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WHEN A CONTRACT IS VOID AB INITIO

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Dictum

The position of the law is that where a statute declares a contract or transaction between parties not only void but also imposes a penalty for violation, that 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. See Solanke v. Abed (supra); Oil-field Supply Centre Ltd. v. Johnson (1987) 2 N.W.L.R. (Pt. 58) 265 and Ibrahim v. Osim (1988) 3 N.W.L.R. (Pt. 82) 257 and Pan Bishbilder (Nigeria) Ltd. v. First Bank of Nigeria Ltd (2000) 1 N.W.L.R. (Pt. 642) 684 at 693 where Achike JSC (of blessed memory) clearly stated the position of the law:- “Permit me to digress generally on illegality. It is common ground that illegality and voidness of the loan contract between the parties is the main subject matter of controversy in this appeal. Definition of the term illegal contract has been elusive. The production of clarity of the classification of illegality appears to be almost confounded and rendered intractable primarily because – writers and the Judges have continued to use the terms ‘void’ and ‘illegal’ interchangeably. Halsbury’s Laws of England (3rd ed. vol. 8 p. 126 para. 218) states that – ‘A contract is illegal where the subject matter of the promise is illegal or where the consideration or any part of it is illegal.’ Without getting unduly enmeshed in the controversy regarding the definition or classification of that term, it will be enough to say that contracts which are prohibited by statute or at common law, coupled with provisions for sanction (such as fine or imprisonment) in the event of its contravention are said to be illegal. There is however the need to make a distinction between contracts that are merely declared void and those declared illegal. For instance, if the provisions of the law require certain formalities to be performed as conditions precedent for the validity of the transaction without however imposing any penalty for non-compliance, the result of failure to comply with the formalities merely renders the transaction void, but if a penalty is imposed, the transaction is not only void but illegal, unless the circumstances are such that the provisions of the statute stipulate otherwise. See Solanke v. Abed & Anor. (1962) N.R.N .L.R. 92, (1962) 1 S.C.N.L.R. 371 and P. Kasumu & Ors. v. Baba-Egbe 14 WACA 444.”

— Mohammed, JSC. Fasel v NPA (2009) – SC.88/2003

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THE ILLEGAL PART OF A CONTRACT CAN BE SEVERED FROM THE OTHER LEGAL PART

This is because it is a recognized principle of law that a contract will rarely be totally illegal or void: certain parts may be entirely lawful in themselves, while others are valid. Where the illegal or void parts can be “severed” from the rest of the contract on the well-known principles of severance such will be done and the rest of the contract enforced without the void part. It is permissible for courts to adopt this course where the objectionable part of the contract involves merely a void step or promise and is not fundamental, and it is possible to simply strike down the offending part without re-writing or remaking the contract for the parties and without altering the scope and intention of the agreement; and lastly, the contract, shorn of the offending parts, retains the characteristics of a valid contract. See on these Vol. 9 Hals. Laws of England (4th Edn.) p.297 in paragraph 430. See also Commercial Plastics Ltd. v. Vincent (1964) 3 All E.R. 546, C.A.

— Nnaemeka-Agu, JSC. Adesanya v Otuewu (1993) – SC.217/1989

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DRAFTING MAJOR COMMERCIAL CONTRACTS INVOLVING A STATE

585. It was a complete imbalance in the contributions of the parties that enabled the GSPA to be in the form it was. Many reading this judgment will recognise that, although in the present case bribery and corruption were behind that imbalance, it happens in other cases without bribery and corruption but simply where experience, expertise or resources are grossly unequal. This underlines the importance of professional standards and ethics in the work of contract drafting, including in the approach to other parties to the proposed contract. It is why some contributions of pro bono work by leading law firms to support some states challenged for resources (this is not to say, one way or the other, that Nigeria is one of those) is so valuable, in the interests of their, often vulnerable, people. In the present case there were other contracts too, with different counterparties. Their terms and circumstances are not identical, but the overall risk could have been a multiple of the US$11 billion now involved in the present case.

— R. Knowles CBE. FRN v. Process & Industrial Developments Limited [2023] EWHC 2638 (Comm)

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CONTRACT CREATES RECIPROCAL OBLIGATIONS

A contract is an agreement between two or more parties which creates reciprocal obligations to do or not to do a particular thing. Thus, for a valid contract to be formed, there must be mutuality of purpose and intention. In other words, the two or more minds must meet at the same point, event, or incident. They must not meet at different points, events or incidents. They must be saying the same thing at the same time. See ORIENT BANK (NIG) PLC V BILANTE INTERNATIONAL LTD (1997) 8 NWLR (pt. 515) 37.

— M.L. Shuaibu, JCA. Ekpo v GTB (2018) – CA/C/324/2013

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COURT SHOULD TREAT AS SACROSANCT TERMS OF AGREEMENT BY PARTIES

It must be reiterated here that the court must treat as sacrosanct the terms of an agreement freely entered into by the parties. This is because parties to a contract enjoy their freedom to contact on their own terms so long as same is lawful. The terms of a contract between parties are clothed with some degree of sanctity and if any question should arise with regard to the contract, the terms in any document which constitute the contract are invariably the guide to its interpretation when parties enter into a contract, they are bound by the terms of the contract as set out by them. It is not the business of the court to rewrite a contract for the parties. See Afrotech Services Nig Ltd. v. M.A. & Sons Ltd. (2002) 15 NWLR (pt. 692) 730 at 788.

— J.A. Fabiyi, JSC. BFI v. Bureau PE (2012) – SC.12/2008

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COURT OF LAW WILL NOT ENFORCE AN ILLEGAL CONTRACT OR ALLOW ITSELF TO BE USED AS AN INSTRUMENT OF FRAUD

As at 1981 when he commenced negotiation to purchase the land, he held no title, customary or statutory which he could validly pass to the respondent. Any agreement reached between the appellant and the respondent which enabled the latter to hold the legal estate in the land for the benefit of the appellant would be unenforceable since the appellant could not pass any title to the respondent. A Court should not enforce an illegal contract or allow itself to be made the instrument of enforcing obligations alleged to arise out of a contract or transaction which is illegal provided the illegality is brought to the notice of the Court and the person invoking the aid of the Court is himself implicated in the illegality. The illegality disclosed here is the attempt by the appellant to circumvent the provisions of the Land Use Act and this is against public policy and a contract may be against public policy either from the nature of the acts to be performed or from the nature of the consideration. Where a transaction is on the face of it, or from the facts adduced in evidence or the surrounding circumstances, apparently illegal, the Court must act to enforce and protect the law of the land. See: Sodipo v. Lemminkainen OY (1985) 2 NWLR (Pt. 8) 547.

— K.B. Aka’ahs, JSC. Huebner v Aeronautical Ind. Eng. (2017) – SC.198/2006

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ONLY WHERE THERE IS A CONSENSUS AD IDEM THERE IS A CONTRACT

It is trite that a valid contract can exist only when there is a “consensus ad idem” i.e., when there is a meeting of mind of the parties showing that the parties are bound by a specific term. This meeting of mind is, expressed in the form of “an offer” and “an acceptance” of that offer. It is only where they exist that there is a valid contract.

– Amaizu, J.C.A. Adeniran v. Olagunju (2001)

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