Smith v Mawhood (1845) 14 M & W 452
The effect of statutory illegality on the contract.
The plaintiff, a London tobacconist entered into a contract to sell a quantity of tobacco to the defendant. Under the relevant Excise Act any manufacturer or dealer in tobacco who did not have his name painted on his premises or sold tobacco without a licence was liable to a criminal fine of £200. The plaintiff did not comply with this. The defendant breached the contract and the plaintiff attempted to recover on the contract.
The defendant argued that the Excise Act had rendered the contract illegal and that, therefore, the plaintiff could not recover on it. The plaintiff argued that not complying with the regulations did not necessarily invalidate the contract. Instead, whether the contract was illegal would depend on the construction the court put upon the relevant provisions in the Act.
The court found in favour of the plaintiff. Alderson J asked whether the purpose of the statute was to affect the contract of sale or to serve some other purpose such as taxation or regulation. Where the subject matter of the contract was made illegal by statute or was contrary to justice, morality, or policy the contract would be void. However, where the subject matter of the contract was not itself illegal, the court would enforce the contract. Here, the purpose of the statute was not to make all sales of tobacco illegal but was to impose a fine on offenders who lacked a licence or correct signage in order to deter tax evasion. Therefore, the tobacconist was allowed to recover the price of the tobacco despite not complying with the regulations.