Legality of Object in the Indian Contract Act, 1872

Section 23 of the Indian Contract Act, 1872, lays down the criteria for determining whether the object or consideration of an agreement is lawful or not. According to this section, the consideration or object of an agreement is said to be unlawful if:

1. It is Forbidden by Law:

If the object of the contract is something that is expressly prohibited by law, the contract is void. For example, a contract to sell narcotics or contraband items is illegal as it is forbidden by law.

2. It Defeats the Provisions of Any Law:

If the object or consideration of an agreement is to circumvent or defeat the provisions of any law, it is unlawful. For instance, entering into a contract to avoid tax obligations or regulatory compliance is illegal.

3. It Is Fraudulent:

If the object of a contract involves committing fraud, the agreement is unlawful. An example would be entering into a contract to defraud a third party, such as falsifying accounts for financial gain.

4. It Involves or Implies Injury to a Person or Property:

A contract that intends to cause harm or injury to a person or property is illegal. For instance, a contract to inflict physical harm on someone or to destroy property would be void.

5. It Is Immoral or Against Public Policy:

If the object of a contract is immoral or against public policy, it is unlawful. Contracts involving activities like prostitution or agreements encouraging corruption are considered immoral. Public policy also forbids contracts that go against societal interests, such as agreements restricting trade or promoting monopolies.

illustrations of the Legality of Object:

1. Contracts Forbidden by Law:

Suppose A enters into an agreement with B to sell stolen goods. Since selling stolen goods is against the law, the object is illegal, and the contract is void.

2. Contracts Defeating Legal Provisions:

If A agrees to pay B a sum of money to avoid certain tax obligations, the object is to defeat the provisions of tax law. This makes the contract void as it attempts to circumvent legal regulations.

3. Fraudulent Contracts:

If A agrees to sell a property to B, knowing that the property has already been sold to someone else, the object of deceiving B is fraudulent, and hence the contract is void.

4. Contracts Causing Injury:

A agrees to pay B a certain amount if B damages the reputation of C. Since the object of the contract is to harm C, it is illegal and void.

5. Contracts Against Public Policy:

An agreement between businesses to fix prices in order to manipulate the market is against public policy and is, therefore, void.

Public Policy and Its Scope:

Public policy is a broad and evolving concept that refers to actions that are in the interest of society at large. Courts have the discretion to determine what falls within public policy. Some established principles of public policy include:

• Agreements in restraint of trade.
• Agreements in restraint of marriage.
• Agreements involving corruption in public office.
• Agreements that promote injustice or partiality.

Contracts that fall under these categories are deemed to be against public policy and are unenforceable.

Void and illegal Contracts:

While all illegal contracts are void, not all void contracts are illegal. A void contract simply lacks enforceability due to reasons like lack of capacity or absence of consideration. However, an illegal contract not only lacks enforceability but also involves actions that are prohibited by law, making it both void and punishable.

For example, a contract to purchase goods under a void agreement may still involve legal transactions if the object itself is lawful. However, if the object is illegal, such as the sale of banned substances, the contract is not only void but also illegal.

Consequences of an Unlawful Object:

• No Legal Remedy:

A contract with an unlawful object is void ab initio (from the beginning) and unenforceable by law. Neither party can seek legal remedies under such a contract.

• Restitution Not Allowed:

In most cases, courts do not grant restitution (restoring parties to their original position) in cases involving illegal contracts. Parties are left as they are found.

• Collateral Transactions:

If a collateral agreement is dependent on an illegal contract, it also becomes unenforceable. However, if the collateral agreement is independent and lawful, it may still be enforced.