UNDERSTANDING THE DISTINCTION: UNLAWFUL AGREEMENT VS. ILLEGAL AGREEMENT

Category: Corporate Laws
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The section demonstrates the illegality of both the object of the contract and the consideration for it. The “object” and “consideration” may in some cases be the same thing but usually they are different. For example, where money is borrowed for the purpose of the marriage of a minor, the consideration for the contract is the loan and the object, the marriage. In a case of this kind before the Madras High Court, the court found that the marriage in question was hit by the provision of the Child Marriage Restraint Act of 1929. 

Key words: Agreement, Contact, Unlawful,Illegal,Void ab initio,Ex Turpi Causa Non Oritur Actio

INTRODUCTION 

“All illegal agreement is unlawful, but not all unlawful agreement is illegal.”

All illegal agreements are unlawful because it violates the Indian law. Not every unlawful agreement is illegal because it might just break a law without being a crime.

When you’re learning about contract law, you might come across the terms “unlawful agreement” and “illegal agreement”. It can get confusing because they sound really similar, but they have different meanings and consequences. An illegal agreement refers to agreements that are expressly prohibited by law and involve criminal activity. On the other hand, an unlawful agreement might not break specific laws, but it could go against public policy or ethical standards. Understanding these differences is extremely important for legal studies, and that’s what this blog is all about.

WHAT ARE ILLEGAL AGREEMENTS? 

An Illegal Agreement is one that is prohibited by law, considered as  criminal, or it can be against public policy. It can have the  legal consequences, such as fines or imprisonment because it is against the law.

 Examples:

A agrees to sell a land to B for ₹ 80 lakhs. Both A and B do what they promised. This is a valid and legal contract. On the other hand, A agrees to sell a house to B, but they plan to use the house to store illegal weapons. This contract is illegal and cannot be enforced by the court since it involves illegal activities. 

ARE ILLEGAL AGREEMENTS VOID OR VOID AB INITIO?

Illegal agreements are considered as void ab initio which means void from the beginning of the contact. This means any agreement which is  involving with illegal or unlawful activities prohibited by law is not valid  from the beginning. Such agreements have no legal consequences from the moment they are created, making the terms unenforceable and preventing any party from seeking legal remedies. 

CONSEQUENCES OF ILLEGAL AGREEMENTS

If anyone made  any illegal agreement can lead to criminal charges, fines, or other legal penalties. These agreements can’t be enforced under the principle of ex turpi causa, which means if you enganed with  something which is not legal or morally wrong, you can’t use the law to protect yourself or gain benefits from it. 

Engaging in such agreements  this is not only harms for legal integrity but also puts individuals and their associates at significant risk. It’s very crucial to understand that any benefits gained this way are legally and morally wrong.

ILLEGAL AGREEMENTS AND CONSIDERATION:  

An agreement without consideration is not automatically illegal. However, it might not be legally enforceable as a contract because consideration is something of value exchanged between parties and is usually required for a contract to be valid in many legal systems. 

To establish a valid contact it is important to establish a consideration,withlut valid consideration it might be ragarded as gift or promise. This means one party can’t sue the other to enforce the terms. Consideration is a fundamental element that supports the mutual exchange in a contract. Generally, both parties must offer something valuable for the agreement to hold up legally.

CAN PARTIES IN ILLEGAL AGREEMENTS GET LEGAL HELP?

If someone is part of an illegal agreement, they can’t go to court for help. The law says that justice must stay pure and won’t assist those involved in illegality. It is not important that the illegal agreement has completed or not ,one can’t recover anything under this agreement.The rule is strict: illegal agreements can’t be enforced in court. If both parties are equally at fault, the defendant has a better chance. This shows that the law won’t allow benefits or restitution from illegal deals.

DOCTRINE OF “EX TURPI CAUSA NON ORITUR ACTIO”

The doctrine “Ex Turpi Causa Non Oritur Actio” is a legal maxim that means “no such action can establish from an illegal act.” This principle provides a defence to the defendant. It mentioned that courts will not going to to help any parties whose demands  are based on immoral or illegal actions. This idea of above maxim has established from old common law and was established in the English case of Holman vs. Johnson (1775).

WHAT ARE UNLAWFUL AGREEMENTS? 

Unlawful agreements are ones that can be carried out, but the law won’t back them up. They aren’t always crimes, but they’re invalid or can’t be enforced because they go against public policy or legal rules.They might not lead to criminal charges but could mean no legal assistance or the agreement can’t be applicable in court.

The example of an unlawful agreement could be if two companies decided  not to hire employees from a particular caste or ethnicity. This types of agreement indicates the  discrimination, which goes against the common laws and public policies that promotes equal employment opportunities. Such agreements are not enforceable in court because they violate legal standards and can lead to civil penalties for the companies involved.

UNLAWFUL AGREEMENT VS. ILLEGAL AGREEMENT

Unlawful agreements, while being void and unenforceable like illegal agreements, differ in their nature and legal consequences. Unlawful agreements contravene public policy, societal values, or legal regulations, but may not entail criminal offenses. These agreements are void from the very begging and cannot be enforced by any of the party before the court.

Illegal agreements, unlike unlawful agreements, involve actions that are expressly prohibited by law, constituting criminal offenses. The agreements which are not legal slidly void but also subject parties to criminal prosecution, including fines and physical punishment. A contract to sell illegal substances, like drugs, is considered illegal and cannot be enforced by law because it involves an unlawful activity that goes against public policy and moral standards.

RELEVANT CASE LAWS

In the case Shivram Govind Darshane vs. Viswanath Govind Darshane (1956) The court found that the contract’s consideration of withdrawing criminal prosecutions was illegal under Section 23 of the Indian Contract Act, and such the contract is unenforceable. However, in this particular case the supreme court ruled that, in this case, the appellants were not seeking to impliment the illegal contract. Instead, they were demanding  their share of the amount already collected by the defendant as their agent.

In the case of Gherulal Parakh vs. Mahadeodas Maiya and others (1959) The Court acknowledged that the acquisition of lands was benami, where Radhumal had used the names of Prahlad Rai and others to acquire the property. This was considered by both the trial court and the High Court. The High Court stated that  deals were considered as fraudulent as  they were made  to deceive the Bettiah Raj. However, the Supreme Court mentioned that Bettiah Raj was known  for the benami deals and decided not to do anything about it.


CONCLUSION

In conclusion, understanding the distinction between illegal and unlawful agreements is essential for individuals studying contract law. Understanding these variances is crucial for steering clear of contractual issues and ensuring that you are aware of which agreements are permissible and in accordance with the law. Students can approach legal contracts with increased assurance and understanding by comprehending these fundamental concepts.


OLQ is a Pan-India basis law firm connecting legal expertise nationwide.

WRITTEN BY: KOUSTAV GHISH

GUIDED BY: ADVOCATE ANIK


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