gambling is illegal under that jurisdiction
.
A famous example in the United States
is Bovard v. American Horse Enterprises, 247 Cal. Rptr. 340
(1988), in which the California Supreme Court refused to enforce a contract for payment of promissory note
s used for the purchase of a company that manufactured drug paraphernalia.
In Canada
, one cited case of lack of enforceability based on illegality is Royal Bank of Canada v. Newell, 147 D.L.R (4th) 268 (N.S.C.A.), in which a woman forged her husband's signature on 40 cheque
s, totalling over $58,000. To protect her from prosecution, her husband signed a letter of intent prepared by the bank in which he agreed to assume "all liability and responsibility" for the forged cheques. However, the agreement was unenforceable
, and struck down by the courts, because of its essential goal, which was to "stifle a criminal prosecution." Because of the contract's illegality, and as a result voided status, the bank was forced to return the payments made by the husband.
Contracts in restraint of trade
are a variety of illegal contracts and generally will not be enforced unless they are reasonable in the interests of the contracting parties and the public.
Contracts in restraint of trade if proved to be reasonable can be enforced. When restraint is placed on an ex-employee, the court will consider the geographical limits, what the employee knows and the extent of the duration. Restraint imposed on a vendor of business must be reasonable and is binding if there is a genuine seal of goodwill. Under common law, contracts to fix prices
are legal. Solus agreements are legal if reasonable. Contracts which contravene public policy are void.
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
of contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
, is one that the court
Court
A court is a form of tribunal, often a governmental institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the rule of law...
s will not enforce because the purpose of the agreement is to achieve an illegal end. The illegal end must result from performance of the contract itself. However, a contract that requires only legal performance on the part of each party, such as the sale of packs of cards
Playing card
A playing card is a piece of specially prepared heavy paper, thin cardboard, plastic-coated paper, cotton-paper blend, or thin plastic, marked with distinguishing motifs and used as one of a set for playing card games...
to a known gambler, where gambling
Gambling
Gambling is the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods...
is illegal, will nonetheless be enforceable. A contract directly linked to the gambling
Gambling
Gambling is the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods...
act itself, such as paying off gambling debts (see proximate cause
Proximate cause
In the law, a proximate cause is an event sufficiently related to a legally recognizable injury to be held the cause of that injury. There are two types of causation in the law, cause-in-fact and proximate cause. Cause-in-fact is determined by the "but-for" test: but for the action, the result...
), however, will not meet the legal standards of enforceability. Therefore an employment contract between a blackjack
Blackjack
Blackjack, also known as Twenty-one or Vingt-et-un , is the most widely played casino banking game in the world...
dealer
Croupier
A croupier or dealer is someone appointed at a gambling table to assist in the conduct of the game, especially in the distribution of bets and payouts. Croupiers are typically employed by casinos.-Origin of the word:...
and a speakeasy
Speakeasy
A speakeasy, also called a blind pig or blind tiger, is an establishment that illegally sells alcoholic beverages. Such establishments came into prominence in the United States during the period known as Prohibition...
manager, is an example of an illegal agreement and the employee has no valid claim to his anticipated wages if gambling is illegal under that jurisdiction
Jurisdiction
Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...
.
A famous example in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
is Bovard v. American Horse Enterprises, 247 Cal. Rptr. 340
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
(1988), in which the California Supreme Court refused to enforce a contract for payment of promissory note
Promissory note
A promissory note is a negotiable instrument, wherein one party makes an unconditional promise in writing to pay a determinate sum of money to the other , either at a fixed or determinable future time or on demand of the payee, under specific terms.Referred to as a note payable in accounting, or...
s used for the purchase of a company that manufactured drug paraphernalia.
In Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
, one cited case of lack of enforceability based on illegality is Royal Bank of Canada v. Newell, 147 D.L.R (4th) 268 (N.S.C.A.), in which a woman forged her husband's signature on 40 cheque
Cheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...
s, totalling over $58,000. To protect her from prosecution, her husband signed a letter of intent prepared by the bank in which he agreed to assume "all liability and responsibility" for the forged cheques. However, the agreement was unenforceable
Unenforceable
An unenforceable contract or transaction is one that is valid, but which the court will not enforce. Unenforceable is usually used in contradistinction to void and voidable...
, and struck down by the courts, because of its essential goal, which was to "stifle a criminal prosecution." Because of the contract's illegality, and as a result voided status, the bank was forced to return the payments made by the husband.
Contracts in restraint of trade
Restraint of trade
Restraint of trade is a common law doctrine relating to the enforceability of contractual restrictions on freedom to conduct business. In an old leading case of Mitchell v Reynolds Lord Smith LC said,...
are a variety of illegal contracts and generally will not be enforced unless they are reasonable in the interests of the contracting parties and the public.
Contracts in restraint of trade if proved to be reasonable can be enforced. When restraint is placed on an ex-employee, the court will consider the geographical limits, what the employee knows and the extent of the duration. Restraint imposed on a vendor of business must be reasonable and is binding if there is a genuine seal of goodwill. Under common law, contracts to fix prices
Price fixing
Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand...
are legal. Solus agreements are legal if reasonable. Contracts which contravene public policy are void.