What is Legality of Object ?
Object means purpose or design. The term 'consideration' is defined in Section 2(d) of the Indian Contract Act. For example, A agrees to sell goods to B, and B, who is insolvent assigns the benefit of the contract for Rs.100 with a view to defrauding his creditors, the consideration for the assignment; viz, the sum of Rs.100 is lawful but the object, viz. defrauding the creditors, is unlawful as it is intended to defeat the provisions of the insolvency law.
In practice, it is difficult to distinguish between 'object' and 'consideration', especially when consideration consists in a promise to do or not to do something.
When Consideration or Object is Unlawful [Section 23] ?
Object and the consideration of an agreement must be lawful; otherwise, the agreement is void. According to Section 23 of The Indian Contract Act, 1872, the consideration or the object of an agreement is unlawful in the following cases:
1) If it is Forbidden by Law:
If the object or the consideration of an agreement is the doing of an net which is forbidden (i.e., prohibited) by law, the agreement is void. An act is said to be forbidden by law when it is punishable either by the criminal law of the country or by special legislation.
For example, A promises B to drop a prosecution which be has instituted against B for robbery, and B promises to restore the value of the things taken. The agreement is void, as its object is unlawful.
2) If it Defeats the Provisions of any Law:
If the object or the consideration of an agreement is of such nature that, if permitted, it would defeat the provisions of any law, the agreement is void.
For example, A's estate is sold for arrears of revenue under the provisions of an Act of the Legislature, by which a defaulter is prohibited from purchasing the estate, B, upon an understanding with A, becomes the purchaser, and agrees to convey the estate to A, upon receiving from him the price which B has paid. The agreement is void as it tenders the transaction, in effect, a purchase by the defaulter, and would so defeat the object of the law.
3) If it is Fraudulent:
If the object of an agreement is to defraud others, the agreement is void.
For example, A, B and C enter into an agreement of the division among them of gains acquired, or be acquired, by them by fraud. The agreement is void, as its object is unlawful.
4) If it Involves or Implies Injury to a Person or Property of Another:
If the object of an agreement is to injure a person or the property of another, the agreement is void.
For example, X borrowed ₹100 from Y and executed a bond under which he promised to work for Y without pay for 2 years and agreed to pay interest at 10% per month and the principal amount at once. It was held that the agreement was void because it involved injury to X.
5) If the Court regards it as Immoral or Opposed to Public Policy:
If the object or consideration is immoral or is opposed to the public policy, the agreement is void.
For example, A promise to pay for the past co-habitation has been held to be legal. But where co-habitation even not adulterous, is also not enforceable. An agreement to pay maintenance for an illegitimate child is not illegal. A loan made for the purpose of teaching to dancing.
Agreement Opposed to Public Policy
Courts have declared in past the following grounds of agreements as being opposed to public policy:
1) Agreement of Trading with Enemy:
All agreements made with an alien enemy are illegal on the ground of public policy. In the event of war declared between two countries, citizens of those countries become alien enemy to each other. Taking into account national interest, no one is allowed to make an agreement with the citizens of enemy country. It is because it may help that country. The contracts made with that country before declaration of war will remain suspended till war continues. When the war is over such agreements can be enforced only with the permission of Government. It is however to be noted that an agreement, which promote or encourage hostility with a friendly country is also considered oppose to public policy and therefore is void.
2) Agreement for Stifling Prosecution:
An agreement for stifling prosecution is illegal on the ground of public policy. The contracts for compounding or suppression of criminal charges. for offences of a public nature are illegal and void. The law is "you cannot make a trade of your felony (crime), You cannot convert crime into a source of profit." The underlying principle Is 'If the accused is innocent, the law is abused for the purpose of extortion; if guilty, the law is eluded by a corrupt compromise screening the criminal for a bribe.
For example, Ram, knowing that Mohan has committed a murder, obtains a promise from Mohan to pay him (Ram) 30,000/-, in consideration of not exposing Mohan, there is a case of stifling prosecution and the agreement is illegal and void.
3) Agreement in the Nature of Maintenance and Champerty:
Maintenance is an agreement whereby one party having no interest in suit, agrees to assist another to maintain suit. It includes those agreements, which are made with a view to promote litigation in which a person has no interest of his own. These two terms are related to promotion of litigation between the parties.
On the other, champerty includes an agreement whereby one party agrees to assist another in recovering property in a suit and to share such proceeds. In England both agreements of maintenance and agreement of champerty are void if they are found against public policy. For example, X promises to pay Y Rs.5,000 if Y files a suit against Z. This is a maintenance agreement.
4) Agreement for the Sale/Transfer of Public Offices and Titles:
The agreements for the sale or transfer of public offices or to obtain public titles are illegal on the ground of public policy. The agreements, which interfere with the functioning of the public office and encourage corruption and inefficiency, are considered against public policy. Thus such agreements are void on account of illegality of object. The word trafficking is used in the sense of doing business with public office for private again.
For example, A is a manager in public sector bank. He makes an agreement with B that in consideration of money he will provide employment to him in the bank. Such agreement is void, because in public office if there is any employment opportunity, everyone whosoever is eligible has a right to avail it.
5) Agreement Creating Interest Against Professional Duty:
In every profession the person who is engaged in it is subject to some obligations and duties. He is supposed to perform these to the best of his knowledge and capacity. Any agreement made by him, which goes against his duty and brings some personal gain to him, is void.
For example, A and B are partners in a partnership firm. A has been authorized to manage business of the firm. A makes secret profits in the business for him. Agreement of earning such profits is void because it creates Interest against duty of a partner for not making personal gain.
6) Agreement in Restraint of Parental Rights:
An agreement which prevents apparent to exercise his right of guardianship is void on the ground of public policy. Parents and guardian have an authority and duty over their children. They are supposed to use it for the maximum welfare of their child. The authority of the parents cannot be transferred absolutely to another person. Agreements made for restricting parental authority or transferring such authority or interfering with such authority are void on account of being against public policy.
For example, A agrees to place his daughter at the disposal of B to be married according to her choice. This agreement is void and illegal because it interferes with a parental duty of A to find out suitable husband in the best interest of his daughter. However, agreements of adoption duly made under Hindu Adoption and Maintenance Act are valid as an exception.
7) Agreement in Restraint of Personal Liberty:
Article 21 of Indian Constitution has guaranteed personal freedom to the citizens. Any agreement which takes away or unduly restricts such personal liberty partially or completely of any person is void being as oppose to public policy.
8) Agreement Tends in to Create Monopoly:
An agreement which tends to create monopoly is void on the ground of public policy.
9) Agreements Interfering with Course of Justice:
An agreement, which interferes with course of Justice, is void on the ground of being opposed to public policy.
10) Marriage Brokerage Contracts:
A marriage contract whereby one or more persons receive money or money's worth in consideration of marriage.
Unlawful and Illegal Agreements
An unlawful agreement is one which, like a void agreement, is not enforceable by law. It is void ab initio and is destitute of legal effects altogether. It affects only the immediate parties and has no further consequences. An illegal agreement, on the other hand, is not only void as between the immediate parties but has this further effect that the collateral transaction to it also becomes tainted with illegality.
For example,
1) L lends Rs.5,000 to B to help him to purchase some prohibited goods from T, an alien enemy. If B enters into an agreement with T. the agreement will be illegal and the agreement between B and L shall also become illegal, being collateral to the main transaction which is illegal. L cannot, therefore, recover the amount. He can recover the amount if he did not know of the purpose of the loan.
2) An agreement to commit a crime or tort, e.g., an agreement to assault A or an agreement to publish a libel is illegal.
Every illegal agreement is unlawful, but every unlawful agreement is not necessarily illegal. It is sometimes difficult to decide as to whether an act is illegal or unlawful as many of the illegal and the unlawful acts lie on the borderline.
Effects of Illegal Agreements
The general rule of law is that no action is allowed on an illegal agreement. This is based on the following two maxims:
1) Ex Turpi Causa Non Oritur Actio:
It means no action arises from a base cause. The law discourages people from entering into illegal agreements which arise from base causes. In simple words, no action is allowed on an illegal agreement.
2) In Pari Delicto Potior Est Conditio Defendentis:
It means in cases of equal guilt, the defendant is in a better position than of a plaintiff.
For example, Ram promises to pay Rahim ₹5000 if he beats . If Rahim beats Tita, he cannot recover the amount from Ram. If he has already paid the amount and Rahim does not beat Tita, Ram cannot recover the amount. If an agreement is illegal, the law will help neither party to the agreement. Nothing can be recovered under an illegal agreement. If something has been paid, it cannot be recovered back, whether the illegal object has been carried out or not is immaterial.
Effects of illegality are as follows:
1) The collateral transactions to an illegal agreement also become illegal and hence cannot be enforced. No action can be taken:
- For the recovery of money paid or property transferred under an illegal agreement.
- For the breach of an illegal agreement.
2) In case of an agreement containing the promise, some part of which is legal and other part illegal, the legal position is under:
- If the illegal part cannot be separated from the legal part, the whole agreement is altogether illegal.
- If the illegal part can be separated from the legal part, the Court will enforce the legal part and reject the illegal part.