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Under what circumstances is the object or consideration of a contract deemed unlawful?

Under what circumstances is the object or consideration of a contract deemed unlawful?

Owlgen
Course: B.Com

1 Answer
According to Section 23 of the Indian Contract Act, the consideration and the object of an agreement are treated as unlawful in the following cases:

If it is forbidden by law: If the object or the consideration of an agreement is the doing of an act which is forbidden by law, the agreement is void. That is, the act which is punishable by the criminal law of the country or by the special legislation.

For example:

  • A loan granted to the guardian of a minor to enable him to celebrate the minor’s marriage in contravention of the Child Marriage Restraint Act is illegal and cannot be recovered back.
  • A promises to obtain for B an employment in the public service, and B promises to pay Rs. 1,000 to A. The agreement is void as the consideration for it is unlawful.

If it defeats the provisions of any law: If the object or the consideration of an agreement defeats-the provisions of any law if it is permitted then it is treated as void.

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For example:

A’s estate is.sold for arrears of revenue under the provisions of an Act of the Legislature, by which the 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 renders the transaction, as a purchase by the defaulter. and would so defeat the object of the law.

If it is fraudulent: If an agreement is made with an object to defraud others, then the agreement is treated as void.

For example:

A, B, and C enter into an agreement for the division among them of gains acquired or to be acquired, by them by fraud. Thus, the agreement’s void as its object is unlawful.

If it involves or implies injury to the person or property of another: If the object of an agreement aims at an injury to a person or the property of another. Then the agreement is treated as void. For example: A, borrowed Rs. 100 from B. A executed a bond promising to work for B without pay for 2 years and in case of default agreed to pay interest at a very exorbitant rate and the principal amount at once. It was held that the contract was void.

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 then the agreement is regarded as void. For example: A let a cab on hire to B, a prostitute, knowing that it would be used for immoral purposes. The agreement is void.

April 14, 2019
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