Legality of Object in Contracts

Every agreement can be considered a contract if it meets certain conditions. These conditions include the parties involved giving their consent freely, being legally capable of entering into a contract, exchanging something of value, and having a lawful purpose. Additionally, the agreement should not fall under any explicitly declared void categories. 

To ensure a valid contract, it is necessary to fulfil the requirements outlined in section 10 of the Indian Contract Act. One of these requirements is a lawful object, meaning the purpose of the contract must be lawful. 

Consideration, which refers to something given in exchange for something else, is also vital for a valid contract. In accordance with section 23 of the Indian Contract Act, both the object and consideration of a contract must be legal to establish its validity.

What is the Legality of an Object?

The legality of an object refers to the requirement that the purpose or objective of a contract must be lawful for the contract to be considered valid and enforceable. 

In other words, the object of a contract should not be contrary to any law, public policy, or morality.

Under the legal principle of the legality of objects in Contracts, if the object of a contract is prohibited by law, immoral, or against public policy, the contract is considered void and unenforceable. In this context, the term “object” refers to the purpose, intention, or goal that the parties seek to achieve through their agreement.

To determine the legality of an object, courts consider whether the object of the contract violates any statutory provisions, infringes on the rights of others, or is contrary to the public interest or public policy. The contract may be declared void due to an illegal object if any of these factors are present.

For example, let’s examine a scenario involving a contract between two parties, A and B. In this contract, A hires B to carry out the illegal act of causing harm or death to individual X, with a payment of 1,00,000 rupees as consideration.

While this agreement may satisfy the formalities and requirements of a contract, it is important to emphasize that the object, which involves the illegal act of causing harm or death, renders the contract unlawful. The object of a contract holds significant weight in determining its validity, and it must always align with the provisions of the law. It should never conflict with legal regulations.

Definition of the Legality of an Object

Section 23 of the Indian Contract Act specifically addresses unlawful agreements. 

According to Section 23, a consideration or object of an agreement is deemed lawful unless it is forbidden by law or if it would contradict any existing law, be fraudulent, cause harm to another person or their property, or be considered immoral or against public policy. 

In any of these cases, the consideration or object is considered unlawful, and any agreement with an unlawful consideration or object is void.

When is the Object of the Contract Not Legal?

Agreements lack legality of the object in the following cases:

Forbidden by law

An agreement is considered unlawful if its object is forbidden by law. For instance, if someone borrows money from person A to arrange a marriage for their minor daughter, it would violate the Child Marriage Restraint Act, which prohibits marriages involving minors. As a result, the agreement becomes void due to its illegal object.

Violation of licenses and permits

Another scenario where a contract lacks the legality of the object involves agreements that violate licenses or permits granted for the protection or promotion of public interest. 

For example, if a person holds a license to operate a liquor shop under an excise act that prohibits the sale, transfer, or creation of partnerships to run such shops, any agreement that involves creating a partnership in violation of the law would be considered void. This is because allowing unauthorized individuals into liquor shops would undermine the purpose and intent of the law.

Defeats the provisions of any law

In certain cases, the object or consideration of an agreement may not be explicitly prohibited by law. However, it can still defeat any law’s provisions which affect the legality of the object of the agreement. In such situations, these agreements are considered void.

For instance, let’s consider a scenario where a person is elected as a sarpanch for a five-year term. This individual agrees with another member, stating that the latter will serve a one-year term while the elected person will serve the remaining four years. This agreement undermines the provisions of the law governing the term of a sarpanch. As a result, the agreement is deemed void because it defeats the intended purpose and provisions of the law.

Fraudulent

Indeed, an agreement made for a fraudulent purpose is considered void. If individuals, such as X, Y, and Z, agree to intend to divide among themselves the proceeds obtained through defrauding fellow citizens, the agreement is deemed unlawful. 

The fraudulent object of the agreement goes against the principles of honesty and fair dealing. Therefore, such an agreement is void due to its unlawful purpose.

Injuries to person or property

An agreement between two individuals to cause harm to the person or property of another is considered unlawful as the object of the contract is illegal. These types of agreements lack the legality of the object and are void.

In the case of Gherulal Parakh v. Mahadeo Dass, there was an agreement among certain individuals to purchase shares in a company. However, they engaged in fraudulent and deceitful practices to mislead other individuals into believing there was a genuine market for the shares, contrary to the actual situation. The court held this agreement to be void due to its fraudulent nature.

Immoral

The law does not enforce agreements that involve immorality. Any agreement that goes against morality is considered unlawful and void. Determining what is considered immoral depends on the prevailing standards of morality within society, as approved by the courts.

Here are some examples of agreements that are considered immoral:

• Agreements that interfere with marital relations: For instance, if a married woman is given money to facilitate her divorce from her husband so that the lender and the woman can get married, such agreements are void. The money given in such agreements cannot be recovered.
• Agreements involving prostitutes: Agreements that involve the sale of articles or the rental of a house to enable a person to carry on their profession as a prostitute are considered immoral. Such agreements are void, and any money involved cannot be recovered.
• Agreements where the consideration is an act of sexual immorality: Agreements that involve illegal cohabitation or any act of sexual immorality as the consideration are also considered immoral. Such agreements are void.

Against public policy

An agreement can be deemed unlawful if the court determines it to be contrary to public policy. Public policy refers to the principles and interests that serve the welfare and well-being of the general public. When an agreement has the potential to harm or directly conflicts with public interest or public welfare, it is considered against public policy, lacks legality of the object and is therefore void.

Here are some examples of agreements that are considered contrary to public policy:

• Trading with the enemy during times of war: Engaging in business or trade activities with an enemy nation during the war is against public interest and is considered void.
• Stifling the prosecution: Agreements that prevent or obstruct someone from reporting or filing a case, such as when a witness agrees not to report a crime they witnessed, are against public policy and are void.
• Maintenance and champerty: Maintenance refers to providing financial support to someone to file a lawsuit, even if that person has no legitimate interest in the case. Champerty involves an agreement where a third party provides financial assistance for litigation to gain a share of the proceeds. Such agreements are considered against public policy and are void.
• Agreements that restrain personal liberty: Agreements that restrict personal freedom or liberty, such as agreements that involve slavery or indentured servitude, are contrary to public policy and are void.
• Agreements that restrain parental rights: Agreements that limit or restrict the rights of parents, particularly in matters concerning the welfare and upbringing of their children, are against public policy and are void.
• Agreements to create a monopoly: Agreements that aim to establish a monopoly or restrain fair competition in a market are considered against public policy and are void.
• Agreements to interfere with the course of justice: Agreements that involve threats, coercion, or any other actions aimed at interfering with the proper administration of justice, such as influencing or threatening witnesses, are against public policy and are void.
• Brokerage contracts: Certain brokerage agreements deemed unfair, exploitative, or against public interest may be considered void.
• Agreements in restraint of trade: Agreements that unreasonably restrict trade or prevent individuals from engaging in lawful business activities are considered against public policy and are void.
• Agreements in restraint of marriage: Agreements that impose unreasonable restrictions or restraints on marriage, such as those that prohibit someone from marrying a particular person, are void and against public policy.

Conclusion

The legality of the object in contracts is a crucial aspect that determines the validity and enforceability of the agreement. For a contract to be considered valid, the object or purpose of the contract must be lawful. This means that the object should not be prohibited by law, contrary to public policy, immoral, or against the public interest.

The courts play a vital role in assessing the legality of the object by considering the prevailing standards of morality, public policy, and the interests of the general public. If the object of the contract is found to be unlawful, the contract will be deemed void and unenforceable.