LEGALITY OF OBJECT AND CONSIDERATION

Basic Building Blocks

Agreement [2 (e)] = Offer [Sec 2(a)]+ Acceptance [Sec 2(b)] Contract [Sec. 2(h)] =Agreement + Enforceable by law Essentials of valid contract[sec. 10] Requires both object and consideration to be lawful, else null and void [Sec. 23]

Object And Consideration

Not Synonymous Object- purpose of design of agreement Consideration- benefit or detriment received under an agreement Any of the two unlawful makes the agreement null & void

INTRODUCTION
If an agreement is to be enforced in a court of law, both consideration and object of the agreement must be lawful. When one of consideration or object is unlawful, the contract is void. In order to constitute a valid contract, both consideration as well as object must be lawful; otherwise would be void. According to section 23 The consideration or object of an agreement is lawful unless it is forbidden by law; or is of such a nature that if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the court regards it as immoral, or opposed to public policy. In each of these cases, the. consideration or object of an agreement is unlawful is void.

WHEN CONSIDERATION OR OBJECT IS UNLAWFUL

1. If it is forbidden by law: Law forbids an act for various reasons. If the consideration or the object of an agreement is doing of such an act which is forbidden by law, the agreement is void. 2. If it is of such a nature that, if permitted, it would defeat the provisions of law: It refers to cases where, there being no express statutory prohibition against a particular type of contract, the nature of the contract is such that it would be against the spirit of a particular law, whether enacted or otherwise. 3. If it is fraudulent: It refers to contract which are entered into between parties with an object which is fraudulent or with a purpose which will in effect promote fraud. 4. If it involves or implies injury to the person or property of another. If the object of an agreement is to cause injury to the persons or property of another, it is unlawful. Injury means criminal or wrongful harm. An agreement to commit an assault is void 5. If the court regards it as immoral: Agreement which are contrary to good morals are illegal and void. If the consideration for the agreement is an act of sexual immorality the agreement is illegal. (Restricted definition) 6. Where the court regards it as opposed to public policy: The agreement that are injuries to the public or which is against the public good or public welfare are void.

Agreements opposed to public policy

Harmful to public interest or welfare Includes:

Social Political Economic

interests

AGREEMENTS OPPOSED TO PUBLIC POLICY

I. Trading with enemy: Agreements with alien enemies would injure the state in relation with other states. It is unlawful to enter into a contract with a foreign enemy during war or to perform such a contract enters into before the war. 2. Agreement for sale of public offices and titles: Where the object of an agreement is to sell or transfer a public office from one person to another or to secure honour or title for monetary consideration, the said agreement is void being opposed to public policy. Because, such an agreement, if enforced, will lead to inefficiency and will corrupt the administration of state. 3. Agreements by way of maintenance and champerty: Maintenance means an agreements in which a person promises to render help by money or otherwise, to another person in a case in which the said third person has himself no interest for its prosecution or defence. Champerty is an agreement whereby one party is to assist another in recovering property and it so share the proceeds of the action.

4. Agreements for stifling prosecution: Agreements for suppressing prosecution are not enforceable in a court of law since they are opposed to public policy. 5. Agreements in restraint of legal proceedings: If the object of an agreement is to restrain an individual from going to a court of law for redress and relief. Such an agreement is void since it is opposed to public policy. Exceptions: Agreements to refer a present or future dispute to arbitration is perfectly valid. However, if the parties agree that they will abide by the arbitrators award alone, whether just or unjust, the agreement will be void. 6. Agreements restricting personal liberty: Agreements which unduly restrict the personal freedom, parties to it are void as being against public policy. 7. Agreements tending to create interest opposed to duty: It person enters into an agreement whereby he is bound to do something which is against his public or professional duty, the agreement is void on the ground of public policy. 8. Agreements interfering with marital status: Agreements to create against marital duties are void. 9. Marriage Brokerage agreements: Agreements to procure marriages for reward are void since marriage ought to proceed from the free and voluntary decision of the parties.

10. Agreements in restraint of marriage: Freedom of choice in marriage has been guaranteed to every person who is major in age. If the object of an agreement is to restrain a person from marriage, such agreement is void since it is opposed to public policy. 11. Agreements to defraud creditors or revenue authorities: An agreement the object of which is to defraud the creditors or the revenue authorities is not enforceable, being opposed to public policy. 12. Agreements in restraint of trade: Where the object of an agreement is to interfere with the freedom of a person to carry on any lawful trade or profession the said agreement is called agreement in restraint of trade. Any restraint of trade not only affects the means of livelihood of an individual but also affects the industrial growth and enterprise and thereby weakens the whole economic system of a country.

EXCEPTIONS
They are statutory exceptions and judicial exceptions. STATUTORY EXCEPTIONS: They are given in the Act itself. They are:

1. Sale of goodwill: One who sells the goodwill of a business may agree with the buyer to refrain from carrying on similar business so long as the buyer carries on a like business therein. The said exception is subject to the following conditions: (a) It must apply to only a similar business. (b) It must apply only within specified local limits (c) It must be in force only so long as the buyer carries on a like business; and (d) The restriction will be valid only if it is considered by the court as a reasonable one.
2. Under Partnership Act: (a) A partner shall not carry on any business other than that of the firm which he is a partner. (b) An outgoing partner may agree with his partners not to carry on a business similar to that of the firm within a specified period or within specified local limits. (c) Partners may enter into an agreement among themselves that none of them on ceasing to be partner will carry on any business similar to that of the firm within specified period or within specified local limit of a firm, make an agreement with the buyer that such partner will not carry on any business similar to that of the firm within a specified period or within a specified limit.

JUDICIARY EXCEPTIONS: They are ensuing from judicial interpretation of section 27. I. Trade combinations: Traders and manufacturers in the same line of business normally form associations to regulate business or to fix prices. The regulations as to the opening and closing of business in a market, licensing of traders, supervision and control of dealers and the mode of dealing arc not unlawful even if they are in restraint of trade. 2. Sole or exclusive dealing agreements: In business appointment of sole selling or distributing agents is quite common. Such agreements have been held to be perfectly legal. 3. Service agreements: Restriction during service shall not be void. But after the termination of service an agreement by which a person is restrained from competing with his earner master shall be void. 4. Uncertain agreements: An agreement the meaning of which is not certain is void. Where the term in agreement is vague and may be, interpreted in many ways, then the agreement is void because of uncertainty.