Bernie Nohave is operating a scheme whereby investors' money is utilized to buy AIDS drugs in Africa.The money is then deductible as a charitable donation for tax purposes.Tom invests in this scheme to generate tax losses knowing that medicine is not being purchased.Is the contract valid?
A)No,everyone knows that Bernie is bankrupt.
B)No,this transaction is ultra vires Bernie Nohave's corporation.
C)No,there is no consideration.
D)No,there is no capacity.
E)No,the subject matter of the contract is illegal.

Question

Quizplus · Accepted Answer

The subject matter of the contract is illegal as Bernie Nohave is operating a fraudulent scheme where investors are led to believe that their money is being used to purchase AIDS drugs for charity, while in reality, it is being used for generating tax losses. This type of illegal scheme is known as a Ponzi scheme, which is a fraudulent investment scheme that promises high returns to investors but uses the money from new investors to pay fake profits to earlier investors. Thus, Tom's contract with Bernie is not valid because it is based on an illegal subject matter.

Bernie Nohave Is Operating a Scheme Whereby Investors' Money Is