“PUBLIC POLICY UNDER LAW OF CONTRACTS”

By Mridul Bansal, Law Student, Gitarattan International Business School

The legal maxim “ex turpi causa non oritur actio” forms the basis of doctrine of public policy and states that an agreement which is against public policy is declared void without any effect. Due to the fluctuating nature and uncertainty of the term ‘Public Policy’, it has no exhaustive definition, however, it can be interpreted by the courts upon their discretion. If the terms of the contract are against the public policy, then the contract cannot be enforced. The Court in Central Inland Water Transport Corporation Ltd. & Anr. V. Brojo Nath Ganguly & Anr.[1] , stated that though the Indian Contract Act does not define the expression ‘Public Policy’, but public policy connotes some matter which is of public interest or public good. The concept of public good or public interest or what is injurious or harmful to public good or interest keeps on changing from time to time. In Gherulal Parekh V. Mahadeodas Maiya & Anr.[2], the Apex Court observed that public policy should be measured with regard to the political, social and economic policies of a welfare state. Though public policy is a vague and unsatisfactory term, in ordinary sense, it means what is best for the common good of the community. Therefore, public policy is a set of unwritten laws of the society that are expected to be followed while making contracts.

Public policy is equivalent to policy of law and thus any act which violates the statute or is against the good morals of the society will be contrary to public policy. It refers to the social and legal guidelines that perform the role of community’s ‘common sense’. The public policies are dynamic in nature and an act which is in violation of public policy in today’s time may become valid in the future. Agreements against public policy include agreements with alien enemies or enemies of the state, agreement for buying or selling of weapons or drugs or murder contracts, contracts encouraging immorality such as selling a daughter for marriage. Therefore, the legal maxim ‘ignorantia facti excusat ignorantia juris non excusat’ reflects the meaning of public policy and states that though the ignorance of fact can be excused but ignorance of law cannot be excused. Public policy binds the parties to a contract to act within the sphere of law and declares unlawful any act which has the tendency of harming or injuring any other person or property. The concept of public policy limits the agreements to be just, fair and reasonable and not unlawful or immoral. What is morally correct or incorrect is not defined by the law and it is where the public policies come into play and guide the way towards fulfillment of moral obligations. Public policies reflect the ideology of the law of contract and serve as guiding principles for their upliftment. Public policies are fundamental in the formation of contracts and it shall be the duty of parties to abide by them while entering into any agreement.   


[1] Central Inland Water Transport Corporation Ltd. & Anr. V. Brojo Nath Ganguly & Anr., 1986 AIR 1571

[2] Gherulal Parakh V. Mahadeodas Maiya & Anr., 1959 AIR 781

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