Legality of Object and Consideration in Contract Law

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 fulfillment 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 public policy.

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.

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.

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 proceedings against A if A commits a robbery in B’s house. This contract is against the provisions of the IPC law.

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.

Examples:

• Publishing a book on the life of a person without his consent.

• Destruction of a property.

• Violation of licenses.

• Violation of copyrights.

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.

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 behavior 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.

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 a reward.

• 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 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.

Section 23 of the Indian Contract Act

Section 23 of the Indian Contract Act, 1872 (“the Act”), clarifies three matters, for example, the consideration of an agreement, the purpose of the contract, and the actual agreement. Article 23 imposes restrictions on individual freedoms by entering into agreements and places the rights of such persons in the higher concepts of public policy and the other provisions mentioned under it. Article 23 repeats its appearance in Section 264.

The Word “Object” used in Section 23 

The word "object" used in Section 23 indicates and implies "purpose" and does not mean significance in the same sense as "consideration". Therefore, unless the consideration of the agreement may be legal and valid, that will not prevent the contract from being invalid if the purpose of the agreement is invalid. Section 23 limits the courts as the section may be guided by thought or motive, for the purpose of exchange or transaction is basically not for reasons leading to equality. Although the consideration is provided under Section 2 (d) [1] of the Act, no official definition of the word ‘object’ exists. An “object” can better be understood as the “purpose” or “design” of a contract. Thus, when a loan is taken under a contract for the purpose of marriage, in that case, the marriage is the purpose of the contract.

Lawful Object and Lawful Consideration- Section 23 Order

The purpose or consideration of an agreement is absolutely valid unless it falls into any of the categories provided below-

•  It is forbidden by the Law

• A consideration or object violation of the provision of Law

• Deceptive thoughts or something

• A consideration or object includes an injury to a person or property

• The court considers it immoral

• The consideration or intent is contrary to public policy

• Trading with enemy

It is forbidden by the Law

If the purpose of the contract or the consideration of the contract is legally prohibited, then there is no legal consideration or objection. Then they become naturally illegitimate. Therefore such an agreement will no longer apply. Illegal consideration of an object includes actions that are directly punishable by law. This includes those who have legitimate authority over the existence of laws and regulations. But if the rules made by such authorities do not comply with the law it will not work.

Let's see an example. A licensed Department of Forestry for cutting local grass. Departmental officials told him he could not pass such an interest on to anyone else. But the Forest Law does not have that law. So A sold his interest in B and the contract was held legally.

A Consideration or Object Violation of the Provision of Law

This means that if the contractor tries to defeat the purpose of the law. If the courts find that the real purpose of the parties to the agreement is to circumvent the provisions of the law, they will set aside the stated contract. Give an example A and B enter into an agreement, where A is a debtor, B will not agree to a limit. This, however, is done to defeat the purpose of the Restrictions Act, so the courts may decide the contract as null and void because of something illegal.

Deceptive Thoughts or Something

A legitimate consideration or object can never be deceptive. Agreements entered into that contain the presumption of illicit fraud or material misconduct. Suppose that A decides to sell goods to B and smuggles them out of the country. This is falsework as it is useless. Now B cannot reimburse under the law if A does not fulfill his promise. 

A Consideration or Object includes an Injury to a Person or Property

In this case, the word injury refers to acts of violence, harassment, coercion, assault, etc. An assault agreement, for example, falls under this section. Thus, when X borrowed Rupees 1000 from Y and made a bond promising to work for Y without pay for two years and in the event of any failure allowed to pay high interest on the principal amount, the contract was held in vain. as it involved the injury of someone in the contract. 

The Court considers it Immoral

The term “immorality” is often translated in conjunction with the norms and definitions of the Courts. The Supreme Court has given a limited definition of the word "immorality" and has interpreted it as a strong reference to "forms of sexual immorality". Thus, betting agreements cannot be considered immoral. Explaining the scope of the Gherulal Parakh v Mahadeodas, the Supreme Court cited certain agreements in which the consideration or object was immoral: the promise of marriage for consideration, a contract for the sale of goods for the prostitute to continue her work, a contract. facilitating divorce, future settlement agreement, etc. A good example of an agreement that facilitates divorce is when a person, X, gives Y to Y with the promise that Y will divorce Z, and later marry X. Here if Y does not separate from Z, A cannot continue legal action against him. Y refund. The very nature of this contract is immoral and will therefore be regarded as null and void.

The Consideration or Intent is Contrary to Public Policy

The word ‘enforce’ is broad in scope and is governed by precursors. In the case of Ratanchand Hirachand v Askar Nawaz Jung, the Court defined the definition of “public policy” as the development of the public good on the one hand and the prevention of public evil on the other. When the marriage was dissolved on the condition that the wife would not claim maintenance or maintenance money but later the wife applied for maintenance, the Court held that the terms of the divorce would not prevent the court from granting maintenance as this right was part of it. of a larger "right to life" and would be against public policy to seize it. Thus, anything that harms the public interest or the welfare of the community falls under this category. However, it is not possible to provide a complete list of assumptions against public policy. It varies from time to time. 

Trading with Enemy

An agreement with an unknown enemy during the war without an Indian government license is invalid because it violates civil policy. The proclamation of war brings a ban on trade relations and contacts with the citizens of the enemy country. The very nature of the war is the crippling trade of the enemy world.

Conclusion

The importance of legitimacy and consideration in making an agreement work can not be underestimated. If the object and consideration are illegal, the agreement becomes void. As knowledgeable citizens, we must understand that until further notice unless our agreement falls under the provisions of Sections 10, 23, and 24 of the Indian Contract Act, 1872, our efforts to enforce our rights under this agreement in a court of law will be in vain. This is because such a covenant would not be sacred in the eyes of the law. Therefore, when entering into agreements we must be very careful to ensure that they are not just "agreements", but rather meet the requirements of the law so that in the event of a collision, we will not be without legal action.