Legality of Object in Law of Contract.

Legality of Object

[Sections 23, 24 of the Law of Contract Act]

An agreement is not enforceable if its object or consideration is unlawful. Section 23 of the Act outlines the circumstances under which the consideration or object of an agreement is deemed unlawful, rendering the agreement void.

1. If it is Forbidden by Law

An agreement is void if its object or consideration involves an act forbidden by law. Such acts are prohibited by criminal law or specific legislation.

Examples:

A hires B to kill C, a contract by A and B is illegal.

A partnership to run a mine without proper approval, where the license is issued to only one partner, is not valid under the Mining Act.

An agreement where A agrees to drop theft charges against B if B returns part of the stolen money is not valid because its purpose is unlawful.

2. If it Defeats the Provisions of Any Law

An agreement is void if its object or consideration, though not directly illegal, would defeat the provisions of any law.

Examples:

A’s estate, sold due to revenue arrears, is purchased by B with an understanding to transfer it back to A. This agreement is void as it circumvents the law prohibiting the defaulter from repurchasing the estate. (Section 23(1) (b))

A, to reduce municipal taxes, made two agreements with B: one for rent and another for services. The hidden rent portion (intended to deceive the municipal authority) was held void. (Alexander v. Rayson, (1936) 1 K.B. 169)

3. If it is Fraudulent

An agreement made with the intention to defraud others is void.

Examples:

A, B, and C enter into an agreement to share fraudulent gains. The agreement is void due to its unlawful object.

A, acting as an agent, secretly agrees to obtain a lease for B in exchange for money, without the principal’s knowledge. This constitutes fraud and makes the agreement void.

4. If it Involves Injury to a Person or Property

An agreement with the object of causing harm to another’s person or property is void.

Examples:

A executed a bond to work for B without pay for two years, with a penalty of exorbitant interest for default. This agreement was held void. (Ram Saroop v. Bansi, 42 Cal. 742)

An agreement to purchase shares to create a false impression of a bona fide market is void. (Gherulal Parekh v. Mahadeo, A.I.R. (1956) S.C. 781)

5. If it is Immoral or Opposed to Public Policy

An agreement whose object or consideration is immoral or against public policy is void.

Examples:

A rented a cab to B, knowing it would be used for immoral purposes. The agreement was void. (Pearce v. Brooks, (1886) L.R. 1 Ex. 213)

A promised to influence B (as his mukhtar) in favor of C in exchange for money. The agreement was void as it was immoral.

A agreed to let her daughter to B for concubinage. This agreement, though not punishable under criminal law, is void as it is immoral.