Legality of Object and Consideration

  • Post last modified:12 December 2021
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What is Legality of Object?

An individual generally has the right to adjust his claims and obligations according to his own wish. This is known as his contractual freedom. However, there is a limitation on the contractual freedom of an individual. The limits to or restrictions on contractual freedom have been laid down in Section 23 of the Contract Act.

This Section brings out as to what considerations and objects are lawful and what is not lawful. This section provides that “The consideration or legality of object an agreement is lawful, unless:

  • It is forbidden by law.
  • It is of such nature that, if permitted, it would defeat the provisions of any law.
  • It is fraudulent.
  • It involves or implies injury to the person or property of another.
  • The court regards it as immoral.
  • The Court regards it as opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful, is void.”

Legality of Object and Consideration Agreements

According to section 23 of the Act, the consideration and the object of an agreement are unlawful in the following cases:

  1. Forbidden by Law
  2.  If it Defeats the Provisions of Any Law
  3. If It is Fraudulent
  4. If It Involves or Implies Injury to the Person or Property of Another
  5. If it is Immoral
  6. If It is Opposed to Public Policy

Forbidden by Law

When the object of a contract or the consideration of a contract is prohibited by law, then they are not lawful considerations or objects anymore. They then become unlawful in nature. And so much a contract cannot be valid anymore.

Unlawful consideration of objects includes acts that are specifically punishable by the law. This also includes those that the appropriate authorities prohibit via rules and regulations. But if the rules made by such authorities are not in tandem with the law then these will not apply.

Example: A received a license from the Forest Department to cut the grass of a certain area. The authorities at the department told him he cannot pass on such interest to another person. But the Forest Act has no such statute. So A sold his interest to B and the contract was held as valid.

If it Defeats the Provisions of Any Law

The law here means written or unwritten law and includes three things:

  1. The provisions of any legislative enactment, i.e., the Acts passed by the Parliament:
    • An agreement by a debtor not to plead limitation, will defeat the provisions of the Limitation Act, and hence void.
    • An agreement to pay an annual allowance (i.e., annuity) to the natural father of a boy who is taken in adoption by the payer, will defeat the provisions of the Hindu law, and hence void.
    • An agreement before marriage between wife and her husband who are Muslims, that the wife shall be at liberty to live with her parents after the marriage, will defeat the provisions of the Muslim law, and hence void.
    • An offer to stand a surety for an accused after receiving as deposit from him an amount equal to the amount of bail, will defeat the provisions of the Criminal Procedure Code, and hence void.

  2. The rules of Hindu and Mohammedan laws.


  3. Other rules of law in force in India, such as Civil Procedure Code, 1908, etc. If the object or consideration of an agreement is of such a nature that if permitted it will defeat the provisions of the law, though such object or consideration is not directly forbidden by law, the agreement is void.

Examples:

  • An agreement by a debtor not to plead limitation, will defeat the provisions of the Limitation Act, and hence void.

  • An agreement to pay an annual allowance (i.e., annuity) to the natural father of a boy who is taken in adoption by the payer, will defeat the provisions of the Hindu law, and hence void.

  • An agreement before marriage between wife and her husband who are Muslims, that the wife shall be at liberty to live with her parents after the marriage, will defeat the provisions of the Muslim law, and hence void.

  • An offer to stand a surety for an accused after receiving as deposit from him an amount equal to the amount of bail, will defeat the provisions of the Criminal Procedure Code, and hence void.

If It is Fraudulent

An agreement that is made with a view to defrauding others is void. For example, X and Y enter into an agreement to share equally the gains to be acquired by them by deceiving a bank. This agreement is void because its object is fraudulent.

If It Involves or Implies Injury to the Person or Property of Another

‘Injury’ as a general term means criminal of wrongful harm or damage. If the object of an agreement is to cause injury to the person or property of another, it is void.

Examples:

  1. X promises to repay his debt to R by daily attendance and manual labour for a certain period and to pay interest at an exorbitant rate in case of the default. Here the consideration involves injury to the person of X, and hence it is illegal. Further, hence the object seeks to impose slavery which is opposed to public policy, and hence the object is also not enforceable. Therefore, the agreement is void.

  2. D agrees to buy a scooter from J fully knowing that J had previously agreed to sell it to K. This agreement is void because its object is to cause injury to the property of K.

  3. An agreement is entered into between two companies that they shall not, without the written consent of the other, at any time employ any person who during the then past five years will have been a servant of the other company. This agreement is unlawful because it is to cause injury to the old employees of either company.

If it is Immoral

The term ‘immoral’ means an act that is against the principles or standards of morality (i.e., good behavior). If the consideration or object of an agreement is immoral in the eyes of the Court, the agreement is void. The Indian Courts have dealt with many cases of sexual immorality involving illicit co-habitation, prostitution, etc. Thus, here the doctrine of immortality is generally confined to sexual immorality.

Examples:

  1. G let out his lodgings to Mahdi knowingly that she will carry on her vocation of prostitution there. X cannot recover the rent of lodgings.

  2. B lent certain money to G, a prostitute expressly to enable her to carry on her trade. It cannot be recovered.

  3. Allah, a brothel-keeper, lent some ornaments to Chunia, a prostitute, for attracting men and encouraging prostitution. Ornaments cannot be recovered back.

  4. Mohan advanced money to Rani, a married woman, to enable her to obtain a divorce from her husband. Mohan agreed to marry her as soon as she could obtain a divorce. Here, Mohan is not entitled to recover back the amount as the object of the agreement was divorce from the husband and the consideration in the form of promise of marriage under such circumstances was against the principles of morality.

  5. M agrees to pay money to R upon the consideration that R will give favourable evidence in a civil suit on behalf of M. This agreement cannot be enforced by R because the consideration is immoral.

If It is Opposed to Public Policy

If the consideration or object of an agreement is opposed to public policy in the eyes of the Court, the agreement is void. This point has been fully discussed below, under a separate heading.


Agreements Opposed to Public Policy

Following are some agreements that are opposed to public policies:

  1. Trading with the Enemy
  2. Agreements Interfering with the Course of Justice
  3. Agreement in Restraint of Marriage
  4. Agreements in Restraint of Trade
  5. Agreements in Restraint of Legal Proceedings
  6. Uncertain Agreements
  7. Wagering Agreements

Trading with the Enemy

It is well-settled principle of law that an agreement between citizens of two countries at war with each other is void and inoperative. For example, if Mr.A from Pakistan, makes an agreement with Mr. B from India during war between the two countries, the agreement will be void.

Agreements Interfering with the Course of Justice

Agreements for stifling or hushing up prosecutions are bad in law. When an offence has been committed, the guilty party must be prosecuted and any agreement which seeks to prevent the prosecution of such a person is opposed to public policy and is void. This can take place in the following two ways:

Maintenance and Champerty: When a person agrees to help another by money or otherwise in litigation in which he is not himself interested, it is called Maintenance. When a person helps another in litigation in exchange of a promise to hand over a portion of the fruits of the litigation, if any, it is called champerty.

Agreement in Restraint of Marriage

Any agreement which interferes with the performance of marital duties are void as being against public policy. Example: An agreement to lend money to a woman in consideration of her getting a divorce and marrying the lender is void [ Roshan vs. Mohommed].

Agreements in Restraint of Trade

As per Section 27, every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Example: X and Y carried on business as promoters in a certain locality in Mumbai. X promised to stop his business in that locality in consideration of Y paying to him Rs.1,00,000 which he had disbursed as advances to his workmen.

X stopped his business but Y failed to pay him the promised money. X filed a suit to recover that money. The court held that the agreement was void under section 27 and nothing could be recovered on the basis of that agreement.[Madhav vs. Rajcoomer, (1874)14BLR76.].

Exception: But, in the following cases, an agreement in restraint of trade is valid:

  1. Statutory Exceptions:
    • Sale of Goodwill
    • Partner’s competing business
    • Rights of outgoing partner
    • Partner’s similar business on dissolution
    • Rights of buyer and seller of goodwill.
  2. Other exceptions:
    • Trade combinations: An agreement between a group of manufacturers or Traders regarding the conditions of an industry or the price, is binding although it is in restraint of Trade, provided the agreement is in the interest of the parties themselves.
    • Negative Stipulation in service contract: A person while in service with another may, by the terms of his service, be prevented from accepting other engagements. For example, a doctor employed in a hospital may be debarred from private practice. Such negative stipulations in service contracts are not considered to be in restraint of Trade and hence valid.

Agreements in Restraint of Legal Proceedings

Private persons cannot by agreement alter their personal law or the Statute law. Section 28 says- every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary Tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent.

So, an agreement which prohibits a person from taking judicial proceedings, in respect of any right arising from a contract, is void. Similarly, any limitation of the time within which he may enforce his rights is void.

Exceptions: However, the above rules have two exceptions:

  • In case of future disputes.
  • In case of Pending disputes [An agreement in writing to refer a pending dispute to arbitration is not rendered illegal under section 28].

Uncertain Agreements

Agreements the meaning of which is not certain, or capable of being made certain, are void as per section 29. Example: (i). A agrees to sell to B “one hundred tons of oil”. There is nothing whatever to show what kind of oil was intended. Hence, the agreement is void for uncertainty.

Wagering Agreements

A wager is an agreement by which money is payable by one person to another on the happening or non-happening of a future, uncertain event. Characteristics of wagering agreement:

  1. The consideration for the promise under a wagering agreement is to pay or get money.
  2. The money is payable on the happening or the non-happening of an event.
  3. The agreement depends on a future and uncertain event.
  4. The essence of gaming and wagering is that one party is to win and the other party is to lose.
  5. In this agreement no party has any control over the event.

Read Complete Article: Agreements Opposed to Public Policy


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