Section 23 of The Indian Contract Act states that for a contract to be valid, there must be the legality of object and consideration. The object is the purpose for which the parties enter into a contract. The fulfilment of the object leads to the transfer of the consideration agreed from one party to the other. Let’s look into the parameters under the legal object contract law that define what is a lawful object and consideration.
Lawful Object and Lawful Consideration
The legality of the object in contract law stipulates that the consideration and the object of a contract are considered legal except when:
They are specifically forbidden by law.
They are fraudulent in nature.
The nature of the object and the consideration is such that it defeats the purpose of the law.
They involve injury or harm to a person(s) or property.
Are considered immoral by the court of law.
Are against the public policy.
1. Forbidden by the Law
An object and/or a consideration prohibited by law are not considered legal and render a contract void. Unlawful consideration of the object means unlawful acts that are punishable by the law. The acts disallowed by the appropriate authority by means of their rules and regulations are also considered for determining the legality. However, if these rules and regulations are not in tandem with the law, they are not applicable.
Forbidden by law provision renders a contract void but all void contracts may not be illegal.
2. Fraudulent in Nature
The object and the consideration of the contract must not be fraudulent as then, the contract will become void.
Example - A enters into a contract with B where he agrees to pay B if he embezzles money from C. This is considered a fraudulent object and the contract is not valid.
3. Defeats the Purpose of the Law
If the purpose of entering into the contract is to go against any provisions of law, the contract will be deemed void. The contract is void if:
The object of the contract is to perform an illegal act.
The object of the contract is explicitly or in an implied manner prohibited by law.
The completion of the contract is impossible without going against the provisions of the law.
Example - A enters into a contract with B whereby B promises to not pursue legal proceeding against A if A commits a robbery in B’s house. This contract is against the provisions of the IPC law.
4. Involves Injury or Harm to Another Person or Property
The object of the contract must not cause any destruction to property or cause injury to another person.
A enters into a contract with B whereby he agrees to pay a sum of money to B if he destroys a city landmark. This contract does not have a lawful consideration and lawful object and it is not deemed legal.
5. Immoral as Per Law
If the object and/or consideration of the contract are considered immoral, the contract will not be deemed void. Immoral acts are against the reasonable and acceptable general behaviour or personal conduct accepted by society.
Example - A lends money to B on the condition that B will divorce C, and later get married to A. If B does not divorce C, then A cannot pursue legal proceedings against B to recover the money. The basic premise of this contract is immoral so it will be deemed void.
6. Against the Public Policy
A lawful object in business law means that it should not be against public policy. The purpose of public policy is not to curtail any individual’s rights but to maintain and protect the general welfare of the community. Let’s see what kind of contracts are considered to be against the public policy:
Entering into an agreement with a party that belongs to a country with which India does not have peaceful relations, makes the agreement void.
Restraining from prosecution: A contract that prohibits a person from pursuing legal recourse is considered void.
Maintenance and Champerty: In a maintenance agreement, a person promises to maintain a lawsuit in which he has no vested interest. Champerty is when a person agrees to assist another party in litigation in return for a portion of the damages or proceeds received.
An agreement to indulge in trafficking in public offices.
Agreements to create monopolies.
An agreement to brokerage marriage as rewards.
An agreement to induce judiciary or state officials to act in a corrupt manner and interferes with legal proceedings.
Solved Questions on the Legality of the Object in Business Law
Q1. L lends some money to P to help him buy some goods from X who belongs to a country with which India is at war. Can L recover his money from P?
Ans. Any agreement for the purchase of goods between P and X will be considered void since entering into trade with the enemy is against public policy. Any agreement between L and P will also be void since it is collateral to the main agreement. So L cannot recover his money from P. However, If L did not know the reasons for P borrowing the money, he can enforce the contract for recovering money.
Q2. Is an agreement between a husband and wife to stay separately after marriage considered valid?
Ans. The agreement will be considered void since it is against the provisions of the Hindu Law. The nature of the contract between the husband and wife is against the spirit of the Hindu marriage act and hence considered void.