All agreements are contracts if they are made by the free consent of the parties, competent to convert for a lawful consideration and with a lawful object, and are not here expressly declared void. For a valid contract, the essentials in section 10 of the Indian contract act should be fulfilled. One of the essentials is the lawful object. For a valid contract, consideration is important in such a way a lawful object also plays important role in the contract. Consideration means something returned for something given. Whereas object means the purpose of the contract. The object must be lawful. Section 23 of the Indian contract act states that for a valid contract there must be the legality of object and consideration.
Meaning of legality of object
An agreement the object of which is opposed to the law of the land may be either unlawful or simply void, depending upon the provision of the law to which it is opposed. A lawful contract need not only to have consideration, but it also needs to have an object. Object means the purpose of the contract. For example, there is a contract between A and B. A has given a contract of killing X to B for consideration of 1,00,000 rupees. Here all the essentials of a contract are fulfilled. But the object is to kill X which is unlawful. The object plays important role in a valid contract. The object must be lawful. It should not be contrary to the law.
Section 23 of the Indian contract act deals with unlawful agreements. The section states that for a valid contract there must be the legality of object and consideration.
Section 23. what considerations and objects are lawful, and what not- the consideration or object of an agreement is lawful unless it is forbidden by law or is of such a nature that, if permitted, it would defeat the provisions of any law or is fraudulent or involves or implies injury to the person or property of another or the court regards it as immoral or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be lawful. Every agreement of which the object or consideration is unlawful is void.
Forbidden by law
When the object of an agreement is prohibited by law are not considered legal it makes the agreement void. For example, when a person borrows some money from A, for his daughter marriage who is a minor. The marriage of minors is prohibited under the child marriage restraint act. As the object is illegal the contract is void.
Violation of licenses and permits
Cases on this point have mostly been found in agreements involving breach of laws enacted for the protection or promotion of public interest. For example, the plaintiff was licensed under an excise act to work in a liquor shop. The act forbids the sale, transfer of the license, or the creation of a partnership to run the shop. The plaintiff took the defendant into partnership.
The partnership was held void as it would defeat the policy of the law as unapproved persons could find their way into working liquor shops.
Defeats the provisions of any law
Sometimes the object or the consideration of an agreement is in such a way that, even though they are not directly forbidden by law, it would defeat the provisions of any law. Such types of agreements are void. For example, A person, who was elected as a sarpanch
for five years. He agreed with another member that the latter would be given a one-year term and the elected one the remaining four years. The agreement between them defeats the provision of law. Hence the agreement is void.
An agreement made for a fraudulent purpose is void. For example X, Y and Z enter into an agreement for the division among themselves the amount they gained by defrauding fellow citizens. The agreement is void as the object is unlawful
Injuries to person or property
An agreement between two persons to injure the person or property of another is unlawful. Such agreements are void. In the well-known case Gherulal Parakh v. Mahadeo Dass, an agreement between some persons to purchase shares in a company and by fraud and deceit to induce other persons to believe, contrary to the fact that there was a bonafide market for the shares. The agreement was held void.
The law does not allow any agreement which is contaminated with immorality to be enforced. Hence every agreement which is against morality is unlawful and void. The act to be called immoral depends upon the standard of morality prevailing in the society during that time and as approved by the courts.
Let us have a glance at some immoral agreements
- The agreements which interfere with marital relations: When a married woman was given money to enable her to obtain a divorce from her husband. So that the lending person and the woman get married. Such agreements are void and the money given cannot be recovered.
- Agreements dealing with prostitutes are immoral: If articles are sold or a house given for rent to enable her to carry on her profession, agreements of such kind are void and the money cannot be recovered.
- Where the consideration is an act of sexual immorality like illegal cohabitation
Against public policy
An agreement is unlawful if the court regards it as opposed to public policy. Here public policy means sometimes the court on consideration of public interest refuses to enforce a contract. The agreements which injure or have a tendency to injure public interest or public welfare are opposed to public policy. The agreements which are against a public policy like
- Trading with the enemy during war is against the public interest
- Stifling the prosecution which means stopping someone from filing a case. For example, A saw X killing someone. They agreed not to report or file a case of this incident. Such agreements are against public policy and are void.
- Maintenance and Champerty : maintenance means providing financial support to the person to file a suit who has no interest in prosecution and champerty includes agreements by which a stranger gives money for the maintenance of litigation intending to obtain gain. Such kinds of agreements are void.
- The agreements that restraint of personal liberty
- The agreements which restrained parental rights
- The agreements to create a monopoly
- The agreement to interfere with the course of justice like threatening the witness
- Brokerage contracts
- Agreements in restraint of trade
- Agreements in restraint of marriage
Based on the above information, it can be easily understood that the scope of section 23 of the Indian contract act is vast. The lawful object and lawful consideration plays important role in a contract and how an unlawful object affects the legality of a contract.
- Contract and Specific Relief by Avtar Singh
- Elements of Mercantile Law by N D Kapoor
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