Illegal agreement

Agreement is meeting of minds on same issues from same perspective. The intention of the parties engaging in an agreement should be common. It comes to existence with offer and acceptance.

As per Section 2(e) of the Indian Contract Act, 1872,”Every promise and every set of promises forming the consideration for each other is an agreement”.

Illustration: A promises B to sell his car for Rs 3, 00,000/- and B accepts to buy it for the said amount. Here, ‘A’ and ‘B’ have entered into an agreement.

The party making the proposal is called ‘promisor’ and the party accepting the proposal is called ‘promisee’.

Different types of agreement

  • Valid Agreement – Agreements having proposal and clear acceptance, parties being competent to contract as per Section 11 and 12 of the Indian Contract Act, 1872. The parties entering into the contract should give their free consent. The agreement should be lawful in nature.
  • Void Agreement – As per Section 2(g) of the Indian Contract Act, 1872,”an agreement not enforceable by law is said to be void”.
  • Voidable Agreement – A voidable agreement can be defined as agreements that can be revoked by either parties due to various legal reasons.
  • Wagering Agreement – An agreement where one party promises to pay the other party on the occurrence of a certain event and the other party promises to pay the first party on the event not happening. A wagering contract is void in nature.
  • Contingent Agreement – A contingent contract is defined under Section 31 of the Indian Contract Act, 1872 as a contract to perform or not perform an obligation, if some event collateral to such contract does or does not happen.
  • Express or Implied Agreement – As per Section 9 of the Indian Contract Act, 1872 states that any promises made through words by the parties shall be considered as an express agreement and any promise made other than words is considered to be implied agreement.
  • Illegal Agreement – Agreements that are against the legal provisions or morals of law are considered to be an illegal agreement.

Illegal Agreement

Illegal agreements are those agreements which violate the existing laws of the domain. Agreements that are legally immoral and goes against public policy fall under these agreements. Even if a contract or agreement has lawful consideration, it will not prevent the contract from being rendered illegal of the object if its purpose opposes or goes against public policy.

In Pollock & Mulla, Indian Contract and Specific relief acts, 13th Edition, Volume 1 published by LexisNexis Butterworths, it is stated at p.668 : “The words ‘defeat the provisions of any law’ must be taken as a limitation to defeating the intention which the legislature has expressed, or which is necessarily implied from the express terms of an act. It is unlawful to contract to do that which it is unlawful to do; but an agreement will not be void, merely because it tends to defeat some purpose ascribed to the legislature by conjecture, or even appearing as a matter of history, from extraneous evidence, such as legislative debates or preliminary memoranda, not forming part of the enactment.”

In Neminath v. jambooroo, the court held that three main principles on which section 23 of the Indian Contract Act, 1872 is based on, an agreement is declared void if it has a purpose of commission of an illegal act, an agreement is declared void if it is expressly or impliedly prohibited by any law in force at the time of contract formulation and a contract can be declared void if its performance is not possible to be executed without the disobedience of any law in force.

In Gherulal Parakh v. Mahadeodas, the Apex court heldthat it was the intention of provisions guided by section 23 of the Indian Contract Act, 1872 to have restricted meanings.

Intention of the parties are key factor in declaring whether an agreement is illegal in nature or not. If the court finds out that the parties have intention to transgress a law or mutual benefits, the contract will be deemed illegal. This particular object of the contract deems it to be invalid and have punishable consequences.

Fraudulent nature of an agreement also decides whether it is an illegal agreement or not. If the consideration of the contract is unlawful or fraudulent to any of the parties the court deems it to be an illegal agreement. A contract must be fair to the participants of the transaction, must not put either of the parties in an unfair position with respect to transactions involved and performance of the contract.

Opposition to public policy is another factor in determining an illegal agreement. Public policy in itself has a very uncertain and vague nature. Public policy can be considered as actions that are beneficial for the common good of the people. If an agreement opposes public policy and harms the notion of what is good for people it can be deemed to be illegal in nature.

Along with Section 23, Section 24 of the Indian Contract Act, 1872 also talks about illegal agreements. According to this provision, contracts that have considerations or objects which are partially unlawful are also considered illegal. If one or any part of one of several considerations for a single object of a contract is unlawful such an agreement is deemed to be void in nature in the eyes of law.

Difference between Void Agreement and Illegal Agreement:

 All illegal contracts are void but all void contracts are not illegal. A void agreement loses its legal nature wen it is declared void. An illegal agreement is against the legal nature of the contract laws from the starting itself. A void agreement is not punishable by law but an illegal agreement is. The parties do not have any criminal liability for entering into a void agreement but since illegal agreements are governed by the Indian Penal Code, 1860, the parties are criminally liable for their actions as a part of performance of such agreements.

In Alice Mary v. William, the plaintiff, Clarke married woman agreed to live in adultery with the man who agreed to pay her a single consolidated remuneration of Rs 50/- per month. It was held by the court that carrying out a lawful part from an unlawful agreement cannot be considered as valid.

Legality of a contract is completely dependent on its terms and conditions. Illegal contracts are null in the eyes of law.

Reference:

https://edurev.in/studytube/Kinds-of-Agreements–Distinguish-Agreement–Contra/7533bb65-f178-4338-88e6-f5293b29bf07_t

https://www.casemine.com/judgement/in/5609af0be4b01497114156f2

Aishwarya Says:

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