A Valid Contract Nullified Q1

Thomas Sim E3009

Q.
a) Explain the three fundamental elements for a valid contract. (10 marks)

b) Describe two (2) situations in which a contract may be nullified. (10 marks)

(20 marks, 2013 Q1)

A.
Refer earlier post on Elements of a Contract here.

a) 3 elements of a contract are:

i) Offer
ii) Acceptance
iii) Consideration

b) 2 situations that contract may be nullified:

Mistakes in a contract, see below links.
What considerations and objects are lawful, and what not
S. 24 The consideration or object of an agreement is lawful, unless— 

(a) it is forbidden by a law; 
(b) it is of such a nature that, if permitted, it would defeat anylaw;

(c) it is fraudulent;
(d) it involves or implies injury to the person or property of another; or
(e) the court regards it as immoral, or opposed to public policy

In each of the above cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.. 

 

Agreement to do impossible act
S.57 (1) An agreement to do an act impossible in itself is void. 

Contract to do act afterwards becoming impossible or unlawful
S.57 (2) A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

Refer earlier post on Bad Contract here. In summary, they are:

A contract may be void if any of the following:

  1. Made by incompetent parties (e.g., under the age of consent, incapacitated)
  2. Has a material bilateral mistake
  3. Has unlawful consideration (e.g., promise of sex)
  4. Concerns an unlawful object (e.g., heroin)
  5. Has no consideration on one side
  6. Restricts a person from marrying or remarrying
  7. Restricts trade
  8. Restricts legal proceedings
  9. Has material uncertain terms
  10. Incorporates a wager, gamble, or bet
  11. Contingent upon the happening of an impossible event, S.37.
  12. Requires the performance of impossible acts

[i) illegal contract cannot be made legal. There is no contract to kill, harm or steal which is wrongful act in the law.]

A contract is illegal if it involves doing something that is a criminal act or a civil wrong, or against the public good. For example, it is an offence to sell a firearm to a person not licensed to hold one, so a contract to sell a firearm in these circumstances is illegal. A contract whose purpose is to get the party to it to break another legally binding contract that the party has made already is also illegal. Moreover, a contract which otherwise would be legal is illegal if its subject matter is to be used for an unlawful purpose. So, if a firearm dealer were to agree to sell a firearm to a person licensed to hold a firearm knowing that the buyer intends to use it to kill someone, that contract would be illegal.

Courts will not enforce an illegal contract. Money paid or property transferred under an illegal contract cannot normally be recovered. There are exceptions however. For example, where a contract is made illegal by a statute passed for the protection of a class of people, a member of that class can get back money paid or property transferred by her or him under the contract. So a tenant would be able to recover money paid to a landlord which the landlord is prohibited by an Act to collect.

Ref:
Legal Services Commission of South Australia, on Illegal Contracts, available at,

http://www.lawhandbook.sa.gov.au/ch10s02s12.php

[However, it would be an uncommon occurrence that an illegal contract be proposed in the first place. Thus, the question is better answered with another common example of voidable contract.

Voidable contract is not Void Contract, as voidable contracts are somewhat resulting in the contract being unable to perform its material content, rather than being illegal in the first place. Unenforceable contract is another example of contract nullified.

See Bad Contract in earlier posting here.]

ii) An agreement to do an act impossible in itself is void.

Contract to do act afterwards becoming impossible or unlawful: A contract to do an act which, after the contract is made, becomes impossible or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

Compensation for loss through non-performance of act known to be impossible or unlawful: Where one person has promised to be something which he knew or, with reasonable diligence, might have known, and which the promisee did not know to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.

Illustrations

(a) A agrees with B to discover treasure by magic. The agreement is void.

(b) A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract becomes void.

(c) A contracts to marry B, being already married to C, and being forbidden by the law to which he is subject to practice polygamy. A must make compensation to B for the loss caused to her by the non-performance of his promise.

(d) A contracts to take in cargo for B at a foreign port. A's Government afterwards declares war against the country in which the port is situated. The contract becomes void when war is declared.

(e) A contracts to act at a theatre for six months in a consideration of a sum paid in advance by B. On several occasions A is too ill to act. The contract to act on those occasions becomes void.
Ref:

Ref:
Advocate KHOJ, Indian Contract Act, 1872, 56. Agreement to do impossible act. Available at,
http://www.advocatekhoj.com/library/bareacts/indiancontract/56.php?Title=Indian%20Contract%20Act,%201872&STitle=Agreement%20to%20do%20impossible%20act