Contents of Article
Introduction
In contract law, the concepts of lawful consideration and lawful object are foundational to the validity of an agreement. Section 23 of the Indian Contract Act, 1872 specifically addresses the legality of the consideration and object in a contract. It states that a contract is void if either the consideration or the object of the agreement is unlawful. Understanding the unlawful consideration and object is crucial for legal professionals and law students, as any agreement that violates this principle is unenforceable in court. Contracts must align with lawful object and lawful consideration to be legally valid. This article will explore Section 23 in detail, examining key legal provisions, relevant case laws, and the meaning of terms like stifling prosecution under the Indian Contract Act.
Meaning of Lawful Consideration and Object
For a contract to be valid, both its consideration (the price paid for the promise) and its object (the purpose or goal of the contract) must be lawful. According to Section 23, the consideration or object of an agreement is considered unlawful if:
- It is forbidden by law.
- It defeats the provisions of any law.
- It is fraudulent.
- It involves or implies injury to the person or property of another.
- The court regards it as immoral or opposed to public policy.
If the consideration or object falls under any of these categories, the contract is void.
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Lawful Consideration in Contract
Lawful consideration refers to something of value that the parties exchange to make the contract binding. Consideration must be real, tangible, and lawful. For example, money, goods, services, or a promise to act or refrain from acting can serve as valid consideration as long as it adheres to the law.
Example of Lawful Consideration: A agrees to sell his bike to B for ₹50,000. B’s payment of ₹50,000 is the consideration for A’s promise to transfer ownership of the bike. Since the consideration is lawful, the contract is valid.
Unlawful Consideration and Object
Under Section 23, unlawful consideration occurs when the consideration involves an illegal act or is against public policy. Similarly, a contract’s object becomes unlawful if it seeks to achieve an illegal or immoral purpose. A contract with either unlawful consideration or an unlawful object is void and cannot be enforced by law.
Common Instances of Unlawful Consideration/Object:
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Forbidden by Law: If the agreement involves doing something that the law explicitly prohibits, the contract is void.
Example: A agrees to sell narcotic substances to B. Since selling narcotics is forbidden by law, the contract is void. -
Defeats the Provisions of Law: If the purpose of the contract is to circumvent the law or defeat its provisions, the contract becomes void.
Example: A agrees to transfer property to B to avoid paying taxes. This object defeats the law and makes the contract void. -
Fraudulent Consideration: If the consideration or object involves committing fraud, the contract is void.
Example: A promises to give B ₹1,000,000 if B falsely represents him in a lawsuit. This involves fraud, rendering the contract void. -
Injury to Person or Property: If the consideration or object involves causing harm to a person or property, it is void.
Example: A agrees to pay B ₹50,000 to burn down C’s house. This contract is void as the object is unlawful. -
Immorality: Contracts that involve an immoral object or consideration are void. Immorality is subjective and based on the moral standards of society at the time.
Example: A agrees to pay B ₹100,000 to perform an act considered immoral by society. This contract is void due to its immoral object. -
Opposed to Public Policy: Contracts that go against the public interest or public policy are void. Public policy refers to the welfare and well-being of society.
Example: A agrees to pay B to create fake government documents. This contract is void as it is opposed to public policy.
Stifling Prosecution: Meaning and Application
Stifling prosecution refers to an agreement in which one party agrees to withdraw criminal charges in exchange for some consideration. Such agreements are considered illegal and void because they obstruct the course of justice. The legal system does not permit private individuals to bargain over the prosecution of criminal offenses, as it undermines the rule of law.
Example of Stifling Prosecution:
A commits a criminal offense against B. A promises to pay B ₹500,000 if B withdraws the criminal charges. This agreement is void because it seeks to stifle prosecution, which is against public policy.
Latest Case Law on Unlawful Consideration and Object
Gherulal Parakh v. Mahadeodas Maiya (1959)
In this landmark case, the Supreme Court of India dealt with the question of whether a contract involving speculation in cotton was void for being opposed to public policy. The court held that although gambling contracts are not enforceable, they are not illegal unless explicitly forbidden by law. The case clarified the distinction between immoral acts and those that merely offend societal norms without being illegal.
B.O.I. Finance Ltd. v. The Custodian (1997)
In this case, the court emphasized that any contract whose object is against public policy is void under Section 23. The court held that public policy is a flexible concept, and contracts that harm public welfare, defeat the purpose of law, or encourage illegal activities are void.
Importance of Lawful Object and Consideration in Contract Law
Ensuring that a contract has both lawful object and lawful consideration is fundamental to its validity. A contract that violates these principles undermines the rule of law and public order. By adhering to Section 23, the Indian Contract Act upholds the integrity of contractual agreements and protects individuals from being bound by agreements that violate legal or moral standards.
A contract can be declared void if:
- It involves illegal activities.
- It promotes immoral conduct.
- It threatens public safety or the welfare of society.
Thus, the legality of both the consideration and object is necessary for a contract to be enforceable.
Conclusion
Under Section 23 of the Indian Contract Act, 1872, contracts with unlawful consideration or object are void and unenforceable. The law ensures that contracts do not promote illegal activities, immorality, or actions that go against public policy. By understanding what constitutes lawful consideration and the consequences of unlawful consideration and object, individuals and legal professionals can ensure that the contracts they draft or enter into are valid and enforceable. The concept of stifling prosecution, which voids contracts aimed at interfering with legal proceedings, also highlights the importance of public welfare in contract law. In conclusion, for a contract to be valid, it must align with the principles of lawful object and lawful consideration as outlined in Section 23 of the Indian Contract Act.