The Indian Contract Act of 1872 states that ” every illegal agreement is unlawful, but not every unlawful agreement is illegal.” This statement becomes a topic of discussion because they sound similar but have different meanings and consequences.
Understanding the difference between illegal and unlawful agreements is crucial for anyone studying contract law or entering into agreements.
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illegal and unlawful agreements
To understand the difference between illegal and unlawful agreements, we are providing you clear and easy understanding in this article.
Unlawful Agreements
An unlawful agreement is a contract or arrangement that goes against the law, public policy, or ethical principles. This makes it void, meaning it’s legally invalid (from the start) and cannot be enforced in court. Unlike illegal agreements, which involve criminal activities, unlawful agreements typically involve actions that are prohibited by law but not considered crimes
Section 23 of the Contract Act lays down many circumstances wherein the object or consideration of an agreement is unlawful. An agreement hit by Section 23 is void ab initio and, in no circumstances, enforceable.
Examples of Unlawful Agreements:
Agreements to Perform Immoral Acts: Contracts that require parties to engage in immoral behavior, such as a contract for an act of extortion.
Contracts for Illegal Activities: Agreements to engage in illegal acts, such as drug trafficking, prostitution, or theft. For instance, a contract between two parties for the sale of illegal drugs is unlawful.
Agreements to Commit a Crime: Any agreement where parties conspire to commit a crime, such as a contract to commit fraud or embezzlement.
Agreements Restraining Trade: Contracts that unreasonably restrict competition or trade, such as price-fixing agreements between competitors, violate antitrust laws.
Agreements Against Public Policy: Contracts that go against the interests of society or public welfare, such as agreements to waive liability for intentional wrongdoing or to commit a tort.
Usurious Agreements: Contracts that involve charging excessively high interest rates on loans that exceed the legal limits set by law.
Unlawful agreements don’t always involve breaking the law in a criminal sense. They might just violate rules that protect public interest or ethical standards. They may not lead to criminal penalties, they can result in civil consequences, such as lawsuits or financial penalties.
Illegal Agreements
An illegal agreement is one that involves actions or intentions that are against the law. These agreements can lead to serious legal consequences, such as fines or even imprisonment in some cases.
Illegal agreements are those agreements that are (i) void and (ii) punishable by criminal law of the country or by any special legislation/regulation. Such agreements are not enforced by a court of law. illegal agreements have no legal validity, they are considered invalid right from the beginning.
Such agreements are not enforced by a court of law relying on the principle of ex turpi causa. The principle of ex turpi causa applies, meaning the law does not help anyone involved in something illegal or morally wrong.
The illegality of these agreements means they have no legal standing and cannot be upheld in a court of law. Parties cannot seek legal recourse for enforcement or damages related to the agreement. Instead, they may face prosecution and legal consequences for their participation.
Example of an illegal agreement
- Murder: An agreement to murder someone is an example of an illegal agreement.
- Selling illegal drugs: A contract to sell illegal drugs is illegal because the subject matter of the contract is illegal.
- Price-fixing: An agreement between competitors to set the same prices for goods or services is illegal.