Legality of object and consideration has been provided under section 23 of Indian Contract Act, 1872. Lawful object and lawful consideration are some of the important essential elements of a valid contract. If there is unlawful consideration and unlawful object in the agreement then it is considered an illegal agreement. The contract is said to be a valid contract when it fulfils the essential elements of a valid contract. Earlier, we had discussed in detail the essentials of a valid contract.
Section 10 of the Indian Contract Act, 1872, provided that “All agreements are contracts if they are made by the free consent of the competent parties for a lawful consideration and with a lawful object and not hereby declared as void.” Hence, for a valid contract, there must be a lawful object and consideration.
Therefore, we can say that every illegal agreement is an unlawful agreement but every unlawful agreement is not always an illegal agreement.
Here, in the law of contracts, the lawful object meaning is “Purpose or Design” whereas the lawful consideration meaning is “Benefit or Loss”.
The Legality of Object And Consideration
The lawful consideration and object can be found under section 23 of the Indian Contract Act, 1872. So, the question arises here, what is lawful consideration? and what is lawful object? To get the answer we have to look at section 23 of Indian Contract Act, 1872
Section 23clearly stated that the consideration and/or object of a contract must be lawful. The consideration and object of an agreement is lawful, unless –
- It is forbidden by law, or
- It is of such a nature that if permitted, it would defeat the provisions of any law, or
- It is fraudulent, or
- It involves or implies injury to the person or property of another, or
- The court regards it as immoral, or
- It is opposed to public policy.
Here, section 23 of the Indian Contract Act, 1872 states that for a valid contract the agreement must have the lawful consideration and object. The consideration and object of an agreement are unlawful if:
- It is specifically forbidden by the law,
- It defeats provisions of any law,
- Fraudulent in nature,
- It involves injury to the person or property,
- The court regards them as immoral, or
- It is opposed to public policy.
So, for the lawful consideration and lawful object, none of the above elements should be present in the contract. Let’s discuss this in detail.
1. Forbidden By Law
When the consideration or object of an agreement is prohibited by the law, at this point the consideration or object of an agreement is not a legal consideration or legal object. Hence, if consideration or object of an agreement is unlawful then the contract is void.
Example: A promised to B to pay Rs. 7,00,000/- for the kidnapping of C. So, kidnapping is an offence and punishable under the Indian Penal Code. This is an example of agreements forbidden by law.
The unlawful consideration and unlawful object include acts or omissions which are punishable by the law. The appropriate authority of prohibits such acts or omissions via rules and regulations made by them.
Case Law: Gherulal Parakh v/s Mahadeodas, 1959.
The forbidden by law meaning can be stated as an act or omission that is prohibited by the law. The term ‘Forbidden by Law’ is not synonymous with the word ‘Void’ and therefore it is not necessary that whatever agreements are void is also forbidden by law.
This judgment was delivered by the Supreme Court in the case of Gherulal Parakh v/s Mahadeodas, 1959.
2. Defeats of any Provision of the Law
If the purpose of parties to entering into a contract is against any provisions of law then the contract is to be deemed as void and illegal. In other words, the terms and conditions agreed between contracting parties, if permitted then would defeat any provisions of the law and such contracts are illegal and void.
According to section 23, the words mentioned, “if permitted, it would defeat the provisions of law.” Therefore, the purpose of the contracting parties is against the legal provisions and if it is permitted then it will defeat any provisions of law and it would illegal and void.
At this point, three principles arise from this section that the agreement or contract is void if;
- The object of the contract is to perform an illegal act.
- The object of the contract is explicitly or impliedly prohibited by law.
- The performance of a contract is impossible without going against the legal provisions.
Example: A enters into a contract with B whereby B made a promise not to issue legal proceedings against A if A committed robbery in B’s house. This contract is against the provisions of the Indian Penal Code.
3. Fraudulent Consideration or Object
The contract is said to be unlawful if the consideration and object of the contract are fraudulent. The Latin maxim pari delicto potior est conditio defendantis, which means “The courts may refuse to enforce an illegal agreement where the party is entered into a contract with the fraudulent or illegality mind.
In the case of Sita Ram v/s Radha Bai, 1968, the Supreme Court refused to enforce an agreement at the instance of a person who is himself a party to an illegal agreement and it is expressed in the Latin maxim pari delicto potior est conditio defendantis.
But, there are found certain exceptions in this case in which a man will be relieved of the consequences of an illegal contract into which he has entered. To those cases, this maxim does not apply. There are three classes;
- Where the illegal purpose has not yet been substantially carried into effect before it is sought to recover money paid or goods delivered in the furtherance.
- Where the plaintiff is, not in pari delicto with the defendant.
- Where the plaintiff does not have to rely on the illegality to make out his claim.
4. Involves Injury to Person or Property of Another
According to section 23, the agreement in which the consideration or object causes injury to the person or property of another person is void and cannot be enforced in the court of law.
In legal terminology, injury means criminal or harmful wrong done by one person to another person. Therefore, if the consideration or object of an agreement harms another person or property of another person then this will be an unlawful consideration and unlawful object.
Example: Consider, one person publishes the book which actually belongs to another person. This is the infringement of the copyright rights of that person over the book.
5. Immoral Consideration or Object as per Law
The consideration or object are regarded as immoral in the court of law when such consideration and object are immoral as per law and as per tradition & culture. In other words, if the court found that the consideration or object in an agreement is immoral and improper as per the law and customs then the court regards such consideration and object as immoral.
And, if the consideration and/or object of an agreement is considered immoral and improper in the court of law then such agreement is a void agreement and not enforceable in the court of law.
Example: A made a promise with B to divorce C and B will get 5,00,000/- if B married to A. But, B does not give divorce to C. In that case, A cannot recover money from B because the court regards it as immoral.
So, the contract is void if the court regards it as immoral, immoral contract are;
- Interference in marital relations
- Agreement for intercourse
- Dealings with prostitutes
- Agreement for sex outside marriage
- Agreement for illegal cohabitation
6. Opposed to Public Policy
The consideration and/or object in an agreement is lawful when it is not against public policy. The lawful object in business law and the lawful consideration means that should be opposed to the public policy.
Public policy is not to curtail any individual’s rights but the main purpose of public policy is to maintain and protect the general welfare of society.
Let’s see some examples of contracts that are opposed to public policy;
- Entering into an agreement with a person who belongs to a country with whom India does not have good relations like Pakistan. For example, if a businessman makes a contract with a Pakistani trader during the India-Pakistan war, then the contract is against the public policy and it will be a void contract.
- If any person makes an agreement for restraining or threatening to issue legal proceedings then such agreement is void.
- In the agreement of maintenance, the person promises to maintain a lawsuit in which he has no vested interest.
- Champerty is when a person agrees to give his assistance to another party in the litigation in return for a portion of the damages or proceeds received.
- An agreement to indulge in trafficking in the public welfare offices.
- Agreements to create monopolies.
- An agreement to brokerage marriage as a reward.
- An agreement to induce the judiciary system or state officials to act in a corrupt manner and interferes with legal proceedings in the wrong way.
So here, we concluded that the consideration and/or object of an agreement to be lawful should not be forbidden by law, should not defeat any legal provisions, should not be fraudulent in nature, should not involve injury to person or property of another, should not be immoral, should not be opposed to public policy.
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