Unlawful Consideration in Part & Illegal Agreements (Indian Contract Act)

The law governing contracts in India is outlined in the Indian Contract Act 1872, covering various aspects such as contract formation, validity, and enforceability. A pivotal component of this legal framework is the concept of consideration, which is fundamental for a contract’s validity. Consideration involves the exchange of something valuable, like goods, money, or services, between the parties entering into a contract, forming the basis of their agreement. Nevertheless, the act also addresses situations where consideration is partially unlawful or agreements are deemed illegal. In such instances, if any part of the consideration or the agreement itself goes against the law or public policy, the contract may be deemed void or unenforceable. It is crucial to comprehend these provisions to ensure the legality and enforceability of contracts governed by the Indian Contract Act.

Geeky Takeaways:

• The Indian Contract Act 1872 governs contracts in India, emphasizing the significance of lawful considerations and objecting to contract validity.
• Understanding the concept of lawful consideration and object is crucial, as any agreement with an unlawful object or consideration is declared void.
• Unlawful considerations or objects in contracts lead to their categorization as void agreements, lacking legal enforceability, and potentially resulting in legal consequences if pursued.
• In cases of equal culpability, the defendant has a more favorable position than the plaintiff, highlighting the legal system’s uncompromising stance on actions stemming from illegal agreements.

Object or Unlawful Consideration in Part

1. Complete Integration of Legal and Illegal Elements (Section 24): In cases where an agreement involves distinct promises, some legal and others illegal, and these elements cannot be separated (for instance, a single sum of money serves as the consideration for different promises), the entire agreement is deemed illegal and void. This emphasizes the importance of careful consideration to avoid the complete integration of legal and illegal aspects in agreements.

2. Reciprocal Promises with Separable Legal and Illegal Parts (Section 57): In instances where there are reciprocal promises encompassing legal and illegal aspects, but the legal part can be distinctively separated from the illegal part (each promise having a separate consideration), the legal part is considered a valid contract, while the illegal part is rendered void. Understanding the separability of legal and illegal elements is crucial for enforcing valid aspects of reciprocal promises.

3. Alternative Promise with both Legal and Illegal Branches (Section 58): In scenarios dealing with alternative promises in which one branch might be legal and the other might be illegal, the legal branch alone shall be enforced. This provision (Sec. 58) ensures that the legal aspect of the promise is upheld, even when paired with an illegal alternative. Acknowledging the enforceability of the legal branch provides clarity when dealing with alternative promises containing both legal and illegal components.

Effect of Illegal Agreements on Collateral Transactions

Agreements termed illegal or void shall be unenforceable. However, the impact of an illegal agreement extends to collateral transactions associated with it, rendering them also void due to illegality. Notably, if the parties involved in collateral transactions are aware of the illegal nature of the principal agreement, the collateral transaction does not inherit the illegality of the void agreement. For instance, if A engages in an agreement to smuggle goods with B, borrowing ₹3000 from C for this purpose, and C is aware of the illegal intent, C cannot recover the money lent, as his loan is collateral to an illegal agreement. Conversely, if C is unaware of A’s intention, he can seek recovery from A, even if the borrowed money was used for an illegal purpose. This underscores the significance of knowledge in determining the legality of collateral transactions related to void agreements.

Can Parties of Illegal Agreement Seek Legal Help?

No Restitution Allowed: Individuals involved in an illegal agreement find no recourse in a court of law, as the principle asserts that no polluted hand shall touch the pure fountain of justice. Consequently, no recovery is possible under an illegal agreement, regardless of whether the illicit objective has been fulfilled or not. The legal stance is clear: No action shall be allowed on an illegal agreement, emphasizing the strict prohibition against seeking legal remedies for such agreements. In cases of equal culpability, the defendant holds a more favorable position compared to the plaintiff. This underscores the uncompromising nature of the legal system regarding actions stemming from illegal agreements, ensuring that parties to such agreements cannot benefit from legal intervention or claim restitution for any payments made.

Conclusion

The Indian Contract Act 1872 governs contracts in India, emphasizing the significance of lawful considerations and objecting to contract validity. The Act also addresses situations where considerations or agreements are partially unlawful, potentially rendering contracts void. Understanding these nuances is crucial for ensuring contract legitimacy. Collateral transactions linked to illegal agreements may be voided, with awareness influencing their legality. Importantly, no recovery is allowed under an illegal agreement, reinforcing the legal system’s strict stance against actions stemming from such agreements. In cases of equal guilt, the defendant has a more favorable position than the plaintiff.

Unlawful Consideration in Part & Illegal Agreements- FAQs

What constitutes an agreement against legal provisions?

An agreement that goes against the prevailing legal regulations in India is categorized as illegal. This occurs when the agreement involves either an illegal object or an illegal consideration, as stipulated by legal statutes.

What are the primary contract types?

In federal government contracts, the main contract types are fixed-price and cost-reimbursement contracts. These distinctions encompass variations in structure, compensation arrangements, and risk distribution between the government and the contractor.

How is an unlawful agreement defined?

An unlawful agreement, outlined in Section 23 of the Contract Act, pertains to situations where either the object or consideration is considered unlawful. Such agreements are inherently void and lack enforceability under any circumstances.

What distinguishes legal from unlawful?

Illegal refers to a direct violation of a specific statute, while unlawful implies an action lacking a legal foundation, requiring a court decision based on precedent and legal argument. It signifies an action without justifiable grounds in common law.

Can you provide an example of unlawful and illegal actions?

Engaging in the use of a weapon against a non-combatant after neutralizing a threat is deemed unlawful, not lawful. A murder involving premeditated intentional death is considered illegal as it violates written laws. The distinction lies in the specific legal context and justification for the action.

What factors render consideration unlawful in a contract?

Consideration in a contract might be deemed unlawful if it includes any forbidden act under any law, causes injury to an individual or their property, or is considered immoral. An impossible act cannot be considered a valid consideration, rendering the entire contract void.

How are contracts classified in the Indian Contract Act?

Contracts in the Indian Contract Act are categorized based on validity, including valid contracts, agreements, or void contracts, voidable contracts, illegal contracts, and enforceable contracts. Based on formation, contract types encompass express contracts, quasi-contracts, implied contracts, and E-contracts.