Saturday, 29 January 2022

What are illegal and void contracts?


What are illegal and void contracts? 

By swatee shukla 

A contract is simply an agreement between two or more persons that is made enforceable by law. Any agreement enforceable by law between two or more parties will be a contract; unless it is expressly barred by the Indian contract act, or is invalid because either the object or the consideration is illegal. Thus, a contract, which is barred by the Indian contract act or suffers from an inherent defect because the consideration or the object is illegal, if entered into would fall in the category of illegal contracts. Such contact is considered in law as a void contract. A void contract is one such contract that is not prohibited by law but has no legal effect for it. On the other hand, an illegal contract is one that has no legal effect and is also prohibited by law. There may be free consent, parties may be competent, consideration may be lawful, but when the purpose of the agreement is unlawful or illegal, the agreement will be void. 

There are two things to keep in mind for a contract to be valid first the agreement must have a lawful object (lawful object means not barred by law) and must be accomplished by lawful means. Second, the consideration agreed upon must be lawful and not illegal. 

Consideration /object of an agreement is considered lawful when:

  • The consideration is not forbidden by law: for example, contracts to sell smuggled goods, to launder black money, to kill a person are all forbidden by law.

  • The consideration should not be of such a nature that if permitted, it would defeat the provision of any law. For example an agreement between two parties that one property would hold the Benami property on behalf of another in return for some services, this agreement would be void as it intends to defraud the legal system.

  • The consideration of an agreement is considered lawful when it is not made to avoid a process of law and not to commit fraud. 

  • If the consideration of an agreement is to cause an injury to the person or property of another, the agreement is unlawful and therefore void. In this context, injury means harm which is inflicted upon a third party without lawful justification. 

  • If the consideration or object of an agreement is immoral or opposed to the public policy of the country, the agreement is unlawful. For example, an agreement that involves sexual favor outside marriage would be considered immoral and opposed to public policy, hence unlawful and void. 

Apart from these, there are some specific types of contracts, which are expressly barred by the Indian contract act. These are 1) agreement in restrain of marriage- an agreement which restricts a person’s freedom to choose a marriage partner or to marry in general is expressly stated to be void in the Indian contract act. 2) agreement in restraint of trade- every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is void to that extent 3) an agreement in restraint of legal proceeding.4) if an agreement is so ambiguous and its terms are so uncertain that it cannot be performed in normal circumstances, then the agreement is void. 5) agreement by way of wager and 6) agreement to do an impossible act. These all types of agreements are barred by the Indian contract act and hence void. 

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