Consideration in a contract is said to be unlawful when it involves actions or promises that are illegal, immoral, or against public policy. Here are the circumstances under which consideration is considered unlawful:
1- Illegal Acts:
If the consideration involves doing something that is illegal, it is unlawful. For example, a contract for the sale of illegal drugs has unlawful consideration.
2- Immoral Acts:
If the consideration involves an act that is considered immoral by societal standards, it is unlawful. For instance, a contract involving prostitution, where it is illegal, has unlawful consideration.
3- Fraudulent Acts:
If the consideration involves committing fraud or deceit, it is unlawful. For example, a contract to commit fraud against a third party is based on unlawful consideration.
4- Injury to Person or Property:
If the consideration involves causing harm or injury to another person or their property, it is unlawful. For instance, a contract where one party promises to injure someone in exchange for money is based on unlawful consideration.
5- Opposition to Public Policy:
If the consideration is contrary to public policy, it is unlawful. Contracts that promote activities against the public interest, such as restraint of trade or marriage, are considered to have unlawful consideration. For example, a contract that restrains someone from marrying or requires them to break existing laws is against public policy.
6- Involves Breach of Duty:
If the consideration involves breaching a duty, whether statutory or fiduciary, it is unlawful. For example, a contract requiring a public official to act in a way that breaches their official duty is based on unlawful consideration.
Examples of Unlawful Consideration
1- Drug Trafficking: An agreement where one party promises to supply illegal drugs in exchange for money.
2- Bribery: A contract where one party promises to pay a public official to secure a favorable decision.
3- Non-Compete Agreement without Justification: A non-compete clause in a contract that excessively restrains trade and is not justified by a legitimate business interest.
Legal Consequences
Contracts based on unlawful consideration are void and unenforceable. This means that neither party can seek legal remedy for breach of such a contract, as it is considered null from the outset.
By ensuring consideration is lawful, parties can avoid the pitfalls of unenforceable contracts and maintain the integrity of their agreements.
Books Recommended: Check it Out
1. Beatsen (ed.)-Anson’s Law of Contract : (27th Ed. 1998)
2. Anson-Law of Contract (1998), Universal, Delhi
3. Pollock and Mulla-Indian Contract Act
4. Avtar Singh-Law of Contract, Eastern Book Co.(Lucknow)
5. S.K.Kapoor- Samvidha Vidhi (Hindi)
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