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This article is written by Puneet Chabra, here he discusses the illegal or void contract.

Introduction

Every transaction entered by the private parties or Government requires a legal recognition, which is enforceable by the court of Law for claiming a right. Thus, this legal recognition which is enforceable in nature called “contracts”.

To understand the concept of “legal” and “illegal” contracts let us take a view of few examples, A entered into a contract with B for the sale of a house of Rs 11,00,000 and both A and B have performed their obligations on their part. This is a valid contract between A and B. Let us take another example, A and B entered into the Contract for the sale of a house, but it is for the purpose of storing weapons which are prohibited under the law. This is an illegal contract which is not enforceable by the court of law.

So from the above examples, it is now clear that not every contract entered between the parties is valid, there are some basic elements which makes the contract illegal or unlawful. So, the next question is what makes the contract illegal? which will be answered in this article.

 

Importance of a contract

A contract is an agreement which specifically defines the rights of the parties, the performance of an act each party has to fulfill, keeping in view the certain boundaries on their behalf. It also acts as evidence where there is a need for proving a claim before the court.

Void by Law i.e. Illegal or unlawful contract

Indian Contract Act 1872 deals with the conditions when the agreement becomes void.

  • Incompetency –  When the parties entering into a contract are incompetent i.e. has not attained the age of majority according to the Indian Majority Act 1982, i.e. 18 years, who is of unsound mind and a person who is not capable of understanding the nature of the contract.
  • Illegal intention – It is one of the most important elements which determines the legality of the contract. if the subject matter of the contract is not authorized by the provisions of law. Then the contract is considered to be ‘illegal’.
  • When the terms and conditions of the contract are mistaken by either of the party – When the terms and conditions of the contract have not been understood by the party or are vague in nature.
  • Mistake and FraudWhen the terms of the contract are misrepresented by either of the party or influence a person to enter into a contract fraudulently then the contract considered to be illegal.
  • Forbidden by lawIf an agreement is such a nature, that it would defeat the provisions of law the contract is considered to be “void”.
  • Injury to a person or a propertywhen the contract is of a nature that it would cause injury to a person or a property then the contract is considered to be “void”
  • Opposed to public policywhen the agreement is opposed to public policy then the contract is considered to be “void”.

Examples of illegal contracts

Here, are some examples of illegal contracts

  • Contracts for the sale, or distribution of illegal substances i.e. drugs.
  • Contracts of activities which are considered illegal by the law.
  • Employment contracts for hiring workers who are not above the age prescribed by law.
  • Contract to wage war against  State Government.
  • Contract to illegal Mining.
  • Agreement in Restraint of Legal Proceedings.
  • Restraining Parental Rights.
  • Agreement to illegally creating a monopolies.

Remedies available to the aggrieved party

If the contract entered between the parties, is found to be illegal, it is not enforceable by the court of Law. The court will declare that there was no contract between the parties and leave the parties “as they are” at the time of the breach. The parties who suffered the consequences from an illegal contract cannot recover the damages as the contract does not exist in the “eyes of Law”.

Contracts for the sale of illegal substances is prohibited under Narcotic Drugs and Psychotropic Substances Act, 1985 is considered to be illegal when the drugs are sold, then what has been mentioned in the act. The party who suffered losses cannot recover the amount from the contract.

Therefore, the illegal contract does not have validity in the eyes of law and neither of the party can recover damages arises from an illegal contract.

Contracts with Government

Article 298 of the Indian Constitution deals with the provision of the contracts with the government which States that –

  • All contracts made in the exercise of executive power of the president or the governor of the state, as the case may and shall be executed in the name of The President or the Governor.
  • Neither, the President nor the Governor shall be personally liable for the contract enforced in the name of the executive for the purposes of this constitution.

Judicial Pronouncement

  • In Taylor vs. Chester, it was held that the true test for determining whether both the parties were in equal fault, is by considering whether the party suffered could make out his case otherwise than through the medium and by the aid of the illegal transaction to which he is also involved.
  • In Alice Mary vs.William, Clarke the plaintiff, married women agreed to live in adultery with the man who agrees 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 unlawful one cannot be considered as valid, hence is void or unlawful.
  • In Central Inland Transport Corporation Ltd. vs. Brojo Nath, the terms of a Contract of employment arbitrary and unreasonable which provided that the employer could terminate the services of a permanent employee by giving him a 3 months “notice or  3 months salary. The Supreme Court held the terms of the contract to be unreasonable and against the public policy and therefore void under section 23 of the Indian Contracts Act.

Conclusion

It is clear from the light of above Judicial decisions, that the contract legality totally depends upon its nature and terms of the contract. If the terms of the Contract is illegal or opposed to the policy which affects the public at large and unreasonable, then the contract is considered to be “null” in the eyes of law and it cannot be enforceable in the court.

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