Agreements with Unlawful Consideration: Legal Consequences

                                    By: Kshitiz Mishra              

A contract is an agreement between two or more people that helps in building trust and ensuring fairness in personal and business relationships. Any contract comprises consideration, which essentially means giving something in return or receiving something valuable, such as money, goods, or services.

However, not every consideration is lawful. If the consideration involves something unlawful, harmful, or unethical, the agreement cannot be enforced because it is not valid under the law. In this paper, I will explain what unlawful consideration is, give a few simple examples, and discuss what happens if a person enters into that kind of agreement.

 

What is Unlawful Consideration?

Consideration is what makes a contract enforceable, but it must be lawful and ethical. Unlawful consideration refers to situations where the subject of the contract involves an illegal, harmful, or unethical act.

According to Section 23 of the Indian Contract Act, 1872, an agreement becomes unlawful if:

• It involves illegal activities – such as smuggling, theft, or drug trafficking.
• It violates the law – for example, tax evasion.
• It is fraudulent – involving acts like forgery, fraud, or cheating.
• It causes harm to others – such as hiring someone to hurt another person.
• It violates moral principles – like human trafficking or exploitation.
• It opposes public policy – for instance, offering a bribe to a government official.

Basically, if the deal involves wrongdoing or is connected to illegal acts, the law does not recognize it, and the contract is declared void.

 

Examples of Unlawful Consideration

Here are a few examples to understand the concept better:

• Paying a bribe to a government officer to approve a project faster.
• Getting someone to forge documents for personal gain.
• Selling or buying illegal drugs or banned items.

These agreements are based on illegal or unethical activities. Since they are unlawful, the law will not accept or enforce them.

What Happens if You Enter into Such an Agreement?

If you are party to a contract involving unlawful consideration, you may face serious consequences:

1. The agreement is Void.

 A contract with unlawful consideration holds no position in the eyes of the law. It is considered void, meaning the law treats it as though it never existed.

2. No Legal Aid

Since the agreement is illegal, you cannot sue to enforce it or recover your losses in court. For example, if you pay someone for an illegal Favor and they fail to deliver, you cannot sue them to get your money back.

3. You May Be Punished

Being involved in such a contract can land you in legal trouble. You might face fines, lawsuits, or even imprisonment for participating in illegal activities.

4. Damage to Your Reputation

 Being caught in unlawful agreements can ruin your reputation. Once people know you were involved in illegal acts, it can impact your career, relationships, and social standing for a long time.

 

Why Does the Law Reject Such Agreements?

The law rejects agreements with unlawful consideration to protect society and maintain justice. Allowing such agreements would encourage illegal activities, harm innocent people, and weaken public trust.

For instance, if bribery, fraud, or violence were tolerated under contracts, it would break the trust that holds society together and create chaos. The law declares these agreements void to ensure that contracts promote honesty and fairness rather than harm and wrongdoing.

 

    Agreements with unlawful consideration are not only void but also dangerous. Such agreements are declared void under Section 23 of the Indian Contract Act, 1872 and carry severe consequences such as legal penalties and damage to your reputation or might get imprison.

As a law student, I have learned that contracts are meant to encourage fairness, trust, and cooperation. Before entering into any agreement, it is important to ensure that its purpose and consideration are lawful and ethical.

A fair and honest contract benefits all parties involved and helps build a just and trustworthy society. Let us always act responsibly and legally in making agreements.