Legality of Object in Contracts | Civil Law for Judiciary Exams PDF Download

Essential Elements for a Valid Contract

• A contract can be considered valid if certain conditions are met, such as parties giving consent freely, being legally capable, exchanging something valuable, and having a lawful purpose.
• Requirements outlined in section 10 of the Indian Contract Act must be fulfilled for a contract to be valid.
• Lawful Object: The purpose of the contract must be lawful.
• Consideration: Something given in exchange for something else, both object and consideration must be legal.

Legality of Contract Object

• The object or purpose of a contract must be lawful for the contract to be valid and enforceable.
• The object should not violate any law, public policy, or morality.
• If the object is prohibited by law, immoral, or against public policy, the contract is void and unenforceable.
• Courts assess if the object violates statutory provisions, infringes on others' rights, or conflicts with public interest.
• Example: Contract between A and B where A hires B to cause harm to X is void due to the illegal object.
• The object's legality is crucial in determining a contract's validity, ensuring alignment with legal regulations.

Definition of the Legality of an Object

• Section 23 of the Indian Contract Act deals with unlawful agreements.
• As per Section 23, an agreement's consideration or object is lawful unless it goes against the law, is fraudulent, causes harm, or is deemed immoral or against public policy.
• If the consideration or object falls under any of these categories, it is considered unlawful, rendering the agreement void.

When is the Object of the Contract Not Legal?

Forbidden by Law

Contracts become illegal if their purpose is prohibited by law. For instance, borrowing money to arrange a marriage for a minor violates laws like the Child Marriage Restraint Act, rendering the agreement void.

Violation of Licenses and Permits

• In this scenario, agreements that contravene licenses or permits granted to protect or advance public interest lack legality of the object. For instance, if someone possesses a license to run a liquor shop under an excise act that explicitly forbids forming partnerships for operating such establishments, any agreement aiming to establish a partnership in defiance of this regulation would be deemed void.
• The rationale behind this is that involving unauthorized individuals in liquor shops would undermine the objectives and provisions of the law. By prohibiting partnerships in this context, the law seeks to regulate and monitor the sale of alcohol to ensure public safety and prevent potential abuse or misuse of alcoholic beverages. Therefore, any agreement contravening such legal provisions would be considered against public policy and unenforceable.

Defeats the Provisions of Any Law

Even if not explicitly prohibited, agreements can be void if they undermine existing laws. For instance, an agreement altering the term of a sarpanch goes against the law and is void.

Fraudulent

Agreements made with fraudulent intent are considered void. An agreement to share proceeds obtained through fraud is illegal.

Injuries to Person or Property

In Gherulal Parakh v. Mahadeo Dass, an agreement was made among certain individuals for the purchase of shares in a company. However, their actions involved fraudulent and deceptive practices aimed at misleading others about the existence of a genuine market for the shares, which was contrary to the actual situation. As a result, the court deemed this agreement void due to its fraudulent nature. Such agreements, which involve deceitful intentions and aim to cause harm to others or their property, lack legality of the object and are considered unlawful.

Immoral

Under the principle of contract law, agreements that contravene morality are not enforceable. These agreements are deemed void because they are against public policy and societal norms.
Here are some examples:

• Agreements that interfere with marital relations: If an agreement involves incentivizing a married person to divorce their spouse, such arrangements are considered immoral and void. For instance, offering money to a married woman to facilitate her divorce for the purpose of marrying the lender would be void, and any funds provided cannot be recovered.
• Agreements involving prostitution: Contracts that facilitate or enable prostitution activities, such as renting a property for use as a brothel or supplying goods or services to support prostitution, are against public morals and are void. Any transactions or agreements related to such activities cannot be enforced by law.
• Agreements with consideration involving sexual immorality: Contracts where the consideration involves acts of sexual immorality, such as illegal cohabitation or other forms of sexual misconduct, are considered against public policy and are therefore void. Any agreements based on such immoral considerations are unenforceable in a court of law.

Against Public Policy

These examples illustrate various scenarios where agreements can be deemed against public policy:

• Trading with the enemy during times of war: Engaging in business or trade activities with an enemy nation during wartime undermines public interest and is therefore void.
• Stifling the prosecution: Agreements that obstruct individuals from reporting crimes or filing lawsuits, such as agreements to withhold information about witnessed crimes, are contrary to public policy and unenforceable.
• Maintenance and champerty: Providing financial support for lawsuits without legitimate interest in the case (maintenance) or funding litigation in exchange for a share of the proceeds (champerty) are against public policy and void.
• Agreements that restrain personal liberty: Contracts that restrict personal freedom, such as agreements involving slavery or indentured servitude, violate public policy and are void.
• Agreements that restrain parental rights: Contracts limiting parental rights concerning child welfare or upbringing go against public policy and are unenforceable.
• Agreements to create a monopoly: Contracts aiming to establish monopolies or restrain fair competition in markets are against public interest and void.
• Agreements to interfere with justice: Contracts involving threats, coercion, or interference with legal proceedings, such as influencing witnesses, are contrary to public policy and unenforceable.
• Brokerage contracts: Certain brokerage agreements deemed unfair or exploitative are considered against public interest and void.
• Agreements in restraint of trade: Contracts unreasonably limiting trade or lawful business activities are against public policy and unenforceable.
• Agreements in restraint of marriage: Contracts imposing unreasonable restrictions on marriage, such as prohibiting marriage to a specific individual, are void and against public policy.