Incapacity, Mistake , Misrepresentation and Unlawful Agreements

Akash Ajay Kumar

1549

3rd Sem BA LLB hons

Contents

 Incapacity

o Incapacity Under Common Law

o Comparison between Common Law and Civil Law

o Incapacity Under Indian Law

 Mistake

o Mistake Under Common Law

o Mistake Under Indian Law

o Mistake Under French Law

o Mistake Under Swiss Law

 Misrepresentation

o Misrepresentation Under English Law

o Misrepresentation Under Indian Law

 Unlawful Agreements

o Unlawful Agreements Under English Law

o Unlawful Agreements Under Canadian Law

o Comparison between English and French Perceptions

o Unlawful Agreements Under Indian Law

Incapacity

The assumption underlying any contract is that each party has freely entered into a binding agreement, having
assessed whether or not the terms are in their best interests. Some categories of person—including minors and people
with impaired mental capacity—have traditionally been regarded by the law as being incapable of looking after their
own interests, and through various rules, a ‘legal disability’ has been imposed on them. Generally, if people under a
legal disability attempt to make a contract, that contract can be declared ineffective.Contract law does not, however,
require a person’s ability to understand the implications of a contract to be assessed. Instead, the common law
developed a complex set of rules categorising transactions, especially by minors, in terms of whether there is a legal
disability.

Incapacity Under Common Law

The basic principle to be followed in the United Kingdom is that a mentally disordered person is bound by his contract
unless he can show that owing to his mental condition, he did not understand what he was doing, and further that the
other party was aware of his incapacity. The Mental Health Act, 1959 has special provisions with regard to the
current topic at hand. The relevant part is Part VIII, where widespread powers are given to a Judge if he is satisfied
from the medical evidence of the person’s insanity, to administer his property and affairs.

Under English common law, the age of capacity Family Law Reform Act, 1960 was brought down from 21 to 18.

The long established rule was that agreements entered into by minors are voidable. Here, the term voidable is used in
two different senses. On the one hand, some contracts may be prima facie binding upon the minor and may bind him
to the contract, but may be avoided by the minor before or within a reasonable time after his majority. On the other
hand, there maybe contracts which were not binding upon him till he reached the age of majority when he could have
ratified it. The Infant Reliefs Act, 1874 was of the opinion that certain contracts like contracts for loans or for goods
other than necessities should be made absolutely void and that there would be no option for making it valid once the
minor reaches the age of majority.

but under the English law, a person of unsound mind is competent to contract although he may avoid his contract if he
satisfies the court that he was incapable of understanding the contract and the other party knew it, the contract seems
to be voidable at his option. The binding effect upon him is confirmed only if he affirms it. A fair contract with a
person, who was apparently of sound mind , but who in fact was suffering at the time of the contract from such
mental disorder as rendered him incapable of entering into the contract, is voidable and not void.

Drunken Persons: As far as the Common Law position is concerned, it was initially thought that a drunken person just
like a mentally incapable person was unable to enter into a contract, i.e., it is voidable at the option of the party. but
other authorities suggest that equity has a wider jurisdiction to set aside an unfair or unconscionable transaction
entered into by a person affected by drink.

Comparison between the Common Law and Civil Law

First considering the general case, i.e. the case where the person’s competency has not been limited by any protective
measure but he was non compos mentis at the moment the contract was concluded, we observe two approaches.

On the one hand, in England and Italy, the contract is voidable at the instance of the insane parties’ will, provided the
other party to the contract knew of such a mental impairment of the other party at the time of making the contract. The
Italian courts have read Article 428 of the Codice Civile in such a way that it gives an opportunity to the mentally
incapable person to avoid the contract on the basis of his mental impairment on the ground that the other party was in
bad faith, which generally consists in the knowledge of the party’s incapacity. This interpretation is widely criticized.
This is because a read of the Article would result in one interpreting that the contract can be set aside only if two
conditions are satisfied. The contract must be entered into by bad faith by the opposite party and that there must be
some prejudice caused to the other party. but the courts seemed to have neglected the latter part and have arrived at an
interpretation that any contract entered into with the knowledge that the other party is mentally unsound can be set
aside due to the fact that the opposite party has entered into the contract in bad faith. Similar is the English position,
where in the case of Imperial Loan Company Ltd v Stone it was held by the Queen’s bench that a contract entered into
by a mentally unsound person can be avoided if the other party was aware of such a mental incapacity of the other
party at the time of entering into a contract. Prejudice would not be a factor that would be considered by the English
law when discussing voidability, as prejudice understood as unfairness of a bargain would not be grounds for
declaring the law to be voidable as understood in Hart v O’Connor. In English law, a contract is voidable if any
reasonable man would realize that the party with whom he is contracting with is incapable of entering into a contract
due to unsoundness of mind. The French law is fundamentally different from this. Article 414 of the French Civil
Code does not declare that the other party be aware of the mental incapacity of the other party for the contract to be
declared void. Instead, the proof of mental incapacity is sufficient.

In the French legal system, a contract entered into by a person during the two years preceding the commencement of
proceedings for subjecting that person to a protective measure can be declared void just if he proves that he was
unable to defend his own interests and he suffered a prejudice, as according to Article 462.

The French law departs from this view. According to the French law, the contract can be declared void at the instance
of the mentally unsound party without any further requirement but the proof of mental incapacity. Thus, the
requirement that the other party to the contract being aware of the mental incapacity of the opposite party is done
away with.

Another striking feature of the Civil law is that a proper distinction is made between minors and infants where the
latter includes children of such a young age that there is an absolute lack of discernment and law treats them to be
completely incapable of entering into legal activities that involves legal activity and consent. The former includes
those persons who are under the age of 18 but who have reached the age of discernment. In Civil law, minors are not
allowed to perform acts of alienation, i.e., acts of selling a property. Minors are also allowed to enter into acts legally
on all those matters, such as contracts of employment, which concern them personally and intimately.

One of the ways in which there is a synergy between common law and continental law is that even minors are allowed
to enter into agreements, the law seeks to protect the minors from their own miscalculations. The only difference in
approach taken for a common end result is that the English Law authorizes a certain a positive act whereas the Civil
Law talks about a negative sanction. The common law notion is, then, that a contract is valid in so far as it is for the
benefit of the minor or, as the case may be, necessary and beneficial to the minor. The Civil Law viewpoint is that the
contract is valid as long as there is no detriment caused to the minor.

Incapacity Under Indian Law

What is a sound mind for the purposes of contracting. —

“A person is said to be of sound mind for the purpose of making a contract, if, at the time when he makes it, he is
capable of understanding it and of forming a rational judgment as to its effect upon his interests. A person who is
usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. A person
who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound
mind.”

In India the position of an unsound person is treated with at par to that of agreements entered into by minors, that is,
absolutely void. Section 12 of the Indian contract act lays down the basis, stating that, to enter into an agreement, an
individual must be well aware of the consequences. Hence, an inability to form a rational judgement and incapacity to
understand the nature of the contract during the process of entering into a contract allows one to conclude that the
individual will be imposed with obligations which he did not accept understanding its nature, but rather forced to
oblige by due to his carelessness. However, a person of unsound mind may enter into contracts when he is of sound
nature. but a person who is usually of sound mind cannot make contracts when he is of unsound mind. In the case of
Inder Singh Vs Parmeshwardhari Singh, a property with about 25000 was agreed to be sold by a person for only 7000.
His mother proved that he was a congenital idiot, incapable of understanding the nature of the transaction and that he
mostly wandered about. It was held in the current case that the man was incapable of understanding and forming a
rational judgment. Hence the sale was considered void in the case, exempting the obligations on the man.
 A marriage between a Muslim and a Hindu was declared to be no marriage at all when the evidence shows that at the
time of the marriage, the girl was under intoxication and was not conscious of the ongoing ceremony. She also proved
that she had not lived with the man even for a single day. Registration of the marriage under the Hindu marriage act,
1955 was also illegal. The family court was held competent to declare the status of the parties and declare that the
marriage be void.

Mistake

In contract law, a mistake is an erroneous belief, at contracting, that certain facts are true. It can be argued as a
defense, and if raised successfully can lead to the agreement in question being found void ab initio or voidable, or
alternatively an equitable remedy may be provided by the courts. There are however divergences between legal
systems

Mistake Under Common Law

Mistake in Law of Contracts may have several different effects. Under common law, it may operate so as to negate or
in some cases to nullify consent. The contract will then be considered Void ab initio at that point. Similarly, one of the
reasons why English courts are said to be reluctant to intervene in favour of the mistaken party is that under common
law, a mistake renders the contract void ab initio. Such an effect results in prejudice to the parties and even to a third
party who has acquired an interest in the subject-matter of the contract.

Mistake must be mutual because both the parties entered into the contract under such a misapprehension. When the
mistake is shared by both the parties, there is consensus ad idem, but the law may nullify this consent if the parties are
mistaken as to some fact which lies at the basis of the contract. The House of Lords case of bell v Lever brothers Ltd.
established that common mistake can void a contract only if the mistake of the subject matter was sufficiently
fundamental to render its identity different from what was contracted, making the performance of the contract
impossible. Great Peace Shipping Ltd v Tsavliris (International) Ltd held this up while also disagreeing with the
previous Solle v. butcher case which had caused grat frustration in the legal fraternity.

A unilateral mistake occurs where only one party is mistaken as to the terms or subject matter. Often, this can lead to
an unfair advantage for one of the parties. For a unilateral mistake to render the contract void, the mistake must relate
to the fundamental terms and conditions of the contract. A unilateral mistake in relation to the quality of the subject
matter of a contract will not result in the contract being void – unless the term as to quality is fundamental to the
contract.It is not enough for one party simply to be mistaken in relation to the terms and conditions of a contract. For
the contract to be void due to the unilateral mistake the other party must have been aware of this mistake and then
used it to their advantage in forming the contract.

Any mistake as to the terms of the contracts, if known by the other party, may avoid the contract. The mistake must
relate to the terms of the contract. If it is merely, for example a mistake with regard to the quality of the substance,
then it will be an error in motive and it is well established in the case of balfour v Sea Fire and Life Assurance Co that
a mere error in motive will not be enough grounds to vitiate a contract.

A contract will become void at common law where a mistake was made as to the identity of the other party with
whom the contract is made; and the identity of that person is central to the formation of the contract.

Mistake Made Under Indian Law

The Indian contract act makes a reference to defeat in consent or rending unreal defeat under Section 13 explaining it
as a concept when two or more persons are said to mutually agree upon the same thing in the same sense. Hence a
meeting of minds is an absolute criterion for entering into a contract. This is often referred to as “consensus ad idem”.
In the absence of defeating consent and where the mistake only misleads the parties, then this calls for Section 20 of
the Indian Contract Act. Further, an erroneous opinion as to the value of the thing which forms the subject-matter of
the agreement, is not to be deemed a mistake as to a matter of fact

The progress of a contract made under the ambit of mistake can operate in two ways. Firstly, it could be established
that the consent was unreal i.e., defeat the consent altogether that the parties are supposed to have given. Secondly, the
mistake may mislead the parties as to the purpose which they contemplated.

Section 20: Agreement void where both parties are under mistake as to matter of fact.

“Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the
agreement is void.”

In State of Karnataka v M/s Stellar Constructions Co., where the contract was entered into for the construction of road,
an offer was made by contractor after taking into consideration all aspects like work place and carrying of the material
from distant place, the plea of the contractor that he was required to move the material from nearer quarry to a farther
quarry cannot in order to attract Section 20 of the Indian Contract Act,1872 to avoid the contract.

In State Industrial & Investment Corporation of Maharashtra Ltd v Narang Hotels, the State Industrial and Investment
Corporation of Maharashtra entered into a contract with the defendant to provide subsidy for setting of a hotel project
under Central Industrial subsidy scheme and advanced a sum of Rs. 6,59,700/-. The plaintiff corporation subsequently
sought to cover the same with the interest on the ground that the defendants and plaintiff committed a mistake of law
in interpreting the Central Subsidy Scheme and assumed that the hotel industry was an Industrial Unit.

The court held that there could be at least two opinions in respect of interpretation and onus of roof is on the plaintiff
to prove that they made payments as a result of mistake. Since the onus has been discharged, the plaintiff neither could
seek refund nor refuse to pay balance.

The Indian Contract Act, 1872, Section 22:

“A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a
matter of fact.”

In Haji Abdul Rahiman v bombay and Persia Steam Navigation Co., the plaintiff chartered a steamer to sail from
Jeddah to bombay, “on the 10th of August, the 15th day after the Haj". They subsequently discovered that the 10th
August was a mistake and the 15th day after Haj was the 19th July. In a suit for rectification the court held that
remedy must be cancellation, if the mistake is bilateral, and since the mistake was only unilateral, and in no way
induced by the defendant the contract could not be avoided. but, since we can be guided in law only by the
expressions used by parties, the principle of estoppels is brought into operation.

Mistake Under French Law

As a nation that follows civil laws, France has an established and codified system that provides for solutions (art.1130-
1136) that may arise due to differing circumstances and is further bolstered by the judicial decisions that are made
when cases do go to trial.

According to Pothier, for instance, there are two kinds of operative mistake: the first " annihilates " consent. It is
found, for example, in the case of a party who is mistaken as to the identity of the subject matter of the contract. Then
there is no contract at all and no need to get an order for rescission. On the other hand, error concerning qualities of
the subject matter gives to the party in error the right of rescission. It is, indeed, striking that the French Civil Code
caly refers to error as to the substance and as to the person, the effect of these being mere voidability. As it is not,
however, possible that the legislator did not provide for any role concerning mistake as to the identity of the subject
matter or the nature of the agreement, most of the writers are of the opinion that the Code refers only to cross which
vitiate consent

being a country that follows the continental law system, the French code varies from the English position is certain
ways. Firstly, in Le Tresor de l'Agriculture v. Polino, the defendant signed a document believing it to be an insurance
policy. In fact, it was a mutual insurance. Clearly the mistake turned on the nature of the contract, since instead of
being merely insured, the defendant became also insurer. The Cour de Cassation decided that the contract was
voidable for mistake as to the substance of the subject-matter. It is to be assumed that by so doing the Supreme Court
showed its preference for the voidability system. Hence, what is observable is that the French codes went in for a
system where the principle of voidability was favored over out rightly declaring it to be void.

Under German law, for instance, a declaration " of intention " is voidable if it is affected by a mistake, provided the
mistake is of the kind which is declared to be relevant. On principle, therefore, mistake does not render a legal
transaction void, as it does under English law. To be sure, there are also instances where mistake indirectly prevents
the formation of the contract, as for example, in case the parties, owing to the rules pertaining to the formation of
contracts, are not ad idem. This is, however, exceptional, since under German law discrepancies between offer and
acceptation in general prevent the formation of the contract only if they appear expressly in the declaration of
intention made by the part.

Mistake Under Swiss Law

The most conclusive system seems to be that of the Swiss Obligations Code which provides in very general terms that
mistake, when it is operative, renders the contract voidable or more precisely " not binding.” The rule relates to
unilateral mistake as well as to mutual mistake, under the condition that the mistake is “ material." It is noteworthy
that " material mistake” compre hends also error as to the identity of the subject matter and error as to the nature of the
transaction, which in many other systems of law renders the contract an absolute nullity. In comparison with the
evolution which took place in the continental systems, the English common law remains very traditional. At common
law, as in Roman law, the effect of mistake, if it operates at all, is to render the contract a complete nullity." On the
other hand, the courts have developed the use of equitable remedies which may render the contract merely voidable.
but as equity in general follows the law in its attitude toward the doctrine of mistake, the whole English system
appears to be too rigid.

Misrepresentation

A misrepresentation is a false statement of a material fact made by one party which affects the other party's decision in
agreeing to a contract. If the misrepresentation is discovered, the contract can be declared void and depending on the
situation, the adversely impacted party may seek damages.

Misrepresentation Under English Law

In England, before the enactment of the Misrepresentation Act, 1967, the view point that was held was that a
misrepresentation which induced a person to enter into a contract gave the representee a right to rescind the contract,
subject to certain conditions but did not in general give him a right to misrepresentation, unless the misrepresentation
so caused was fraudulent, negligent or unless the misrepresentation had contractual force. The representee involves
three classes of people. The person to whom the representation is made, the person to whom the representation was
intended to be made and the members of a class at whom the representation was directed at. With the passing of this
Act, there could always be a claim for damages, provided that the misrepresentation was fraudulent. A representation
is a statement of fact, past or present, as distinct from statement of opinion, or of intention, or of law. A mere
statement or opinion is not misrepresentation. It has to be proved that the person who made such an opinion did not
hold it, or could not, as a reasonable man having his same knowledge about the facts and circumstances, honestly have
held it, the statement may be regarded as a statement of fact. It is commonly said that a statement of law cannot be
held to be under the ambit of misrepresentation. but a statement of law is also an opinion and hence, just as a
statement of opinion may be may be a representation of a fact, a statement of law may also amount to
misrepresentation. So, a willful misstatement of law can also be treated as a misrepresentation. Non-disclosure will
also not constitute misrepresentation as the parties are under no obligation to disclose the material facts of the case to
each other. but an exception to this rule involves contracts that require uberrimae fidei, where there is a fiduciary
relationship between the parties.

Under Section 2 (1) of the Misrepresentation Act, 1967, damages are now recoverable under negligent
misrepresentation, if they would have been so recoverable in fraud and where the representee enters into a contract
with the representor as a result of this misrepresentation. For the test of fraudulency, the case of Derry v Peek, has to
be referred. Where Lord Herschell has opined that fraud is proved when it is shown that a false representation has
been made:

“knowingly, or without belief in its truth, or recklessly, careless whether it be true or false.”

Another important issue to focus on is that a principal is liable for the fraud committed by his agent. but for this to
happen, the agent must make the fraudulent statement within the scope of his authority / employment and the agent
must himself be fraudulent.

The next form of misrepresentation is that of negligent misrepresentation. It is a form of misrepresentation that is
made carelessly or without grounds to believe in the truth of such a representation. Though Derry v Peek was the case
that regulated this form of misrepresentation, the new authority is the Misrepresentation Act.

Section 2 (1) reads:

“When a person has entered into a contract after a misrepresentation has been made to him by another party there to
and as a result thereof, he suffered loss, then, if the person making the representation would be liable to damages in
respect thereof had the misrepresentation been made fraudulently, that person shall so be liable, not-withstanding that
the misrepresentation was not made fraudulently, unless he proves that he has reasonable grounds to believe that and
did believe up to the time the contract was made that the facts represented were true.”

Misrepresentation Under Indian Law

If the consent to a contract is induced by misrepresentation, such a contract is void. The misstatement if a fact material
to a contract amounts misrepresentation. It is defined in the Indian contract act of 1872 as,

Section 18. “Misrepresentation” defined.—“Misrepresentation” means and includes— (1) the positive assertion, in a
manner not warranted by the information of the person making it, of that which is not true, though he believes it to be
true; (2) any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or any
one claiming under him; by misleading another to his prejudice, or to the prejudice of any one claiming under him; (3)
causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the
subject of the agreement.

In the bombay’s case, the defendants chartered a ship from the plaintiffs, who states that the ship certainly more than
2800 tonnage register. As a matter of fact, the ship had never been bombay and wholly unknown to the plaintiffs. She
turned out to be the registered tonnage of more than 3000 tonnes. Hence when a party positively asserts that a fact is
true when his information does not warrant it to be do, he believes it to be true and this amount to misrepresentation. It
was held in this case that; the defendants were entitled to avoid the charter party.

breach of duty:

Any breach of duty which brings an advantage to the person committing it by misleading other to his prejudice is
misrepresentation. Such a situation arises in cases where the party has no intention to deceive but where the
circumstances are such as to make the party who derives a benefit from the transaction equally answerable in effect as
if it had been actuated by motives of fraud or deceit. In the case of Oriental banking Corporation Vs. Fleming , the
plaintiff having no time to read the contents of a deed signed it as he was told by the defendant that it contained
nothing but formal matters already settled between them. The deed, however, contained a release in favor of the
defendant. Although the defendant was under no obligation, legally or morally, to communicate the contents of the
deed, but since the plaintiff placed confidence, it then became his duty to state fully without concealment, all that was
essential to the knowledge of the contents of a document. It was held that the deed was voidable.

Mohan Lai Vs. Shri Gangaji Cotton Mills Co., in this case, A learns from X that b would be director of a company to
be formed. A says to M: “b is going to be a director of the Co.”, in order to induce him to purchase shares. M does so.
This is misrepresentation by A, though he believed in the truth of the statement and there was no intent to deceive, as
the information was derived not from b, but from X, and was mere hearsay. belief under S. 18(1) must not only be
reasonable, but also must be derived from the best possible source.

Inducing mistake about the subject matter:

Causing however innocent party to an agreement to make a mistake as to the substance of the thing which is the
subject of the agreement also amounts to misrepresentation according to Section 18(3) of the Indian Contract Act. In
the case of Dambarudhar behera vs state of Orissa, the government auctioned certain forest coupes. A portion of the
land was occupied by the tenants. This fact was not disclosed to the purchaser though it was well within the
knowledge of the forest department. The contract was held to be vitiated by misrepresentation. And the purchaser was
allowed to recover damages for the losses suffered by him.

Suppression of vital facts:

The case of R vs Kylsant explains that the concealment or suppression, breach of duty of an agreement all could
possibly amount to misrepresentation. here the prospectus of the company showed that the dividends were being paid
regularly, which created the impression that the company was making profits. Whereas the truth was that the company
had been running on losses for the last several years and the dividends could be paid only out of wartime accumulated
profits. The suppression of this fact amounted to misrepresentation.

Under the English common law, a misrepresentation devoid of the element of fraud would not entitle the aggrieved
party to recover damages to render the contract voidable. However, the principles of equity believe that any person
who has entered into a contract upon being misrepresented must be able to escape from such a contract wither by
bringing an action for recession or by pleading it as a defense to a suit for specific performance.

Unlawful Agreements

A contract is considered an “illegal contract” when the subject matter of the agreement relates to an illegal purpose
that violates the law. basically, contracts are illegal if the formation or performance of the agreement will cause the
parties to participate in illegal activities.

English position:

The English position is that all agreements whose objects are in contravention to public policy would be regarded as
illegal. It would be deemed to be against public policy if the objects are illegal, objects are injurious to the
government, objects which interfere with the proper working of the machinery of justice, objects injurious to family
life (immorality, interference with marriage family life and objects economically against public interest.

Canadian position:

An Agreement to do an act which in itself is contrary to the policy of law.

An act that is committed is itself illegal, then an agreement to commit the same would be illegal as well. The general
principle stated in the books that an agreement to commit a crime is illegal is based on cases where the crime was
serious one and here the principle is clear. but in certain circumstances, to hold an agreement to be illegal would be a
penalty imposed greater than any fault that is committed. For example, if an act of transporting goods would not be
made possible of not for parking in a no parking zone for some time and following that, if the entire agreement is
declared to be illegal, it would be against the principle of fairness. Hence, when deciding on an act that has been
statutorily prohibited, the court should take into account,

Whether the statutory prohibition impliedly prohibits the making of that contract AND

Whether the agreement to do such an act is illegal according to common law principles and as being an agreement in
that sense to commit a crime.

It is very rare that both these conditions are met. The most common condition that the courts consider that happen in
the everyday life is the first condition.

Thus, where the crime was of a minor nature, it may be possible to sever the criminal portion of the agreement and
rest. Where the main purpose of the contract was perfectly legitimate, the crime was merely incidental and it would be
possible to urge that agreement was not totally bad, unlike a case where the main object contract was the commission
of a crime. as by analogy.

In a case where a penal statute is construed to attach tortious liability to an act, the argument that an agreement to
commit that act is illegal will be strengthened because the agreement will now be one to commit a tort as well. As far
as the agreement involves one to commit a tort is concerned, the following two questions must be taken into account.
Firstly, whether the conduct agreed upon can be construed to be a tort and secondly, if it is, is an act to commit this
tort illegalb

Agreements to abstain from doing an act the law does not impose a duty to act but does disapprove of trafficking in
inaction is another criterion of acts that can be dealt with under this subhead. is wide. The general principle is that one
should not profit from one's knowledge of a crime. Hence, any violation with respect to this would result in the
agreement being illegal or unlawful. Some contracts to keep silent were illegal, but in order to decide which classes
were illegal, it was necessary to make a number of distinctions. So a contract not to give evidence if required by law to
do so would be illegal but a contract not to volunteer information might be sustained in some cases. suggested that
contracts to keep silent about projected crimes or civil wrongs were more objection-able than agreements as to past
conduct because in the former case silence would facilitate the commission of the wrong. Some contracts not to
disclose a committed crime would be legal, as for instance where an accused person makes an admission to his
solicitor. Finally, the contract was one which in no sense encouraged the committing of any wrong. On the contrary its
effect must necessarily be to reduce any injury resulting from the wrong already done to a minimum. The following
are the major factors to be concerned and taken into account.

The nature of the conduct promised. Did the promisor undertake to stifle a prosecution, to abstain from giving
evidence, or only to remain silentb

The relationship between the parties involved. There will be a particularly strong case for upholding the agreement if
the promisor stands in a confidential relationship to the person whose conduct is to be concealed. Conversely there
will be a strong case for striking the agreement down if he stands in a confidential relationship to the person to whom
disclosure is not to be made.

The nature of the transaction to be concealed. One must distinguish according as the agreement is to conceal intended
criminal or tortious acts, past crimes, past torts and other forms of improper conduct in the past, and in each case one
must further consider the degree of impropriety of the conduct and whether it was directed against the promisor or
against a third party, from whom it is to be concealed.

An Agreement to do an act which is legal, but which may lead to a result which would be illegal. One of the primary
examples of such an incident was illustrated by Lord Wright in Fender v St. John Midmay. He beautifully opined on
two instances that would best suit this category. An agreement as to future separation may weaken the parties’ will to
keep the marriage alive and the second example would be that of parties separated, who agree to reconciliation, but
makes a provision for future separation.
Though a precise method for determining whether the contract is illegal is not available, the following conclusions
have to be kept in mind as far as the illegality of agreements is concerned.

That the question whether a contract is illegal is difficult to answer and demands a precise analysis of the way in
which the contract is alleged to infringe public policy.

that in analyzing the contract, the court should have regard not merely to the nature of the alleged impropriety but also
to the way in which it is connected with the contract.

Comparison between English and French Perception

According to Art. 1131 of the French Civil Code talks about illegal agreements. The French position is that illegal
agreements cannot have any effect. There are null and void and have no legal existence. As the Cour de Cassation said
in Croize v. Veaux,' an agreement "declared null as contrary to public order cannot ... produce any legal effect either
for the future or for the past.” Hence, the court’s position is that such agreements are not merely voidable but are void
ab initio. The English position compared to this is unclear. In certain cases, it has only been held that such agreements
are unenforceable, whereas whether it is null and void is left unsettled. enforcement. but other cases seem to go further
than that and to say that the illegal contract is void or void and unenforceable or void ab initio or entirely void. Yet
unenforceability and "void- ness" are not the same concept. The concept of an agreement void ab initio is more closely
allied to the French idea of nullity than to the notion of unenforceability. An agreement void ab initio is treated as if it
never existed. It is not a contract at all. It is nothing. That, as has been indicated, is the position in French law. but it is
difficult to see how it can be the position in English law where the illegal agreement exists as something which, as will
be seen presently, can give rise to legally enforce- able rights, though the agreement may not itself be enforceable. Yet
in the English cases the terms "void ab initio" and "unenforceability" have been used as though they are
interchangeable. So, although the preponderant view in England is that illegality renders an agreement unenforceable
only, the confusion with voidness, which has been in the law of England for so long, is still a source of difficulty in
the courts today. The rule in French law as far as transfer of title is concerned is that property or ownership in goods
cannot pass under an illegal agreement. This is so even where the parties have actually performed the illegal
agreement and the transferee has taken possession of the goods. English law has a stance opposite to the French law
and does not regard an illegal agreement as amounting to nothing. It considers such contracts to give rise to legally
enforceable obligations and an example of such an agreement includes agreements dealing with property rights. It is
well established that in English law, property in goods or land can pass under an illegal contract.

Recovery in French Law is governed by Art. 1131. but there are two varying interpretations as far as this section is
concerned. The first is that where the agreement is illegal there can be no recovery, at least if both parties are guilty.
The second view is that there must be recovery even if both parties are guilty. According to Oeuvres de Pothier,
recovery is allowed only in the first case and not the second case. In Chedeville v. Delamotte, the Court of Cassation
held that recovery should be permitted. but the courts kept oscillating in its’ decisions for decades after this
judgement. Finally, the stance was taken by the courts after a thorough reading of Art. 1131. The courts held that since
the objective was to recognize illegal agreements as being inexistent since its inception, it cannot confer any rights and
obligations. Hence, the parties must be returned to the position in which they were before the agreement was entered
into, and thus made restitution possible. but in English law, the rule on non-recovery is held. Hence, if the agreement
is illegal and both parties are equally illegal, the position of the defendant is stronger. The English position also relies
on the bowmaker’s rule as set out in the case of bowmakers Ltd v barnet Instruments Ltd, where it was held that a
man’s right to protection of an article will be enforced notwithstanding the fact that the article came into his position
by reason of an illegal contract, provided his claim is not founded on the illegality of the contract.

Unlawful Agreements Under Indian Law

Section 23 deals with what considerations and objects are lawful, and what not- The consideration or the object of an
agreement is lawful unless –

“It is forbidden by law or is of such a nature that if permitted would defeat the provisions of any law or is fraudulent
or involves or implies injury to the person or property of another or the court regards it as immoral or as opposed to
public policy.”

Though the object of the agreement may not be strictly unlawful, if it defeats the provisions of some law, it may be
held to be unlawful. An agreement made for a fraudulent purpose is void. An agreement made between two persons to
injure another person is also void. The law does not allow an agreement that is immoral in nature to have the
enforceability of a contract. An agreement that goes against public policy will also be considered unlawful.
Interference with the administration of justice by interfering in the course of justice, stifling prosecution and
maintenance and champerty will be considered an example of unlawful agreements. Section 25 states that any
agreement without consideration would be considered to be void. Furthermore, Section 26 states that any agreement in
restraint of marriage other than the marriage of a minor will be held to be unlawful. Section 27 states that every
agreement by which one is restrained from exercising a lawful profession, trade or business of any kind, is to that
extent void. According to Section 28, any agreement in restraint of legal proceedings would be held to be unlawful.
Section 29 states that any agreement that is not certain or is incapable of being made certain is void. Section 30 states
that agreements made by way of wager is void. If either of the parties can win but neither of the parties can lose, then
it is not a wagering contract. For an agreement to be a wagering agreement, there must be an uncertain event, there
must be a mutual chance of gain or loss, neither of the parties should have control over the event and finally, neither of
the parties must have any other interest in the event. The Contract Act makes a distinction between an agreement
which is only void and an agreement, where the consideration itself is void. An illegal agreement is one that is
forbidden by law whereas a void agreement may not be one that is forbidden by law but is one that the courts merely
refuse to enforce. When a contract is declared to be illegal, the innocent party may recover compensation
‘proportionate to the amount of work done.’

References

1. M. P. Furmston, The Analysis of Illegal Contracts, 16 The University of Toronto Law Journal267–
309 (1966), http://www.jstor.org/stable/825177

2. Nelson Enonchong, Effects of Illegality: A Comparative Study in French and English Law, 44 The
International and Comparative Law Quarterly196–213 (1995), https://www.jstor.org/stable/760867

3. J. J. Valero, The Contractual Capacity of Minors in English and French Law of Employment, 27
The International and Comparative Law Quarterly215–237 (1978),
https://www.jstor.org/stable/758868

4. Kazuo Hatoyama, The Civil Code of Japan Compared with the French Civil Code, 11 The Yale
Law Journal 354–370 (1902), https://www.jstor.org/stable/780805
5. Avtar Singh,Contract and Specific Relief 12th ed

6.E Sabbath, Effects of Mistake in Contracts: A Study in Comparative Law, 13 The International and
Comparative Law Quarterly 798–829 (1964), https://www.jstor.org/stable/756032