This paper examines the enforceability of contracts formed in connection with illegal activity, using a hypothetical scenario involving two parties who agreed to split proceeds from a bank burglary and a third-party supplier of explosives. Drawing on the Law Commission Consultation Report 2009, English case law, and the Restatement of Contracts (Second), the paper argues that contracts whose object is the deliberate commission of a crime are void and unenforceable, that the doctrine of frustration of purpose is unlikely to relieve a guilty party of obligations, and that innocent third-party contractors retain meaningful remedies including claims for breach of collateral warranty, misrepresentation, and restitution.
Given that Victor and Hugo both knowingly entered into a contract to split the proceeds from a felonious action, that contract is not enforceable. In this situation, Victor may even keep the ten percent he has now offered to pay Hugo, rather than the original fifty percent they had agreed upon. According to the Law Commission Consultation Report 2009, "If a contract has as its object the deliberate commission of a crime, then it is illegal and the courts will not enforce it."[1]
There is substantial case law to support this position. For example, in Brown Jenkinson & Co. Ltd. v. Percy Dalton Ltd. (1957), the court held that "a contract to indemnify for losses suffered as a result of the deliberate commission of the tort of deceit is unenforceable."[2] Further, it was found in Anderson v. Daniel (1924) that "a contract may be lawful in its formation but performed by the parties in an illegal manner. Such a contract will become unlawful."[3]
Since both Hugo and Victor were aware that Hugo's payment was contingent upon his providing equipment for Victor to burgle a bank, there are no innocent parties to this obviously illegal contract. This makes Victor's obligation to Hugo null and void.
Victor could also claim that, because they both understood the split was to occur only if they obtained a large haul, he is no longer obligated given that the haul fell short of expectations. The Restatement of Contracts, Second § 265 states: "Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or circumstances [of the contract] indicate the contrary."[4]
Unfortunately for Victor, this defense will likely fail, because the size of the haul was not a "basic assumption on which the contract was made." The frustration of purpose doctrine therefore does not discharge his obligations in this context.
"Supplier's innocence and partial culpability analyzed"
"Innocent party remedies including restitution and damages"
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