Introduction: Legality of Objects | Law of Contracts - CLAT PG PDF Download

Legality of Object 

• In most cases, the terms "Object" and "Consideration" are used interchangeably. However, there are instances where they differ. For instance, when money is borrowed to fund the marriage of a minor, the loan serves as the consideration, while the marriage itself is the object.
• An agreement becomes unenforceable if its object or consideration is unlawful. Section 23 of the Act outlines the scenarios where consideration and object of an agreement are considered unlawful:

 Forbidden by Law 

• If the object or consideration of an agreement involves an act prohibited by law, the agreement is deemed void. An act is forbidden by law if it is punishable under the country's criminal law or prohibited by specific legislation enacted by the legislature.
•  Illustration: 
  • A loan provided to a guardian of a minor for the purpose of celebrating the minor's marriage in violation of the Child Marriage Restraint Act is illegal and cannot be recovered (Srinivas v. Raja Ram Mohan).
  • A person promises to withdraw legal action against another for robbery, and the latter agrees to return the stolen items' value. This agreement is void because its object is unlawful.

 If it defeats the provisions of any law 

• An agreement is considered void if its object or consideration is such that, although not directly prohibited by law, it would defeat the provisions of the law.
• For instance, if a defaulter is legally prohibited from purchasing their own estate sold for arrears of revenue, any agreement that violates this provision, even indirectly, is void.
•  Example:  If A's estate is sold under a law that forbids the defaulter from buying it, and B agrees to buy it on A's behalf, the agreement is void as it undermines the law's intent.

 If it is fraudulent 

• An agreement aimed at defrauding others is considered void.
• For instance, if parties A, B, and C agree to share gains acquired through fraudulent means, such an agreement is void due to its unlawful objective.

 When an Agreement is Considered Void 

An agreement is void if it aims to cause  harm to another person's body or property  . For instance, if  A borrows money from B  and promises to work for B without pay for a long time, with tough penalties for not meeting the terms, the agreement is not valid.

 Example:  Imagine A borrows Rs. 100 from B and agrees to work without pay for B for two years. If A doesn't stick to this arrangement, the penalties are extremely harsh. In this case, the agreement is considered void because it involves harm to A's well-being.

 When an Agreement is Considered Immoral 

An agreement is void if its purpose or consideration is considered immoral. What is deemed immoral can vary based on the moral standards accepted at a particular time and by the courts. For instance, if A rents out a cab to B, a known prostitute, for immoral activities, the agreement is void.

 Example:  Consider a situation where A rents a cab to B, a prostitute, knowing that the cab will be used for immoral activities. In this case, the agreement is deemed void because it involves an immoral purpose.

Opposed to Public Policy 

• Defining  'public policy'  is challenging because it is  uncertain and fluctuating  , changing with societal habits, commerce, and trade practices.
• In the case of  Janson v. Drieftein Consolidated Mines Ltd  , Lord Halsbury noted that  public policy categories are closed  and  courts cannot invent new categories  . However,  Section 23 of the Indian Contract Act  allows courts to deem contracts unlawful if they oppose public policy.
• An agreement is considered void if it contradicts the  morals of the time  or established societal interests, making it  injurious to the public  or against the  public good  .

 Heads of Public Policy 

•  Trading with Enemy  - Contracts with foreign enemies are unlawful without government permission.
•  Interference with administration of justice  - Agreements to suppress criminal charges are void, as one cannot profit from a crime.

Agreements for the Sale of Public Offices and Titles 

Traffic involving the sale of public offices and appointments is deemed detrimental to the public service as it disrupts the selection of the most qualified individuals. Consequently, such sales are considered unlawful and void.

 Illustration  A agrees to pay B Rs. 5,000 if B helps him secure a job in the public service. This agreement is void.

Similarly, if A promises to pay B to persuade him to retire and make space for A's appointment to B's public office, the agreement is also void (as seen in the case of Saminatha v. Muthusarni).

Marriage Brokerage or Brokerage Contracts 

A marriage brokerage contract involves one or both parties, their parents, or third parties receiving a sum of money in consideration of marriage. Dowry falls under this category and is considered unlawful and void.

In the case of  Venkatakrishna v. Venkatachalam  , a sum of money was agreed to be paid to the father in exchange for his daughter's hand in marriage. This promise was deemed a marriage brokerage contract and was therefore void.

 Unfair, Unreasonable, or Unconscionable Dealings 

•  Economic Imbalance:  When the parties involved in a contract are not on equal economic footing, and there is a significant disparity in their bargaining power, it can lead to situations where one party exploits the other.
•  Vulnerability and Exploitation:  If one party is in a vulnerable position and the contract terms seem unfair, it may be considered against public policy. This is especially true when the stronger party takes advantage of the weaker party's situation.
•  Legal Precedent:  In the case of  Central Inland Water Transport Corporation v Brojo Nath Ganguly  , a government corporation was criticized for imposing a term on a needy employee that allowed for removal with just three months' notice or pay in lieu of notice, without any valid grounds.
•  Ruthless Exploitation:  Such ruthless exploitation of an employee, especially one in a vulnerable position, is considered against public policy. It highlights the importance of fairness and reasonableness in contract dealings, particularly when there is a significant imbalance of power between the parties involved.