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Void & Illegal Contracts

Void & Illegal Contracts - Void and Illegal...

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Void and Illegal Contracts (Mugger Notes) 1. Introduction Contract rules allow Courts to undertake a policing function to make bargains fair in the eyes of the law. This is based on : o The interests of either contracting party . o The wider interests of the general public . Illegality tends to deal more with the second. There are 2 types of illegality : o Statutory illegality. o Illegality at Common Law 2. Statutory Illegality There are 2 types of Statutory Illegality : o Contracts illegal as Formed . o Contracts illegal as Performed . Principal practical significance lies in the consequences : o Formed : Recovery is absolutely precluded for all parties. o Performed : Innocent party may avail himself of full contractual remedies. Suntoso Jacob v Kong Miao Ming [1986] 2 MLJ 170 (CA, Singapore) Held : CA affirmed HC decision which suggested that breach of administrative guidelines and the consequent deception of the public administration could result in a nullification of the contract in question. A. Contracts Illegally Formed Contract illegal at inception, can take 2 forms : o Express prohibition by statute o Implied prohibition by statute Implied Prohibition : Important to look at policy of relevant statute and consider whether policy is served by holding that particular contract is impliedly prohibited. Express Prohibition : No room for such considerations, since Parliament entitled to prohibit contracts even if it makes no sense. i) Express Prohibition Illegality is undoubted. In Turquand Young & Co v Yat Yuen Hong Co Ltd [1967] 1 MLJ 291 , Ambrose J stated that in interpreting statutes, where the words are plain and unambiguous , they must be applied as they stand and Courts cannot look to how the law was before the enactment and trace the objects and reasons to discover the mischief intended to be suppressed. Re Mahmoud and Isphahani [1921] 2 KB 716 Facts : Statute prohibited unlicensed dealing in linseed oil. Defendant turned out to be unlicensed, but had falsely assured the Plaintiff he was licensed. Plaintiff sued for damages when the Defendant refused to accept delivery. Held : Plaintiff had no action because statute expressly prohibited each party from making such a contract. NB : Fact that Defendant relied upon his own illegality irrelevant. Honest Belief (Subjective knowledge) of illegality by Plaintiff irrelevant. Formation of Contract Illegal per se . (cf. Performance of Contract illegal) 1
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Chai Sau Yin v Liew Kwee Sam [1962] MLJ 152 Facts : Plaintiff sued Defendant for balance of price of rubber sold. Defendant purchaser argued that transaction was rendered illegal as he had no license as required by Statute. Held : Re Mahmoud and Isphani was applied, thus judgment for Defendant. John B Skilling v Consolidated Hotels Ltd [1979] 2 MLJ 2 Raymond Banham v Consolidated Hotels Ltd [1976] 1 MLJ 5 ii) Implied Prohibition Question of Construction : Whether object/intention of legislature is to forbid the contract.
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