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Business Laws > Indian Contract Act 1872: Part II > Legality of Object and Consideration
Indian Contract Act 1872: Part II

Legality of Object and Consideration

For a contract to be a valid contract two things are absolutely essential – lawful object and lawful consideration. So the Indian Contract Act gives us the parameters that make up such lawful consideration and objects of a contract. Let us take a look at the legality of object and consideration of a contract.

Lawful Consideration and Lawful Object

Section 23 of the Indian Contract Act clearly states that the consideration and/or object of a contract are considered lawful consideration and/or object unless they are

  • specifically forbidden by law
  • of such a nature that they would defeat the purpose of the law
  • are fraudulent
  • involve injury to any other person or property
  • the courts regard them as immoral
  • are opposed to public policy.

So lawful consideration and/or lawful object cannot contain any of the above. Let us take a more in detail look at each of them.

Lawful Consideration And Lawful Object

1] Forbidden by Law

When the object of a contract or the consideration of a contract is prohibited by law, then they are not lawful consideration or object anymore. They then become unlawful in nature. And so such a contract cannot be valid anymore.

Unlawful consideration of object includes acts that are specifically punishable by the law. This also includes those that the appropriate authorities prohibit via rules and regulations. But if the rules made by such authorities are not in tandem with the law than these will not apply.

Let us see an example. A received a license from the Forest Department to cut the grass of a certain area. The authorities at the department told him he cannot pass on such interest to another person. But the Forest Act has no such statute. So A sold his interest to B and the contract was held as valid.

2] Consideration or Object Defeats the Provision of the Law

This means if the contract is trying to defeat the intention of the law. If the courts find that the real intention of the parties to the agreement is to defeat the provisions of the law, it will put aside the said contract. Say for example  A and B enter into an agreement, where A is the debtor, that B will not plead limitation. This, however, is done to defeat the intention of the Limitation Act, and so the courts can rule the contract as void due to unlawful object.

3] Fraudulent Consideration or Object

Lawful consideration or object can never be fraudulent. Agreements entered into containing unlawful fraudulent consideration or object are void by nature. Say for example A decides to sell goods to B and smuggle them outside the country. This is a fraudulent transaction as so it is void. Now B cannot recover the money under the law if A does not deliver on his promise.

4] Defeats any Rules in Effect

If the consideration or the object is against any rules in effect in the country for the time being, then they will not be lawful consideration or objects. And so the contract thus formed will not be valid.

5] When they involve Injury to another Person or Property

In legal terms, an injury means to a criminal and harmful wrong done to another person. So if the object or the consideration of the contract does harm to another person or property, this will amount to unlawful consideration. Say for example a contract to publish a book that is a violation of another person’s copyright would be void. This is because the consideration here is unlawful and injures another person’s property, i.e. his copyright.

6] When Consideration is Immoral

If the object or the consideration are regarded by the court as immoral, then such object and consideration are immoral. Say for example A lent money to B to obtain a divorce from her husband C. It was agreed once B obtains the divorce A would marry her. But the court passed the judgement that A cannot recover money from B since the contract is void on account of unlawful consideration.

7] Consideration is Opposed to Public Policy

For the good of the community, we restrict certain contracts in the name of public policy. But we do not use public policy in a wide sense in this matter. If that was the case it would curtail individual freedom of people to enter into contracts. So for the purpose of lawful consideration and object public policy is used in a limited scope. We only focus on public policy under the law.

So let us look at some agreements that are opposed to public policy,

  1. Trading with the Enemy: Entering into an agreement with a person from a country with whom India is at war, void be a void agreement. For example, a trader entering into a contract with a Pakistani national during the Kargil war.
  2. Stifling Prosecution: This is a pervasion of the natural course of law, and such contracts are void. For example, A agrees to sell land to B if he does not participate in the criminal proceedings against him.
  3. Maintainance and Champerty: Maintainance agreement is when a person promises to maintain a suit in which he has no real interest. And champerty is when a person agrees to assist another party in litigation for a portion of the damages or proceeds.
  4. An Agreement to Traffic in Public Offices
  5. Agreements to create Monopolies
  6. An agreement to brokerage marriage for rewards
  7. Interfering with the Courts: An agreement whose object is to induce a judicial or state officials to act corruptly and interfere with legal proceedings

Solved Question for You

Q: A agrees to pay B a sum of 1 lakh to retire from his public office so B can take his place. Is this a valid contract?

Ans: No this is a void contract. It is opposed to public policy since it involves trading of public offices.

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Mohd MudabbirPratham Sethi Recent comment authors
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Pratham Sethi
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Pratham Sethi

K and A had entered into a contract where K was to supply 50,000 phones to A within 2 months from the date of signing of contract. K was to procure the phones from China and deliver the same to A. The rate of the phone was Rs. 5000/- a piece (inclusive of all taxes and duties). At the time of the execution of the contract, the duty was at 5% (five percent). Immediately after the execution of the Agreement, India had increased the duties to 1000% (one thousand percent). Therefore, K was finding it difficult to sell the phones… Read more »

Amber
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Amber

section 20 of the contract act 1872 says that if there is a mistake of fact and both the parties did not know the fact occurred after assigning the contract then it can’t be enforceable by law and the money or any reward will be return to the party who accepted that offer(section 65,72 of contract act).

Sushil Kumar Singhal
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Sushil Kumar Singhal

At the time of execution of contract Taxes and duties were different than while implementing the contract. which was not foreseeable hence K and A if agree than contract can be implemented otherwise K can rescind the contract.

RANABEER HALDER
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RANABEER HALDER

K CAN CLAIM RELIEF UNDER DOCTRINE OF FRUSTRATION

Mohd Mudabbir
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Mohd Mudabbir

K can “Discharge of Contract” Under Impossibility of performance, during post-contractual impossibility
While the following conditions are satisfying
The act should have become impossible after the formation of the contract.
2. The impossibility should have been caused by a reason of some event which was beyond the control of the promissory.
3. The impossibility must not be the result of some act or negligence of the promisor himself.

Punit Gupta
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Punit Gupta

There was a Supervening Impossibility arising after the change of rate which was imposed after the contractual relation.Hence it becomes Void to perform such a contract.
To enforce such contracts K and A must mutually alter the contract.

Shriman
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Shriman

This is just a commercial impossibility . It is not covered within the scope of frustration. So the contract is valid and it does not become void just on the grounds that duty has increased. K has to perform his obligation and if not A can file suit for breach of contract.

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