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.
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.
Table of Content
- Object or Unlawful Consideration in Part
- Effect of Illegal Agreements on Collateral Transactions
- Can Parties of Illegal Agreement Seek Legal Help?
- Conclusion
- Unlawful Consideration in Part & Illegal Agreements- FAQs