Multiple choice

Fact: X borrows Rs 50, 000 from Y for the purpose of smuggling goods. Y knows of the purpose of the loan. Issue: Is this agreement valid?

  1. The agreement is valid

  2. The agreement between X and Y is collateral to the main agreement which is illegal so the agreement is also illegal because anything done which is unlawful, immoral against public policy can never result into a valid agreement.

  3. Nothing conclusive can be said
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Agreements collateral to an illegal purpose are themselves illegal. When Y lends money specifically for smuggling (knowing the illegal purpose), the loan agreement is tainted by illegality. Courts will not enforce agreements supporting unlawful acts under the doctrine of ex turpi causa.

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